GREENCOAT UK WIND PLC Greencoat UK Wind PLC (UKW)
23 February 2017
UKW - Final results announcement
Greencoat UK Wind PLC is the leading listed infrastructure fund, invested in operating UK wind farms. The Company's aim is to provide investors with an annual dividend that increases in line with RPI inflation while preserving the capital value of its investment portfolio in the long term on a real basis through reinvestment of excess cash flow and the prudent use of portfolio leverage.
2016 Highlights
Performance
· The Group's portfolio of 19 wind farm investments generated 978.1GWh of electricity, 6 per cent. below budget, reflecting average wind speed across the UK being 6% below the long term mean.
· Net cash generation (Group and wind farm SPVs) was £49.0 million.
Acquisitions and Equity Raising
· The Group made two acquisitions during the year for a total of £223.5m increasing the portfolio to 19 wind farm investments, net generating capacity to 420MW and GAV to £900.1 million as at 31 December 2016:
o 28.2% interest in Clyde in March; and
o acquisition of Screggagh in June.
· In April, the Group launched a 300 million new share issuance programme with the first and second tranches raising £100 million in May 2016 and £147 million in November 2016 respectively.
Dividends and Returns
· NAV growth during 2016 was 4.1 pence per share (after adjusting for dividends); since listing NAV per share has grown by 9.2%.
· The Company declared total dividends of 6.34 pence per share with respect to 2016.
· In line with its policy of increasing the dividend in line with December RPI, the Company is targeting a dividend of 6.49 pence per share for 2017.
Key Metrics
As at 31 December 2016
Market capitalisation | £880.4 million | |
Share price | 119.5 pence | |
Dividends with respect to the year | £38.8 million | |
Dividends with respect to the year per share | 6.34 pence | |
GAV | £900.1 million | |
NAV | £800.1 million | |
NAV per share | 108.6 pence | |
NAV growth per share (adjusting for dividends) | 4.1 pence | |
Total return (NAV) | 10.1 per cent. | |
TSR | 17.4 per cent. |
Defining Characteristics
Greencoat UK Wind PLC was designed for investors from first principles to be simple, transparent and low risk.
· The Group is invested solely in operating UK wind farms.
· Wind is the most mature and largest scale renewable technology.
· The UK has a long established regulatory regime, high wind resource and £60 billion of wind farms in operation in the short to medium term.
· The Group is wholly independent and thus avoids conflicts of interests in its investment decisions.
· The UK-based, independent Board is actively involved in key investment decisions and in monitoring the efficient operation of the assets, and works in conjunction with the most experienced investment management team in the sector.
· The Group only invests in wind farms that have an appropriate operational track record (or price adjustment mechanism as disclosed in note 14 to the financial statements).
· Low leverage (including no asset level leverage) is important to ensure a high level of cash flow stability and higher tolerance to downside sensitivities.
The Group invests in sterling assets and thus does not incur material currency risk.
Commenting on today's results, Tim Ingram, Chairman of Greencoat UK Wind, said:
'We are pleased to report the continued good performance of our portfolio and demonstrate the robustness of the Company's business model in a dynamic environment. We have delivered a total shareholder return of 17.4% and NAV growth (adjusted for dividends) of 4.1 pence in 2016 and again increased our target dividend by RPI to 6.49p per share for 2017.During the year, we analysed many further investment opportunities and made two significant acquisitions increasing our net generating capacity to 420MW. We were delighted with the support shown to us during the year in raising £247 million.'
Annual report
A copy of the annual report has been submitted to the National Storage Mechanism and will shortly be available for inspection atwww.morningstar.co.uk/uk/NSM. The annual report will also shortly be available on the Company's website atwww.greencoat-ukwind.comwhere further information on the Company can also be found.
Details of the conference call for analysts and investors:
A presentation for analysts and investors will take place at 9.30am at 85 Fleet Street, London EC4Y 1AE. To register for the event please notify Tulchan Communications, either by email toukwind@tulchangroup.comor by telephone on +44 (0)20 7353 4200.For further information, please contact:
Greencoat UK Wind PLC 020 7832 9400
Stephen Lilley
Laurence Fumagalli
Tom Rayner
Tulchan Communications 020 7353 4200
Stephen Malthouse
Chairman's Statement
I am pleased to present the Annual Report of Greencoat UK Wind PLC for the year ended 31 December 2016.
Performance
During the year, portfolio power generation was 6 per cent. below budget at 978.1GWh owing to average wind speed across the UK being 6 per cent. below the long term mean. In the first three quarters of the year we also saw lower power prices before prices increased in the fourth quarter. Despite this, net cash generated by the Group and wind farm SPVs was £49.0 million and dividend cover was 1.4x, showing the resilience of the business model.
The Group's current average production provides enough electricity to power 375,000 homes.
Dividends and Returns
The Company's aim is to provide investors with an attractive and sustainable dividend that increases in line with RPI inflation while preserving capital on a real basis. The Company declared dividends of 6.34 pence per share with respect to the year and paid dividends of £35.1 million during the year.
In addition, NAV per share increased from 102.9 pence (ex dividend) on 31 December 2015 to 107.0 pence (ex dividend) on 31 December 2016, an increase in NAV per share of 4.1 pence (4 per cent.), while RPI increased by 2.5 per cent. over the year. Since listing, NAV per share has grown by 9.2 per cent. while RPI growth has been 7.4 per cent..
The Total Shareholder Return for the year was 17.4 per cent. and since listing has been 46.1 per cent..
Gearing
The Group's policy is to have no gearing at the individual asset level and to keep overall Group level borrowings at a prudent level (the maximum is 40 per cent. of GAV) to reduce risk while ensuring that the Group is at least fully invested thus always using capital efficiently. Over the medium term, we would expect gearing to be between 20 per cent. and 30 per cent. and during most of 2016, gearing was within this range. During the year, the Group's longer term fixed rate borrowings were increased from £75 million to £100 million. As a result of November's equity raise, the Group's revolving credit facility was fully repaid and therefore as at 31 December 2016, the Group's borrowings were £100 million, equivalent to 11 per cent. of GAV.
Acquisitions and Equity Raising
During the year, the Group made two additional high quality acquisitions, increasing our net generating capacity to 420MW. In March, the Group acquired a 28.2 per cent. stake in the 350MW Clyde wind farm, one of the largest windfarms in the UK. Clyde is the fourth wind farm to be acquired from SSE and maintains a longstanding relationship between both companies. The acquisition also brought in the Greater Manchester Pension Fund and the London Pensions Fund Authority as co-investment partners. In June, the Group acquired Screggagh, a 20MW wind farm in Northern Ireland. The mix of acquisitions demonstrates the Group's ability to source and execute transactions across the market - but only when we consider the terms to be advantageous to our shareholders.
In May, the Company raised gross proceeds of £100 million through the placing of 95.2 million new shares at an issue price of 105 pence per share. In November, the Company raised gross proceeds of £147 million through the over-subscribed placing of 133.6 million new shares at an issue price of 110 pence per share. Only shares sufficient to repay the revolving credit facility were issued as the Company did not consider holding significant cash on its balance sheet to be in the interest of shareholders.
The Board was delighted with both placings, the first and second tranches of the 300 million new share programme, and is grateful for the support received from existing shareholders as well as being pleased to welcome a number of new shareholders. Having entered the FTSE 250 index in September, and now with a market capitalisation of £880 million, the Company has seen an increase in liquidity in its shares as well as the benefits of economies of scale.
Outlook
Wind continues to remain the most mature and widely deployed renewable technology available in the UK and the Company is in a good position to benefit as electricity production from wind becomes an increasingly important part of the UK's generation mix.
The Company does not expect any material change to its business as a result of the UK exiting the European Union. Being solely UK focused and deliberately low-risk, all of the Group's assets and liabilities are inside the UK and sterling denominated. In addition, the regulatory regime under which the assets operate is robust, longstanding and rooted in UK legislation.
At the end of June, the Government approved the Fifth Carbon Budget under the 2008 Climate Change Act, legislating for a 57 per cent. reduction in carbon emissions (relative to 1990) by 2032. The Fifth Carbon Budget lies on the pathway to 80 per cent. emission reductions by 2050, which is more onerous than EU legislation.
Owing to significant sterling devaluation since the EU referendum vote, the price of gas has increased in sterling terms and this has fed into higher current and forecast future power prices. In addition, global oil and gas prices have strengthened throughout the year.
Since the EU referendum vote, inflation has also increased. As the vast majority of our cashflows are either directly or indirectly linked to RPI inflation, this is likely to have a positive effect on future cash generation.
The Company continues to look at acquiring operating UK wind farms (both onshore and offshore) from a market that is expected to reach £60 billion over the next few years, providing extensive and very encouraging opportunities for further value creating investment.
Given the strength and stability of cash generation from our investments, we can confidently target total dividends of 6.49 pence per share with respect to 2017 (increased in line with December 2016 RPI).
Governance
The Company undertook a Board review during the year, with the external assistance of Independent Audit Limited, and a number of minor governance changes have been made.
Annual General Meeting
The 2017 AGM will take place on 26 April 2017 at 2.30pm at the offices of the Investment Manager. Details of the formal business of the meeting are set out in a separate circular which is being sent to shareholders with the Annual Report. We look forward to meeting shareholders on that occasion.
Tim Ingram
Chairman
22 February 2017
Strategic Report
Introduction
The Directors present their Strategic Report for the year ended 31 December 2016. Details of the Directors who held office during the year and as at the date of this report are given in the Annual Report.
Investment Objective
The Company's aim is to provide investors with an annual dividend that increases in line with RPI inflation while preserving the capital value of its investment portfolio in the long term on a real basis through reinvestment of excess cash flow and the prudent use of portfolio gearing. The target return to investors is an IRR net of fees and expenses of 8 per cent. to 9 per cent.. The 2016 dividend of 6.34 pence per annum is targeted to increase in line with December 2016 RPI to 6.49 pence for 2017. Progress on the objectives is measured by reference to the key metrics above.
Investment Policy
The Group invests in unlevered operating UK wind farms predominantly with a capacity of over 10MW, which sell the power produced and associated green benefits to creditworthy UK offtakers under route-to-market power purchase agreements.
The Group is structured by design to be a utility friendly buyer and co-investor in utility owned wind farms since utilities are the owners of the majority of UK operating wind farms. The Group is wholly independent and is not tied to any particular utility or developer.
