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SDCL Energy Effcncy. (SEIT)

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Thursday 24 June, 2021

SDCL Energy Effcncy.

Annual Results for the year ended 31 March 2021

RNS Number : 9250C
SDCL Energy Efficiency Income Tst
24 June 2021
 

24 June 2021

SDCL Energy Efficiency Income Trust plc

("SEEIT" or the "Company")

Announcement of Financial Results for The Year Ended 31 March 2021


SDCL Energy Efficiency Income Trust plc (LSE: SEIT) ("SEEIT" or the "Company") announces financial results for the year ended 31 March 2021.

Highlights

· Net Asset Value ("NAV") [1] per share of 102.5p as at 31 March 2021, up from 101.0p as at 31 March 2020 and a total NAV return for the period of 8.0%

 

· Earnings per share of 7.0p for year to 31 March 2021 (March 2020: 5.2p)

 

· Profit Before Tax of £32.4 million for year to 31 March 2021, up from £11.6 million for the prior year to 31 March 2020

 

· Aggregate dividends of 5.5p per share declared relating to the year ended 31 March 2021, in line with target

 

· Target dividend [2] of 5.62p per share for year to March 2022, a 2.2% increase from 31 March 2021

 

· Portfolio Valuation of £553 million at 31 March 2021, up 73% from £320 million at 31 March 2020

 

· Investment at fair value on balance sheet of £573 million at 31 March 2021, up from £254 million 31 March 2020

 

· Market Capitalisation of £758 million at 31 March 2021, up from £296 million at 31 March 2020 and a total shareholder return of 30.0% since IPO to 22 June 2021

 

· Investment of approximately £255 million made in 7 investments during the year

 

· Cash of £126 million at 31 March 2021 available for investments and the fourth interim dividend payable in June 2021

 

· Capital raised of £375 million during the financial year from three well-supported equity issues, with proceeds deployed into investments from the Company's pipeline

 

· Carbon Savings of 654,205 tCO2 (2020: 156,000[3] tCO2) from Company's portfolio, which also produced 895,212 MWh of electricity (2020: 113,0003 MWh)

 

Post Year End Highlights

· $177 million acquisition of RED-Rochester, LLC, a commercial district energy system in the United States
 


Tony Roper, Chairman of SEEIT, said:

"Twelve months ago, no-one could have foreseen the effect that the COVID-19 pandemic would have on the world, its human impact and the repercussions for the global economy.  Despite this and other challenges that it brought about, the performance of the Company's underlying investment portfolio of energy efficiency infrastructure assets remained resilient, achieving growth in NAV and enabling us to achieve our dividend targets. Capital raised in the year has been successfully committed through a number of substantial investments, further diversifying its portfolio. We are very grateful for the continued support from new and existing investors."

Jonathan Maxwell, CEO of SDCL, the Investment Manager said:

"We will continue to seek to build a diversified portfolio for the Company and, particularly, to further diversify in terms of technologies that are compatible with a pathway towards decarbonisation. The sectors in which SEEIT is investing are receiving increasing levels of interest. Governments and companies are continually increasing their carbon reduction commitments and therefore the demand for cost effective and low carbon energy solutions will continue to increase."


There will be a call for analysts at 9.00am on 24 June 2021. For details, please email [email protected] 


Notes

1 In this preliminary announcement, there are a number of references to financial Alternative Performance Measures. For further details on these, please see the Glossary of financial Alternative Performance Measures ("APM")

2 The target dividend stated above is based on a projection by the Investment Manager and should not be treated as a profit forecast for the Company

3 Per SEEIT's ESG Report, October 2020

 

For Further Information

 

Sustainable Development Capital LLP

Jonathan Maxwell

Eugene Kinghorn

Purvi Sapre

Keith Driver

 

T: +44 (0) 20 7287 7700

 

Jefferies International Limited

Tom Yeadon

Gaudi Le Roux

Neil Winward

 

T: +44 (0) 20 7029 8000

 

TB Cardew

Ed Orlebar

Joe McGregor

T: +44 (0) 20 7930 0777

M: +44 (0) 7738 724 630

E: [email protected]

 

 

Chair's Statement

On behalf of the Board, I am pleased to present the annual report and financial statements (the "Annual Report") for the SDCL Energy Efficiency Income Trust (''SEEIT'' or ''the Company'') for the year ended 31 March 2021.

Twelve months ago, no-one could have foreseen the effect that the COVID-19 pandemic would have on the world, its human impact and the repercussions for the global economy.  Despite this and other challenges that it brought about, the performance of the Company's underlying investment portfolio of energy efficiency infrastructure assets remained resilient, achieving growth in NAV, and was supported by Sustainable Development Capital LLP's ("SDCL" or the "Investment Manager") strong focus on asset management and asset enhancements.

During the past year, the Company has successfully invested approximately £255 million in new investments and a further £136 million after the year-end, via SEEIT Holdco Limited ("Holdco"), the Company's single subsidiary and main investment vehicle for the group.  This enabled us to deploy the £375 million of equity raised from three equity issuances in the year, all of which were very well supported by existing and new shareholders. This has allowed the Investment Manager to diversify the portfolio into key new markets such as district energy, electric vehicle ("EV") charging, green gas, solar and storage.  We made our first investments in Sweden and Singapore, as well as further new investments in the UK and US.

The Board is pleased with the financial and operational performance of the Company during the year and the role that it is playing in climate change mitigation and delivering net zero targets. The Company now has a large portfolio of energy efficiency infrastructure assets that offers investors a diverse exposure to this growing sector.

Further information on the Investment Manager's activities is included in the Investment Manager's Report.

Financial performance

Profit before tax for the year ended 31 March 2021 was £32.4 million (March 2020: £11.6 million) and earnings per share were 7.0p (March 2020: 5.2p).  The Company's net asset value ("NAV") at 31 March 2021 was £693.8 million (March 2020: £323.5 million) and NAV per share was 102.5p (March 2020: 101.0p).

The Company's investment portfolio ("Portfolio Valuation") was valued at £552.7 million at 31 March 2021, up from the Portfolio Valuation of £319.0 million at 30 September 2020 and £319.8 million at 31 March 2020, predominantly as a result of investments made in the second half of the year.

The Company's Ongoing Charges ratio4 reduced to 1.13% (2020: 1.17%), reflecting the increased size of the Company's investment portfolio. Further detail on the Company's financial performance and the alternative performance measures of Portfolio Valuation and Ongoing Charges can be found in Financial Review.

Investment cash inflow from the portfolio during the year ended 31 March 2021 was £42.1 million (2020: £17.1 million) on a Portfolio Basis4 (see Financial Review for details), delivering 1.2x cash cover for dividends paid during the year.

Total return on a NAV per share basis for the year was 8.0%, comprising an increase in NAV from 101.0p at 31 March 2020 to 102.5p and total dividends paid during the year totalling 6.625p.

The Company's currency hedging strategy has been successful in limiting the impact on the NAV arising from material movements in foreign exchange rates. Further details on the Company's hedging strategy can be found in Financial Review.

Dividends

In line with previous guidance, on 28 May 2021 the Company announced its fourth interim dividend for the year ended 31 March 2021 of 1.375p per share, providing an aggregate dividend of 5.5p per share declared for the year ended 31 March 2021. The Company paid a total of £30.4 million in dividends during the financial year which included the second semi-annual interim dividend for the year ended 31 March 2020 and three quarterly interim dividends for the year ended 31 March 2021, the Company having transitioned from semi-annual to quarterly dividends from 1 April 2020.

After the Board and the Investment Manager reviewed the projected investment cash flows from the current portfolio, the Company announced in March 2021 new dividend guidance of 5.62p per share for the year to March 2022 (an increase of 2.2% p.a.) and progressive dividend growth thereafter. The Company intends to continue to pay interim dividends on a quarterly basis through four broadly equal instalments (in pence per share).

Investment activity

The Company's target geographies remain the UK, USA and Europe plus other countries where the Company can invest on a risk-adjusted basis to receive returns that support the Company's objective. During the year, new investments were made in the UK, US, Sweden and Singapore and, after period end, further investments were sourced in the US, Vietnam (via an existing Singapore investment vehicle) and the Republic of Ireland. Details of these new investments are provided in the Investment Manager's Report.

The Company has carefully targeted key markets as it continues to build its portfolio, that include district energy, EV charging, green gas, solar and storage. The weighted average number of contract years remaining across the portfolio increased from 11.3 at 31 March 2020 to 13.4 as at 31 March 2021 as a result of the longer-term horizon of investments made during the year. The Company invested a total of £255 million during the financial year and a further £136 million after the financial year.

The Company has entered into new, exclusive framework agreements during the year that demonstrate its ability to unlock pipelines of further investment opportunities from existing investments and relationships. These include an agreement with BasePower for a right to invest an expected £10 million per annum for the next five years in onsite energy projects in the UK and a second agreement of up to US$20 million, expected to be deployed over the next 12 months, in energy efficiency measures developed by SparkFund in the USA.

In August 2020 the Company conditionally committed up to £50 million to fund the construction of ultra-fast EV charging stations, with an initial agreement with a charge point operator signed in September 2020. In March 2021 an agreement was signed with bp pulse, the UK's largest operator of public EV charging points, and an agreement with another major charge point operator is also well advanced.  The first sites are planned to commence construction shortly and are expected to be operational later in 2021, when they will earn revenues under long-term fixed price contracts.

The Board is pleased with the timely deployment of capital into these new investments during the year that are consistent with the Company's targeted technologies and geographic markets and demonstrate the Investment Manager's ability to source and secure attractive investments that meet the Company's investment strategy and objectives.

Funding  

In June 2020, the Company published a new prospectus and a 12-month placing programme was put in place. The Company has utilised the share issuance programme three times since publishing the prospectus, raising a total of £375 million.

The equity raises in June 2020 (£105 million), October 2020 (£110 million) and February 2021 (£160 million) were strongly supported by existing shareholders and the Board was pleased to welcome a significant number of new shareholders. The Board would like to thank all these shareholders for their support.

To maintain capital efficiency and support the current pipeline, the Investment Manager has increased the revolving credit facility ("RCF") at the level of Holdco, to £115 million in June 2021 and anticipates a further increase in the near term.

Portfolio and COVID-19 update

The Company's portfolio performance was resilient during the year, with limited financial impact from the effects of the COVID-19 pandemic. All the operational assets in the portfolio continued to operate, despite the COVID-19 pandemic, on account of providing key services to essential industries. Overall, to date, the pandemic has not had a material impact on the financial performance of the investment portfolio. The Investment Manager continues to monitor for any new impacts resulting from the consequences of the COVID-19 pandemic and associated governments' policies and restrictions.

Asset specific impacts of the COVID-19 pandemic included temporary interruption in the ability to supply and install solar PV equipment in the Onyx portfolio (since resolved), delay in the commissioning phase in the Huntsman Energy Centre construction project (on-going, but expected to be resolved during the year ending 31 March 2022), and loss of revenue due to idling of a blast furnace at Primary Energy (since resolved).

Sustainable future

The Company invests exclusively in projects which contribute to a greener future. The Company is dedicated to accelerating the transition to a net zero carbon economy and delivering long-term value for shareholders and society as a whole.

 

During the year, SEEIT published its first ESG report, with a second report due later this year. The marketplace in which the Company is investing is receiving increasing levels of interest from policymakers and financial markets. Governments and companies in all the Company's existing and target markets increased carbon reduction commitments and therefore the demand for further cost-effective and low carbon energy solutions.

 

During the year, the Company's portfolio achieved carbon savings of 654,205 tCO2 (2020: 156,000 tCO2) and produced 895,212 MWh of electricity (2020: 113,000 MWh). See Sustainability Update for further details, including the Company and its group's contribution to the UN Sustainable Development Goals.

 

Board and Governance

In October 2020, the Board appointed Emma Griffin as a fourth independent non-executive Director of the Company. Emma brings a wealth of experience from existing positions on the boards of both UK FTSE100 and North American companies.

The Company seeks to maintain an open and constructive dialogue with its shareholders, primarily via meetings with the Investment Manager at regular intervals throughout the year. As part of good governance, the Chair held a series of shareholder meetings (via video due to lockdown restrictions) in 2020 to gain feedback directly from shareholders.

The Company is a member of the Association of Investment Companies ("AIC") and has chosen to comply with the latest AIC code on corporate governance during the year. The Company held an Annual General Meeting ("AGM") on 31 July 2020. 11 Resolutions were put forward to be voted on, with all resolutions tabled being approved. In line with corporate governance best practice, the existing Directors offered themselves for re-election at the AGM and were duly re-elected.

The 2021 AGM is expected to be held in Q3 2021 and, based on current government guidance, this will likely take the form of the minimum attendance necessary to conduct the business of the meeting. The notice for the AGM is expected to be published in July.

With the development of the energy efficiency sector, the Board and Investment Manager have been considering some possible amendments to the current Investment Policy.  The Investment Manager will consult on these in upcoming shareholder meetings, and if feedback is positive, we will bring forward some small amendments for shareholder approval at the forthcoming AGM following approval by the Financial Conduct Authority ("FCA").

Key risks

The Board, its Audit & Risk Committee and the Investment Manager monitor the risks that the Company and its investment portfolio may face on an ongoing basis. Where relevant, mitigants against these risks are put in place in line with the Company's risk appetite and then adjusted over time as necessary.

The key risks to the Company have not changed from the prior year and thus continue to be:

· Credit and Counterparty - risks relating to default by counterparties of energy service contracts;

· Operational - risk of interruption to operations and/or construction resulting in loss of expected revenue and ultimately a reduction in value of investments; and

· Global macroeconomic factors - rises in corporation tax, interest rates and inflation which, if not mitigated, may result in a reduction in value of investments.

 

The Board monitors the key credit risks arising within the portfolio which relate to applicable counterparties, for which they receive regular updates from the Investment Manager. There were no significant matters to address in this regard during the financial year and there were no major defaults by the Company's project counterparties.

Global macroeconomic factors have not had a material impact on the Company during the financial year, despite the uncertainty brought about by COVID-19. Interest rates, inflation rates and corporation taxes have either remained broadly within the Company's projections or mitigation mechanisms were applied, although the likelihood of such factors impacting the Company is now much higher than previously.

The Company also has relatively limited exposure to re-contracting risk. The substantial majority of projects in its portfolio are contracted for the medium to long-term, however, the Company's investment in the five projects involved in Primary Energy does assume that some re-contracting is achieved. The risk is mitigated by the fact that Primary Energy has a good track record of re-contracting, given inter alia that it is providing a combination of emissions control and renewable energy, providing essential services to the operations of the project clients and at a competitive price compared to the grid. This was again proven when the contract for the Ironside project was extended by a further ten years during 2020.

The Investment Manager continues to track the evolution and value of the EU Emissions Trading Scheme ("EU ETS") and carbon markets, which can generate at least short-term costs to some projects, for example Oliva Spanish Cogeneration, which pays EU ETS in respect of cogeneration and receives compensation given its environmental attributes later via the regulatory mechanisms. Certain projects in SEEIT's portfolio should also benefit directly from higher carbon pricing where projects result in greater avoided costs and reduced greenhouse gas emissions for the end user, for example the generation of renewable energy certificates ("RECs") by Primary Energy in the US.

Further information is provided in the Investment Manager's Report.

Pipeline and Outlook

Despite the diversification across SEEIT's portfolio, it is bound together by the fact that its investments seek to deliver cost-effective, low carbon and reliable energy solutions to end users in the built environment, in industry and in transport. The projects involve the supply and distribution of energy or helping to manage or reduce the demand for energy at the point of use.

The Investment Manager believes that a range of technologies will be required to achieve carbon emission reductions over time and that it is therefore important to maintain flexibility in terms of which technologies to employ to address client needs and to secure required returns on investment. The Investment Manager will continue to seek to build a diversified portfolio for the Company and, particularly, to further diversify in terms of technologies that are compatible with a pathway towards decarbonisation. Beyond combined heat and power, solar, storage and district energy, the Investment Manager is evaluating investments in heat pumps, micro grids, cooling, low carbon fuel for transport (including green gases as well as well as electricity) and hydrogen.

An important feature of SEEIT's portfolio is the rights to invest in additional pipeline opportunities from a number of its existing project investments, often at pre-agreed rates of return. This has created an organic source of investment opportunities which the Investment Manager has a high degree of familiarity with to complement the pipeline of potential new portfolio investments identified through long-standing relationships with developers, financial intermediaries and counterparties. The Investment Manager remains highly selective and focused on where it can add value and to acquire opportunities via privately negotiated transactions where possible.

I would like to thank shareholders for their continued support of the Company as we look to continue delivering upon our objectives and making further investments as suitable opportunities arise.

Tony Roper

Chair

24 June 2020

 

Strategic Report: The Company  

The Role of Efficiency in the Energy Market

Energy efficiency solutions seek to solve a fundamental problem in the energy markets. While energy markets are worth trillions of dollars and energy is an essential service for society, energy markets remain highly inefficient. Most energy is wasted somewhere between the generation, transmission, distribution process and the point of use. This is enormously costly and involves substantial carbon emissions that could be avoided. It also involves substantial risks as the energy system has historically been designed around centralised grid systems that can fail. Indeed, were energy efficiencies to be fully realised - and there is an increasing number of cost-effective solutions involving efficiency and decentralisation - in some cases we may only need a third of the energy currently used in the energy system. This potential offers some of the largest and most cost-effective solutions to greenhouse gas emissions reductions, as well as higher levels of productivity and resilience.

SEEIT's investments provide solutions to problems in the energy markets. They include investments in decentralised energy solutions, generating energy at, or close to, the point of use and investment in the distribution of green and efficient energy. They also reduce the amount of energy that users need through conservation measures.

Users of energy

The energy system can be highly inefficient, with energy losses on the supply side occurring all the way from the point of generation, through the transmission and distribution system before it reaches the end user. While up to most energy can be lost on the supply side, further substantial losses occur on the demand side, at the point of use.

Around 40% of energy today is used in buildings and 20% in transport. Commercial, industrial and public sector buildings comprise a large proportion of the demand from buildings, including datacentres and hospitals, universities and schools, as well as the largest industrial energy users and greenhouse gas emitters such as steel, cement, chemicals and plastics.

The opportunity

The energy industry is increasingly focussing on the demand side of the equation, not just on how to get more and cleaner power into the grid, but how to get it to where it is needed most efficiently and how to ensure that as little of it as possible is wasted when it gets there. A previously under-served market is now attracting more attention from the energy industry, which is extending its focus from the supply to the demand side.

A combination of high energy prices, carbon emission reduction targets and energy security concerns has made energy efficiency a crucial component in the development of the modern energy economy. Corporate energy users have been attracted to cheaper, cleaner and more reliable energy solutions offered by decentralised energy and energy efficiency for some time, but it is now reaching the top of the board agenda following new compulsory disclosure requirements and increased stakeholder focus on Corporate Social Responsibility ("CSR") and Environmental, Social or Governance ("ESG"), underpinned by ambitious carbon emission reduction targets and a commitment to achieve net zero over increasingly aggressive timeframes.

Energy efficient solutions present an attractive proposition for end user clients, offering;

§ Reduction in energy costs - avoiding or reducing the significant generation, transmission and distribution costs associated with a centralised grid;

§ Improved energy performance - greater efficiency due to minimal grid losses and reduced energy intensity through employment of efficient technology;

§ Improved reliability - reduced reliance on increasingly constrained centralised power grids;

§ Cleaner energy - increased efficiency reduces the reliance on existing traditional centralised generation, reducing carbon intensity; and

§ Environmental impact - energy efficiency is widely recognised as the most cost-effective solution in seeking to reduce greenhouse gas emissions.