As the Group has no borrowings at the asset level, and only limited borrowing at the Group level, the annual dividend is sufficiently protected against lower power prices. At the same time, it has the ability to benefit from higher power prices as the Group is not required to be locked into long term fixed price contracts.
The Group has used debt facilities to make additional investments in the year. This has enhanced the Group's attractiveness to sellers since execution risk is greatly diminished, with the Group effectively being a cash buyer. The Group will continue to use debt facilities to make further investments.
The Group will look to repay its drawn debt facilities by refinancing them in the equity markets at appropriate times in order to refresh its debt capacity. While debt facilities are drawn, the Group benefits from an increase in investor returns because borrowing costs are below the underlying return on investments.
In contrast to the PFI infrastructure sector (smaller in terms of total equity invested and occupied by larger funds), where links to developers may be beneficial in sourcing new acquisitions, independence is of key importance for the Company to continue to make acquisitions at the best possible price. The Investment Manager's relationships across the sector are also important.
The Group invests in both onshore and offshore wind farms with the amount invested in offshore wind farms being capped at 40 per cent. of GAV at acquisition.
The Group believes that there is a significant market in which it can continue to grow over the next few years.
Structure
The Company is a UK registered investment company with a premium listing on the London Stock Exchange. The Group comprises the Company and Holdco. Holdco invests in SPVs which hold the underlying wind farm assets. The Group employs Greencoat Capital LLP as its Investment Manager.
Discount Control
The Articles of Association require there to be a continuation vote by shareholders if the share price were to trade at an average discount to NAV of 10 per cent. or more over a 12 month period. Notwithstanding this, it is the intention of the Board for the Company to buy back its own shares in the market if the share price is trading at a material discount to NAV, providing of course that it is in the interests of shareholders to do so.
Review of Business and Future Outlook
A detailed discussion of the individual project performance and a review of the business in the year together with future outlook are covered in the Investment Manager's Report.Key Performance Indicators
The Board believes that the key metrics above, which are typical for investment funds, together with cash generation will provide shareholders with sufficient information to assess how effectively the Group is meeting its objectives.
Ongoing Charges
The ongoing charges ratio of the Company is 1.33 per cent. of the weighted average NAV for the year to 31 December 2016. This is made up as follows and has been calculated using the AIC recommended methodology.
31 December 2016 | 31 December 2015 | ||
Total management fee | 1.16% | 1.20% | |
Directors' fees | 0.04% | 0.04% | |
Ongoing expenses | 0.13% | 0.17% | |
Total | 1.33% | 1.41% |
Based on the 31 December 2016 NAV of £800.1 million, the ongoing total management fee is 1.12 per cent. of NAV. If stated with reference to the Adjusted Portfolio Value (in line with a number of the Company's peers) then the total management fee would be 0.84 per cent., assuming medium term gearing of 25 per cent. of GAV (current gearing 11 per cent. of GAV).
The Investment Manager is not paid any performance or acquisition fees.
Corporate and Social Responsibility
Environmental, Social and Governance
The Group invests in wind farms and the environmental benefits of renewable energy are widely known.
The Group relies on the Investment Manager to apply appropriate Environmental, Social and Governance policies to the investments the Group makes. The policies in place at the Investment Manager outline the Group's approach to responsible investing, as well as the environmental standards which it aims to meet. Responsible investing principles have been applied to each of the investments made.
These policies require the Group to make reasonable endeavours to procure the ongoing compliance of its portfolio companies with its policies on responsible investment. Further details on these policies may be found on the Company's website:www.greencoat-ukwind.com.
The Investment Manager monitors compliance at the investment phase and reports on an ongoing basis to the Board.
Employees and Officers of the Company
The Company does not have any employees and therefore employee policies are not required. The Directors of the Company are listed in the Annual Report.
Diversity
As at the date of this report, the Board comprised four men and one woman. The Board is aware of the benefits of diversity and considers this when appointing Board Directors. The Investment Manager operates an equal opportunities policy and its partners and employees comprise fourteen men and ten women.
Principal Risks and Uncertainties
In the normal course of business, each investee company has a rigorous risk management framework with a comprehensive risk register that is reviewed and updated regularly and approved by its board. The key risks identified by the Board to the performance of the Group are detailed below.
The Board maintains a risk matrix considering the risks affecting both the Group and the investee companies. This risk matrix is updated annually to ensure that procedures are in place to identify, mitigate and minimise the impact of risks should they crystallise. This enables the Board to carry out a robust assessment of the risks facing the Group, including those principal risks that would threaten its business model, future performance, solvency or liquidity.
As it is not possible to eliminate risks completely, the purpose of the Group's risk management policies and procedures is not to eliminate risks, but to reduce them and to ensure that the Group is adequately prepared to respond to such risks and to minimise any impact if the risk develops.
The spread of assets within the portfolio ensures that the portfolio benefits from a diversified wind resource and spreads the exposure to a number of potential technical risks associated with grid connections and with local distribution and national transmission networks. In addition, the portfolio includes six different turbine manufacturers, which diversifies technology and maintenance risks. Finally, each site contains a number of individual turbines, the performance of which is largely independent of other turbines.
Risks Affecting the Group
Investment Manager
The ability of the Group to achieve its investment objective depends heavily on the managerial experience of the management team within the Investment Manager and more generally on the Investment Manager's ability to attract and retain suitable staff. The sustained growth of the Group depends upon the ability of the Investment Manager to identify, select and execute further investments which offer the potential for satisfactory returns.
The Investment Management Agreement includes key man provisions which would require the Investment Manager to employ alternative staff with similar experience relating to investment, ownership, financing and management of wind farm projects should for any reason any key man cease to be employed by the Investment Manager. The Investment Management Agreement ensures that no investments are made following the loss of key men until suitable replacements are found and there are provisions for a reduction in the investment management fee during the loss period. It also outlines the process for their replacement with the Board's approval. The key men are also shareholders in the Company.
Financing Risk
The Group will finance further investments either by borrowing or by issuing further shares. The ability of the Group to deliver enhanced returns and consequently realise expected real NAV growth is dependent on access to debt facilities and equity capital markets. There can be no assurance that the Group will be able to borrow additional amounts or refinance on reasonable terms or that there will be a market for further shares.
Investment Returns Become Unattractive
A significantly strengthening economy may lead to higher future interest rates which could make the listed infrastructure asset class relatively less attractive to investors. In such circumstances, it is likely that there will be an increase in inflation (to which the revenues and costs of the investee companies are either indexed or significantly correlated) or an increase in power prices (due to greater consumption of power) or both. Both would increase the investment return and thus would provide a degree of mitigation against higher future interest rates. The Company has not changed its market discount rate since listing, although long term gilt rates have reduced by over one per cent..
Risks Affecting Investee Companies
Regulation
If a change in Government renewable energy policy were applied retrospectively to current operating projects including those in the Group's portfolio, this could adversely impact the market price for renewable energy or the value of the green benefits earned from generating renewable energy. The Government has evolved the regulatory framework for new projects being developed but has consistently stood behind the framework that supports operating projects as it understands the need to ensure investors can trust regulation. This principle of 'grandfathering' was confirmed in the Energy Act 2013.
Electricity Prices
Other things being equal, a decline in the market price of electricity would reduce the portfolio companies' revenues. Approximately 40 per cent. of the Group's revenues are exposed to the floating power price.
The Group's dividend policy has been designed to withstand significant short term variability in power prices. A longer period of power price decline would materially affect the revenues of investee companies. In general, independent forecasters expect UK wholesale power prices to rise in real terms from current levels, driven by higher gas and carbon prices combined with the ongoing phasing out of coal-fired power stations.
Wind Resource
The investee companies' revenues are dependent upon wind conditions, which will vary across seasons and years within statistical parameters. The standard deviation of energy production is 10 per cent. over a 12 month period (2 per cent. over 25 years). Since long term variability is low, there is no significant diversification benefit to be gained from geographical diversification across weather systems.
The Group does not have any control over the wind resource but has no asset level gearing and has designed its dividend policy such that it can withstand significant short term variability in production relating to wind. Before investment, the Group carries out extensive due diligence and relevant historical wind data is available over a substantial period of time. The other component of wind energy generation, a wind farm's ability to turn wind into energy, is mitigated by only purchasing wind farms with a proven operating track record.
When acquiring wind farms that have only recently entered into operation, only limited operational data is available. In these instances, the acquisition agreements with the vendors of these wind farms will include a ''wind energy true-up'' which will apply once two years' operational data has become available. Under this true-up, the net load factor will be reforecast based on all available data and the purchase price will be adjusted, subject to de minimis thresholds and caps.
Asset Life
Wind turbines may have shorter lives than their expected life-span of 25 years. In the event that the wind turbines do not operate for the period of time assumed by the Group in its business model or require higher than expected maintenance expenditure to do so, it could have a material adverse effect on investment returns.
The Group invests in companies that own operating wind farms with an appropriate track record. The Group performs regular reviews and ensures that maintenance is performed on all wind turbines across the wind farm portfolio. Regular maintenance ensures the wind turbines are in good working order, consistent with their expected life-spans.
Health and Safety and the Environment
The physical location, operation and maintenance of wind farms may, if inappropriately assessed and managed, pose health and safety risks to those involved. Wind farm operation and maintenance may result in bodily injury or industrial accidents, particularly if an individual were to fall from height, fall or be crushed in transit from a vessel to an offshore installation or be electrocuted. If an accident were to occur in relation to one or more of the Group's investments and if the Group were deemed to be at fault, the Group could be liable for damages or compensation to the extent such loss is not covered by insurance policies. In addition, adverse publicity or reputational damage could ensue.
The Board reviews health and safety at each of its scheduled Board meetings and Martin McAdam serves as the appointed Health and Safety Director. The Group engages an independent health and safety consultant to ensure the ongoing appropriateness of its health and safety policies.
Going Concern
The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Investment Manager's Report. The Group faces a number of risks and uncertainties, as set out above. The financial risk management objectives and policies of the Group, including exposure to price risk, interest rate risk, credit risk and liquidity risk are discussed in note 18 to the financial statements.
The Group continues to meet day-to-day liquidity needs through its cash resources.
As at 31 December 2016, the Group had net current assets of £5.3 million (2015: £7.2 million) and had cash balances of £5.9 million (2015: £7.2 million) (excluding cash balances within investee companies), which are sufficient to meet current obligations as they fall due. The major cash outflows of the Group are the payment of dividends and costs relating to the acquisition of new assets, both of which are discretionary. The Group had £100 million (2015: £135 million) of outstanding debt as at 31 December 2016. The Group is expected to continue to comply with the covenants of its banking facilities going forward.
The Directors have reviewed Group forecasts and projections which cover a period of not less than 12 months from the date of this report, taking into account foreseeable changes in investment and trading performance, which show that the Group has sufficient financial resources.
On the basis of this review, and after making due enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.
Longer Term Viability
The Company is a member of the AIC and complies with the AIC Code. In accordance with the AIC Code, the Directors are required to assess the prospects of the Group over a period longer than the 12 months associated with going concern. The Directors conducted this review for a period of ten years, which it deemed appropriate, given the long term nature of the Group's investments which are modelled over 25 years, coupled with its long term strategic planning horizon.
In considering the prospects of the Group, the Directors looked at the key risks facing both the Group and the investee companies, focusing on the likelihood and impact of each risk as well as any key contracts, future events or timescales that may be assigned to each key risk. The Directors also tested the Company's ability to remain viable under several robust downside scenarios.
As a sector-focused infrastructure fund, the Group aims to produce stable and inflating dividends while preserving the capital value of its investment portfolio on a real basis. The Directors believe that the Group is well placed to manage its business risks successfully over both the short and long term and accordingly, the Board has a reasonable expectation that the Group will be able to continue in operation and to meet its liabilities as they fall due for a period of at least ten years.
While the Directors have no reason to believe that the Group will not be viable over a longer period, they are conscious that it would be difficult to foresee the economic viability of any company with any degree of certainty for a period of time greater than ten years.
By order of the Board
Tim Ingram
Chairman
22 February 2017
Investment Manager's Report
The Investment Manager
The investment management team's experience covers wind farm investment, ownership, finance and operation. All the skills and experience required to manage the Group's investments lie within a single investment manager. The team is led by Stephen Lilley and Laurence Fumagalli.
Stephen has twenty years of investment management and financing experience in addition to six years in the nuclear industry. Prior to joining the Investment Manager in March 2012, Stephen led the Renewable Energy Infrastructure team at Climate Change Capital (CCC) from May 2010. Prior to that, he was a senior director of Infracapital Partners LP, M&G's European Infrastructure fund. During this time, Stephen led over £400 million of investments, including the acquisition of stakes in Kelda Group (Yorkshire Water), Zephyr (wind farms) and Meter Fit (gas/electricity metering). He also sat on the boards of these companies after acquisition. Prior to this he was a director at Financial Security Assurance where he led over £2 billion of underwritings in the infrastructure and utility sectors. He has also worked for the investment companies of the Serco and Kvaerner Groups.
Laurence also has twenty years of investment management and financing experience. Prior to joining the Investment Manager in March 2012, Laurence held a number of senior roles within CCC from 2006 to 2011. Initially he co-headed CCC's Advisory team before transferring in 2007 to the Carbon Finance team. Laurence joined Stephen in the Renewable Energy Infrastructure team in early 2011. From 2003-2006, Laurence headed the Bank of Tokyo-Mitsubishi's London-based renewables team, where he financed and advised on over 1GW of installed UK wind capacity. Prior to the Bank of Tokyo-Mitsubishi, Laurence worked in the power project finance team at Greenwich NatWest (formerly NatWest Markets).
The Investment Manager is authorised and regulated by the Financial Conduct Authority and is a full scope UK AIFM.
Investment Portfolio
The Group's investment portfolio as at 31 December 2016 consisted of interests in SPVs which held the following underlying operating wind farms:
Wind Farm | Turbines | Operator | PPA | Total MW | Ownership Stake | Net MW | |
Bin Mountain | GE | SSE | SSE | 9.0 | 100% | 9.0 | |
Braes of Doune | Vestas | DNV-GL | Centrica | 72.0 | 50% | 36.0 | |
Carcant | Siemens | SSE | SSE | 6.0 | 100% | 6.0 | |
Clyde | Siemens | SSE | SSE | 349.6 | 28.2% | 98.6 | |
Cotton Farm | Senvion | BayWa | Sainsbury's | 16.4 | 100% | 16.4 | |
Drone Hill | Nordex | BayWa | Statkraft | 28.6 | 51.6% | 14.8 | |
Earl's Hall Farm | Senvion | BayWa | Sainsbury's | 10.3 | 100% | 10.3 | |
Kildrummy | Enercon | BayWa | Sainsbury's | 18.4 | 100% | 18.4 | |
Lindhurst | Vestas | Innogy | Innogy | 9.0 | 49% | 4.4 | |
Little Cheyne Court | Nordex | Innogy | Innogy | 59.8 | 41% | 24.5 | |
Maerdy | Siemens | Wind Prospect | Statkraft | 24.0 | 100% | 24.0 | |
Middlemoor | Vestas | Innogy | Innogy | 54.0 | 49% | 26.5 | |
North Rhins | Vestas | DNV-GL | E.ON | 22.0 | 51.6% | 11.4 | |
Rhyl Flats | Siemens | Innogy | Innogy | 90.0 | 24.95% | 22.5 | |
Screggagh | Nordex | Wind Prospect | Energia | 20.0 | 100% | 20.0 | |
Sixpenny Wood | Senvion | BayWa | Statkraft | 20.5 | 51.6% | 10.6 | |
Stroupster | Enercon | BayWa | BT | 29.9 | 100% | 29.9 | |
Tappaghan | GE | SSE | SSE | 28.5 | 100% | 28.5 | |
Yelvertoft | Senvion | BayWa | Statkraft | 16.4 | 51.6% | 8.5 | |
Total | 420.0 |
Numbers do not cast owing to rounding of (0.3)MW.
Portfolio Performance
Generation for the year was 978.1GWh, 6 per cent. below budget owing to low wind resource. The following table sets out wind speed and generation relative to budget since IPO.
Wind speed (variation to long term mean) | Generation (variation to budget) | |
2013 (adjusted) | +3% | +8% |
2014 | -2% | -3% |
2015 | +5% | +8% |
2016 | -6% | -6% |
Including Clyde curtailed generation.
Variation to budget lies within reasonable statistical parameters. The annual standard deviation of wind speed is 6 per cent. and the annual standard deviation of generation is 10 per cent. (2 per cent. over 25 years).
2016 saw below budget power prices in Q1-Q3. However, power prices in Q4 were above budget and forecast power prices have risen.
Overall, below budget generation and below budget power prices contributed to below budget cash generation and dividend cover of 1.4x.
Overall portfolio availability was above budget. Notable issues were:
· failure of a resistor in the substation at Bin Mountain, which resulted in the wind farm being offline for six weeks while a replacement was ordered and manufactured (resistor required to prevent grid instability when energising the wind farm);
· a turbine being offline at Lindhurst from April to November, awaiting a replacement blade following a lightning strike;
· warranty snagging and upgrade works at Little Cheyne Court, including converter and gearbox upgrade works over the summer period; and
· implementation of a technical solution by Siemens at Maerdy to resolve yaw gear issues, the effectiveness of which is being confirmed over the winter period.
Insurance proceeds or liquidated damages have been (or are expected to be) received in respect of all of the above issues.
Wind energy true-ups for Cotton Farm, Earl's Hall Farm, Kildrummy and Middlemoor were agreed in the year: Cotton Farm and Earl's Hall Farm resulted in no net payment; Kildrummy resulted in a payment of £1.2m million from BayWa to the Group; and Middlemoor resulted in a payment of £2.2 million from the Group to Innogy. Also in the year, £2 million was received by the Group from Velocita in settlement of the Maerdy wind energy true-up (agreed in December 2015 and reflected in the 2015 financial statements). The true-up mechanism is designed to mitigate the risk associated with investing in a wind farm before sufficient operational data are available. Wind energy true-ups in respect of Stroupster and Clyde Extension remain outstanding as disclosed in note 14 to the financial statements.
Health and Safety
There were no major incidents in the year to 31 December 2016. A health and safety audit was conducted across January and February 2016 by an independent consultant. No material areas of concern were identified.
Acquisitions
During the year, the Investment Manager priced 40 wind farms totalling 1,334MW. Of the 40 wind farms priced: 2 investments were made by the Group (Clyde and Screggagh); 10 were acquired by other buyers; 24 are no longer being pursued by the Group; and 4 are subject to continuing discussions.
The Group invested £195.5 million (including acquisition costs, excluding acquired cash) to acquire a 28.2 per cent. stake in the 350MW Clyde wind farm on 18 March 2016. SSE retained a 50.1 per cent. stake, with the Greater Manchester Pension Fund and the London Pensions Fund Authority investing £150 million alongside the Group (21.7 per cent. stake). The Group has enjoyed a strong relationship with SSE since listing (March 2013) and the transaction demonstrates the attractiveness to utilities of the Group's unlevered investment model.
The Group acquired 100 per cent. of the 20MW Screggagh wind farm on 30 June 2016 for £28.0 million (including acquisition costs, excluding acquired cash). The transaction was executed in three weeks from the granting of exclusivity and reflects the Group's ability to select the best investments and efficiently process a wide range of transaction types and sizes.
Financial Performance
Dividend cover of 1.4x for the year remained robust despite below budget generation and below budget power prices (target dividend cover 1.7x). Net cash generation was £49.0 million. Cash balances (Group and wind farm SPVs) at 31 December 2016 were £20.7 million.
Group and wind farm SPV cash flows |
For the year ended | |
£m | ||
Net cash generation | 49.0 | |
Dividends paid | (35.1) | |
Acquisitions | (220.0) | |
Acquisition costs | (2.7) | |
Equity issuance | 247.0 | |
Equity issuance costs | (3.9) | |
Debt repayment | (35.0) | |
Upfront finance costs | (0.6) | |
Movement in cash (Group and wind farm SPVs) | (1.3) | |
Opening cash balance (Group and wind farm SPVs) | 22.0 | |
Ending cash balance (Group and wind farm SPVs) | 20.7 | |
Net cash generation | 49.0 | |
Dividends | 35.1 | |
Dividend cover | 1.4 | x |
Excludes acquired cash, includes wind energy true-up payments and receipts.
Includes costs relating to the 2015 acquisition of Stroupster, paid in 2016.