Regulatory response

In addition to encouraging renewable sources of energy onto the grid, it is crucial to reduce inefficiency of supply and to reduce energy demand. Governments are now focussing on energy efficiency and decentralised energy. The European Commission's 'Green Deal' recognises that, to achieve 2030 carbon emission reduction targets and economic productivity, it is insufficient to focus on the supply side alone. At the forefront of the Green Deal, the European Commission's 'Renovation Wave' claims the largest share of budget of all proposed solutions, targeting the retrofit of 34 million buildings across Europe. Meanwhile, in the United States, the Biden-Harris administration's focus on green infrastructure and the 'Climate Plan' stands out, as does the target to retrofit 4 million public buildings with energy efficiency solutions. The UK, which is host to the COP26 climate summit in 2021, has increased its de-carbonisation target to a world leading 78% by 2035 and in order to get there, energy efficiency and decentralised energy will need to play a crucial role.

Similarly, corporate reporting and associated regulation has developed considerably on a global scale. The Task Force on Climate-related Financial Disclosures ("TCFD") was established by the Financial Stability Board, an international body, to improve climate-related corporate disclosure and allow for more informed investment, credit and insurance underwriting decisions in the context of carbon-related assets in the financial sector and the financial system's exposures to climate-related risks as a whole. The EU taxonomy regulation published in June 2020 defined six environmental objectives to which a substantial contribution must be provided in order for economic activities to qualify as 'sustainable' and acts as an essential reference in a number of other forthcoming sustainable finance regulations in the EU. The Sustainable Finance Disclosure Regulation ("SFDR"), introduced by the European Commission from March 2021, imposes mandatory ESG disclosure obligations for asset managers and other financial markets participants to bring transparency in relation to sustainability risks, the consideration of adverse sustainability impacts in their investment processes and the provision of sustainability related information with respect to financial products.

The solution

Providing cheaper, cleaner and more reliable solutions to these users' needs are one of the keys to reductions in greenhouse gas emissions and, at the same time, economic productivity.

The technologies to deliver cheaper, cleaner and more reliable energy solutions to the end user have become available at scale and are increasingly cost-effective. Energy efficient lighting has increased from a 2% market share a decade ago to over 60% market share today. Solar and storage can now deliver cheaper and cleaner energy from rooftops than the grid, even in less sunny countries like the UK. Engines and turbines can be located at or close to the point of use, running at high efficiency on low carbon fuels.

Similarly, low carbon energy for transport, including electricity for car charging and green fuels and hydrogen for heavy and long-distance vehicles are crucial solutions and present a major market opportunity for SEEIT.

By investing in green energy distribution and demand reduction solutions at the point of use, SEEIT is able to help reduce energy wastage, while also incorporating a higher proportion of sustainable fuel in the production of energy. This serves to reduce or eliminate reliance on centrally generated power and avoids the significant generation, transmission and distribution losses associated with a centralised grid, saving money and reducing the carbon intensity associated with large energy-users.

SEEIT invests in projects which are sustainable from environmental, commercial and operational perspectives. Across the portfolio the Company's projects demonstrate the benefits of energy efficiency and decentralised energy - achieving the same level of output with less energy - and the Investment Manager continues to evaluate attractive investment opportunities in key target markets.

 

Investment Proposition

Listed in December 2018 on the Premium segment of the Main Market of the London Stock Exchange, SEEIT is the first investment company of its kind in the UK focused primarily on investments in operational energy efficiency projects located primarily in the UK, Europe and North America.

Investment objective

The Company's investment objective is to generate an attractive total return for investors comprising stable dividend income and capital preservation, with the opportunity for capital growth.

Investment Policy

The Company seeks to achieve its investment objective by investing principally in a diversified portfolio of Energy Efficiency Projects with high quality, private and public sector counterparties.

The contracts governing these Energy Efficiency Projects typically entitle the Company to receive stable, predictable cash flows over the medium to long-term in respect of predominantly operational Energy Efficiency Equipment. The Company's returns take the form of contractual payments by counterparties in respect of the Energy Efficiency Equipment used by them.

Whilst the Company invests predominantly in operational projects, the Company may under certain circumstances invest in projects that are in a construction or development phase, subject to applicable investment restrictions.

In respect of each type of Energy Efficiency Equipment, the Company seeks to diversify its exposure to service providers by contracting, where commercially practicable, with a range of different engineers, manufacturers or other service providers.

Energy Efficiency Projects may be acquired individually or as a portfolio from a single or a range of vendors. The Company may also invest in Energy Efficiency Projects jointly with a co-investor. The Company aims to achieve diversification by investing in different energy efficiency technologies and contracting with a wide range of counterparties.

The Company invests and manages its Energy Efficiency Projects with the objective of assembling a high quality, diversified portfolio.

Investment restrictions

In order to ensure a spread of investment risk, the Company has adopted the following investment restrictions:

· no Energy Efficiency Project investment by the Company will represent more than 20% of Gross Asset Value, calculated at the time of investment;

· the aggregate maximum exposure to any Counterparty will not exceed 20% of Gross Asset Value, calculated at the time of investment;

· the aggregate maximum exposure to Energy Efficiency Projects in either a development phase or construction phase will not exceed 35% of Gross Asset Value, calculated at the time of investment, provided that, of such aggregate amount, the aggregate maximum exposure to Energy Efficiency Projects in a development phase will not exceed 10% of Gross Asset Value, calculated at the time of investment; and

· the Company will not invest in other UK listed closed-ended investment companies.

 

Gearing

The Company maintains a conservative level of aggregate gearing in the interests of capital efficiency, in order to seek to enhance income returns, long-term capital growth and capital flexibility. The Company's medium-term gearing target is up to 35% of NAV, calculated at the time of borrowing (the "Structural Gearing").

The Company may also enter into borrowing facilities on a short-term basis to finance investments ("Acquisition Finance"), provided that the aggregate consolidated borrowing of the Company and the Project SPVs, including any Structural Gearing, shall not exceed 50% of NAV, calculated at the time of borrowing. The Company intends to repay any Acquisition Finance with the proceeds of a share issue in the short to medium-term.

Structural Gearing and Acquisition Finance are employed either at the level of the Company, at the level of the relevant Project SPV or at the level of any intermediate wholly owned subsidiary of the Company, and any limits set out in this investment objective and policy shall apply on a consolidated basis across the Company, the Project SPVs and such intermediate holding company. Structural Gearing and Acquisition Finance primarily comprise bank borrowings, though small overdraft facilities may be utilised for flexibility in corporate actions.

Use of derivatives

The Company may use derivatives for efficient portfolio management but not for investment purposes. In particular, the Company may engage in full or partial interest rate hedging or otherwise seek to mitigate the risk of interest rate increases and full or partial foreign exchange hedging to mitigate the risk of currency fluctuation.

The Company only enters into hedging contracts and other derivative contracts when they are available in a timely manner and on terms acceptable to it. The Company reserves the right to terminate any hedging arrangement in its absolute discretion.

Cash management

Whilst it is the intention of the Company to be fully or near fully invested in normal market conditions, the Company may hold cash on deposit with banking institutions and may invest in cash equivalent investments, which may include short-term investments in money market type funds and tradeable debt securities ("Cash and Cash Equivalents").

There is no restriction on the amount of Cash and Cash Equivalents that the Company may hold and there may be times when it is appropriate for the Company to have a significant Cash and Cash Equivalent position instead of being fully or near fully invested.

Changes to the Investment Policy

The Board and the Investment Manager have been considering some possible small amendments to and clarifications of the Investment Policy.  The Investment Manager will use upcoming shareholder meetings to consult on proposals regarding a potential increase to short-term gearing limits (thus enabling a larger RCF to be used between capital raises), as well as clarifying the scope of energy efficiency investments. If feedback is positive, a small number of proposed changes to the Investment Policy will be tabled for shareholder approval at the forthcoming AGM, as material changes to the Company's Investment Policy require the prior approval by ordinary resolution of Shareholders, following approval by the FCA.

 

Business Model

 

The Company's group structure

 

The Company has been established in the UK as an investment trust to provide an efficient manner in which shareholders can access investment into energy efficiency infrastructure investments.

 

The Company has an independent Board of Directors, has no employees and has appointed Sustainable Development Capital LLP ("SDCL" or "Investment Manager") to manage the investments on its behalf (See the Investment Manager's Report).

 

In order for the Company to achieve its investment objective, it makes its investments via its sole direct subsidiary and main investment vehicle, SEEIT Holdco Limited ("Holdco").

 

The Investment Manager controls the actions of Holdco and its direct and indirect subsidiaries with the aim of assisting the Company to achieve its stated objective through making new investments via Holdco that are funded by the Company and managing the existing investments that Holdco has directly or indirectly invested in.

 

Holdco typically invests in project SPV's - special purpose vehicles that hold assets the Holdco invests in. The SPV's normally provide energy efficiency solutions to counterparties, often through long-term contracts with a fixed lifespan. The SPV - and by implication the portfolio of investments as a whole - therefore normally has a limited lifetime over which it provides target returns to Holdco and ultimately the Company. These SPV's are normally structured that they can be sold in an active secondary market for energy efficiency assets although each of the investments will also have been assessed individually to ensure appropriate alternative exit strategies are in place.

 

Sanne Group (UK) Limited (''Sanne'') has been appointed by the Company as a third-party service provider via an administration agreement.

 

 

Investment sourcing

The Investment Manager sources investments through its long-standing relationships with third-party developers, utility companies, project owners, energy service companies, financial intermediaries and directly from counterparties. Each prospective investment is assessed against the Company's investment objectives and Investment Policy as well as ESG screening and, if considered potentially suitable, an initial analysis and review of the opportunity will be undertaken. Each opportunity is scrutinised on the basis of the investment criteria outlined below.

In selecting potential energy efficiency and distributed generation projects, the Investment Manager employs established criteria and portfolio construction guidelines in order to source projects with some or all of the following characteristics: 

· operational assets installed at energy intensive and inefficient commercial and public buildings and facilities;

· projects utilising commercially proven technologies, with an appropriate level of warranties and performance guarantees;

· contracting with energy efficiency equipment vendors and manufacturers, subcontractors and counterparties who are strong credit counterparties;

· passing performance risks down to engineering, procurement and construction (''EPC'') contractors, operations and maintenance (''O&M'') contractors, subcontractors, energy efficiency equipment vendors and manufacturers via warranties and guarantees;

· based upon measured and verifiable savings criteria as set forth in an energy services agreement (''ESA'') governing the terms on which energy savings are apportioned between the counterparty and the Project SPV;

· projects based in the key target markets of the UK, Europe, North America and selectively in Asia Pacific and other OECD countries;

· achieving economies of scale, either individually or through aggregation;

· appropriate ESG characteristics and where the Investment Manager considers that further ESG improvements can be achieved; and

· ability to achieve significant reductions in energy use and consequently emissions of greenhouse gases and other pollutants.

The above characteristics enabled the Investment Manager to select investments for Holdco that will help deliver the Company's investment objective. In doing so, the Investment Manager also assesses exit strategies of individual investments, determining the role each will play in delivering stable and predictable revenues over defined periods. These investments are described in greater detail in the Investment Manager's report. 

Investment process

Once a potential opportunity that falls within the Company's Investment Policy has been identified, and the Investment Manager wishes to proceed with the investment in such project, the Investment Manager undertakes further analysis which sets out the investment structure, investment rationale, key environmental benefits, risks and returns, capital expenditure budget, proposed revenue model, necessary next steps and recommendations. The same process takes place whether the Company is in a competitive process, such as with the investment in Onyx, or in a bilateral negotiation, such as with the investment in Gasnätet.

Based on the analysis, the Investment Manager determines whether further detailed financial, legal and technical due diligence should be carried out by the team and/or third-party firms and advisers, or whether to proceed with further negotiation of deal terms with the relevant counterparties. Once the decision to proceed has been made, the Investment Manager is responsible for further business due diligence, while the appropriate financial, environmental, social, governance, tax, legal, technical and other due diligence processes is conducted by third-party firms and/or advisers.

The Investment Manager also seeks to ensure that the transaction terms with relevant counterparties such as developers, EPC contractors, O&M contractors, advisers, and revenue counterparties meet with the Investment Manager's ESG criteria (unless not applicable).

Once the detailed due diligence process has been completed, the Investment Manager prepares an updated analysis that comprises details of the investment opportunity, environmental characteristics, impact on portfolio construction and development, risks and returns, identification of any investment upside or portfolio enhancement, investment structure based on due diligence process and final contract terms, as a result of negotiations, as well as a financial model used to assess risk and return, including scenario and sensitivity analyses as appropriate.

The Investment Manager uses all material information collated on the investment through the diligence process, along with an analysis of the potential impact the investment would bring to the composition of a balanced portfolio, to decide on whether to proceed with the investment or not. The Investment Manager will, if the proposed investment meets the agreed criteria, notify the Board of its decision prior to committing to an investment, including the provision of further papers as required.

Whilst this has not been a key area of focus for the Company, where the Investment Manager intends to acquire projects from funds related to SDCL, such as in the case of the Singapore Energy Efficiency investment in November 2020, the Investment Manager will approach the Board at an early stage of the investment process to discuss any additional diligence or comfort, such as independent valuation or audits required. The Investment Manager will not execute an investment in any project where it constitutes a related party transaction without prior Board approval and will only proceed in accordance with the requirements of the FCA Listing Rules.

Investment Manager's Report

 

The Investment Manager

Sustainable Development Capital LLP, the appointed Investment Manager of the Company, is an investment firm with a proven track record of investment in energy efficiency and decentralised energy generation projects. Its proactive project development and industrial expertise gives it a significant competitive advantage in creating, originating, evaluating, financing and managing investments, as well as securing enhanced risk-adjusted returns.

SDCL was founded in 2007 by Jonathan Maxwell, and since 2012, has raised four funds exclusively focused on energy efficiency with projects in the UK, Europe, North America and Asia. The Investment Manager is headquartered in London with offices in New York, Dublin, Hong Kong and Singapore and has a team of over 45 people.

The Investment Manager is responsible for the active investment management and risk management of the portfolio in accordance with SEEIT's Investment Objective, Investment Policy and ESG policy and principles. The Investment Manager achieves this by:

finding and then making investment decisions on new energy efficiency investment opportunities;

providing strategic management of the portfolio and oversight of project operations;

ensuring that SEEIT's Responsible Investment Policy and set of ESG principles are effectively applied in underlying investments;

managing investment and operational risks of SEEIT;

focusing on the identification of cost and efficiency improvements and optimisation of project value;

maintaining a high standard of business conduct and integrity; and

building strong relationships with suppliers, customers, communities and authorities among others.

Market review and outlook

The sectors in which SEEIT is investing are receiving increasing levels of interest from both policymakers and financial markets. Governments and companies in all of SEEIT's existing and target markets are continually increasing their carbon reduction commitments and therefore the demand for cost-effective and low carbon energy solutions is increasing. Meanwhile, the costs, inefficiencies and risks of energy systems reliant on centralised generation and the grid continue to be exposed, with the 2021 outages in Texas, USA caused by severe winter storms recalling memories of Superstorm Sandy on the US East Coast in 2012 and highlight the need for greater resilience in the energy system.

COVID-19, in parallel to its far-reaching societal consequences, reduced global economic output, energy demand and energy prices. SEEIT's portfolio was relatively defensive, given limited exposure to demand or energy prices and the fact that most of its clients were deemed essential and remained operational during national lockdowns. The pandemic led several governments to turn to energy efficiency as a source of post-COVID recovery, economic productivity and growth, as well as a pathway to substantially lower both costs and greenhouse gas emissions. Energy efficiency project investments performed notably strongly and reliably compared to assets linked to economic growth, energy demand or prices.

The EU taxonomy regulation and SFDR, both introduced during the financial year, represented significant developments in the EU's framework for sustainable energy investment, ESG disclosure and corporate reporting. SEEIT, through its Investment Manager, is adapting quickly to the new disclosure rules, taking steps to categorise and monitor all the Company's underlying investments in line with the new disclosure standards.  This is part of the Company's broader strategy for reporting on climate-related and other ESG issues which includes working towards implementing the full scope of the disclosure recommendations of TCFD.

 

Investment update

During the financial year, the Investment Manager continued to secure new investments for the Company and actively manage the existing portfolio of project investments.

New investments were secured for SEEIT in key markets, including on-site solar generation, energy storage, district energy, green gas distribution and EV charging infrastructure. The portfolio has seen growth in existing markets, such as the United States and the UK, as well as in new markets in Asia (Singapore) and Europe (Sweden).

SEEIT's portfolio, supported by the Investment Manager's asset management activities, now covers a wide range of buildings and transport customers, including public sector (hospitals), data centres (banking), industrial facilities (steel and agriculture), commercial (banks and retail, including restaurants) and low carbon fuels for transport such as EV and green gas.

While SEEIT's portfolio is diversified by various factors, it is bound together by the fact that its investments seek to deliver cost-effective, low carbon and reliable energy solutions to end users in the built environment, in industry and in transport. The projects involve the supply and distribution of energy or helping to manage or reduce the demand for energy at the point of use.

The Investment Manager believes that a range of technologies will be required to achieve carbon emission reductions over time and that it is therefore important to maintain flexibility in terms of which technologies to employ to address client needs and to secure the required returns on investment.

The investments made by the Investment Manager during and following the financial year ended 31 March 2021 fit well within the Company's investment criteria, by reducing energy consumption or related greenhouse gas emissions arising from supply, transmission, distribution and consumption. In doing so, the Company has been able to secure predictable long-term revenue and the opportunity for capital growth from these investments.

Investment activity since 31 March 2020

Project

Investment Close

Location

Amount

EV Network

August 2020

UK

Up to £50 million

GET Solutions

September 2020

UK

£5 million

Singapore Energy Efficiency

September 2020

Singapore

£2 million

Gasnätet

October 2020

Sweden

£107 million

Onyx

December 2020 (completed in February 2021)

USA

Up to US$150 million initially with further commitments over time

Primary Energy portfolio (follow on)

December 2020

USA

US$36 million

Spark US Energy Efficiency II

February 2021

USA

Up to US$20 million

 

 

Investment activity since 31 March 2021

Project

Investment Close

Location

Amount

SOGA

April 2021

Vietnam

US$3.6 million

RED

April 2021 (completion in May 2021)

USA

US$177 million

Tallaght Hospital

May 2021

Ireland

€6.5 million

 

 

EV Network involves a conditional commitment to fund the rollout of EV charging stations across the UK. The Company made an initial £50 million investment commitment in August 2020 to the EV Network as its development partner in EV charging infrastructure. The EV charging sites will be developed and funded by EV Network to the point at which they are contracted and construction ready, at which stage they will be acquired by the Company. The commitment, subject to certain criteria being met, will be drawn down in tranches to fund the implementation of projects, with the most recent agreement signed with bp pulse, the UK's largest operator of public EV charging points. Once operational, EV charging sites will be contracted through 20-year, fixed price, CPI inflated Energy Service Agreements.

GET Solutions is an investment in an initial portfolio of 15 highly efficient combined heat and power (''CHP'') assets at premises of the Intercontinental Hotel Group. The assets are designed to provide the base-load energy generation to meet the operational needs of the hotels, irrespective of their levels of occupancy. The initial portfolio comprised four operating projects, two installed projects and nine ready to build projects, all of which are now operational. The projects have all been developed by GET Solutions, a specialist provider of energy services that has worked with over 40,000 business clients over the last 20 years. The contractual structure of the projects provides predictable revenues with potential for upside for the Company in the event that certain levels of consumption are achieved. The Company owns the project assets that provide essential services to the buildings throughout the 15-year life of the project contracts. There is a follow-on pipeline of up to 51 highly efficient CHP projects in the UK hotel sector and additional rights to invest in a substantial pipeline of more than 100 energy efficiency installations with GET Solutions in the UK.