Investment Performance
The NAV at 31 December 2016 was £800.1 million (108.6 pence per share).
Opening NAV 31 December 2015 | £529.8m |
Investments in new assets | +£223.5m |
Movement in DCF valuation | +£13.6m |
Movement in cash (Group and wind farm SPVs) | -£1.3m |
Movement in other relevant assets/liabilities | -£0.5m |
Movement in Aggregate Group Debt | +£35.0m |
Closing NAV 31 December 2016 | £800.1m |
Includes acquisition costs, excludes acquired cash
The £223.5 million investment in new assets comprises £195.5 million invested in Clyde plus £28.0 million invested in Screggagh.
The £13.6 million increase in the portfolio DCF valuation in the year comprises a £14.6 million decrease in H1 plus a £28.2 million increase in H2. The increase in H2 (3.8 pence per share) primarily reflects higher forecast power prices, reflecting post EU referendum sterling devaluation and recovery in global oil and gas prices.
The movement in Aggregate Group Debt comprises £190 million drawn down for the acquisition of Clyde plus £20 million drawn down for the acquisition of Screggagh less repayments of £100 million and £145 million following equity raises in May and November.
Total dividends of £35.1 million were paid in 2016. Total dividends of £38.8 million have been paid or declared with respect to 2016 (6.34 pence per share). The target dividend with respect to 2017 is 6.49 pence per share.
pence per share | per cent. | ||
NAV at 31 December 2015 | 104.5 | ||
Less February 2016 dividend | (1.6) | ||
NAV at 31 December 2015 (ex dividend) | 102.9 | ||
NAV at 31 December 2016 | 108.6 | ||
Less February 2017 dividend | (1.6) | ||
NAV at 31 December 2016 (ex dividend) | 107.0 | ||
Movement in NAV (ex dividend) | 4.1 | 4.0 | |
Dividends with respect to the year | 6.3 | 6.1 | |
Total return on NAV | 10.4 | 10.1 |
The share price as at 31 December 2016 was 119.5 pence, representing a 10.0 per cent. premium to NAV.
Reconciliation of Statutory Net Assets to Reported NAV
As at |
As at | ||
£'000 | £'000 | ||
DCF valuation | 879,913 | 642,784 | |
Cash (wind farm SPVs) | 14,878 | 14,806 | |
Fair value of investments | 894,791 | 657,591 | |
Cash (Group) | 5,860 | 7,231 | |
Other relevant liabilities | (513) | (56) | |
GAV | 900,138 | 664,766 | |
Aggregate Group Debt | (100,000) | (135,000) | |
NAV | 800,138 | 529,766 | |
Reconciling items | - | - | |
Statutory net assets | 800,138 | 529,766 | |
Shares in issue | 736,700,850 | 506,787,431 | |
NAV per share (pence) | 108.6 | 104.5 |
NAV Sensitivities
NAV is equal to GAV less Aggregate Group Debt.
GAV is the sum of:
· DCF valuations of the Group's investments;
· cash (at Group and wind farm SPV level); and
· other relevant assets and liabilities of the Group.
The DCF valuation of the Group's investments represents the largest component of GAV and the key sensitivities are considered to be the discount rate used in the DCF valuation and long term assumptions in relation to energy yield, power prices and inflation.
The unlevered discount rate used in the DCF valuation is between 8 and 9 per cent.. The market discount rate has remained constant since listing. A variance of +/- 0.5 per cent. is considered to be a reasonable range of alternative assumptions for discount rate.
Base case energy yield assumptions are P50 (50 per cent. probability of exceedance) forecasts produced by expert consultants based on long term wind data and operational history. The P90 (90 per cent. probability of exceedance over a 10 year period) and P10 (10 per cent. probability of exceedance over a 10 year period) sensitivities reflect the future variability of wind and the uncertainty associated with the long term data source being representative of the long term mean. Given their basis on long term operating data, it is not anticipated that base case energy yield assumptions will be adjusted (other than any wind energy true-ups with compensating purchase price adjustments).
Long term power price forecasts are provided by a leading market consultant, updated quarterly and adjusted by the Investment Manager where more conservative assumptions are considered appropriate. Base case real power prices increase from approximately £45/MWh (2017) to approximately £65/MWh (2040). The sensitivity below assumes a 10 per cent. increase or decrease in power prices relative to the base case for every year of the asset life, which is relatively extreme (a 10 per cent. variation in short term power prices, as reflected by the forward curve, would have a much lesser effect).
The base case long term RPI assumption is 2.75 per cent. (0.75 per cent. above the long term 2.0 per cent. CPI target).
Gearing
As at 31 December 2016, the Group had £100 million of debt outstanding, equating to 11 per cent. of GAV.
Debt outstanding comprised a single term debt facility (together with associated interest rate swaps) following the repayment in full of the Group's revolving credit facility in November from the proceeds of the heavily oversubscribed equity raise.
All borrowing is at the Company level (no asset level debt).
Outlook
The regulatory outlook for operational wind farms in the UK remains stable owing to the UK Government's policy of 'grandfathering' for operational projects. The Group invests in operational wind farms, backed by known and fixed support mechanisms.
There is currently over 10GW of operational onshore wind capacity plus over 5GW offshore. Installed capacity is set to grow over the next few years to over 12GW onshore plus over 12GW offshore, despite recent policy changes for new projects, as assets in construction come into operation. In monetary terms, the secondary market for operational UK wind farms is approximately £35 billion, increasing to £60 billion in the medium term. The Group currently has a market share of approximately 3 per cent..
The Company does not expect any material change to its business as a result of the UK exiting the European Union. Being solely UK focused and deliberately low-risk, all of the Group's assets and liabilities are inside the UK and sterling denominated. In addition, the regulatory regime under which the assets operate is robust, longstanding and rooted in UK legislation.
As an owner of operational wind farms, the key risk faced by the Group is power price. In general, independent forecasters expect UK wholesale power prices to rise in real terms from current levels, driven by higher gas and carbon prices combined with the ongoing phasing out of coal-fired power stations. The long term power price forecast is updated each quarter and reflected in the reported NAV.
Long term power price forecasts fell through 2015 and the first half of 2016, reflecting falls in global oil and gas prices, and achieved power prices were below budget in Q1-Q3 2016. However, power prices in Q4 were above budget and forecast power prices have risen reflecting post EU referendum sterling devaluation and recovery in global oil and gas prices.
In general, the outlook for the Group is very encouraging, with proven operational and financial performance from the existing portfolio combined with a healthy pipeline of attractive further investment opportunities.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements, and have elected to prepare the Company financial statements, in accordance with IFRS as adopted by the EU. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss for the Group for that period.
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· state whether they have been prepared in accordance with IFRS as adopted by the EU, subject to any material departures disclosed and explained in the financial statements;
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
· prepare a Directors' Report, a Strategic Report and Directors' Remuneration Report which comply with the requirements of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for ensuring that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.
Website Publication
The Directors are responsible for ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the UK governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibilities also extend to the ongoing integrity of the financial statements contained therein.
Directors' Responsibilities Pursuant to DTR4
The Directors confirm to the best of their knowledge that:
· the Group financial statements have been prepared in accordance with IFRS as adopted by the EU and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group; and
· the Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and the parent company, together with a description of the principal risks and uncertainties that they face.
On behalf of the Board,
Tim Ingram
Chairman
22 February 2017
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016
Note |
For the year ended |
For the year ended | |
£'000 | £'000 | ||
Return on investments | 4 | 78,452 | 42,037 |
Other income | 477 | 412 | |
Total income and gains | 78,929 | 42,449 | |
Operating expenses | 5 | (8,879) | (7,363) |
Investment acquisition costs | (2,562) | (263) | |
Operating profit | 67,488 | 34,823 | |
Finance expense | 13 | (7,559) | (6,162) |
Profit for the year before tax | 59,929 | 28,661 | |
Tax credit | 6 | 1,429 | 1,988 |
Profit for the year after tax | 61,358 | 30,649 | |
Profit and total comprehensive income attributable to: | |||
Equity holders of the Company | 61,358 | 30,649 | |
Earnings per share | |||
Basic and diluted earnings from continuing operations in the year (pence) | 7 | 10.56 | 6.59 |
The accompanying notes form an integral part of the financial statements.
Consolidated Statement of Financial Position
As at 31 December 2016
Note | 31 December 2016 | 31 December 2015 | |
£'000 | £'000 | ||
Non current assets | |||
Investments at fair value through profit or loss | 9 | 894,791 | 657,591 |
894,791 | 657,591 | ||
Current assets | |||
Receivables | 11 | 3,838 | 3,619 |
Cash and cash equivalents | 5,860 | 7,231 | |
9,698 | 10,850 | ||
Current liabilities | |||
Payables | 12 | (4,351) | (3,675) |
Net current assets | 5,347 | 7,175 | |
Non current liabilities | |||
Loans and borrowings | 13 | (100,000) | (135,000) |
Net assets | 800,138 | 529,766 | |
Capital and reserves | |||
Called up share capital | 15 | 7,367 | 5,068 |
Share premium account | 15 | 495,110 | 253,310 |
Other distributable reserves | 157,011 | 192,096 | |
Retained earnings | 140,650 | 79,292 | |
Total shareholders' funds | 800,138 | 529,766 | |
Net assets per share (pence) | 16 | 108.6 | 104.5 |
Authorised for issue by the Board on 22 February 2017 and signed on its behalf by:
Tim Ingram Shonaid Jemmett-Page
Chairman Director
The accompanying notes form an integral part of the financial statements.
Statement of Financial Position - Company
As at 31 December 2016
Note | 31 December 2016 | 31 December 2015 | |
£'000 | £'000 | ||
Non current assets | |||
Investments at fair value through profit or loss | 9 | 906,532 | 667,198 |
906,532 | 667,198 | ||
Current assets | |||
Receivables | 11 | 2,793 | 509 |
Cash and cash equivalents | 573 | 4 | |
3,366 | 513 | ||
Current liabilities | |||
Payables | 12 | (9,760) | (2,945) |
Net current liabilities | (6,394) | (2,432) | |
Non current liabilities | |||
Loans and borrowings | 13 | (100,000) | (135,000) |
Net assets | 800,138 | 529,766 | |
Capital and reserves | |||
Called up share capital | 15 | 7,367 | 5,068 |
Share premium account | 15 | 495,110 | 253,310 |
Other distributable reserves | 157,011 | 192,096 | |
Retained earnings | 140,650 | 79,292 | |
Total shareholders' funds | 800,138 | 529,766 | |
Net assets per share (pence) | 16 | 108.6 | 104.5 |
The Company has taken advantage of the exemption under section 408 of the Companies Act 2006 and accordingly has not presented a Statement of Comprehensive Income for the Company alone. The profit after tax of the Company alone for the year was £61,358,000 (2015: £30,649,000).
Authorised for issue by the Board on 22 February 2017 and signed on its behalf by:
Tim Ingram Shonaid Jemmett-Page
Chairman Director
The accompanying notes form an integral part of the financial statements.
Consolidated and Company Statement of Changes in Equity
For the year ended 31 December 2016
For the year ended | Note | Share capital | Share premium | Other distributable reserves | Retained earnings | Total |
£'000 | £'000 | £'000 | £'000 | £'000 | ||
Opening net assets attributable to shareholders (1 January 2016) | 5,068 | 253,310 | 192,096 | 79,292 | 529,766 | |
Issue of share capital | 15 | 2,299 | 245,790 | - | - | 248,089 |
Share issue costs | 15 | - | (3,990) | - | - | (3,990) |
Profit and total comprehensive income for the year | - | - | - | 61,358 | 61,358 | |
Interim dividends paid in the year | 8 | - | - | (35,085) | - | (35,085) |
Closing net assets attributable to shareholders | 7,367 | 495,110 | 157,011 | 140,650 | 800,138 |
Other distributable reserves were created through the cancellation of the share premium account on 5 June 2013. 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.
After taking account of cumulative unrealised gains of £35,194,977, the total reserves distributable by way of a dividend as at 31 December 2016 were £262,466,218.
For the year ended | Note | Share capital | Share premium | Other distributable reserves | Retained earnings | Total |
£'000 | £'000 | £'000 | £'000 | £'000 | ||
Opening net assets attributable to shareholders (1 January 2015) | 4,607 | 205,023 | 227,973 | 48,643 | 486,246 | |
Issue of share capital | 15 | 459 | 49,037 | - | - | 49,496 |
Share issue costs | 15 | - | (750) | - | - | (750) |
Profit and total comprehensive income for the year | - | - | - | 30,649 | 30,649 | |
Interim dividends paid in the year | 8 | - | - | (35,877) | - | (35,877) |
Closing net assets attributable to shareholders | 5,068 | 253,310 | 192,096 | 79,292 | 529,766 |
After taking account of cumulative unrealised gains of £15,058,250, the total reserves distributable by way of a dividend as at 31 December 2015 were £256,329,138.
The accompanying notes form an integral part of the financial statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2016
Note |
For the year ended |
For the year ended | |
£'000 | £'000 | ||
Net cash flows from operating activities | 17 | 52,216 | 48,468 |
Cash flows from investing activities | |||
Acquisition of investments | 9 | (222,787) | (85,285) |
Investment acquisition costs | (2,688) | (135) | |
Cash received for adjustment to purchase price of investments | 3,200 | - | |
Cash paid for adjustment to purchase price of investments | (2,176) | - | |
Repayment of loan capital from Clyde | 9 | 5,724 | - |
Net cash flows from investing activities | (218,727) | (85,420) | |
Cash flows from financing activities | |||
Issue of share capital | 15 | 247,000 | 48,306 |
Payment of issue costs | (3,894) | (971) | |
Amounts drawn down on loan facilities | 13 | 210,000 | 265,000 |
Amounts repaid on loan facilities | 13 | (245,000) | (235,000) |
Finance costs | (7,881) | (5,595) | |
Dividends paid | 8 | (35,085) | (35,877) |
Net cash flows from financing activities | 165,140 | 35,863 | |
Net decrease in cash and cash equivalents during the year | (1,371) | (1,089) | |
Cash and cash equivalents at the beginning of the year | 7,231 | 8,320 | |
Cash and cash equivalents at the end of the year | 5,860 | 7,231 |
The accompanying notes form an integral part of the financial statements.
Statement of Cash Flows - Company
For the year ended 31 December 2016
Note |
For the year ended |
For the year ended | |
£'000 | £'000 | ||
Net cash flows from operating activities | 17 | (1,550) | 45,991 |
Cash flows from investing activities | |||
Acquisition of investments | - | (105,000) | |
Loans advanced to Group companies | 9 | (210,000) | (85,000) |
Repayment of loans to Group companies | 9 | 46,979 | 1,487 |
Net cash flows from investing activities | (163,021) | (188,513) | |
Cash flows from financing activities | |||
Issue of share capital | 15 | 247,000 | 48,306 |
Payment of issue costs | (3,894) | (971) | |
Amounts drawn down on loan facilities | 13 | 210,000 | 265,000 |
Amounts repaid on loan facilities | 13 | (245,000) | (130,000) |
Finance costs | (7,881) | (3,988) | |
Dividends paid | 8 | (35,085) | (35,877) |
Net cash flows from financing activities | 165,140 | 142,470 | |
Net increase/(decrease) in cash and cash equivalents during the year | 569 | (52) | |
Cash and cash equivalents at the beginning of the year | 4 | 56 | |
Cash and cash equivalents at the end of the year | 573 | 4 |
The accompanying notes form an integral part of the financial statements.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
1. Significant accounting policies
Basis of accounting
The consolidated annual financial statements have been prepared in accordance with IFRS to the extent that they have been adopted by the EU and with those parts of the Companies Act 2006 applicable to companies under IFRS.
The annual financial statements have been prepared on the historical cost basis, as modified for the measurement of certain financial instruments at fair value through profit or loss. The principal accounting policies are set out below.
These consolidated financial statements are presented in pounds sterling which is the currency of the primary economic environment in which the Group operates and are rounded to the nearest thousand, unless otherwise stated.
New and amended standards and interpretations not applied
There were no new standards or interpretations effective for the first time for periods beginning on or after 1 January 2016 that had a significant effect on the Group or Company's financial statements. Furthermore, none of the amendments to standards that are effective from that date had a significant effect on the financial statements.
At the date of authorisation of these financial statements, IFRS 9 'Financial instruments' and IFRS 15 'Revenue from contracts with customers' were issued but will not become effective until accounting periods beginning on or after 1 January 2018 and IFRS 16 'Leases' was issued but will not become effective until accounting periods beginning on or after 1 January 2019. These accounting standards have not been applied in these financial statements. Other accounting standards have been published and will be mandatory for the Company's accounting periods beginning on or after 1 January 2017 or later periods. The impact of these standards is not expected to be material to the reported results and financial position of the Group.
Accounting for subsidiaries
The Directors have concluded that the Group has all the elements of control as prescribed by IFRS 10 'Consolidated Financial Statements' in relation to all its subsidiaries and that the Company continues to satisfy the criteria to be regarded as an investment entity as defined in IFRS 10, IFRS 12 'Disclosure of Interests in Other Entities' and IAS 27 'Consolidated and Separate Financial Statements'. Subsidiaries are therefore measured at fair value through profit or loss, in accordance with IFRS 13 'Fair Value Measurement' and IAS 39 'Financial Instruments: Recognition and Measurement'. The financial support provided by the Company to its unconsolidated subsidiaries is disclosed in note 10.
Notwithstanding this, IFRS 10 requires subsidiaries that provide services that relate to the investment entity's investment activities to be consolidated. Accordingly, the annual financial statements include the consolidated financial statements of Greencoat UK Wind PLC and Greencoat UK Wind Holdco Limited (a 100 per cent. owned UK subsidiary). Consolidated comparative figures for the year ended 31 December 2015 include Greencoat UK Wind 1 LLP (a UK limited liability partnership) which was dissolved on 29 December 2015. In respect of these entities, intra-Group balances and any unrealised gains arising from intra-Group transactions are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated unless the costs cannot be recovered. The financial statements of subsidiaries that are included in the consolidated financial statements are included from the date that control commences until the dates that control ceases.
In the parent company financial statements, investments in subsidiaries are measured at fair value through profit or loss in accordance with IAS 39, as permitted by IAS 27.
Accounting for associates and joint ventures
The Group has taken the exemption permitted by IAS 28 'Investments in Associates and Joint Ventures' and IFRS 11 'Joint Arrangements' for entities similar to investment entities and measures its investments in associates and joint ventures at fair value. The Directors consider an associate to be an entity over which the Group has significant influence, through an ownership of between 20 per cent. and 50 per cent.. The Group's associates and joint ventures are disclosed in note 10.
Financial instruments
Financial assets and financial liabilities are recognised in the Group's Consolidated Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.
At 31 December 2016 and 2015 the carrying amounts of cash and cash equivalents, receivables, payables, accrued expenses and short term borrowings reflected in the financial statements are reasonable estimates of fair value in view of the nature of these instruments or the relatively short period of time between the original instruments and their expected realisation. The fair value of advances and other balances with related parties which are short-term or repayable on demand is equivalent to their carrying amount.
Financial assets
The classification of financial assets at initial recognition depends on the purpose for which the financial asset was acquired and its characteristics.
All financial assets are initially recognised at fair value. All purchases of financial assets are recorded at the date on which the Group became party to the contractual requirements of the financial asset.
The Group's and Company's financial assets comprise of only investments held at fair value through profit or loss and loans and receivables.
Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They principally comprise cash and trade and other receivables and they are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method, less provisions for impairment. Transaction costs are recognised in the Consolidated Statement of Comprehensive Income as incurred.
The Group and the Company assess whether there is any objective evidence that financial assets are impaired at the end of each reporting period. If any such evidence exists, the amount of the impairment loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the loss is recognised in profit or loss.
Investments held at fair value through profit or loss
Investments are designated upon initial recognition as held at fair value through profit or loss. Gains or losses resulting from the movement in fair value are recognised in the Consolidated Statement of Comprehensive Income at each valuation point. As shareholder loan investments form part of a managed portfolio of assets whose performance is evaluated on a fair value basis, loan investments are designated at fair value in line with equity investments.
The Company's loan and equity investments in Holdco are held at fair value through profit or loss. Gains or losses resulting from the movement in fair value are recognised in the Company's Statement of Comprehensive Income at each valuation point.
Financial assets are recognised/derecognised at the date of the purchase/disposal. Investments are initially recognised at cost, being the fair value of consideration given. Transaction costs are recognised in the Consolidated Statement of Comprehensive Income as incurred.