Singapore Energy Efficiency is an investment in a portfolio of six operating cooling and energy efficiency assets, including chillers and bespoke energy-efficient air compressors that are installed at the premises of five leading industrial counterparties in Singapore, including subsidiaries of large multinational institutions. The assets are leased under fixed contracts, with a total remaining portfolio life of approximately 6 years. The acquisition represents the Company's first energy efficiency investment in Singapore and provides a platform from which it can explore future opportunities in this and other attractive jurisdictions in the region.

Gasnätet is an investment in Gasnätet and Värtan Gas Stockholm AB ("VGSAB"). The VGSAB group owns and operates Stockholm's established operational regulated gas distribution network, the majority of which is sourced from locally produced biogas (c.70%), supplying and distributing to over 50,000 residential, commercial, industrial, transportation and real estate customers in Stockholm. It is an essential infrastructure service that helps to reduce pollution and greenhouse gas emissions by reducing and reusing waste gases both at the point of production, for example at municipal waste water treatment plants and, at the point of use, through the displacement of natural gas in buildings and diesel in transport. The grid is an essential component of an integrated gas distribution system and is aligned with national and regional strategies to attain carbon neutrality by 2040, with the Company working towards increasing the proportion of green gas in the network to 100% over time. Revenues, which are primarily regulated, are predominantly based on fixed tariffs with relatively low sensitivity to customer demand or consumption. In addition to existing revenues, the Investment Manager has identified opportunities for growth, for example from serving new transport customers, as commercial and municipal vehicle fleets continue to switch to cleaner fuels, including biogas. Furthermore, there are opportunities for the Investment Manager to work with the in-house management team to deliver new energy and infrastructure services to customers by developing the network and through vertical integration.

Onyx involved the investment in a 100% interest in four sub-portfolios totalling over 175 MW across over 200 operational, construction and late-stage development rooftop, carport and 'private wire' ground mounted solar PV assets. The four portfolios provide renewable energy generated on-site directly to the end-user and are expected to become fully operational over the next 12 months. The operational projects are contracted under long-term power purchase agreements with predominantly investment grade commercial and industrial counterparties, including municipalities, universities, schools, hospitals, military housing providers, utilities and corporates. In addition, the Company acquired a 50% interest in Onyx's follow-on pipeline, which is projected to exceed 500MW over the next 5 years through Onyx's highly experienced and dedicated project development and asset management team based in New York. In addition, the Company will have a right of first refusal to purchase pipeline portfolios at a pre-agreed rate of return. The investment provides the Company with a substantial initial portfolio and a scalable pipeline of opportunities in a major growth market.

A further 15% interest in Primary Energy, a portfolio of recycled energy and cogeneration projects located in Indiana, USA, was acquired in December 2020, after the initial 50% interest acquired in February 2020. The Company also agreed terms under which it could increase its stake and further enhance returns for shareholders. The 298MW portfolio consists of five operating projects which generate low-cost, efficient energy with substantial environmental benefits via three recycled energy projects, one natural gas combined heat and power project and a 50% interest in an industrial process efficiency project. Four of the five projects relate to steel mills that are now owned by Cleveland-Cliffs Inc. (''Cleveland-Cliffs'') following its acquisition of ArcelorMittal USA, making Cleveland-Cliffs the largest flat-rolled steel producer as well as the largest iron ore pellet producer in North America. One of the five projects services Midwest Steel, a subsidiary of United States Steel Corporation. The projects are fully integrated into the steel mill facilities, including fuel handling and emissions control equipment and systems that are critical for the operations of the facilities.

A new agreement with Sparkfund was signed in February 2021 representing a follow-on investment commitment on a conditional basis of approximately $20 million in a new portfolio of projects achieving construction completion over the next 12 months. These projects include energy efficiency and resiliency measures such as lighting, heating, ventilation and air conditioning, backup generation and building management systems and controls. The investment follows a US$22 million investment in a portfolio of loans, leases and subscription agreements relating to energy systems outsourcing and energy efficiency projects with Sparkfund in September 2019.

In April 2021, the Company invested in a 4.5 MWp portfolio of operational commercial and industrial rooftop solar systems and secured a 20 MWp pipeline of late-stage development and ready-to-build assets at multiple sites in Vietnam. The investment was made via a Singapore-based platform. The Company entered into a partnership with Shire Oak Green Asia ("SOGA'"), an experienced developer of renewable energy projects with a strong presence in Vietnam, including locally based engineering capacity and asset management services. The counterparties are multinational corporates using Vietnam as a manufacturing hub, as well as established large Vietnamese companies, diversified across industries including automotive, food & beverage, garment & textile, furniture and agricultural products. The projects will generate on-site electricity for consumption by the counterparties, reducing the carbon footprint of their manufacturing processes.

The Company completed the investment in RED-Rochester, LLC ("RED"), a commercial district energy system that provides exclusive utility services to commercial and industrial customers within the 1,200 acre Eastman Business Park, in May 2021. RED is one of North America's largest district energy systems with 117 MW of steam turbine generators plus boilers, chillers and other equipment. As the exclusive provider of utility services to the park, RED offers 16 on-site services including electricity, steam, chilled water, wastewater, compressed air, nitrogen, lake water treatment, industrial water distribution and high purity water distribution. RED has over 100 commercial and industrial customers, typically contracted on a 20-year fixed-term basis with automatic five or ten year renewals, linked to their tenancy on the Eastman Business Park. The contracts provide stable and predictable cash flows with a relatively fixed cost base and substantial mitigation against volatility in demand. Some two thirds of the value of RED's offtake contracts are derived from investment grade or equivalent counterparties. Since 2016, RED has delivered 40+ additional energy efficiency projects across its operations that have resulted in annual savings of over US$4 million and carbon savings of over 50%. Additionally, the Investment Manager has identified a further pipeline of potentially accretive energy efficiency initiatives that it believes can deliver additional cost and carbon savings.

Tallaght Hospital involves an investment in the installation of a range of energy efficiency equipment, including LED lighting and high efficiency CHP, providing cleaner and more efficient on-site energy generation for the large County Dublin hospital. The contract consists of fixed, indexed linked revenues, payable by the hospital counterparty, monthly for 15 years once the equipment is installed.

Portfolio construction

The Company focuses on investments that provide effective and reliable energy solutions that typically fit into one or more of three key categories:

§ Cleaner and more efficient supply, such as in Onyx (on-site solar), Primary Energy (on-site cogeneration for the steel industry) and Oliva Spanish Cogeneration (on-site cogeneration for olive industry)

§ Green energy distribution, such as Gasnätet (Stockholm's gas grid) and EV Network (fast EV charging)

§ Point of use / demand reduction such as Santander UK Lighting (LED lighting) and EV Network (fast EV charging)

 

 

The Company invests with the objective of assembling a portfolio of energy efficiency projects, diversified by:

Investment stage: whilst the Company invests predominantly in operational energy efficiency and distributed generation projects, the Company may under certain circumstances invest in projects that are in construction or their development phase;

Equipment/Service providers: the Company diversifies its exposure to equipment manufacturers, engineers and other service providers through investing in different energy efficiency technologies and contracting with a wide range of counterparties;

Geography: the existing portfolio comprises projects located in the UK, EU, Asia Pacific and the USA. In addition, the company is actively pursuing further investments in other jurisdictions that provide attractive risk-adjusted returns across, including the UK, EU, North America, the Asia Pacific region and, selectively, other OECD countries; and

Counterparty: the Company provides services to range of high quality counterparties in both the private and public sectors, across many industries. The majority of the portfolio by value derives revenues from investment grade or equivalent counterparties, and in some instances adopts significant diversification in the number of counterparties, such as in the case of Gasnätet's 50,000+ customers.

SEEIT's portfolio is mostly operational, consistent with its investment objectives and with a view to generation of cash and earnings to cover dividends. New investments during the financial year have extended the weighted average term of projects from approximately 11 years to approximately 13.4 years, providing long-term visibility of cash flows.

SEEIT may invest up to 35% of its gross asset value, calculated at the time of the investment, in development and construction phase projects (including a 10% limit on development), subject to relatively short construction periods and low construction risks, i.e. projects that the Investment Manager considers can be commissioned within a short period of time following commitment and at low risk that the commissioning of the project will overrun (both in terms of time and budget).

During the financial year, SEEIT's commitments to development and construction phase projects increased from approximately 5% to approximately 15% of gross asset value, following the acquisition of Onyx which represented an attractive investment opportunity with a higher proportion of non-operational stage assets. The Board considers that this increase is consistent with the objective of securing long-term value and organic growth for SEEIT's portfolio, while remaining in line with the Company's risk appetite.

The Board believes that the allocation to both operational and construction phase projects offers significant opportunity for growth. For instance, in the case of operational projects, there is an opportunity to expand the range of services to customers connected to district energy networks in SEEIT's portfolio, such as Stockholm's gas grid, Gasnätet, and SEEIT's investment at the second largest business park in the United States, RED.

There is also an opportunity to add value to existing investments through increased market share in some cases, for instance by leveraging a top 10 market position in commercial and industrial on-site solar and storage in the United States, through SEEIT's joint venture with Blackstone, Onyx, by increasing margins and capacity in our projects serving Spain's olive industry, Oliva Spanish Cogeneration and by securing contract extensions, as was achieved by Primary Energy in 2020.  In other markets, SEEIT has the opportunity to increase scale, for example through its investment in EV charging infrastructure services via EV Network for major clients such as bp pulse.

SEEIT has continued to diversify by geography, with further expansion into the United States and Europe (Sweden, Ireland and Spain) and the UK. In addition, albeit to a more limited extent, SEEIT has established some exposure to new and high-quality markets in Asia, primarily providing energy services to multinational clients in locations such as Singapore and, since the year-end, in Vietnam. This expansion provides access to a large pool of attractive new investment opportunities for the Investment Manager to evaluate. The Investment Manager is focused on securing value over exposure to an individual country, although it would expect most of the portfolio to be broadly evenly allocated as between North America and Europe in the medium to long-term.

As SEEIT's portfolio has continued to grow, it has also significantly diversified. For instance, it now has exposure to some 500 individual project sites in the United States, over 500 sites in the UK and over 50,000 customers in Sweden. Its projects provide essential, cost-effective and green energy services such as power, heat, cooling and lighting to clients from very different industries, from agriculture in Spain, to steel in the United States to datacentres, banking, hospitals, transport, cooking and food retail in the UK, Ireland and Sweden. While this diversification by industry and geography limits exposure to market cycles in normal market conditions, the essential services provided by the client base led to a general continuation of operations, even during the challenging and extraordinary market conditions caused by the global COVID-19 pandemic. As such, while the COVID-19 crisis impacted on some of the Company's assets and hindered some development and construction activity, the portfolio demonstrated resilience and the crisis had limited impact on SEEIT's overall financial performance.

Diversification by technology was also an important feature and achievement since March 2020. SEEIT's portfolio considerably expanded in solar and storage, in green gas distribution, in energy recycling and energy and cooling efficiency as well as in EV charging infrastructure.

SEEIT's portfolio has also been constructed with a prudent view on counterparty credit risk. Approximately 65 percent of the portfolio by value (as at June 2021) derives revenues from investment grade or equivalent counterparties. In the cases where a counterparty is not investment grade or equivalent, risk mitigants are often in place, such as security packages associated with debt investments, ownership of assets or equipment, or other forms of guarantee. In addition, credit risk exposure can be heavily mitigated by significant diversification of counterparties, such as in the case of Gasnätet's 50,000+ customers. There were no material credit defaults or events during financial year, notwithstanding the global economic crisis, although the Board and the Investment Manager remain focused on the economic risks associated with the COVID-19 pandemic and its aftermath through careful asset management by the Investment Manager and ongoing engagement with stakeholders.

The Board and the Investment Manager continue to focus on risks that can be identified and mitigated. As such, SEEIT's investments have limited exposure to unmitigated power or commodity price risk. Prices of energy services are usually fixed or pre-determined and any fuel costs are typically passed through to the client. SEEIT's project investments have limited, or in many cases no demand or volume risk. A number of projects have fixed contracts consisting of revenues with availability-based characteristics, principally derived from making a project's assets or services available for use and that do not depend substantially on the demand for or use of the project. Other cases have capacity-based characteristics, where revenues are principally derived from a contractual right of first dispatch, whereby an off-taker agrees to pay for a volume of output to the extent that it has demand for it. The Investment Manager has also sought to limit exposure to regulatory risks. For instance, in Sweden, energy services are delivered below the regulatory cap and in Spain, the main commodity price risks are mitigated through a regulatory regime that applies and adjusts over the medium-term.

Acquisitions and pipeline

SEEIT's portfolio of investments increased substantially in value during the year, from approximately £320 million to approximately £695 million (including investments made after the year-end).

The Investment Manager secured most of SEEIT's major investments during the year through bilateral or private negotiations, including large investments such as Gasnätet from iCON, the increase in its stake in Primary Energy from Fortistar and a recent investment, after the financial year-end, of RED from Stonepeak. Smaller investments such as SEEIT's investment in projects with GET Solutions, in a portfolio in Singapore and in framework agreements such as with Sparkfund were also secured outside of competitive auction processes. While the original framework with EV charging infrastructure development, EV Network, was won through a competitive process, the Investment Manager actively assisted in bilateral negotiations of the underlying projects with charge point operators such as bp pulse.

Investment sizes were quite diverse from approximately £2 million to nearly £140 million. While larger investments offer the benefits of scale and underlying diversification - for example via over 100 customers at RED, over 200 projects in Onyx and over 50,000 customers in Gasnätet - smaller investments offer value and diversification through replication or are otherwise strategic platforms for targeting a client, an industrial sector, a technology, a new geography or a delivery partner.

An important feature of SEEIT's portfolio is that a number of its existing project investments include rights to invest in additional pipeline opportunities, often at pre-agreed rates of return. This has created an organic pipeline that offers the flexibility to secure value and growth where pre-agreed pricing allows for efficient investment in projects generating robust returns. The Investment Manager will continue to seek to secure attractive investment opportunities for SEEIT through new investments but will remain highly selective and focused on where it can add value and preferably via privately negotiated transactions. By contrast, during the financial year, the Investment Manager withdrew or declined a large number of investments where competitive auction prices made forecast returns unattractive, particularly in the more established sub sectors such as Nordic district energy and cogeneration in the United States.

The diversification of the portfolio by energy efficient technology, remains a priority for the Board and the Investment Manager in assessing new investment opportunities, with careful evaluation of technologies that fit well into the Company's investment remit. Examples of new technologies the Investment Manager has been exploring on a selective basis as part of its investment strategy include heat pumps, micro grids, cooling, low carbon fuel for transport (including green gases as well as well as electricity) and hydrogen.

Active asset management by the Investment Manager

The Company's investment objective, is to generate an attractive total return for investors comprising stable dividend income and capital preservation, with the opportunity for capital growth. The Investment Manager seeks to achieve this for the Company through selecting investments that will contribute positively to the investment objective. Once invested, the Investment Manager then places a large emphasis on actively managing the portfolio of assets, both to optimise value and to minimise risks. For instance, during the financial year it put in place measures to improve the cost efficiency of fuel gas by bringing in-house the management and gas procurement in its Oliva Spanish Cogeneration portfolio in Spain, supported the extension of one of the major contracts in the Primary Energy portfolio and established priorities to expand revenue streams and increase biogas content in the Gasnätet grid in Stockholm.

SEEIT's assets are managed through a combination of coordinated full time presence on-site, teams of professional advisers and active day to day involvement by the SDCL management team, focused on driving value. The SDCL team has grown from 27 individuals at the time of SEEIT's IPO to over 45 individuals (including three senior staff focused solely on asset management) as at June 2021, to meet the demands of the evolving portfolio. The Investment Manager is particularly focused on health and safety, value enhancements, identifying and mitigating risks and developing the skills of individuals involved in managing projects as well as those delivering day to day services.

ESG compliance and leadership

During the year, SEEIT published its first ESG report, with a second report due later this year. The Investment Manager has become a signatory to the United Nations Principles for Responsible Investment ("UNPRI") to ensure that the UN's six principles of responsible investment are embedded in the Company's behaviours and practices and applied to all SEEIT investments.

There have been significant developments with the EU's on-going implementation of its framework for sustainable energy investment during the year, notably the publication of the delegated acts for climate change mitigation and adaptation under the Taxonomy Regulation (2020/852), and the entry into force in the EU of the Sustainable Finance Disclosure Regulation (2019/2088).

The Taxonomy Regulation, in particular, has focused attention on the role of natural gas in the transition to a low-carbon economy. Current plans for natural gas as part of the Taxonomy Regulation have been withdrawn, pending further discussions between member states with a target for updated plans to be published later in 2021. The EU has given positive indications that it will introduce measures which will acknowledge the role of natural gas as an important part of the energy mix in the pathway toward reducing the carbon-intensity of the energy system. The net zero emissions ("NZE") case put forward in the International Energy Agency's ("IEA") recent report "Net Zero by 2050" nonetheless assumes consumption of natural gas will reduce by 55% between 2020 and 2050 (in comparison with coal by 90% and oil by 75%) and provided also that natural gas with carbon capture, utilisation and storage ("CCUS") becomes widely used to produce hydrogen for use as a fuel by shipping, road transport and heavy industry.

The Investment Manager is monitoring developments closely but is meanwhile taking steps to categorise and monitor all the Company's project assets in line with the Taxonomy. 

The Investment Manager also serves as a member of key bodies such as the Green Finance Institute and the UK Green Building Council. The Investment Manager considers people and employment as well as the environment in all of its business conduct. The Investment Manager has been advocating globally for energy efficiency in the context of the post COVID-19 recovery planning, as well as for its role in the energy transition and has recently appointed a new Executive Director of Communications and Sustainable Cities.

Following the investment in RED, SEEIT's portfolio of project companies employ collectively over 200 full time employees.

Financing

The Investment Manager has used a combination of equity issuance and credit facilities to make new investments. The Investment Manager recently extending the quantum of SEEIT's RCFs to maximise capital efficiency and may consider recommending a modest increase in overall gearing levels to support new investments.

Financial performance

SEEIT's net asset value has been relatively stable and resilient, notwithstanding the challenging global economic conditions. SEEIT achieved a cash dividend cover of approx. 1.2x for the dividends paid during the last year and earnings per share of 7.0p per share covered the 6.6p per share of dividends paid. The Company transitioned to quarterly dividends from 1 April 2020 and accordingly, the Company paid an aggregate of 6.6p per share in the financial year to make the transition to quarterly dividends. On a pro forma basis where dividends paid are adjusted down to quarterly equivalents and removing the impact of a transition year, cash cover for dividends was approximately 1.3x.  The Company is targeting a dividend[4] of 5.62p per share for the year to March 2022, a 2.2% increase from 31 March 2021.

Liquidity in SEEIT's shares has significantly improved and total assets have doubled. Total shareholder return has been c.30.0% since inception to 22 June 2021 and total return on a NAV growth plus dividends paid in the year was 8.0%.

 

Sustainability Update

Carbon reporting

During the year, the Company's portfolio produced 895,212 MWh (2020: 113,000 MWh) of electricity and has provided carbon savings of 654,205 tCO2 (2020: 156,000 tCO2), which has been calculated proportional to the Company's holding of each underlying investment and the period of the ownership.

The calculation approach in each case follows several key principles, to maintain a consistent approach. The principles are:

1.  Where possible to capture fundamental data regarding project performance. Examples of this data include energy generated (kWh) and fuel consumed (kWh);

2.  Use publicly available emissions factors from government sources specific to the project location; and

3.  Where a project was commissioned, or purchased, by the Company during a reporting period, only the portion of the period after commissioning or purchase date has been recognised.