Fair value is defined as the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction. Fair value is calculated on an unlevered, discounted cash flow basis in accordance with IFRS 13 and IAS 39. Gains or losses resulting from the revaluation of investments are recognised in the Consolidated Statement of Comprehensive Income.
Derecognition of financial assets
A financial asset (in whole or in part) is derecognised either:
· when the Group has transferred substantially all the risks and rewards of ownership; or
· when it has neither transferred or retained substantially all the risks and rewards and when it no longer has control over the assets or a portion of the asset; or
· when the contractual right to receive cash flow has expired.
Financial liabilities
Financial liabilities are classified according to the substance of the contractual agreements entered into.
All financial liabilities are initially recognised at fair value net of transaction costs incurred. All financial liabilities are recorded on the date on which the Group becomes party to the contractual requirements of the financial liability.
All loans and borrowings are initially recognised at cost, being fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Loan balances as at the year end have not been discounted to reflect amortised cost, as the amounts are not materially different from the outstanding balances.
The Group's other financial liabilities measured at amortised cost include trade and other payables and other short term monetary liabilities which are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method.
A financial liability (in whole or in part) is derecognised when the Group has extinguished its contractual obligations, it expires or is cancelled. Any gain or loss on derecognition is taken to the Consolidated Statement of Comprehensive Income.
Embedded derivatives
Derivatives may be embedded in other financial instruments, such as an interest rate swap in a borrowing. Embedded derivatives are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract, the terms of the embedded derivative would meet the definition of a stand-alone derivative if they were contained in a separate contract and the combined contract is not held for trading or designated at fair value. These embedded derivatives are measured at fair value with changes in fair value recognised in the Consolidated Statement of Comprehensive Income. Embedded derivatives which are closely related to the host contract are not separated from the host instrument.
Finance expenses
Borrowing costs are recognised in the Consolidated Statement of Comprehensive Income in the period to which they relate on an accruals basis.
Share capital
Financial instruments issued by the Company are treated as equity if the holder has only a residual interest in the assets of the Company after the deduction of all liabilities. The Company's ordinary shares are classified as equity instruments.
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from proceeds.
Incremental costs include those incurred in connection with the placing and admission which include fees payable under a placing agreement, legal costs and any other applicable expenses.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, deposits held on call with banks and other short-term highly liquid deposits with original maturities of three months or less, that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Foreign currencies
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Consolidated Statement of Comprehensive Income.
Dividends
Dividends payable are recognised as distributions in the financial statements when the Company's obligation to make payment has been established.
Income recognition
Dividend income and interest income on shareholder loan investments are recognised when the Group's entitlement to receive payment is established.
Other income is accounted for on an accruals basis using the effective interest rate method.
Gains or losses resulting from the movement in fair value of the Group's and Company's investments held at fair value through profit and loss are recognised in the Consolidated or Company Statement of Comprehensive Income at each valuation point.
Expenses
Expenses 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.
The Company issues shares to the Investment Manager in exchange for receiving investment management services. The fair value of the investment management services received in exchange for shares is recognised as an expense at the time at which the investment management fees are earned, with a corresponding increase in equity. The fair value of the investment management services is calculated by reference to the definition of investment management fees in the Investment Management Agreement.
Taxation
Under the current system of taxation in the UK, the Group is liable to taxation on its operations in the UK.
Payment received or receivable from the Group or Group owned SPVs for losses surrendered has been recognised in the financial statements and form part of the tax credit. In some situations, it might not be appropriate to recognise the tax credit until the Group's and Group owned SPVs' tax affairs have been finalised and the losses elections have been made.
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 Consolidated Statement of Financial Position.
Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Deferred tax assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit or the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments, except where the Group is able to control the timing of the reversal of the difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the Consolidated Statement of Comprehensive Income except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off tax assets against tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Deferred tax assets and liabilities are not discounted.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors, as a whole. The key measure of performance used by the Board to assess the Group's performance and to allocate resources is the total return on the Group's net assets, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.
For management purposes, the Group is organised into one main operating segment, which invests in wind farm assets.
All of the Group's income is generated within the UK.
All of the Group's non-current assets are located in the UK.
2. Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires the application of estimates and assumptions which may affect the results reported in the financial statements. Estimates, by their nature, are based on judgement and available information.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities are those used to determine the fair value of the investments as disclosed in note 9 to the financial statements.
As disclosed in note 1, the Directors have concluded that the Company meets 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.
The key assumptions that have a significant impact on the carrying value of investments that are valued by reference to the discounted value of future cash flows are the useful life of the assets, the discount factors, the level of wind resource, the rate of inflation, the price at which the power and associated benefits can be sold and the amount of electricity the assets are expected to produce.
Useful lives are based on the Investment Manager's estimates of the period over which the assets will generate revenue which are periodically reviewed for continued appropriateness. The standard assumption used for the useful life of a wind farm is 25 years. The actual useful life may be a shorter or longer period depending on the actual operating conditions experienced by the asset.
The discount factors are subjective and therefore it is feasible that a reasonable alternative assumption may be used resulting in a different value. The discount factors applied to the cash flows are reviewed annually by the Investment Manager to ensure they are at the appropriate level. The Investment Manager will take into consideration market transactions, where of similar nature, when considering changes to the discount factors used.
The revenues and expenditure of the investee companies are frequently partly or wholly subject to indexation and an assumption is made that inflation will increase at a long term rate.
The price at which the output from the generating assets is sold is a factor of both wholesale electricity prices and the revenue received from the Government support regime. Future power prices are estimated using external third party forecasts which take the form of specialist consultancy reports. The future power price assumptions are reviewed as and when these forecasts are updated. There is an inherent uncertainty in future wholesale electricity price projection.
Specifically commissioned external reports are used to estimate the expected electrical output from the wind farm assets taking into account the expected average wind speed at each location and generation data from historical operation. The actual electrical output may differ considerably from that estimated in such a report mainly due to the variability of actual wind to that modelled in any one period. Assumptions around electrical output will be reviewed only if there is good reason to suggest there has been a material change in this expectation.
3. Investment management fees
Under the terms of the Investment Management Agreement and effective from 1 April 2015, the Investment Manager is entitled to a combination of a Cash Fee and an Equity Element from the Company.
The Cash Fee is based upon the NAV as at the start of the quarter in question on the following basis:
· on that part of the then most recently announced NAV up to and including £500 million, an amount equal to 0.25 per cent. of such part of the NAV;
· on that part of the then most recently announced NAV over £500 million and up to and including £1,000 million, an amount equal to 0.225 per cent. of such part of the NAV; and
· on that part of the then most recently announced NAV over £1,000 million, an amount equal to 0.2 per cent. of such part of the NAV.
The Equity Element is calculated quarterly in advance and has a value as set out below:
· on that part of the then most recently announced NAV up to and including £500 million, 0.05 per cent.; and
· on that part of the then most recently announced NAV over £500 million up to and including £1,000 million, 0.025 per cent.
The ordinary shares issued to the Investment Manager under the equity element are subject to a three year lock up starting from the quarter in which they are due to be paid.
As at 31 December each year, the Cash Fee and Equity Element shall be subject to a true-up to the value that would have been deliverable had they been calculated quarterly in arrears.
Prior to 31 March 2015, PPS was paid quarterly in advance, in each case based upon the NAV as at the start of the quarter in question on the following basis:
· on that part of the then most recently announced NAV up to and including £500 million, an amount equal to 0.25 per cent. of such part of the NAV;
· on that part of the then most recently announced NAV over £500 million and up to and including £1,000 million, an amount equal to 0.225 per cent. of such part of the NAV; and
· on that part of the then most recently announced NAV over £1,000 million, an amount equal to 0.2 per cent. of such part of the NAV,
in each case less an amount equivalent to the quarterly Base Fee of £275,000.
Investment management fees paid or accrued in the year to 31 December 2016 were as follows:
For the year ended | Cash Fee | Value of Equity Element | Total amounts paid to the Investment Manager |
£'000 | £'000 | £'000 | |
Quarter to March 2016 | 1,305 | 256 | 1,561 |
Quarter to June 2016 | 1,427 | 270 | 1,697 |
Quarter to September 2016 | 1,580 | 287 | 1,867 |
Quarter to December 2016 | 1,737 | 304 | 2,041 |
Total | 6,049 | 1,117 | 7,166 |
The value of the Equity Element and the Cash Fee detailed in the table above include the true-up amount for the year calculated in accordance with the Investment Management Agreement.
Investment management fees and PPS paid or accrued in the year to 31 December 2015 were as follows:
For the year ended | Base fee | PPS | Cash Fee | Value of Equity Element | Total amounts paid to the Investment Manager |
£'000 | £'000 | £'000 | £'000 | £'000 | |
Quarter to March 2015 | 275 | 925 | - | 240 | 1,440 |
Quarter to June 2015 | - | - | 1,202 | 240 | 1,442 |
Quarter to September 2015 | - | - | 1,207 | 241 | 1,448 |
Quarter to December 2015 | - | - | 1,246 | 249 | 1,495 |
Total | 275 | 925 | 3,655 | 970 | 5,825 |
The value of the Equity Element and the Cash Fee detailed in the table above include the true-up amount for the year calculated in accordance with the Investment Management Agreement.
4. Return on investments
For the year ended |
For the year ended | |
£'000 | £'000 | |
Dividends received (note 19) | 54,232 | 50,920 |
Interest on shareholder loan investment received (note 19) | 5,059 | - |
(Loss)/gain on adjustment to purchase price of investment (note 9 & 14) | (976) | 2,000 |
Unrealised movement in fair value of investments (note 9) | 20,137 | (10,883) |
78,452 | 42,037 |
5. Operating expenses
For the year ended |
For the year ended | |
£'000 | £'000 | |
Management fees (note 3) | 7,166 | 4,900 |
PPS (note 3) | - | 925 |
Group and SPV administration fees | 500 | 428 |
Non-executive Directors' fees | 225 | 194 |
Other expenses | 867 | 851 |
Fees to the Company's Auditor: | ||
for audit of the statutory financial statements | 64 | 61 |
for other services | 53 | - |
for other audit related services | 4 | 4 |
8,879 | 7,363 |
The fees to the Company's Auditor include £3,600 (2015: £3,600) payable in relation to a limited review of the half-yearly report. During the year, BDO was paid £56,000 (2015: £nil) in relation to capital raises of the Company which was included in share issue costs. Total fees payable to BDO for non-audit services during the year were £112,600 (2015: £3,600).
6. Taxation
For the year ended |
For the year ended | |
£'000 | £'000 | |
UK Corporation Tax credit | (1,429) | (1,988) |
(1,429) | (1,988) |
The tax credit for the year shown in the Statement of Comprehensive Income is lower than the standard rate of corporation tax of 20 per cent. (2015: 21 per cent. to 31 March 2015 and 20 per cent. from 1 April 2015). The differences are explained below.
For the year ended |
For the year ended | |
£'000 | £'000 | |
Profit for the year before taxation | 59,929 | 28,661 |
Profit for the year multiplied by the standard rate of corporation tax of 20 per cent. (2015: 21 per cent. to 31 March 2015 and 20 per cent. from 1 April 2015) | 11,986 | 5,803 |
Fair value movements (not subject to taxation) | (3,832) | 1,799 |
Dividends received (not subject to taxation) | (10,846) | (10,310) |
Expenditure not deductible for tax purposes | 517 | 247 |
Surrendering of tax losses to unconsolidated subsidiaries | 2,175 | 2,461 |
Payments for current year losses surrendered | (188) | (172) |
Payments for prior year losses surrendered | (1,241) | (1,816) |
Total tax credit | (1,429) | (1,988) |
7. Earnings per share
For the year ended |
For the year ended | |
Profit attributable to equity holders of the Company - £'000 | 61,358 | 30,649 |
Weighted average number of ordinary shares in issue | 580,837,147 | 465,221,854 |
Basic and diluted earnings from continuing operations in the year (pence) | 10.56 | 6.59 |
Dilution of the earnings per share as a result of the equity element of the investment management fee as disclosed in note 3 does not have a significant impact on the basic earnings per share.
8. Dividends declared with respect to the year
Interim dividends paid during the year ended 31 December 2016 | Dividend per share | Total dividend |
pence | £'000 | |
With respect to the quarter ended 31 December 2015 | 1.565 | 7,931 |
With respect to the quarter ended 31 March 2016 | 1.585 | 8,041 |
With respect to the quarter ended 30 June 2016 | 1.585 | 9,554 |
With respect to the quarter ended 30 September 2016 | 1.585 | 9,559 |
6.320 | 35,085 | |
Interim dividends declared after 31 December 2016 and not accrued in the year | Dividend per share | Total dividend |
pence | £'000 | |
With respect to the quarter ended 31 December 2016 | 1.585 | 11,682 |
1.585 | 11,682 |
On 30 January 2017, the Company announced a dividend of 1.585 pence per share with respect to the quarter ended 31 December 2016, bringing the total dividend declared with respect to the year to 31 December 2016 to 6.34 pence per share. The record date for the dividend was 10 February 2017 and the payment date is 24 February 2017.
The following table shows dividends paid in the prior year.
Interim dividends paid during the year ended 31 December 2015 | Dividend per share | Total dividend |
pence | £'000 | |
With respect to the 6 months ended 31 December 2014 | 3.080 | 14,204 |
With respect to the quarter ended 31 March 2015 | 1.565 | 7,221 |
With respect to the quarter ended 30 June 2015 | 1.565 | 7,224 |
With respect to the quarter ended 30 September 2015 | 1.565 | 7,228 |
7.775 | 35,877 |
9. Investments at fair value through profit or loss
Group - for the year ended 31 December 2016 | Loans | Equity interest | Total |
£'000 | £'000 | £'000 | |
Opening balance | - | 657,591 | 657,591 |
Additions | 113,380 | 109,407 | 222,787 |
Repayment of shareholder loan investments (note 19) | (5,724) | - | (5,724) |
Adjustment to purchase price of investment (note 14) | - | 976 | 976 |
Loss on adjustment to purchase price of investment (note 4) | - | (976) | (976) |
Unrealised movement in fair value of investments (note 4) | 17 | 20,120 | 20,137 |
107,673 | 787,118 | 894,791 |
Group - for the year ended 31 December 2015 | Loans | Equity interest | Total |
£'000 | £'000 | £'000 | |
Opening balance | - | 583,189 | 583,189 |
Additions | - | 85,285 | 85,285 |
Adjustment to purchase price of investments (note 14) | - | (2,000) | (2,000) |
Gain on adjustment to purchase price of investment (note 4) | - | 2,000 | 2,000 |
Unrealised movement in fair value of investments (note 4) | - | (10,883) | (10,883) |
- | 657,591 | 657,591 |
The unrealised movement in fair value of investments of the Group during the year and the prior year was made up as follows:
For the year ended |
For the year ended | |
£'000 | £'000 | |
Increase/(decrease) in DCF valuation of investments | 13,572 | (14,558) |
Repayment of shareholder loan investment | 5,724 | - |
Movement in cash balances of SPVs | (1,721) | 3,675 |
Acquisition costs | 2,562 | - |
20,137 | (10,883) |
The unrealised movement in fair value of investments of the Company during the year and the prior year was made up as follows:
Company - for the year ended 31 December 2016 | Loans | Equity interest | Total |
£'000 | £'000 | £'000 | |
Opening balance | 83,513 | 583,685 | 667,198 |
Loan advanced to Holdco (note 19) | 210,000 | - | 210,000 |
Repayment of loan to Holdco (note 19) | (46,979) | - | (46,979) |
Unrealised movement in fair value of investments | - | 76,313 | 76,313 |
246,534 | 659,998 | 906,532 |
Company - for the year ended 31 December 2015 | Loans | Equity interest | Total |
£'000 | £'000 | £'000 | |
Opening balance | 461,018 | 25,831 | 486,849 |
Additions | - | 105,000 | 105,000 |
Group restructure | (461,018) | 461,018 | - |
Loan advanced to Holdco | 85,000 | - | 85,000 |
Repayment of loan to Holdco | (1,487) | - | (1,487) |
Unrealised movement in fair value of investments | - | (8,164) | (8,164) |
83,513 | 583,685 | 667,198 |
During the year, the Group acquired a 28.2 per cent. interest in Clyde.
The Clyde Extension is being developed by SSE within the same SPV (Clyde) as the operating wind farm. SSE has agreed to take construction risk and certain arrangements have been agreed to effect this which will remain in place until the commissioning date of the Clyde Extension. SSE has agreed to meet all construction costs relating to the Clyde Extension, and has provided an indemnity to Holdco and GLIL in respect of any claims against Clyde in connection with construction of the Clyde Extension.
Following the commissioning date Holdco and GLIL's 49.9 per cent. stake in Clyde will dilute to reflect the increase in value of Clyde as a result of the commencement of operation of the Clyde Extension. It is intended that the economic value of Holdco and GLIL's current stake will remain unchanged as a result of the dilution, and will reduce to a minimum of 30 per cent. in Clyde to reflect the increase in value of Clyde. Reserved matters, board representation rights and other minority protections will remain unchanged notwithstanding Holdco and GLIL's reduced shareholding. Holdco and GLIL have a right of first offer should SSE decide to reduce its shareholding, including upon the commissioning of the Clyde Extension.
Fair value measurements
IFRS 13 requires disclosure of fair value measurement by level. The level of fair value hierarchy within the financial assets or financial liabilities is determined on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and financial liabilities are classified in their entirety into only one of the following three levels:
· Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
· Level 2 - inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
· Level 3 - inputs for assets or liabilities that are not based on observable market data (unobservable inputs).
The determination of what constitutes 'observable' requires significant judgement by the Group. The Group considers observable data to be market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The only financial instruments held at fair value are the instruments held by the Group in the SPVs, which are fair valued at each reporting date. The Group's investments have been classified within level 3 as the investments are not traded and contain unobservable inputs. The Company's investments are all considered to be level 3 assets. As the fair value of the Company's equity and loan investments in Holdco is ultimately determined by the underlying fair values of the SPV investments, the Company's sensitivity analysis of reasonably possible alternative input assumptions is the same as for the Group.
Due to the nature of the investments, they are always expected to be classified as level 3. There have been no transfers between levels during the year ended 31 December 2016.
Any transfers between the levels would be accounted for on the last day of each financial period.
The Investment Manager will carry out the asset valuations, which form part of the NAV calculation. These asset valuations will be based on discounted cash flow methodology in line with IPEV Valuation Guidelines and adjusted where appropriate, given the special nature of wind farm investments.
The valuations are based on a detailed financial model produced by the Investment Manager which takes into account, inter alia, the following:
· due diligence findings where relevant;
· the terms of any material contracts including PPAs;
· asset performance;
· power price forecast from a leading market consultant; and
· the economic, taxation or regulatory environment.
The DCF valuation of the Group's investments represents the largest component of NAV and the key sensitivities are considered to be the discount rate used in the DCF valuation and long term assumptions in relation to energy yield, power prices and inflation.
The unlevered discount rate used in the DCF valuation is between 8 and 9 per cent.. The market discount rate has remained constant since listing. A variance of +/- 0.5 per cent. is considered to be a reasonable range of alternative assumptions for discount rate.
Base case energy yield assumptions are P50 (50 per cent. probability of exceedance) forecasts produced by expert consultants based on long term wind data and operational history. The P90 (90 per cent. probability of exceedance over a 10 year period) and P10 (10 per cent. probability of exceedance over a 10 year period) sensitivities reflect the future variability of wind and the uncertainty associated with the long term data source being representative of the long term mean. Given their basis on long term operating data, it is not anticipated that base case energy yield assumptions will be adjusted (other than any wind energy true-ups with compensating purchase price adjustments).
Long term power price forecasts are provided by a leading market consultant, updated quarterly and adjusted by the Investment Manager where more conservative assumptions are considered appropriate. Base case real power prices increase from approximately £45/MWh (2017) to approximately £65/MWh (2040). The sensitivity below assumes a 10 per cent. increase or decrease in power prices relative to the base case for every year of the asset life, which is relatively extreme (a 10 per cent. variation in short term power prices, as reflected by the forward curve, would have a much lesser effect).
The base case long term RPI assumption is 2.75 per cent. (0.75 per cent. above the long term 2.0 per cent. CPI target).
Sensitivity analysis
The fair value of the Group's investments is £894,790,604 (2015: £657,590,555). The analysis below is provided to illustrate the sensitivity of the fair value of investments to an individual input, while all other variables remain constant. The Board considers these changes in inputs to be within reasonable expected ranges. This is not intended to imply the likelihood of change or that possible changes in value would be restricted to this range.