SEEIT's Responsible Investment Policy

SEEIT's Responsible Investment Policy[5] seeks to ensure that all investments and the associated contractors and delivery partners apply a set of defined ESG principles, as noted below. The Investment Manager is tasked with promoting the policy to all service providers who are responsible for the day-to-day operations of the projects (O&M providers) and to monitor their performance, to ensure compliance and best practice.

SEEIT's responsible investment policy covers four focal areas:

Net zero carbon transition: Aiding the transition to a net zero carbon economy by maximising energy efficiency through SEEIT's investment strategy and operations;

Environmental impacts: Minimising the environmental footprint of SEEIT's operations through managing negative impacts, such as waste, biodiversity loss, and emissions;

Governance and resilience: Securing robust governance and business integrity, including assessing resilience to physical climate risk and engaging on ESG with SEEIT's delivery partners; and

Workplace and community: Providing safe environments for all - for workers, contractors and members of the community who use or come into contact with SEEIT's projects.

SEEIT has developed, in conjunction with the Investment Manager, a set of ESG principles that build on each of the four focus areas.  The Investment Manager follows an ESG procedure that ensures SEEIT's ESG policies and principles are reflected in its screening and diligence process to assess all potential projects prior to a decision to invest, and then as a framework for managing and monitoring assets and engaging with O&M providers.

SEEIT's contribution to the UN Sustainable Development Goals

In 2015, 197 countries came together behind a common vision for achieving a better and more sustainable future for all. This vision is manifested in 17 interconnected global goals - the United Nations' Sustainable Development Goals ("SDGs") - that aim to address the world's most pressing social, environmental, and economic challenges by 2030.

Generating positive social and environmental outcomes is fundamental to SEEIT and how the Company and its portfolio are run. SEEIT's ESG objectives and efforts are aligned with and support the SDGs agenda. SDCL looked at the expected outcomes and established practices of each individual project in SEEIT's portfolio against the 17 SDGs and their 169 underlying targets. As at the financial year-end this analysis showed that the Company's portfolio contributes to 11 of the 17 SDGs, with a particular focus on two goals: SDG 7 - Clean and affordable energy and SDG 9 - Industry, innovation and infrastructure, and that all Company activities are underpinned by the principles of SDG 17. 

 

Investment Portfolio Summary

Portfolio Analysis

The below table provides a summary of the Company's total portfolio as at 31 March 2021:

Country

Project

Phase

Customer

Industry

Technology

Overview

Singapore

Singapore Energy Efficiency - SEEIPL 1

Operational

Panasonic, Speedytech

Industrial: Manufacturing

Energy-efficient air compressors and water-cooled chillers

Energy efficient measures for small and medium-sized businesses

Singapore Energy Efficiency - SEEIPL 3

Operational

Denselight, REC Solar

Industrial: Manufacturing

Energy-efficient air compressors and water-cooled chillers

Energy efficient measures for small and medium-sized businesses

Singapore Energy Efficiency - FE EE

Operational

Denselight, Greif

Industrial: Manufacturing

Energy-efficient air compressors and water-cooled chillers

Energy efficient measures for small and medium-sized businesses

Spain

Oliva - Cepalo

Operational

Spanish energy market and Sedebisa 

Industrial: Food production

CHP

Efficient energy generation including thermal energy for drying of recycled waste

Oliva - Sedebisa

Operational

Olive byproduct market and Bipuge 

Industrial: Food production

Industrial process efficiency solutions

Drying of recycled waste for biomass feedstock and olive oil production 

Oliva - Bipuge

Operational

Spanish energy market and olive processing plants 

Industrial: Food production

Biomass

Power generation from recycled waste from olive oil production

Oliva - Celinares

Operational

Spanish energy market and Colinares

Industrial: Food production

CHP

Efficient energy generation including thermal energy for drying of recycled waste

Oliva - Colinares

Operational

Olive byproduct market and Biolinares 

Industrial: Food production

Industrial process efficiency solutions

Drying of recycled waste for biomass feedstock and olive oil production 

Oliva - Biolinares

Operational

Spanish energy market and olive processing plants 

Industrial: Food production

Biomass

Power generation from recycled waste from olive oil production

Oliva - La Roda

Operational

Spanish energy market and olive processing plants 

Industrial: Food production

CHP

Efficient energy generation including thermal energy for olive processing

Oliva - Celvi

Operational

Spanish energy market and olive processing plants 

Industrial: Food production

CHP

Efficient energy generation including thermal energy for olive processing

Oliva - Cepuente

Operational

Spanish energy market and olive processing plants 

Industrial: Food production

CHP

Efficient energy generation including thermal energy for olive processing

Sweden

Gasnätet

Operational

Various (50,000+ customers)

Retail: Commercial

Green gas distribution

Regulated green gas distribution network

United Kingdom

Moy Park Biomass

Operational

Moy Park

Industrial: Food Production

Biomass boilers

Efficient heating

Santander UK Lighting

Operational

Santander plc

Commercial: Banking

Lighting and energy efficiency measures

Energy efficient measures for buildings with lighting enhancement

Huntsman Energy Centre

 

Construction

Huntsman

Industrial: Polyurethane manufacture

Steam raising boilers

Recycling and reduction of waste gases from chemical manufacturing

Citi Riverdale CCHP

Operational

Citibank

 Datacentres: Banking

Combined Cooling, Heat and Power (CCHP)

Efficient power, heating and cooling for a data centre

Moy Park Lighting

Operational

Moy Park

Industrial: Food Production

LED lighting

Efficient lighting

St Barts CCHP

Operational

St Bartholomew's Hospital

Healthcare: Hospital

CHP

Efficient power, heating and cooling for a hospital

Supermarket Solar UK

Operational

Tesco plc

Commercial: Retail

Rooftop solar

Onsite solar energy generation

Kingspan Holywell Solutions

Operational

Kingspan

Industrial: Manufacturing

Lighting and energy efficiency measures

Energy efficient measures for building materials manufacturing.

EV Network

Development & Construction

Charge point operators

Infrastructure

EV charging stations

Rapid and ultra-fast EV charging stations

GET

Construction & Operational

Hotels

Hospitality sector

CHP

Efficient generation of heat and power

SmartEnergy

Operational

Various

Industrial: Various

CHP, HVAC, BMS and other EE solutions

Energy efficient measures for small and medium-sized businesses

United States

 

Primary Energy - Cokenergy

Operational

Cleveland Cliffs

Industrial: Steel production

Steam turbines

Energy generation from recycling waste gases from steel production

Primary Energy - Northlake

Operational

Cleveland Cliffs

Industrial: Steel production

Steam turbines

Energy generation from recycling waste gases from steel production

Primary Energy - Ironside

Operational

Cleveland Cliffs

Industrial: Steel production

Steam turbines

Energy generation from recycling waste gases from steel production

Primary Energy - PCI

Operational

Cleveland Cliffs

Industrial: Steel production

Industrial process efficiency solutions

Energy efficient process for steel production

Primary Energy - Portside

Operational

US Steel

Industrial: Steel production

CHP

Efficiency energy generation

Spark US Energy Efficiency

Operational

Various (260+ contracts)

Commercial: Various

Lighting and energy efficiency measures

Energy efficiency measures for small and medium-sized companies

Onyx - operational portfolios

Operational

Various

Commercial & industrial: Various

Rooftop solar and storage

Onsite solar energy generation

Onyx - construction portfolios

Construction & Development

Various

Commercial & industrial: Various

Rooftop solar and storage

Onsite solar energy generation

Onyx - development

Development

Various

Commercial & industrial: Various

Rooftop solar and storage

Onsite solar energy generation

Northeastern US CHP

Operational

Various (6)

Commercial: Various

CHP

Efficient power and heat generation for the public and private sectors

 

Company Key Performance Indicators ("KPIs")

The Company sets out below its financial, operational and climate-related KPIs which it uses to track the performance of the Company over time against the objectives as described in the Strategic Report and in accordance with the reporting requirements of the TCFD. The Board believes that the KPIs detailed below provide shareholders with sufficient information to assess how effectively the Company is meeting its objectives. The Board monitors these KPIs on an ongoing basis.

Financial KPIs

KPI

Definition

31 March 2021

31 March 2020

Commentary

NAV per share (pence)

NAV divided by no. of shares outstanding as at 31 March

102.5p

101.0p

NAV has increased compared with the prior year, after taking into account dividends paid during the year

Share price (pence)

Closing share price as at 31 March

112.0p

92.5p

The share price has recovered after initially being affected by market conditions from the global uncertainty around COVID-19 in March 2020

Dividends per share (pence)

Aggregate dividends declared per share in respect of the financial year

5.5p

5.0p

The Company met its stated dividend target of 5.5p per share for the year ended 31 March 2021

Dividend cash cover (x)

Operational cash flow divided by dividends paid to shareholders during the year

1.17x

1.55x

Dividends were covered by cash flows for the year ended 31 March 2021

Total Return in the year (%)

NAV growth and dividends paid per share in the year

8.0%

6.2%

Total return combines the increase in NAV and dividend distributions, and reflects continued underlying delivery to shareholders

Ongoing charges ratio (%)

Annualised ongoing charges (i.e. excluding investment costs and other irregular costs) divided by the average published undiluted NAV in the period, calculated in accordance with AIC guidelines

1.13%

1.17%

Ongoing charges have reduced on a comparative basis as economies of scale were achieved through growth in the size of the Company's NAV

 

Operational KPIs

 

KPI

Definition

31 March 2021

31 March 2020

Commentary

Weighted average project life (years)

Weighted average number of years assumed to be remaining in project contracts

13.4

11.3

Increased due to new investments made during the year

Largest investment as a % of GAV (%)

Value of largest investment divided by the sum of all investments held in the Portfolio together with any Cash and Cash Equivalents, calculated at period end

15%

13%

The Company continues to stay well within the limits set by its Investment Policy, demonstrating diversification of the portfolio

Largest five investments as a % of Portfolio Valuation (%)

Total value of five largest investments divided by the sum of all investments held in the Portfolio together with any Cash and Cash Equivalents, calculated at period end

44%

43%

Maintained good diversification

 

Climate-Related KPIs

Climate-related targets

The Company seeks to measure, monitor and report climate-related KPIs that are consistent with all relevant international standards, both statutory and voluntary, for assessing the sustainability of the Company's activities.  As well as TCFD these include Streamlined Energy and Carbon Reporting ("SECR") and the requirements of the SFDR and Taxonomy Regulations as these evolve.

The Company's target is that its investments should contribute to substantial climate change mitigation and that its performance against the measured KPIs should be used to demonstrate if this target has been achieved.

KPI

Definition

31 March 2021

31 March 2020

Commentary

Total Carbon Emissions (Scope 1, 2 and 3)

SEEIT follows the Greenhouse Gas Protocol definition of Scopes:

-  Scope 1 emissions are direct emissions from owned or controlled sources.

-  Scope 2 emissions are indirect emissions from the generation of purchased energy.

Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions.

424,490 tCO2

(Of which 27,638 tCO2 was in the UK)

171,054 tCO2

(Of which 15,871 tCO2 was in the UK)

Absolute emissions have increased between 2020 and 2021 due to increased overall size of portfolio

Total Carbon Emissions (Scope 1 and 2)

Total Scope 1 and 2 Carbon Emissions

378,527 tCO2

(Of which 11,360 tCO2 was in the UK)

152,442 tCO2

(Of which 763 tCO2 was in the UK)

Absolute emissions have increased between 2020 and 2021 due to increased overall size of portfolio

Energy consumption used to calculate above emissions (kWh)

Underlying global energy use in kWh

2,918,968,259 (Of which 103,026,874 was in the UK)

1,156,757,486 (Of which  51,033,512 was in the UK)

Absolute emissions have increased between 2020 and 2021 due to increased overall size of portfolio

Carbon Footprint

Total Scope 1 and 2 Carbon Emissions / Total portfolio value (tCO2e/£M)

685

478

Increase in Carbon Footprint is due to additional data gathering in 2021. In 2020 no data covering Scope emissions was included in reporting.

Period of ownership also impacts this metric.

Exposure to Carbon-Related Assets

Percentage of portfolio assets by asset value tied to the energy and utilities sector (excluding renewable)

83%

88%

Decrease in exposure to carbon related assets reflects an overall move towards lower-carbon assets over the last year.

 

The calculation approach in each case follow several key principles, to maintain a consistent approach. The principles are:

1. Where possible to capture fundamental data regarding project performance. Examples of this data include energy generated (kWh) and fuel consumed (kWh);

2.  Use publicly available emissions factors from government sources specific to the project location;

3.  Where a project was commissioned, or purchased, by SEEIT mid way through the reporting period, only the portion of the period after commissioning or purchase date should be recognised; and

4.  Where SEEIT owns less than 100% of a project, the total project savings should be reduced pro-rata with the ownership percentage.

 

Section 172(1) Statement

The Directors fulfilled their duties under Section 172 of the Companies Act 2006 to act in good faith and to promote the success of the Company for the benefit of shareholders and stakeholders as a whole.

Strategic Report: Portfolio Review

Financial Review

Financial information

In accordance with IFRS 10 the Company carries its investment in Holdco at fair value as it meets the conditions of being an Investment Entity (see Note 2 for details). The fair value of Holdco includes the fair value of the underlying investments which is described in further detail in Valuation of the Portfolio.

In order to provide shareholders with more transparency into the Company's capacity for investment, ability to make distributions, operating costs and gearing levels, results have been reported in the pro forma tables below on a non-statutory "Portfolio Basis" to include the impact if Holdco were to be consolidated on a line-by-line basis. The Directors consider the non-statutory Portfolio Basis to be a more helpful basis for users of the financial statements to understand the performance and position of the Company. This is because key balances such as cash and debt balances carried in Holdco and all expenses incurred in Holdco, including debt financing costs, are shown in full rather than being netted off. The "Portfolio Basis" is presented as an alternative performance measure.

The pro forma tables that follow show the Company's result for the year ended 31 March 2021 compared to the pro forma balance sheet at 31 March 2020 and the pro forma Income statement and Cash Flow for the year to 31 March 2020.

The impact of including Holdco is shown in the Holdco reallocation column which reconciles back to the statutory financial statements ("IFRS") and constitute a reallocation between line items rather than affecting NAV and Earnings - NAV per share and Earnings per share are the same under the Portfolio Basis and the IFRS basis.

Summary Financial Statements

 

Portfolio Basis Summary Income Statement

 

  Year to 31 March 2021

Year to 31 March 2020

£'000

Portfolio Basis

Holdco reallocation

IFRS (Company)

Portfolio Basis

Holdco reallocation

IFRS (Company)

Total income

  41,089

(3, 255 )

37,834

  17,054

(2,554)

14,500

Expenses and Finance Costs

(8, 684 )

3, 255

(5, 429 )

(5,442)

2,554

(2,888)

Profit before Tax

32,405

-

32,405

11,612

-

11,612

Earnings

32,405

  - 

32,405

  11,612

  - 

11,612

Earnings per share (pence)

7.0

  - 

7.0

5.2

  - 

5.2

 

On the Portfolio Basis, Total Income of £41,089k (2020: £17,054k) represents the return from the portfolio recognised as income comprising dividends, interest and valuation movements. Further detail on the valuation movements is given in Valuation of the Portfolio.

On an IFRS basis, Total income of £37,834k (2020: £14,500k) comprises income received by the Company and valuation movements in its investment (see Note 5). Both Total Income and Expenses and Finance Costs are lower than on the Portfolio Basis, as costs incurred by the Holdco are included by netting off within Total Income under IFRS, not under Expenses and Finance Costs. The costs incurred by the Holdco not included on an IFRS basis include transaction abort costs, foreign exchange movements related to hedging and financing expenses related to the RCF.

The increase in Total income compared to the prior year is mainly as a result of the increase in the size of the portfolio and thereby generating a higher amount of revenue from interest and dividends, in addition to the movements in fair value as described in Valuation of Portfolio. The increase in Expenses and Finance costs is also mainly due to the growth of the size of the portfolio with total fees accruing to the Investment Manager of £4,042k for the year  (2020: £1,973k), comprising the 0.9% p.a. management fee of the Adjusted NAV up to £750m and 0.8% in excess of this amount.

Neither the Investment Manager nor any of its affiliates receives other fees from the Company's portfolio of investments.

Profit before tax of £32,405k (2020: £11,612k) included net foreign exchange losses of £4,590k (2020: £2,261k gain) incurred by Holdco comprising a £22,211k loss on revaluing of non-GBP investments for the year ended 31 March 2021 offset by gains on hedging of £17,621k. The foreign exchange gains and losses are reflected in the investment value of Holdco.

In the year, the Company and Holdco incurred £1,063k (2020: £624k) of abort costs on unsuccessful bids, including £600k for bids that were in progress (mainly legal, technical and tax due diligence) and completed after the year-end.

On both the Portfolio Basis and IFRS basis, Earnings were £32,405k (2020: £11,612k) and Earnings per share were 7.0p (2020: 5.2p).

 Portfolio Basis Balance Sheet

 

  As at 31 March 2021

As at 31 March 2020

£'000

Portfolio Basis

Holdco reallocation

IFRS (Company)

Portfolio Basis

Holdco reallocation

IFRS (Company)

Investments at fair value

  552,672

19, 902

572,574

  319,802

(65,707)

254,095

Working capital

14, 933

(15, 761 )

(828)

(4,209)

5,465

1,256

Debt

-

-

-

(62,826)

62,826

-

Cash

126,200

(4,141)

122,059

70,763

(2,584)

68,179

Net assets attributable to Ordinary Shares

693,805

  - 

693,805

323,530

  - 

323,530

NAV per share

102.5

  - 

102.5

101.0

  - 

101.0

 

On a Portfolio Basis, Investments at fair value are £552,672k (2020: £319,802k), representing the Portfolio Valuation. The increase of £232,870k is predominantly due to investments during the year although further detail on the movement in Investments at fair value is given in Valuation of the Portfolio.

On a Portfolio Basis, cash at 31 March 2021 was £126,200k (2020: £70,763k); mainly reflecting cash from equity capital raised and cash received from investments, net of cash used for investments. The Company is expecting to utilise the cash balance in paying the fourth quarterly interim dividend on 30 June 2020, and approximately £100m million was utilised in May 2021 to complete the investment in RED. On an IFRS basis, cash at 31 March 2021 was £122,059k (March 2020: £68,179) which reconciles to the Portfolio Basis through the cash held by Holdco at this date.

An analysis of net cash movement is shown in the cash flow analysis below.

On an IFRS basis, Investments at fair value were £572,574k (2020: £254,095k), reflecting the Portfolio Valuation adjusted for cash, working capital and debt held by Holdco. A reconciliation between the Portfolio Valuation at 31 March 2021 and Investment at fair value shown in the financial statements is given in Note 11 to the financial statements, the principal differences are as per the table below.

 

March 2021

March 2020

 

£'000

£'000

Portfolio Valuation

552,672

319,802

Holdco cash

4,141

2,584

Holdco debt

-

(62,826)

Holdco net working capital

15,761

(5,465)

Investment at fair value (see Note 11)

572,574

254,095

 

NAV per share at 31 March 2021 was 102.5p (2020: 101.0p). NAV per share has increased by 1.5p since last year, reflecting the earnings in the year of 7.0p, interim dividends paid during the year of 6.6p and accretive share issues in the year of 1.1p.

Analysis of growth in NAV

 

NAV per share (pence)

NAV per share at 1 April 2020

101.0

Earnings per share to 31 March 2021

7.0

Interim dividends paid 1

(6.6)

 

101.4

NAV accretive share issues 2

1.1

NAV per share at 31 March 2021

102.5

[1] Consisting of a second interim dividend of 2.5p per share paid in June 2020 for the year ending 31 March 2020 and three interim dividends of 1.375p per share each paid for the year ended 31 March 2021

2 Arising from issuing of shares in the Company in June 2020, October 2020 and February 2021 at a price higher than the prevailing NAV per share.

 

 

Portfolio Basis Cash Flow Statement

  For the year ended 31 March 2021

For the year ended 31 March 2020

£'000

Portfolio Basis

Holdco reallocation

IFRS (Company)

Portfolio Basis

Holdco reallocation

IFRS (Company)

Cash from investments

42,104

(6,099)

36,005

17,087

(13,033)

4,054

Operating and finance costs outflow

(6,433)

1,749

(4,685)

(4,028)

1,723

(2,305)

Net cash inflow before capital movements

35,671

(4,350)

31,321

13,059

(11,310)

1,749

Cost of new investments including investment costs

(255,220)

(61,431)

(316,651)

(254,312)

70,719

(183,593)

Share capital raised net of costs

368,003

-

368,003

222,058

-

222,058

Movement in borrowings

(64,665)

64,665

-

62,826

(62,826)

-

Movement in capitalised debt costs and FX hedging

2,060

(440)

1,620

(4,015)

2,395

(1,620)

Dividend paid

(30,413)

-

(30,413)

(8,422)

-

(8,422)

Movement in the year

55,436

(1,556)

53,880

31,195

(1,022)

30,172

Cash at start of the year

70,763

(2,584)

68,179

39,569

(1,562)

38,007

Cash at end of the year

126,199

(4,140)

122,059

70,763

(2,584)

68,179

 

Cash inflows from the portfolio on a Portfolio Basis were £42,104k (2020: £17,087k), in line with expectations. The increase in cash received compared with the previous period reflects the increase in the size of the portfolio.

The cost of new investments by the SEEIT group on a Portfolio Basis of £255,220k (2020: £254,312k) includes investment acquisition costs as described in the Valuation Movements below.

On an IFRS basis, costs of new investments of £316,651k (2020: £183,593k) reflects funding extended by the Company to Holdco in the year to make portfolio investments and for repayment of the RCF that Holdco utilised to make new investments.

Net cash flow before capital movements in the year on a Portfolio Basis was £35,671k (2020: £13,059k) and covers dividends paid of £30,413k in the year (2020: £8,422k) by 1.17 times. From the year beginning on 1 April 2020, the Company is paying dividends on a quarterly basis compared to semi-annually previously therefore the dividend cover above is for dividends paid for the equivalent of five quarters. The pro forma dividend cover on a full year (four quarters) basis is 1.3 times.

Share capital raised (net of costs) totalled £368,003k (2020: £222,058k) reflecting the net proceeds of shares issued during the year through three separate capital raisings under the share issuance programme.

Hedging for the group is undertaken by Holdco and therefore the Company should have no cash flows for this on an IFRS basis. Holdco enters into forward sales to hedge foreign exchange rate exposure in line with the Company's hedging policy set out below (see 'Foreign Exchange Hedging'). On a Portfolio Basis, there was a net cash inflow of £2,060k on foreign exchange hedging in the year.

Ongoing charges

Ongoing charges, in accordance with AIC guidance, are defined as annualised ongoing charges (i.e. excluding investment costs and other non-recurring items) divided by the average published undiluted net asset value in the year. On this basis the Ongoing charges ratio is 1.13% (2020: 1.17%) for the full year. The Ongoing charges percentage has been calculated on the Portfolio Basis to take into consideration the expenses of the Company and Holdco.

As expected, the Ongoing Charges ratio has reduced year on year, benefitting from the growth in the net assets meaning the fixed (ongoing) costs of the Company is spread across a larger base.

Group drawings and gearing levels

The Investment Manager periodically considers refinancing options aligned to the pipeline of potential transactions and in the interest of efficient capital management and foreign exchange hedging. After the year-end, Holdco increased the RCF to £115 million and ING and Intesa Sanpaolo joined Investec as lenders. The facility includes an uncommitted accordion of £90 million and has also been extended to June 2024. It is expected that a fourth bank will be added shortly resulting in a further increase in the available commitments.

Foreign exchange hedging

The Company applies foreign exchange hedging through currency hedges entered into by Holdco. The objective of the Company's hedging strategy is to protect the value of both near-term income and capital elements of the portfolio from a material impact on NAV arising from movements in foreign exchange rates, and to provide stability and predictability of Sterling cash flows.

This is achieved on an income basis by hedging forecast investment income from non-Sterling investments for up to 24 months through foreign exchange forward sales. On a capital basis, this is achieved by hedging a significant portion of the portfolio value through rolling foreign exchange forward sales. The Investment Manager also seeks to utilise corporate debt facilities in the local currency to reduce foreign exchange rate exposure.

As part of the Company's hedging strategy the Investment Manager will regularly review non-Sterling exposure in the portfolio and adjust the levels of hedging accordingly and in doing so will also take into account the cost benefit of hedging activity.

Net foreign exchange losses in the year ended 31 March 2021 was £3,600k, representing less than 1% of NAV.

Going concern

The Directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore, they continue to adopt the going concern basis of accounting in preparing the financial statements.

Valuation of the Portfolio

Introduction

The Investment Manager is responsible for carrying out the fair market valuation of the SEEIT group's portfolio of investments (the "Portfolio Valuation") which is presented to the Directors for their consideration and approval. A valuation is carried out on a six-monthly basis, as at 31 March and 30 September each year. The Portfolio Valuation is the key component in determining the Company's NAV.

The Company has a single investment in a directly and wholly owned holding company (Holdco). It recognises this investment at fair value. To derive the fair value of Holdco, the Company determines the fair value of investments held directly or indirectly by Holdco and adjusted for any other assets and liabilities. The valuation methodology applied by Holdco to determine the fair value of its investments is described below.

For non-market traded investments (being all the investments in the current portfolio), the valuation is based on a discounted cash flow methodology and adjusted in accordance with the IPEV (International Private Equity and Venture Capital) valuation guidelines where appropriate to comply with IFRS 13 and IFRS 9, given the special nature of infrastructure investments. Where an investment is traded in an open market, a market quote is used.

The Investment Manager exercises its judgment in assessing the expected future cash flows from each investment based on the project's expected life and the financial models produced for each project company and adjusts the cash flows where necessary to take into account key external macro-economic assumptions and specific operating assumptions.

All the operational investments included in the valuation have an underlying contract for energy services. The valuation is based on the future expected cash flows derived from these contracts. For the March 2021 valuation the assumed future cash flows match the maturity of the underlying contract or regulatory life of the asset except in the case of four of the assets in Primary Energy and the assets in Oliva Spanish Cogeneration where it is assumed that future contract extensions are achieved and hence the expected cash flows are currently projected to extend beyond the maturity date of the existing contract with the counterparty.  

The fair value for each investment is then derived from the application of an appropriate market discount rate (on an unlevered basis) to reflect the perceived risk to the investment's future cash flows and the relevant year-end foreign currency exchange rate to give the present value of those cash flows. Where relevant, project level debt balances are then netted off to arrive at the valuation for each asset. The discount rate takes into account risks associated with the financing of an investment such as investment risks (e.g. liquidity, currency risks, market appetite), any risks to the investment's earnings (e.g. predictability and covenant of the income) and a thorough assessment of counterparty credit risk, all of which may be differentiated by the phase of the investment.

The Investment Manager uses its judgement in arriving at the appropriate discount rate. This is based on its knowledge of the market, taking into account intelligence gained from its bidding activities, discussions with financial advisers in the appropriate market, and publicly available information on relevant transactions.

For the valuation as at 31 March 2021, the Directors commissioned a report from a third-party valuation expert to provide their assessment of the appropriate discount rate range for each project (excluding small projects with an aggregate value of less than 2% of the Portfolio Valuation) in order to further benchmark the valuation prepared by the Investment Manager.

The valuation methodology is unchanged from the Company's IPO and has been applied consistently in each subsequent valuation.

Portfolio valuation

The Portfolio Valuation as at 31 March 2021 was £552,672k, an increase of £232,870k compared to the Portfolio Valuation of £319,802k as at 31 March 2020 and an increase of £233,705k compared to the Portfolio Valuation of £318,967k at 30 September 2020 - the increase is mainly a result of the investments during the year.

Valuation movements

A breakdown of the movement in the Portfolio Valuation in the period is set out in the table below.

 

Valuation Movements During the Year To 31 March 2021 (£'000)

 

Portfolio Valuation - 31 March 2020

 

319,802

 

New Investments

254,175

 

 

Cash from Investments

(41,903)

 

 

 

 

212,272

 

Rebased Portfolio Valuation

 

532,074

 

Changes in Macroeconomic Assumptions

(23)

 

 

Changes in Foreign Exchange

(22,211)

 

 

Changes in Discount Rates

11,650

 

 

Balance of Portfolio Return

31,182

 

 

 

 

20,598

 

Portfolio Valuation - 31 March 2021

 

552,672

 

 

The opening Portfolio Valuation at 31 March 2020 was £319,802k. Allowing for investments of £254,175k and cash receipts from investments of £41,903k, the rebased Portfolio Valuation is £532,074k.

Additional investments of £254,175k in the year include the following:

· a £4,997k investment in GET Solutions

· a £1,065k investment in EV Network

· a £2,139k investment in Singapore Energy Efficiency portfolio

· a £31,698k investment in Primary Energy portfolio

· a £110,400k investment in Gasnätet

· a £457k investment in Spark US Energy Efficiency II portfolio

· a £103,418k investment in Onyx

Return from the Portfolio

Each movement between the rebased valuation of £532,074k and the 31 March 2021 valuation of £552,672k is considered in turn below:

(i)  Changes in macroeconomic assumptions:

Inflation assumptions: An adjustment was made to near-term assumptions applied to the investments in Spain and Sweden where there is a ramp up to reach the long-term assumption, positive and adverse changes of approximately £1.8 million each resulted in a net decrease in the valuation of £23k. There were no other changes to inflation assumptions.

Tax rate assumptions: The UK corporation tax rate assumptions were amended in line with recent UK government announcements however as a result of utilising tax group relief within the UK part of the group, this had negligible impact on the valuation as at 31 March 2021. The risk of rising tax rates has been reflected in discount rates (see '(iv) Balance of portfolio return' below for more details).

 

(ii)  Changes in foreign exchange rates:

The loss of £22,211k in the period reflects the strengthening of GBP against US Dollar, Euro and Swedish Krona in the year or since new investments were made.  This reflects the movement in underlying investment values and is shown before the offsetting effect of foreign exchange hedging that is applied at the level of Holdco in line with the overall foreign exchange strategy which resulted in a gain of £17,621k. Overall foreign exchange movements did therefore not have a significant impact on NAV in the period with a net loss from foreign exchange hedging and movement in the assets of £3,600k.

 

(iii)  Changes in valuation discount rates:

The discount rate used for valuing each investment represents an assessment of the rate of return at which infrastructure investments with similar risk profiles would trade on the open market.

 

During the year there were selected reductions of discount rates that in aggregate resulted in an increase in the valuation of £11,650k. The Investment Manager observed strong competition and downwards pressure on discount rates in the US markets, notably in onsite generation assets, and as a result lowered the discount rates used for the investments in Primary Energy and Northeastern US CHP. Downward pressure was also observed in the Spanish, Swedish and UK markets and a discount reduction was applied to selected investments in these geographies.

 

The Directors of the Company have received a report from a third-party valuation expert to benchmark the discount rates used by the Investment Manager. The Directors noted that the discount rates used by the Investment Manager were within the ranges advised by the third-party expert.

 

The weighted average discount rate for the portfolio as at 31 March 2021 was 7.0% on an unlevered basis (March 2020: 7.5% and September 2020: 7.5%). Approximately 0.4% of the reduction in the year resulted from new core investments acquired at an unlevered discount rate below the prevailing weighted average, although these investments were acquired with leverage that allows the total return of that investment to be at or in excess of the Company's target returns. The remaining approximately 0.1% reduction in the year reflected a general reduction of discount rates observed for the energy efficiency asset class.

(iv)  Balance of portfolio return:

This refers to the balance of valuation movements in the year (excluding (i) to (iii) above) and which provided an uplift of £29,420k. The balance of portfolio return reflects the net present value of the cash flows unwinding over the period at the average prevailing portfolio discount rate and various additional valuation adjustments described below. The balance of portfolio return accounted for an increase above the rebased valuation of £532,074k of 5.9% although it is approximately 7.3% when adjusting for the Onyx acquisition which was a material acquisition that occurred near the end of the year and did not contribute to the return on account of the fair value being equal to the upfront cost. 

The valuation includes a provision of approximately £9 million for EU-ETS costs in Spain where five of the projects in the Oliva Spanish Cogeneration portfolio pays EU ETS in respect of cogeneration and where the market has experienced significant and sharp rises in these costs over the last few months. Under the RoRi regime, the projects receive compensation given its environmental attributes. The March 2021 valuation includes an assumption that compensation is received in later years under the RoRi regime but the Investment Manager has applied a significant provision for this compensation falling below market expectations and the intended make-whole spirit of the regulatory mechanism. Should no compensation be received, it is expected to have a further approximately £7m impact on the valuation.

 

A report was commissioned from an independent third-party specialist technical adviser for this valuation to review the commercial viability of useful life extensions in underlying assets in Primary Energy. The report confirmed the viability of extending cash flows for a further 10 years beyond the prevailing assumption of 2044. The Investment Manager however applied a significant risk premium above the applied discount rate for these projects when valuing this ten-year extension.

Operational savings identified in Gasnätet of approximately £5 million has been materially offset by a general increase on insurance costs across the portfolio in future years.

 

Impact of COVID-19 on the valuation

The Investment Manager has reviewed the impact of the COVID-19 pandemic on the portfolio during the year, and the overall impact on the financial performance and cash flow projections has not had a material impact on the Portfolio Valuation and NAV.

 

As described further in the Investment Manager's report, the COVID-19 pandemic caused some operational and financial disruption to certain assets, of which the key impacts are listed below:

· It was the direct cause for the idling of a blast furnace where the Ironside contract's revenues were impacted between April and August 2020.

· The construction commissioning phase of Huntsman Energy Centre and installations of rooftop solar on Tesco sites in the UK were delayed during the initial hard lockdown period in the UK spring.

· In Spain, the localised lockdowns and impact of the initial wave of the COVID-19 pandemic caused electricity prices to drop below our assumptions - this caused lower than expected returns in the period which is however mitigated by the RoRi regulatory mechanism which provides a level of downside protection through boosted overall returns that only materialises in future years.

· Lower than expected revenue from delivering gas to restaurant customers in Stockholm in the Gasnätet project, which has also been assumed to continue in the near term and therefore continue to adversely affect near-term cash flows and valuation.

Notwithstanding these specific impacts of the COVID-19 pandemic, and with the exception of Ironside noted above, all operational assets continued to provide energy services throughout the period. As a result of this, cash flows have remained good and the overall valuation has not experienced a material impact from the COVID-19 pandemic.

Valuation assumptions

 

 

31 March 2021

30 September 2020

31 March 2020

Inflation rates

UK (RPI)

2.75% p.a.

2.75% p.a.

2.75% p.a.

UK (CPI)

2.00% p.a.

2.00% p.a.

2.00% p.a.

Spain (CPI)

1.0% to 1.4% until 2023, 2.00% p.a. long-term

1.40% - 2.00% p.a.

1.40% - 2.00% p.a.

Sweden (CPI)

1.4% to 1.7% until 2023,  2.00% p.a. long-term

n/a

n/a

Singapore (CPI)

2.00% p.a.

n/a

n/a

USA (CPI)

2.00% p.a.

2.00% p.a.

2.00% p.a.

Tax rates

UK

19% to 2023, 25% thereafter

19%

19%

Spain

25%

25%

25%

Sweden

21.4%

n/a

n/a

Singapore

17%

n/a

n/a

USA

21% Federal and 3-9% State rates

21% Federal and 3-9% State rates

21% Federal and 3-9% State rates

Foreign exchange rates

EUR/GBP

0.85

0.91

0.88

SEK/GBP

0.08

n/a

n/a

SGD/GBP

0.54

n/a

n/a

USD/GBP

0.73

0.77

0.80

 

Key sensitivities

For each of the sensitivities, it is assumed that potential changes occur independently of each other with no effect on any other base case assumption, and that the number of investments in the portfolio remains static throughout the modelled life.

Discount rate sensitivity

The weighted average discount rate that is applied to each portfolio company's forecast cash flow, is the single most important judgement and variable for the purposes of valuing the portfolio.

A 0.5% increase in the discount rates would result in a NAV per share decrease of 4.1p based on the Portfolio Valuation as at 31 March 2021. A 0.5% decrease in the discount rates would result in a NAV per share increase of 4.4p based on the Portfolio Valuation as at 31 March 2021.

Corporation tax rate sensitivity

This sensitivity considers a 5% p.a. movement in corporation tax rates in each country where an investment is held - for the valuation as at 31 March 2021 this included UK, Spain, Sweden, Singapore and USA. The profits of each portfolio company are subject to corporation tax in the country where the project is located.

A 5% p.a. increase in corporation tax rates would result in a NAV per share reduction of 3.0p based on the Portfolio Valuation as at 31 March 2021. A 5% p.a. decrease in corporation tax rates would result in a NAV per share increase of 3.0p based on the Portfolio Valuation as at 31 March 2021.

The sensitivity is shown on the basis that corporation tax rates remain as the sensitised level for the remainder of any period in which cash flow is assumed for that project and that no mitigations that may be available are applied. Key mitigants available include portfolio structuring changes including gearing, and the option available to the Company to use interest streaming of dividends to shareholders in the future, whereby a portion of the dividend distribution is designated as interested, allowing net taxable interest income to be reduced.

The sensitivity mainly shows the unmitigated impact of changes in US, Swedish and Spanish tax rates. The exposure to UK corporation tax at project level has negligible sensitivity to the sensitised movements in UK corporation tax rates, including the impact of the expected future tax rises announced by the UK government, because of UK entities within the group being able to offset aggregate profits and losses.

Inflation rate sensitivity

This sensitivity considers a 0.5% p.a. movement in long-term inflation in the underlying investment cash flows.

A 0.5% p.a. increase in inflation rates would result in a NAV per share increase of 0.8p based on the Portfolio Valuation as at 31 March 2021. A 0.5% p.a. decrease in inflation rates would result in a NAV per share reduction of 0.7p based on the Portfolio Valuation as at 31 March 2021.

The Company's portfolio includes investments that benefit from fixed or escalating revenues that are not directly linked to inflation. This includes the assets in Primary Energy where periodic recontracting is assumed in the valuation. It is assumed that the renewed revenue contracts entered into in future years reset the revenues at such a level that it materially offsets increases to project level costs such as O&M that is materially inflation-linked. Within the portfolio of Oliva Spanish Cogeneration assets there is some natural offsetting or protection between revenues and costs for inflation increases and decreases. The assumption in the Gasnätet project is that the regular renewals of customer contracts (typically annually) include inflationary increases to the tariffs charged, however it is also assumed that this would not result in the charges being above the regulatory cap and therefore the full inflationary increase is not passed on to the customer each time.  In the current portfolio there are several assets with no or negligible exposure to inflation, notably the assets in the UK and the senior debt loan investments in Spark US Energy Efficiency I and II.

The Investment Manager aims to construct and maintain a portfolio that generates year-on-year revenue growth on a progressive basis. The Investment Manager does not aim to construct and maintain a portfolio of assets with direct inflation-linked returns, however it targets any potential portfolio downside inflation impact to be broadly offset through revenue growth over the medium to long-term. Should the long-term exposure increase adversely, the Investment Manager will consider implementing mitigant strategies that include, but are not limited to, hedging.

Foreign exchange rate sensitivity

This sensitivity considers a 10% movement in relevant non-GBP currencies, which in the case of the Portfolio Valuation at 31 March 2021 is US Dollar, Singapore Dollar, Swedish Krona and Euro, from the foreign exchange rates used at 31 March 2021 - the sensitivity is shown below pre and post mitigation from hedging.

This sensitivity is presented after considering the effect of hedging implemented by the Company. Using historical levels of hedging and the Company's hedging strategy as described in Financial Review as a guide, at an assumed level of 90% hedging, a 10% increase (strengthening of GBP) in foreign exchange rates would result in a NAV per share reduction of 0.7p and 10% decrease (weakening of GBP) in foreign exchange rates would result in a NAV per share increase of 0.8p.

Without any hedging, a 10% increase (strengthening of GBP) in foreign exchange rates would result in a NAV per share reduction of 6.8p based on the Portfolio Valuation as at 31 March 2021. A 10% decrease (weakening of GBP) in foreign exchange rates would result in a NAV per share increase of 7.9p based on the Portfolio Valuation as at 31 March 2021.

Please refer to Note 3 in the Notes to the Financial Statements for further detail.

 

Viability Statement

The viability assessment period

The Directors have assessed the prospects of the Company over a five-year period to 31 March 2026. Consistent with prior years, the Directors have determined that a five-year period is an appropriate period over which to provide this viability statement as this period accords with the Company's business planning exercises and is appropriate for the investments owned by the Company and the nature of the Company.

Assessment process

In making this statement the Directors have considered the resilience of the Company, taking account of its current position, the principal risks facing the business in severe but plausible downside scenarios, and the effectiveness of any mitigating actions.

The Company benefits from investments where the majority have predictable long-term cash flows and a set of risks that can be identified and assessed and would not be expected to change materially from one period to the next. The investments are each supported by detailed financial models and the investments that have financing in place have done so on a non-recourse basis to the Company. The Directors believe that the diversification within the portfolio of predominantly operational investments helps to withstand and mitigate for the risks it has identified that the Company may face.

The Investment Manager prepared and the Directors reviewed five-year cash flow projections as part of business planning, including as part of the approval process of the Company's budget and business plan,  and to approve dividends on a quarterly basis after reviewing medium-term cash flow projections. The projections consider cash flows, dividend cover, Investment Policy compliance and other key financial indicators over the period. These projections are based on the Investment Manager's expectations of future asset performance, income and costs, and are consistent with the methodology applied to provide the valuation of the investments during the year.

The Directors received updates from the Investment Manager during the year of the actual and likely impact of COVID-19 on the portfolio which included reports on any operational disruption to the underlying investments and the impact on the projected cash flows from the investments as part of the Investment Manager's valuation updates.

The Investment Manager provided analysis on these projections at various points through the year that considers the potential impact of the Company's principal risks actually occurring in severe but plausible downside scenarios.

The Audit & Risk Committee had the opportunity to review and challenge the scenario analysis which included the potential adverse impact of the scenarios detailed below on the Company's projected near-term, medium and long-term cash flows and the associated effect on ability to pay dividends, to settle ordinary liabilities and on earnings and the NAV.

Scenarios reviewed and impact

The Investment Manager selected these scenarios on the basis that each could be reasonably assumed as a downside but plausible impact caused by COVID-19 affecting the Company directly or indirectly

·significant one-off adverse changes to foreign exchange rates of 20%, placing immediate liquidity demands on the Company and Holdco of approximately £13 million;

· global corporation tax rate rises of 10%, resulting in a 5% reduction in value of the Portfolio Valuation and therefore NAV of the Company;

· counterparty credit deterioration, resulting in an immediate full credit default by the largest counterparty causing a loss of future revenues and approximately 15% reduction in value of the Portfolio Valuation and therefore NAV of the Company;

· significant cash drag after capital raisings should £150m be raised but not deployed, resulting in a decline of NAV over time if projected dividend payments by the Company are maintained; and

·a significant adverse impact of a 50% increase of EU-ETS costs in Spain, resulting in a 7% reduction in value of the Portfolio Valuation and therefore NAV of the Company.

The Audit & Risk Committee reviewed and challenged the Investment Manager on each of the scenarios presented, including reviewing the likelihood of the risks of the scenarios materialising and the potential mitigants that the Investment Manager may apply to reduce any potential downside risk. The Audit & Risk Committee concluded that the scenarios, each prepared individually, demonstrated good resilience of the Company against adverse factors impacting its portfolio. The Investment Manager also provided the Audit & Risk Committee with a severe scenario that calculated the extent of the loss in revenue required to threaten the Company's solvency. The outcome of this scenario provided comfort that the Company should remain viable over the period assessed.

Confirmation of viability

Based on the reviews conducted throughout the year, the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to 31 March 2026.

On behalf of the Board

Tony Roper,

Chair

 

  Directors' Responsibility Statement

 

The 2021 Annual Report which will be published in June 2021 contains a responsibility statement in compliance with DTR 4.1.12. This states that on 24 June 2021, the date of the approval of the Annual Report, the Directors confirm that to the best of their knowledge:

• the Company's financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company: and

• the Strategic Report in the Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

 

 

 

  STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2021

 

 

Note

For the

year ended

31 March 2021

£'000

For the

year ended

31 March 2020

£'000

Income

 

 

 

Investment income

5

37,834

14,500

Total income

 

37,834

14,500

Fund expenses

6

(5,429)

(2,888)

Operating profit

 

32,405

11,612

Profit for the year before tax

 

32,405

11,612

Tax

7

-

-

Profit and total comprehensive income for the

year after tax

 

32,405

11,612

Profit and total comprehensive income for the

year attributable to:

Equity holders of the Company

 

 

 

32,405

 

 

11,612

Earnings Per Ordinary Share (pence)

8

7.0

5.2

 

The accompanying Notes are an integral part of these financial statements.

 

All items in the above Statement derive from continuing operations.

 

 

STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2021

 

Note

31 March 2021

£'000

31 March 2020

£'000

Non-current assets

 

 

 

Investment at fair value through profit or loss

11

572,574

254,095

 

 

572,574

254,095

Current assets

 

 

 

Trade and other receivables

12

401

1,840

Cash and cash equivalents

2

122,059

68,179

 

 

122,460

70,019

Current liabilities

 

 

 

Trade and other payables

13

(1,229)

(584)

Net current assets

 

121,231

69,435

Net assets

 

693,805

323,530

 

 

 

 

Capital and reserves

 

 

 

Share capital

14

6,771

3,204

Share premium

14

584,437

219,721

Other distributable reserves

14

58,165

88,578

Retained earnings

 

44,432

12,027

Total equity

 

693,805

323,530

Net assets per share (pence)

10

102.5

101.0

 

The accompanying Notes are an integral part of these financial statements.

The financial statements for the year ended 31 March 2021 of SDCL Energy Efficiency Income Trust plc, were approved and authorised for issue by the Board of Directors on 24 June 2021.

Signed on behalf of the Board of Directors:

 

 

Helen Clarkson  Tony Roper

Director  Director 

Company number: 11620959

 

 

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEAR ENDED 31 MARCH 2021

 

 

Note

Share Capital

£'000

 

Share Premium

£'000

Other distributable reserves

£'000

Retained earnings

£'000

Total

£'000

Balance at 1 April 2020

 

3,204

219,721

88,578

12,027

323,530

Shares issued

14

3,567

371,433

-

-

375,000

Share issue costs

14

-

(6,717)

-

-

(6,717)

Dividends paid

9

-

-

(30,413)

-

(30,413)

Profit and total comprehensive income for the year

 

-

-

-

32,405

32,405

Balance at 31 March 2021

6,771

584,437

58,165

44,432

693,805

 

 

Note

Share Capital

£'000

 

Share Premium

£'000

Other distributable reserves

£'000

Retained earnings

£'000

Total

£'000

Balance at 1 April 2019

 

1,000

-

97,000

415

98,415

Shares issued

 

2,204

223,876

-

-

226,080

Share issue costs

 

-

(4,155)

-

-

(4,155)

Dividends paid

9

-

-

(8,422)

-

(8,422)

Profit and total comprehensive income for the year

 

-

-

-

11,612

11,612

3,204

219,721

88,578

12,027

323,530

 

The accompanying Notes are an integral part of these financial statements.

 

 

 

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 MARCH 2021

 

Note

 

For the

year ended

31 March 2021

£'000

 

For the

year ended

31 March 2020

£'000

Cash flows from operating activities

 

 

 

Operating profit for the year

 

32,405

11,612

Adjustments for:

 

 

 

Gain on investment at fair value through profit or loss

 

(15,021)

(11,895)

Loan Interest Income

5

(2,684)

(939)

Operating cash flows before movements in working

capital

 

14,700

(1,222)

Changes in working capital

 

 

 

Decrease in trade and other receivables

12

1,440

161

Increase/(Decrease) in trade and other payables

13

645

(2,342)

Net cash generated from/(used in) operating activities

 

16,785

(3,403)

Cash flows from investing activities

 

 

 

Investment in subsidiary

 

(316,479)

(180,866)

Loan principal repayment received

 

13,021

-

Loan Interest Income Received

 

2,684

939

Net cash used in investing activities

 

(300,774)

(179,927)

Cash flows from financing activities

 

 

 

Proceeds from the issue of shares

Payment of share issue costs

Dividends paid

14

9

375,000

(6,718)

(30,413)

226,080

(3,076)

(8,422)

Net cash generated from financing activities

 

337,869

213,502

Net movement in cash and cash equivalents during the

year

 

53,880

30,172

Cash and cash equivalents at the beginning of the

year

2

68,179

38,007

Cash and cash equivalents at the end of the year

2

122,059

68,179

 

The accompanying Notes are an integral part of these financial statements.

 

 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2021

 

1.  General Information

 

The Company is incorporated in England and Wales under number 11620959 pursuant to the Companies Act 2006 and is domiciled in the United Kingdom. The Company's registered office and principal place of business is 6th Floor, 125 London Wall, London, EC2Y 5AS. The Company was incorporated on 12 October 2018 and is a Public Company and the ultimate controlling party of the group.

The Company's ordinary shares were first admitted to the premium segment of the UK Listing Authority's Official List and to trading on the Main Market of the London Stock Exchange under the ticker SEIT on 11 December 2018.

The Company's objective is to generate an attractive total return for investors comprising stable dividend income and capital preservation, with the opportunity for capital growth through the acquiring and realising of a diverse portfolio of energy efficiency infrastructure projects.

The Company currently makes its investments through its principal holding company and single subsidiary, SEEIT Holdco Limited ("Holdco"), and intermediate holding companies which are directly owned by the Holdco. The Company controls the investment policy of each of the Holdco and its intermediate holding companies in order to ensure that each will act in a manner consistent with the investment policy of the Company.

The Company has appointed Sustainable Development Capital LLP as its Investment Manager (the "Investment Manager") pursuant to the Investment Management Agreement dated 22 November 2018. The Investment Manager is registered in England and Wales under number OC330266 pursuant to the Companies Act 2006. The Investment Manager is regulated by the FCA, number 471124.

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

 

2.  Significant Accounting Policies

 

a)  Basis of accounting

 

The financial information set out above does not constitute the Company's statutory financial statements for the years ended 31 March 2021 or 2020 but is derived from those financial statements. Statutory financial statements for 2020 have been delivered to the registrar of companies, and those for 2021 will be delivered in due course. The auditors have reported on those financial statements; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Fair value is the price that would be received on sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis.

The principal accounting policies adopted are set out below and consistently applied, subject to changes in accordance with any amendments in IFRS.

 

(i)  New Accounting Standards, amendments to existing Accounting Standards and/or interpretations of existing Accounting Standards (separately or together, "New Accounting Requirements") adopted during the current year

 

There are no standards, amendments to standards or interpretations that are effective for annual

periods beginning on 1 April 2020 that have a material effect on the financial statements of the Company nor the value of investments. This includes the following standards which the Company adopted during the year

· Amendments to References to the Conceptual Framework in IFRS Standards

· Definition of a Business (Amendments to IFRS 3)

 

b)  IFRS 10 - basis of consolidation and Investment entities exemption

 

The Company applies IFRS 10 Consolidated Financial Statements. As in the previous period, the Directors have concluded that in accordance with IFRS 10, the Company continues to meet the definition of an investment entity having re-evaluated the criteria (see below) that needs to be met. The financial statements therefore comprise the results of the Company only and no subsidiaries are consolidated on a line by line basis.

 

The Company invests its investable cash into SEEIT Holdco Limited (the "Holdco") when a targeted investment has been approved by the Investment Manager's Investment Committee. The sole objective of the Holdco is to enter into several energy efficiency projects, via individual corporate entities. The Holdco issues equity and loans to finance the projects. Holdco also incurs overheads and borrowings on behalf of the group. As a result, the Directors have provided an alternative presentation of the Company's results in the Strategic Report which includes a consolidation of Holdco.

 

Under IFRS 10 investment entities are required to hold subsidiaries at fair value through the Statement of Comprehensive Income rather than consolidate them. There are three key conditions to be met by the Company for it to meet the definition of an investment entity. For each reporting period, the Directors assess whether the Company continues to meet these conditions:

 

(i) The Company has obtained funds for the purpose of providing investors with investment management services;

(ii) The business purpose of the Company, which was communicated directly to investors, is investing solely for risk-adjusted returns (including having an exit strategy for investments); and

(iii) The performance of substantially all investments is measured and evaluated on a fair value basis.

 

The Company is an investment company, providing investors exposure to a diversified portfolio of energy efficiency infrastructure projects that are managed for investment purposes.

 

During the year ended 31 March 2021, the Company, via Holdco, made significant new investments, notably in Sweden and the USA, and as a result the size of the Company significantly increased. These investments are described in Note 11. These investments were made in line with the stated objective of the Company to generate returns from capital appreciation and investment income in accordance with the strategy that has been set by the Directors. The Directors assessed each new investment carefully in order to determine whether the Company as a whole still meets the definition of an investment entity.

 

As part of the assessments the Directors had regard for the nature of the underlying business and operations and the exit strategy of each new investment and how that compared to the already existing portfolio. The Company's exit of investments may be at the time each asset reaches its current assumed end of economic life. At this point it could be possible for the Company to remain invested subject to contractual negotiations, economic viability and investment policy of the Company at the time. The Company is investing in a sector for which there is an active secondary market and therefore the Company may also exit investments at an earlier stage for profit or for portfolio rationalisation purposes.

 

The assessments concluded that the new investments shared similar characteristics to the existing investments, are in line with the business purpose of the Company and that each has an appropriate exit strategy. In particular, the Directors noted that:

· the underlying businesses and the structure of the new investments are in keeping with the existing portfolio through the provision of energy efficiency services to clients, or host counterparties, predominantly through long-term contracted agreements

· The underlying business are set up as Special Purpose Vehicles (SPV's) and although each SPV can have an indefinite life, the equipment associated with providing such services have finite lives, are capable of being upgraded or sold and the contracts can be renewed

· As part of the exit strategy for each new investment, the structure of that investment is such that it could be readily made available for sale (further information on exit strategy for new investments can be found in Investment Manager's Report)

· Each new investment is measured at fair value.

After assessing whether the Company meets the definition of an investment entity set out in IFRS 10 the Directors concluded that as a whole:

 

(i) the Company has multiple investors with shares issued publicly on London Stock Exchange and obtains funds from a diverse group of shareholders who would otherwise not have access individually to investing in energy efficiency projects;

(ii) the Company's purpose is to invest funds for both investment income and capital appreciation. The Holdco and its SPVs have indefinite lives however the underlying assets have minimal residual value because they do not have unlimited lives, are not to be held indefinitely and have appropriate exit strategies in place; and

(iii) the Company measures and evaluates the performance of all of its investments on a fair value basis which is the most relevant for investors in the Company. The Directors use fair value information as a primary measurement to evaluate the performance of all of the investments and in decision making.

 

The Directors are of the opinion that the Company meets all the typical characteristics of an investment entity and therefore meets the definition set out in IFRS 10. The Directors believe the treatment outlined above provides the most relevant information to investors.

 

c)  Going concern

 

The Company's business activities and performance are set out in the Strategic Report and the Viability Statement. The Financial Review sets out the Company's financial position, cash flows, liquidity position and the borrowing facilities of Holdco. The Notes to the Financial Statements also sets out the Company's financial risk management policies.

 

Investment diversification and cash

The Company, through its investment in Holdco, benefits from a portfolio of investments that have a range of long-term contracts with a diversified set of counterparties across multiple sectors and jurisdictions.  A key risk facing the Company is that counterparties to the investments may not be able to make their contractual payments. The Company has prepared and the Directors have reviewed a cash flow forecast covering the minimum period of twelve months from the date of approval of this report, taking into consideration potential changes in investment and trading performance and applying a 10% reduction in revenues to test the resilience of cash flows in the near term. The forecast demonstrates an expectation to continue to generate positive cash flows for the foreseeable future that as a minimum will meet liabilities as they fall due. The Directors reviewed a severe downside scenario where the Company would not receive any further income from its investment for the next 12 months from signing of the financial statements and taking into account all committed payments for running the Company, the Company would have sufficient cash reserves to continue as a going concern.

 

As at 31 March 2021, the Company's net current assets were £121.2m, including cash balances of £122 million. Further amounts of cash are held by the Company's direct and indirect subsidiaries, which are sufficient to meet current obligations as they fall due. The major cash outflows of the Company are the payment of dividends and payments relating to the acquisition of new assets, both which are discretionary.

 

Credit Facility

The Company's single subsidiary, Holdco, has a RCF that has adequate headroom in its covenants that have been tested for historic and forward interest cover and group loan to value limits. As at 31 March 2021 the facility was undrawn. The Company is a guarantor to the RCF (see Note 19) but has no other guarantees or commitments.

 

COVID-19

In the year to 31 March 2021 and up to the date of this report, the outbreak of the COVID-19 pandemic has continued to have a negative impact on the global economy which has raised some uncertainties and additional risks for the Company. The Directors of the Company and the Investment Manager continue to follow government guidelines in relation to COVID-19 pandemic in all the jurisdictions its investments operate to ensure best practices are followed. Although certain investments, notably projects in Oliva Spanish Cogeneration and Primary Energy, suffered from operational disruption due to COVID-19 which affected financial performance, during the year ended 31 March 2021 and up to the date of approval of the financial statements, there has not been a material impact to the Company, its investment in Holdco and its indirect subsidiaries to carry out its operations and receive the expected return from its investments. Further details of the COVID-19 impact on the operations and valuation of the investments are provided in the Investment Manager's Report and Valuation of the Portfolio of the Strategic Report.

 

The Directors do not believe there is a significant risk to the Company from COVID-19 pandemic but along with the Investment Manager, continues to monitor the portfolio for material impact from the COVID-19 pandemic.

 

The Directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of approval of the financial statements. The Directors have reviewed the Company's financial projections and cash flow forecasts, including the potential impact from COVID-19 and believe, based upon those projections and forecasts and various risk mitigation measures in place, that it is appropriate to prepare the financial statements on a going concern basis.

 

d)  Segmental reporting

 

The Chief Operating Decision Maker ("CODM") being the Board of Directors, is of the opinion that the Company is engaged in a single segment of business, being investment in energy efficiency projects to generate investment returns whilst preserving capital. The financial information used by the CODM to manage the Company presents the business as a single segment.

 

e)  Foreign Currency Translation

 

Foreign currency and presentation currency

Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates, the Company's functional currency. The financial statements are presented in Pounds Sterling which is the Company's functional and presentation currency.

 

Transactions and balances

Foreign currency transactions are translated into Pounds Sterling using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income.

 

f)  Income

 

Dividend income and investment income from financial assets at fair value through profit or loss is recognised in the Statement of Comprehensive Income within investment income when the Company's right to receive payments is established.

Fair value gains on financial assets at fair value through profit or loss are recognised in the Statement of Comprehensive Income at each valuation point.

Finance income comprises interest earned on cash held on deposit. Finance income is recognised on an accruals basis. Loan interest income is accounted for on an accruals basis using the effective interest method.

 

g)  Dividends payable

 

Dividends to the Company's shareholders are recognised when they become legally payable. In the case of interim dividends, this is when they are paid. In the case of final dividends, this is when they are approved by the shareholders at the AGM.

 

h)  Fund Expenses

 

All expenses including investment management fees, transaction costs, non-executive directors' fees are accounted for on an accruals basis. Share issue expenses of the Company directly attributable to the issue and listing of shares are charged to the share premium account.

 

i)  Acquisition costs

 

Acquisition costs are expensed to the Income Statement as they are incurred.

 

j)  Taxation

 

The Company is liable to UK corporation tax on its income. Current tax is the expected tax payable on the taxable income for the period, using tax rates that have been enacted or substantively enacted at the date of the Statement of Financial Position. Fair value movements and dividends received by the Company are exempt from UK corporation tax.

 

k)  Cash and cash equivalents

 

Cash and cash equivalents include deposits held at call with banks and other short-term deposits with original maturities of three months or less. The majority of cash is held at the Money market fund managed by JP Morgan. It is highly liquid investment and readily convertible to a known amount of cash. There is no expected credit loss as the bank institutions have credit ratings of at least BBB+ and all cash is held at call from the banks.

l)  Financial instruments

 

Financial assets and financial liabilities are recognised in the Company's Statement of Financial Position when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to the cash flows from the instrument expire or the asset is transferred and the transfer qualifies for derecognition in accordance with IFRS 9 Financial instruments.

Investments are recognised when the Company has control of the asset. Control is assessed considering the purpose and design of the investments including any options to acquire the investments where these options are substantive. The options are assessed for factors including the exercise price and the incentives for exercise.

The Company classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value through profit or loss; and

• those to be measured at amortised cost.

At initial recognition, the Company measures investments in energy efficiency projects at its transaction price net of transaction costs that are directly attributable to the acquisition of the financial asset.  The Company subsequently measures all investments at fair value and changes in the fair value are recognised as gains/(losses) on investments at fair value through profit or loss within investment income.

m)  Trade and other receivables

 

Trade and other receivables are non-derivative financial assets with fixed or determinable payments that not quoted in an active market. Those includes Prepayments, VAT Receivable and other receivables which are intercompany balances due from subsidiary. Receivables are initially recognised at fair value. They are subsequently measured at amortised cost, less any expected credit loss.

The Company has assessed IFRS 9's expected credit loss model and does not consider any impact on these financial statements.

n)  Trade and other payables

 

Trade and other payables include accruals and other payables and initially are recognised at fair value, and subsequently re-measured at amortised cost using the effective interest method.

o)  Share Capital and share premium

 

The Company's ordinary shares are not redeemable and are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction in equity and are charged from the share premium account. The costs incurred in relation to the IPO and subsequent fundraisings of the Company were charged from the share premium account.

3.  Critical accounting estimates and judgements

 

The preparation of financial statements in accordance with IFRS requires the Directors to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the year. Actual results could differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period or in the period and future periods if the revision affects both current and future periods.

Judgements

Investment entity

As disclosed in Note 2, the Directors have concluded that the Company continues to meet the definition of an investment entity as defined in IFRS 10, IFRS 12 and IAS 27. This conclusion involved a degree of judgement and assessment as to whether the Company met the criteria outlined in the accounting standards.

  Estimates

Investment valuations

The Board of Directors has appointed the Investment Manager to produce investment valuations based upon projected future cash flows. These valuations are reviewed and approved by the Board. The investments are held indirectly through the Holdco and its intermediate holding companies.

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.

Fair values for those investments for which a market quote is not available, in this instance being all investments, are determined using the income approach which discounts the expected cash flows at the appropriate rate. The investment at fair value through profit or loss is valued by discounting future cash flows to the group from investments in both equity cash flows, such as dividends and equity redemptions, and subordinated loans cash flows, such as interest and principal repayments, at an appropriate discount rate for the underlying asset.

 

The weighted average discount rate applied in the 31 March 2021 valuation was 7.0% (2020: 7.5%). The discount rate is considered one of the most unobservable inputs through which an increase or decrease would have a material impact on the fair value of investment at fair value through profit or loss.

The Portfolio Valuation at 31 March 2021 includes estimates of future cash flows that have the potential to have a material effect on measurement of fair value. For the five assets in the Primary Energy, estimates have been made to determine the demand for generation by the off takers , the revenues that can be generated from selling renewables credits and the cash flows that can be generated through recontracting with the counterparty after the expiry of the existing contract terms. In Oliva Spanish Cogeneration, estimates have been included in the Portfolio Valuation for future compensation of EU-ETS costs. The actual compensation to be received has the potential to be materially different to expected future cash flows, for example zero compensation could result in an adverse impact of approximately £5 million on the current estimate.

Further estimates have been made on the key macroeconomic assumptions that are likely to have a material effect on the measurement of fair value being inflation, corporation tax and foreign exchange which are further described in Note 4.

4.  Financial Instruments

 

Valuation methodology

As detailed in Note 11 and Valuation of the Portfolio, the Company has a single investment directly wholly owned holding company (Holdco). It recognises this investment at fair value. To derive the fair value of Holdco, the Company determines the fair value of investment held directly or indirectly by Holdco and adjust for any other assets and liabilities. See Note 11 for a reconciliation of this fair value.  The valuation methodology applied by Holdco to determine the fair value of its investments is described below.

 

The Directors have satisfied themselves as to the methodology used and the discount rates and key assumptions applied in producing the valuations. All investments are at fair value through profit or loss.

For non-market traded investments (being all the investments in the current portfolio), the valuation is based on a discounted cash flow methodology and adjusted in accordance with the IPEV (International Private Equity and Venture Capital) valuation guidelines where appropriate to comply with IFRS 13 and IFRS 9, given the special nature of infrastructure investments. Where an investment is traded in an open market, a market quote is used.

The Investment Manager exercises its judgment in assessing the expected future cash flows from each investment based on the project's expected life and the financial models produced for each project company and adjusts the cash flows where necessary to take into account key external macro-economic assumptions and specific operating assumptions.

The fair value for each investment is then derived from the application of an appropriate market discount rate for that investment to reflect the perceived risk to the investment's future cash flows and the relevant period end foreign currency exchange rate to give the present value of those cash flows. The discount rate takes into account risks associated with the financing of an investment such as investment risks (e.g. liquidity, currency risks, market appetite), any risks to the investment's earnings (e.g. predictability and covenant of the income) and a thorough assessment of counterparty credit risk, all of which may be differentiated by the phase of the investment. Specific risks related to each asset that can be attributed to the COVID-19 pandemic are assessed and where required, adjustments are made to expected future cash flows or reflected in the asset specific discount rate that is applied.

 

Fair value measurement by level

IFRS 13 requires disclosure of fair value measurement by level. Fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety which are described as follows:

Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date;

Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

Level 3 inputs are unobservable inputs for the asset or liability.

The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments.

Investment at fair value through profit or loss

Level 1

£'000

Level 2

£'000

Level 3

£'000

31 March 2021

-

-

572,574

31 March 2020

-

-

254,095

 

The Company's indirect investments have been classified as level 3 as the investments are not traded and contain unobservable inputs. As the fair value of the Company's equity and loan investments in the Holdco is ultimately determined by the underlying fair values of the SPV investments or debt schedules, the Company's sensitivity analysis of reasonably possible alternative input assumptions is the same across all its investments. The reconciliation of Level 3 fair value is disclosed in Note 11.

 

 

 

Valuation Assumptions

 

 

31 March 2021

31 March 2020

Inflation rates

UK (RPI)

UK (CPI)

2.75% p.a.

2.00% p.a.

2.75% p.a.

2.00% p.a.

Spain (CPI)

1.0% to 1.4% until 2023, 2.0% long-term

1.1% in 2020, 1.6% in 2022 and 2.0% 2023 and thereafter

USA (CPI)

2.00% p.a.

2.00% p.a.

Singapore (CPI)

2.00% p.a.

n/a

Sweden (CPI)

1.4% to 1.7% until 2023, 2.0% long-term

n/a

Tax rates

UK

19% to 2023, 25% thereafter

19%

Spain

25%

25%

USA

21% Federal & 3-9% State rates

21% Federal & 3-9% State rates

Singapore

17%

n/a

Sweden

21.4%

n/a

Foreign exchange rates

USD/GBP

0.73

0.80

EUR/GBP

0.85

0.88

SGD/GBP

0.54

n/a

SEK/GBP

0.08

n/a

         

 

Discount rates

The discount rates used for valuing each investment are described in the Valuation Methodology section above.

 

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

 

31 March 2021

31 March 2020

Weighted Average discount rate (on unlevered basis)

7.0%

7.5%

Discount rates

4.5% to 10.0%

4.5% to 8.5%

 

 

 

 

Sensitivities

The sensitivities below show the effect on Net asset value of a assuming a different range for each key input assumption, in each case applying a range that is considered to be a reasonable and plausible outcome for the market in which the Company has invested.

Discount rates

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

Discount rate

NAV/share impact

-0.5%

change

Net asset value

+0.5% change

NAV/share impact

31 March 2021

4.4p

£29,854k

£693,805

(£27,553k)

(4.1p)

31 March 2020

4.1p

£13,101k

£323,530k

(£12,322k)

(3.8p)

 

Inflation rates

The Portfolio Valuation assumes long-term inflation as indicated above in the UK, USA and Spain. A change in the inflation rate by plus or minus 0.5% has the following effect on the NAV, with all other variables held constant.

 

Inflation rate

NAV/share impact

-0.5%

change

Net asset value

+0.5% change

NAV/share impact

31 March 2021

(0.7p)

(£5,069k)

693,805k

£5,560k

0.8p

31 March 2020

1.0p

£3,264k

£323,530k

(£4,242k)

(1.3p)

 

Corporation tax rates

The Portfolio Valuation assumes tax rates based on the relevant jurisdiction. A change in the corporation tax rate by plus or minus 5% has the following effect on the NAV, with all other variables held constant.

Corporation tax rate

NAV/share impact

-5%

change

Net asset value

+5% change

NAV/share impact

31 March 2021

3.0p

£20,025k

£693,805k

(£20,003k)

(3.0p)

31 March 2020

2.8p

£8,812k

£323,530k

(£8,781k)

2.7p

 

 

 

 

Foreign exchange rates

The Portfolio Valuation assumes foreign exchange rates based on the relevant foreign exchange rates against GBP at the reporting date. A change in the foreign exchange rate by plus or minus 10% (GBP against Euro, Swedish Krona, Singapore Dollar and US Dollar) has the following effect on the NAV, with all other variables held constant. The effect is shown after the effect of current level of hedging which reduces the impact of foreign exchange movements on the Company's NAV.

 

Foreign exchange rate

NAV/share impact

-10%

Change

Net asset value

+10% change

NAV/share impact

31 March 2021

0.8p

£5,342k

£693,805k

(£4,621k)

(0.7p)

31 March 2020

0.8p

£2,618k

£323,530k

(£2,380k)

(0.7p)

 

 

5.  Investment Income

 

 

 

Year ended

31 March 2021

£'000

 

Year ended

31 March 2020

£'000

Dividend income

20,100

1,500

Gain on investment at fair value through profit or loss (Note 11)

15,021

11,895

Interest income

2,713

1,105

Investment income

37,834

14,500

 

Interest income is mainly in respect of coupon bearing loan notes issued to the Company by Holdco (Note 17) but includes bank interest of £29k for the year ended 31 March 2021 (March 2020: £166k). The loan notes accrue interest at 6%, are unsecured and repayable in full on 18 April 2039. Loan Interest income is recognised on the Statement of Comprehensive Income on an accruals basis. The gain on investment is unrealised.

 

Further information on Gain on investment at fair value can be found in Valuation of the Portfolio of the Strategic Report.

 

 

 

 

 

 

 

 

 

6.  Fund Expenses

 

 

Year ended

31 March 2021

£'000

 

Year ended

31 March 2020

£'000

Investment management fees (Note 17)

4,042

1,973

Non-executive directors' fees (Note 18)

156

125

Other expenses

913

610

Fees to the Company's independent auditors:

 

 

- for the audit of the statutory financial statements

263

140

- for audit-related assurance services

55

40

Fund Expenses

5,429

2,888

 

As at 31 March 2021, the Company had no employees (31 March 2020: nil) apart from Directors in office. The Company confirms that it has no key management personnel, apart from the Directors disclosed. There is no other compensation apart from those disclosed.

 

 

7.  Tax

 

  The tax for the year shown in the Statement of Comprehensive Income is as follows .

 

Year ended

31 March 2021

£'000

Year ended

31 March 2020

£'000

Profit for the year before taxation

32,405

11,612

Profit for the year multiplied by the standard rate of corporation tax of 19% (2020: 19%)

6,157

2,206

Fair value movements (not subject to UK taxation)

(2,854)

(2,260)

Dividends received (not subject to UK taxation)

(3,819)

(285)

Surrendering of tax losses to unconsolidated subsidiaries (for nil consideration)

516

339

Total tax charge

-

-

 

The corporation tax rate will increase from 19% to 25% with effect from 1 April 2023.

 

 

 

 

 

8.  Earnings per Ordinary Share

 

Year ended

31 March 2021

Year ended

31 March 2020

Profit for the year (£'000)

32,405

11,612

Weighted average number of ordinary shares ('000)

463,389

225,422

Earnings per ordinary share (pence)

7.0

5.2

 

  There is no dilutive element during the financial year and subsequent to the financial year.

 

 

9.  Dividends

 

Year ended

31 March 2021

£'000

Year ended

31 March 2020

£'000

Amounts recognised as distributions to equity holders during the year:

 

 

Interim dividend for the period ended 31 March 2019

of 1.0p per share

-

1,713

First Interim dividend for the year ended 31 March 2020 of 2.5p per share

-

6,709

Second Interim dividend for the year ended 31 March 2020 of 2.5p per share

8,010

-

First quarterly interim dividend for the three-month period ended 30 June 2020 of 1.375p per share

5,859

-

Second quarterly interim dividend for the three-month period ended 30 September 2020 of 1.375p per share

7,234

-

Third quarterly interim dividend for the three-month period ended 31 December 2020 of 1.375p per share

9,310

-

 

  All dividends have been paid out of distributable reserves. Further information on distributable reserves   can be found in Note 14.

 

From the year beginning on 1 April 2020, the Company is paying dividends on a quarterly basis compared to semi-annually previously.

 

  On 28 May 2021, the Company declared an interim dividend for the three-month period ended 31 March   2021 of 1.375p per share which is expected to result in a cash payment of approximately £9.3 million   on 30 June 2021.

 

 

 

 

10.  Net assets per share

 

 

31 March 2021

31 March 2020

Shareholders' equity (£'000)

693,805

323,530

Number of ordinary shares ('000)

677,087

320,374

Net assets per ordinary share (pence)

102.5

101.0

 

 

11.  Investment at fair value through profit or loss

 

The Company recognises the investment in Holdco, its single directly owned holding company, at fair value.  Holdco's fair value includes the fair value of each of the individual project companies and holding companies in which the Holdco holds a direct or an indirect investment, along with the working capital of Holdco.

 

 

 

31 March 2020

£'000

Brought forward investment at fair value through profit or loss

254,095

61,334

Loan investments in year

42,000

36,200

Equity investments in year

274,479

144,666

Loan Principal repaid in year

(13,021)

-

Movement in fair value

15,021

11,895

Closing investment at fair value through profit or loss

572,574

254,095

 

Movement in fair value is recognised through Investment Income in the Statement of Comprehensive Income (see Note 5).

 

Of the closing investment at fair value through profit and loss balance, £65,719k (March 2020: £36,200k) relates to loan investment (also see Note 5) and £507,395k (March 2020: £217,895k) relates to equity investment.

A reconciliation between the Portfolio Valuation (as described in Valuation of the Portfolio), being the valuation of the Investment Portfolio held by Holdco, and the Investment at fair value through profit or loss per the Statement of Financial Position is provided below. The principal differences are the balances in Holdco for cash and working capital.

 

 

 

31 March 2021

£'000

31 March 2020

£'000

Portfolio Valuation

552,672

319,802

Holdco cash

4,141

2,584

Holdco debt

-

(62,826)

Holdco net working capital

15,761

(5,465)

Investment at fair value per Statement of Financial Position

572,574

254,095

 

Acquisitions by the Company

 

During the year ended 31 March 2021, the Company invested £316.5 million (31 March 2020: £180.9m) into the Holdco for new portfolio acquisitions and repayment of debt. Of this funding, Holdco used £64.2 million in June 2020 to repay drawings under its RCF that was used to make acquisitions. 

 

Portfolio Acquisitions, via Holdco

 

The Company announced the following investment activity in the year:

 

· In August 2020, the Company announced an aggregate conditional investment commitment of up to £50 million to the EV Networks project to acquire an initial 112 rapid and ultra-fast EV charging stations across the UK. The commitment will be drawn down in tranches, subject to meeting set criteria, with the first draw down of capital expected to take place later this year.

· In September 2020, an aggregate investment commitment of £4.8 million was made to the GET Solutions project in relation to acquiring a portfolio of energy efficiency projects in the UK. This included an initial £1.7 million cash consideration with the remaining amount paid in March 2021.

· In October 2020, the Company announced the acquisition of its first portfolio of energy efficiency projects in Singapore for a cash consideration of approximately £2 million. 

· In October 2020, the Company announced the acquisition of a 100% interest in the Gasnätet project for a consideration of approximately £107 million by acquiring Värtan Gas Stockholm AB, the ultimate owner of the established, operational and regulated gas distribution network for Stockholm, Sweden.

· In December 2020 and January 2021, the Company invested £30.6 million into Holdco to facilitate the additional investment in PERC Midco LLCwhich increased the Company's ownership interest in PERC Midco LLC to 65%.

· In March 2021, the Company announced it had completed the acquisition of a series of portfolios of commercial and industrial on-site solar and energy storage projects in the United States, together with a 50% interest in the platform that has created them, Onyx Renewable Partners, from funds managed by Blackstone. The initial consideration was US$120 million with incremental amounts expected to be deployed over time. In March 2021, an additional US$22 million was invested.

The Company announced the following portfolio acquisitions after the year:

 

· In April 2021, the Company announced it had agreed to acquire a 100% equity interest in a commercial district energy system, RED-Rochester, LLC for a cash consideration of approximately US$177 million.

· In April 2021, The Company invested in a 4.5MWp portfolio of operational commercial and industrial rooftop solar systems and a 20 MWp pipeline of late development stage and ready to build assets at multiple sites in Vietnam for a cash consideration of approximately US$3.6 million.

 

12.  Trade and other receivables

 

31 March 2021

£'000

31 March 2020

£'000

Prepayments

335

211

VAT receivable

65

9

Other receivables

1

1,620

Total trade and other receivables

401

1,840

 

 

13.  Trade and other payables

 

31 March 2021

£'000

31 March 2020

£'000

Other payables

1,229

584

Total trade and other payables

1,229

584

 

14.  Share capital and share premium

 

Ordinary Shares

31 March 2021

'000

31 March 2020

'000

Authorised and issued at the beginning of the year

320,374

100,000

Shares Issued - during the year

356,713

220,374

Authorised and issued at the end of year

677,087

320,374

 

 

Share capital

£'000

Share Premium

'000

Total as at 31 March 2020

3,204

219,721

Issue of Ordinary shares

3,567

371,433

Costs of issue of Ordinary shares

-

(6,718)

Total as at 31 March 2020

6,771

584,436

 

In June 2020, the Company issued 105,769,231 new ordinary shares at a price of 104p per share raising gross proceeds of £110m.

 

 

In October 2020, the Company issued 100,000,000 new ordinary shares at a price of 105p per share raising gross proceeds of £105m.

 

In February 2021, the Company issued 150,943,396 new ordinary shares at a price of 106p per share raising gross proceeds of £160m.

 

The Company currently has one class of ordinary share in issue. All the holders of the ordinary shares, which total 677,087k (2020: 320,374k), 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.

 

Other distributable reserves were created through the cancellation of the Share Premium account on 12 March 2019. This amount is capable of being applied in any manner in which the Company's profits available for distribution, as determined in accordance with the Companies Act 2006, are able to be applied.

 

Other distributable reserves and Retained Earnings are detailed in the Statement of Changes in Shareholders' Equity.

 

15.  Financial risk management


Financial risk management objectives

The objective of the Company's financial risk is to manage and control risk exposure of the underlying investment portfolio held by Holdco. The Board is responsible for overseeing the management of financial risks, however the review and management of financials risks is delegated to the Investment Manager. Investment Manager monitors and manages the financial risks relating to the operations of the Company through internal procedures and policies designed to identify, monitor and manage the financial risks to which the Company is exposed.

These risks include market risk (including price risk, currency risk and interest rate risk), credit risk and liquidity risk.

 

Price risk

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

 

Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company receives loan interest, loan principal and dividends from its single investment, Holdco, in sterling. However the Company is indirectly exposed to currency risk through its Holdco as its investments include non-sterling investments are held in Euro, US Dollar, Singapore Dollar and Swedish Krona.

 

The Company monitors its foreign exchange rate exposures using its near-term and long-term cash flow forecasts. Its policy is to use foreign exchange hedging to provide protection to the level of sterling distributions that the Company aims to pay over the medium-term, where considered appropriate. This may involve the use of forward exchange.

 

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

 

The Company, via Holdco, invests indirectly in loans in project companies, usually with fixed interest rate coupons. Where floating rate debt is owned, the primary risk is that the portfolio's cash flow will be subject to variation depending on changes to base interest rates. The portfolio's cash flows are continually monitored and re-forecasted to analyse the cash flow returns from investments.

The Company's policy is to ensure that interest rates are sufficiently hedged, when entering into material medium/long-term borrowings, to protect the Company and portfolio companies' net interest margins from significant fluctuations in interest rates. This may include engaging in interest rate swaps or other rate derivative contracts at the subsidiary level under direction of the Company.

The Company's financial assets and financial liabilities are at a pre-determined interest rate, as a result the Company is subject to limited exposure to risk due to fluctuations in the prevailing levels of market interest rates.

 

Credit risk
 

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company through a reduction in future expected cash receipts.

The key counterparties are the project companies in which the Company makes indirect investments via Holdco. The projects companies' near-term cash flows forecasts are used to monitor the timing of cash receipts from project counterparties and are reviewed regularly to demonstrate the projects ability to pay interest and dividends when they fall due.

The Company does not have any significant credit risk exposure to any single counterparty in relation to trade and other receivables. On-going credit evaluation is performed on the financial condition of accounts receivable.

As at 31 March 2021, there were no receivables considered impaired. At an investment level, the credit risk relating to significant counterparties is reviewed on a regular basis and potential adjustments to the discount rate are considered to recognise changes to these risks where applicable.

The Company maintains its cash and cash equivalents across various banks to diversify credit risk. These are subject to the Company's credit monitoring policies including the monitoring of the credit ratings issued by recognized credit rating agencies. The Company's cash and deposits are held with counterparties that meet strict investment rating criteria per the Company's treasury policy.

The Company is at risk of credit loss on its loans, receivables, cash and deposits. Underlying investments are held by Holdco at fair value using discounted cash flows. Receivables are primarily intercompany and taxation. While cash and cash equivalents are subject to the impairment requirements of IFRS 9, there was no identified credit loss.

 

The Company's maximum exposure to credit risk over financial assets is the carrying value of those assets in the Statement of Financial Position.

 

Liquidity risk

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

The Company also ensures that Holdco have sufficient banking facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

Unconsolidated project companies are subject to contractual agreements that may impose temporary restrictions on their ability to distribute cash. Such restrictions are not deemed significant in the context of the overall liquidity.

Liquidity risk (continued)

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

 

 

As at 31 March 2021

Up to

3 months

£'000

Between 3 and 12 months

£'000

Between 1 and 5 years

£'000

Total

£'000

Assets

 

 

 

 

Cash and cash equivalents

122,059

-

-

122,059

Trade and other receivables

1

-

-

1

Liabilities

 

 

 

 

Trade and other payables

(1,229)

-

-

(1,229)

Total

120,831

-

-

120,831

 

 

 

As at 31 March 2020

Up to

3 months

£'000

Between 3 and 12 months

£'000

Between 1 and 5 years

£'000

Total

£'000

Assets

 

 

 

 

Cash and cash equivalents

68,179

-

-

68,179

Trade and other receivables

1,620

-

-

1,620

Liabilities

 

 

 

 

Trade and other payables

(584)

-

-

(584)

Total

69,215

-

-

69,215

 

Capital management

The Company manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to shareholders. In accordance with the Company's investment policy, the Company's principal use of cash (including the proceeds of the IPO) has been to fund investments via Holdco as well as ongoing operational expenses.

The Board, with the assistance of the Investment Manager, monitors and reviews the broad structure of the Company's capital on an ongoing basis. The capital structure of the Company consists entirely of equity (comprising issued capital, distributable reserves and retained earnings).

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

 

 

 

16.  Related undertakings

 

The following table shows the Company's single direct subsidiary (SEEIT Holdco Limited) and indirect subsidiaries and related undertakings of the Company. As the Company applies IFRS 10 and Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) (see Note 2), these entities have not been consolidated in the preparation of these financial statements.

Investment

Place of Business

Shareholding at

31 March 2021

SEEIT Holdco Limited

United Kingdom

100%

EECo Kingscourt Limited

United Kingdom

100%

SEEIT Europe Limited

United Kingdom

100%

EECo Data Centres No. 1 Limited

United Kingdom

100%

SEEIT US Limited

United Kingdom

100%

EECo Biomass No 1 Limited

United Kingdom

60%

EECo Evergreen Limited

United Kingdom

100%

EECo Wilton No. 1 Limited

United Kingdom

100%

EECo Car Parks No. 2 Limited

United Kingdom

50%

SmartEnergy Finance Two Limited

United Kingdom

49%

Combined Heat and Power Investments Limited

United Kingdom

100%

Energy Efficient Global UK Project Limited

United Kingdom

100%

EECo Smithfield Limited

United Kingdom

100%

SDCL Solar Edge Limited

United Kingdom

100%

SEEIT UK 1 Limited

United Kingdom

100%

SEEIT Asia Limited

United Kingdom

100%

SEEIT Europe 2 Limited

United Kingdom

100%

SEEIT US Two Limited

United Kingdom

100%

Zood Infrastructure Limited

United Kingdom

100%

Walworth Invest S.L.

Spain

100%

SDCL TG Cogen LLC

USA

71%

PERC Midco LLC

USA

65%

SEEIT Capital LLC

USA

100%

SEEIT Capital II LLC

USA

100%

SEEIT Hemisphere I LLC

USA

100%

FE Energy Efficiency INV PTE. Limited

Singapore

100%

SEEIPL 1 PTE. Limited

Singapore

100%

SEEIPL 3 PTE. Limited

Singapore

100%

SEEIT EUROPE 2 SWEDEN HOLDING AB

Sweden

100%

 

 

 

All subsidiaries that have a place of business of the United Kingdom are registered at 5th Floor, 1 Vine Street, London, W1J 0AH.

SDCL TG Cogen LLC, SEEIT Capital LLC and SEEIT Capital II LLC are registered in Delaware, USA and their place of business is 1120 Avenue of the Americas, New York, New York 10036, USA.

PERC Midco LLC and SEEIT Hemisphere I LLC are registered in Delaware, USA and its place of business is 1209 Orange Street, Wilmington, Delaware, USA.

Walworth Invest S.L. is registered in Spain and its place of business is Calle Príncipe de Vergara 112, Planta Cuarta, 28002 Madrid, Spain.

FE Energy Efficiency PTE. Limited, SEEIPL 1 PTE. Limited and SEEIPL 3 PTE. Limited is registered in Singapore and its place of business is 6 Eu Tong Sen Street # 11-09, The Central, Singapore 059817.

SEEIT EUROPE 2 SWEDEN HOLDING AB is registered in Sweden and its place of business is RÅSUNDAVÄGEN 12, 16967 Solna, Stockholm County, Sweden.

 

17.  Related parties

 

The Company and Sustainable Development Capital LLP (the "Investment Manager") have entered into the Investment Management Agreement pursuant to which the Investment Manager has been given responsibility, subject to the overall supervision of the Board, for active discretionary investment management of the Company's portfolio in accordance with the Company's investment objective and policy.

As the entity appointed to be responsible for risk management and portfolio management, the Investment Manager is the Company's AIFM. The Investment Manager has full discretion under the Investment Management Agreement to make investments in accordance with the Company's investment policy from time to time. This discretion is, however, subject to: (i) the Board's ability to give instructions to the Investment Manager from time to time; and (ii) the requirement of the Board to approve certain investments where the Investment Manager has a conflict of interest in accordance with the terms of the Investment Management Agreement. The Investment Manager also has responsibility for financial administration and investor relations, advising the Company and its group in relation to the strategic management of the portfolio, advising the Company in relation to any significant acquisitions or investments and monitoring the Company's funding requirements.

Under the terms of the Investment Management Agreement, the Investment Manager will be entitled to a fee calculated at the rate of:

· 0.9%, per annum of the adjusted NAV in respect of the Net Asset Value of up to, and including, £750 million; and

· 0.8%, per annum of the adjusted NAV in respect of the Net Asset Value in excess of £750 million.

 

The management fee is calculated and accrues monthly and is invoiced monthly in arrears. During the year ended 31 March 2021, management fees of £4,042k (31 March 2020: £1,973k) were incurred of which £919k (31 March 2020: £472k) was payable at the year-end.

During the year ended 31 March 2021, £316.5m (31 March 2020: £180.9m) of funding was provided by the Company to the Holdco for investment acquisitions and the repayment of the RCF utilised by Holdco. The funding of Holdco consisted of issued share capital and coupon bearing loan notes.

During the year ended 31 March 2021, coupon bearing loan notes of £42.0 million (31 March 2020: £36.2 million) were issued which accrue interest at 6%. During the year ended 31 March 2021, Holdco had repaid coupon bearing loan notes of £13.0 million (31 March 2020: £nil).  In the year to 31 March 2021, £2,684k interest had accrued on the loan notes (31 March 2020: £939k) of which £1,300k is outstanding at the year-end (31 March 2020: £nil).

In September 2020, the Company agreed to acquire its first portfolio of energy efficiency projects in Singapore from Singapore Energy Efficiency Investments Pte. Ltd, a related party of the Investment Manager, for an equity cash consideration of £2 million.

All of the above transactions were undertaken on an arm's length basis and there have been no changes in material related party transactions since the last annual report.

 

18.  Key management personnel transactions

 

The Directors of the Company, who are considered to be key management, received fees for their services. Their fees were £144k (disclosed as Non-executive directors' fees in Note 6) in the year (31 March 2020: £115k).

19.  Guarantees and other commitments

 

The Company is the guarantor of the RCF between Holdco and Investec Bank plc.

 

In July 2020, Holdco increased the RCF from £25 million to £40 million with the same maturity date of 30 June 2022.

 

In October 2020, Holdco entered into an agreement with Investec to increase the RCF by £30 million to an aggregate £70 million by adding a short-term acquisition facility repayable in March 2021. Holdco utilised approximately £65 million of the RCF for the acquisition of the Gasnätet project. In February 2021, Holdco repaid the RCF utilised for the acquisition of the Gasnätet project in full and any outstanding interest.

 

20.  Events after the reporting period

 

The Directors have evaluated subsequent events from the date of the financial statements through to the date the financial statements were available to be issued.

In April 2021, the Company invested, via an investment in Holdco, in a 4.5MWp portfolio of operational commercial and industrial rooftop solar systems and a 20 MWp pipeline of late development stage and ready to build assets at multiple sites in Vietnam for a cash consideration of approximately $3.6 million.

In May 2021, the Company announced the acquisition, via an investment in Holdco,  of 100% of RED, a district energy system in North America, for a cash consideration of approximately $177 million.

On 28 May 2021, the Company declared an interim dividend for the quarter ended 31 March 2021 of 1.375p per share which is expected to result in a cash payment of approximately £9.3 million on 30 June 2021.

In June 2021, the Company committed EUR6.4 million to an investment, via an investment in Holdco,  in the new installation of energy efficiency equipment, including CHP and LED lighting, providing, cleaner and more efficient on-site energy generation for the Ireland based, Tallaght Hospital.

In June 2021 the Company's single subsidiary, Holdco increased and renewed its RCF for which the Company is a guarantor. The new facility is for a £115 million and expires in June 2024.

 

GLOSSARY

AIC Code the AIC Code of Corporate Governance, as revised or updated from time to time

AIFM an alternative investment fund manager, within the meaning of the AIFM Directive

AIFM Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No. 1095/2010; the Commission Delegated Regulation (EU) No 231/2013 of 19 December 2012 supplementing Directive 2011/61/EU of the European Parliament and of the Council with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision

Board the Board of Directors of the Company, who have overall responsibility for the Company

Biomass boiler a wood-fuelled heating system, which burns wood pellets, chips or logs to provide warmth in a single room or to power central heating and hot water boilers

BMS building management systems

CCHP combined cooling/heating and power

CHP combined heating and power

Company SDCL Energy Efficiency Income Trust plc, a limited liability company incorporated under the Act in England and Wales on 12 October 2018 with registered number 11620959, whose registered office is at 6th Floor, 125 London Wall, London, EC2Y 5AS

Company SPV a Project SPV owned by the Company or one of its Affiliates through which investments are made

Contractual payment the payments by the Counterparty to the Company or relevant Project SPV under the contractual arrangements governing an Energy Efficiency Project, whether such payments take the form of a service charge, a fee, a loan repayment or other forms of payments as may be appropriate from time to time

Counterparty the host of the Energy Efficiency Equipment with whom the Company has entered into the Energy Efficiency Project, either directly or indirectly through the use of one or more Project SPVs

Decentralised energy is energy which is produced close to where it will be used, rather than at a large centralised plant elsewhere, delivered through a centralised grid infrastructure

Energy efficiency using less energy to provide the same level of energy. Efficient energy use is achieved primarily through implementation of a more efficient technology or process

Energy efficiency equipment the equipment that is installed at the premises of a Counterparty or a site directly connected to the premises of a Counterparty in connection with an Energy Efficiency Project, including but not limited to CHP units, CCHP plant schemes, HVAC units, lighting equipment, biomass boilers and steam raising boilers (including IP steam processors)

Energy efficiency project has the meaning given in paragraph 3 of Part II (Industry Overview, Investment Opportunity and Seed Portfolio) of the November 2018 Prospectus

Energy efficiency technology technologies deployed to achieve an improvement in energy efficiency

EPC Engineering, procurement and construction

ESA an energy saving agreement governing the terms on which energy savings are apportioned between the counterparty and the relevant Project

GHG   greenhouse gases

Holdco is SEEIT Holdco Limited, the Company's single wholly owned subsidiary

HVAC heating, ventilation and air conditioning

Investment Manager Sustainable Development Capital LLP, a limited liability partnership incorporated in England and Wales under the Limited Liability Partnership Act 2000 with registered number OC330266

Investment Portfolio is the portfolio of energy efficiency investments held by the Company via its single wholly owned subsidiary, SEEIT Holdco Limited

ISA individual savings account

KWh kilowatts used or generated per hour

Lighting equipment energy efficient lighting used in connection with an Energy Efficiency Project, including but not limited to LEDs and associated fittings

November 2018 Prospectus is the prospectus issued by the Company on 22 November 2018

Ordinary Shares an ordinary share of £0.01 in the capital of the Company issued and designated as ''Ordinary Shares'' of such class (denominated in such currency) as the Directors may determine in accordance with the Articles and having such rights and being subject to such restrictions as are contained in the Articles

O&M Contractors operations and maintenance contractors. the contractor appointed by the Company or the relevant Project SPV to perform maintenance obligations in relation to the relevant Energy Efficiency Equipment

PEP personal equity plan

RoRi the "Return on Operations" incentive payment and the "Return on Investment" incentive payment under Spain's Royal Decree-Law 9/2013 under which qualifying energy generation assets are compensated, in the medium to long-term, for fluctuations in revenues and costs against an established base case

SIPP self-invested personal pension

SDCL Group the Investment Manager and the SDCL Affiliates

Steam Raising Boiler Technology is technology through which pressurised water is transformed into steam through the application of heat

 

 

Glossary of financial Alternative Performance Measures ("APM")

The Company uses APM's to provide shareholders and stakeholders with information it deems relevant to understand and assess the Company's historic performance and its ability to deliver on the stated investment objective.

Measure

Calculation

Why the Company uses the APM

Net Asset Value ("NAV")

Net assets attributable to Ordinary Shares by deducting gross liabilities from gross assets.

It provides a metric that allows for useful comparison to similar companies and that allows for useful year on year comparisons of the Company

NAV per share

NAV divided by total shares in issue at the balance sheet date

This provides shareholders with a metric that allows for tracking the Company's performance year on year

Total Return on NAV basis

Interim dividends paid and movement in NAV per share over the course of the relevant period

This provides shareholders with a metric that allows for tracking the Company's performance year on year

Total Return on share price basis

Interim dividends paid and share price uplift per share over the course of the relevant period

This provides shareholders with a metric that allows for tracking the Company's performance year on year

Portfolio Basis

Portfolio Basis includes the impact if Holdco (the Company's only direct subsidiary) were to be consolidated on a line-by-line basis

See Financial Review for detailed description

Ongoing Charges Ratio

In accordance with AIC guidance, defined as annualised ongoing charges (i.e. excluding investment costs and other non-recurring items) divided by the average published undiluted net asset value in the year

Used a metric in the investment company industry to compare cost-effectiveness

Portfolio Valuation

The fair value of all investments in aggregate that are held directly or indirectly by Holdco

It provides relevant information of the value of the underlying investments held indirectly by the Company from which it is ultimately expected to derive its future revenues.

Cash on Portfolio Basis

Cash at back of the Company and Holdco

To provide relevant information to shareholders of the Company's ability for new investments, working capital and payment of dividends

 

 

[1] In this preliminary announcement, there are a number of references to financial Alternative Performance Measures. For further details on these, please see the Glossary of financial Alternative Performance Measures ("APM")

[2] The target dividend stated above is based on a projection by the Investment Manager and should not be treated as a profit forecast for the Company

[3] Per SEEIT's ESG Report, October 2020

[4] The target dividend stated above is based on a projection by the Investment Manager and should not be treated as a profit forecast for the Company

[5] SEEIT's Responsible Investment Policy is available at: www.seeitplc.com/what-we-do/#ourResponsibility

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