Input | Base case | Change in input | Change in fair value of investments | Change in NAV per share |
£'000 | pence | |||
Discount rate | 8 - 9 per cent. | + 0.5 per cent. | (30,498) | (4.1) |
- 0.5 per cent. | 32,294 | 4.4 | ||
Energy yield | P50 | 10 year P90 | (57,948) | (7.9) |
10 year P10 | 57,922 | 7.9 | ||
Power price | Forecast by leading consultant | - 10 per cent. | (57,298) | (7.8) |
+ 10 per cent. | 57,290 | 7.8 | ||
Inflation rate | 2.75 per cent. | - 0.5 per cent. | (29,796) | (4.0) |
+ 0.5 per cent. | 31,318 | 4.3 |
The sensitivities above are assumed to be independent of each other. Combined sensitivities are not presented.
The base case asset life assumption is 25 years. An asset life sensitivity is not presented owing to the difficulty in quantifying various associated valuation drivers, including: ability to extend the lease term; ability to extend planning permission; commercial terms attaching to any lease extension; operating and maintenance costs associated with longer life; decommissioning costs; and scrap value. Notwithstanding the difficulty in quantification, the Investment Manager considers asset life extension to be a significant potential upside to the Group. Asset life is also highlighted as a principal risk and uncertainty in the Strategic Report.
10. Unconsolidated subsidiaries, associates and joint ventures
The following table shows subsidiaries of the Group. As the Company is regarded as an Investment Entity as referred to in note 1, these subsidiaries have not been consolidated in the preparation of the financial statements:
Investment | Place of Business |
Ownership Interest as at | Ownership Interest as at 31 December 2015 | |
Bin Mountain | Northern Ireland | 100% | 100% | |
Carcant | Scotland | 100% | 100% | |
Cotton Farm | England | 100% | 100% | |
Earl's Hall Farm | England | 100% | 100% | |
Kildrummy | Scotland | 100% | 100% | |
Maerdy | Wales | 100% | 100% | |
Screggagh | Northern Ireland | 100% | - | |
Stroupster | Scotland | 100% | 100% | |
Tappaghan | Northern Ireland | 100% | 100% | |
Drone Hill | Scotland | 51.6% | 51.6% | |
North Rhins | Scotland | 51.6% | 51.6% | |
Sixpenny Wood | England | 51.6% | 51.6% | |
Yelvertoft | England | 51.6% | 51.6% | |
SYND Holdco* | UK | 51.6% | 51.6% |
* The Group's investments in Drone Hill, North Rhins, Sixpenny Wood and Yelvertoft are held through SYND Holdco.
The following table shows associates and joint ventures of the Group which have been recognised at fair value as permitted by IAS 28 'Investments in Associates and Joint Ventures':
Wind Farm | Place of Business |
Ownership Interest as at | Ownership Interest as at 31 December 2015 | |
Braes of Doune | Scotland | 50% | 50% | |
ML Wind* | England | 49% | 49% | |
Little Cheyne Court | England | 41% | 41% | |
Clyde | Scotland | 28.2% | - | |
Rhyl Flats | Wales | 24.95% | 24.95% |
* The Group's investments in Middlemoor and Lindhurst are 49 per cent. (2015: 49 per cent.). These are held through ML Wind.
As disclosed in note 19, on 18 March 2016, Holdco advanced a loan to Clyde of £113,380,464 to replace loans from former shareholders. The loan accrues interest at a rate of 5.8 per cent. per annum.
Security deposits and guarantees provided by the Group on behalf of its investments are as follows:
Provider of security | Investment | Beneficiary | Nature | Purpose | Amount | |
£'000 | ||||||
The Company | Maerdy | Natural Resource Wales | Guarantee | Access rights to neighbouring land | n/a | |
The Company | Cotton Farm | Land owner | Guarantee | Decommissioning | 165 | |
The Company | Sixpenny Wood | Land owner | Guarantee | Decommissioning | 150 | |
The Company | Rhyl Flats | The Crown Estate | Guarantee | Decommissioning | 4,291 | |
The Company | Braes of Doune | Land owner | Guarantee | Decommissioning | 2,000 | |
The Company | Stroupster | RBS | Counter-indemnity | Decommissioning | 366 | |
Holdco | Braes of Doune | Centrica | Cash | PPA | 500 | |
Holdco | Middlemoor | Northumberland County Council | Cash | Development works | 77 | |
Holdco | Clyde | SSE | Counter-indemnity | Grid connection, radar, decommissioning | 21,771 | |
29,320 |
The fair value of financial guarantees and counter-indemnities provided by the Group are considered to be £nil and the fair values of cash security deposits are as disclosed in the table above.
11. Receivables
Group | 31 December 2016 | 31 December 2015 |
£'000 | £'000 | |
VAT receivable | 2,854 | 219 |
Amounts due as consideration for investee company tax losses (note 19) | 897 | 1,217 |
Prepayments | 79 | 79 |
Other receivables | 8 | 104 |
Amounts due in relation to wind energy true-up (note 9) | - | 2,000 |
3,838 | 3,619 |
Company | 31 December 2016 | 31 December 2015 |
£'000 | £'000 | |
VAT receivable | 2,709 | 30 |
Prepayments | 77 | 79 |
Other receivables | 7 | - |
Amounts due from Group companies (note 19) | - | 400 |
2,793 | 509 |
12. Payables
Group | 31 December 2016 | 31 December 2015 |
£'000 | £'000 | |
VAT payable | 2,647 | - |
Loan interest payable | 570 | 574 |
Commitment fee payable | 193 | 216 |
Investment management fee payable | 340 | 1,243 |
Share issue costs payable | 180 | 85 |
Other payables | 421 | 771 |
Amounts due as consideration for investee company tax losses (note 19) | - | 356 |
Acquisition costs payable | - | 126 |
Other finance costs payable | - | 304 |
4,351 | 3,675 |
Company | 31 December 2016 | 31 December 2015 |
£'000 | £'000 | |
Amounts due to Group companies | 5,540 | 80 |
VAT payable | 2,646 | - |
Investment management fee payable | 340 | 1,243 |
Loan interest payable | 570 | 574 |
Other finance costs payable | - | 304 |
Commitment fee payable | 193 | 216 |
Share issue costs payable | 180 | 85 |
Other payables | 291 | 443 |
9,760 | 2,945 |
13. Loans and borrowings
Group | 31 December 2016 | 31 December 2015 |
£'000 | £'000 | |
Opening balance | 135,000 | 105,000 |
Acquisition loan facility | ||
Repayments | - | (105,000) |
Revolving credit facility | ||
Drawdowns | 185,000 | 190,000 |
Repayments | (245,000) | (130,000) |
Term debt facility | ||
Drawdowns | 25,000 | 75,000 |
Closing balance | 100,000 | 135,000 |
Company | 31 December 2016 | 31 December 2015 |
£'000 | £'000 | |
Opening balance | 135,000 | - |
Revolving credit facility | ||
Drawdowns | 185,000 | 190,000 |
Repayments | (245,000) | (130,000) |
Term debt facility | ||
Drawdowns | 25,000 | 75,000 |
Closing balance | 100,000 | 135,000 |
For the year ended |
For the year ended | |
£'000 | £'000 | |
Loan interest | 6,412 | 3,173 |
Commitment fees | 701 | 775 |
Facility arrangement fees | 297 | 1,500 |
Other facility fees | 140 | 133 |
Professional fees | 9 | 581 |
Finance expense | 7,559 | 6,162 |
The loan balance as at 31 December 2016 has not been adjusted to reflect amortised cost, as the amount is not materially different from the outstanding balances.
In relation to non-current loans and borrowings, the Directors are of the view that the current market interest rate is not significantly different to the respective instrument's contractual interest rates, therefore the fair value of the non-current loans and borrowings at the end of the reporting periods is not significantly different from their carrying amounts.
On 27April 2015, the Company entered into a revolving credit facility with RBS, RBC and Santander of up to £225,000,000. The final maturity date of the revolving credit facility is 23 April 2018 which is the third anniversary of the facility agreement. The margin is 2 per cent. per annum. The Company is obliged to pay a quarterly commitment fee of 0.7 per cent. per annum on the undrawn commitment available under the revolving credit facility.
As disclosed in note 19, on 18 March 2016, £165,000,000 was drawn down and used to partly fund the purchase of an interest in Clyde and on 29 June 2016, £20,000,000 was drawn down and used to purchase Screggagh.
On 30 November 2016, the Company used proceeds from a capital raise to repay the outstanding balance on the revolving credit facility in full. As at 31 December 2016, the balance on this facility was £nil (2015: £60,000,000), accrued interest was £nil (2015: £109,172) and the outstanding commitment fee was £193,027 (2015: £215,562).
On 22 July 2015, the Company entered into a seven year term debt facility with CBA of £75,000,000, together with the associated interest rate swap. The margin is 1.65 per cent. per annum and the swap rate is 1.94 per cent. per annum.
On 11 March 2016, the Company extended the amounts drawn under the seven year term facility with CBA to £100,000,000 together with associated interest rate swap. The additional £25,000,000 drawn was used to partly fund the purchase of an interest in Clyde, as disclosed in note 19. The terms for the initial facility of £75,000,000 remain unchanged. The margin for the extended amount of £25,000,000 is 1.65 per cent. and the swap rate is 1.23 per cent. per annum.
The swap is an embedded derivative closely related to the host contract. Accordingly it has been treated as a single fixed rate loan agreement which effectively sets interest payable at fixed rates of 3.59 per cent. for the initial amount drawn down of £75,000,000 and 2.88 per cent. for the extended amount of £25,000,000 drawn down in the year (3.41 per cent. on a blended basis).
As at 31 December 2016, accrued interest on the term debt facility and associated swap was £570,266 (2015: £464,862).
All borrowing ranks pari passu and is secured by a debenture over the assets of the Company, including its shares in Holdco, and a floating charge over Holdco's bank accounts.
14. Contingencies
At the time of acquisition, seven of the wind farms in the portfolio (Cotton Farm, Earl's Hall Farm, Kildrummy, Maerdy, Middlemoor, Stroupster and Clyde Extension) had less than twelve months' operational data. Consequently, in line with the Group's policy of applying a wind energy true-up to wind farms which have only recently entered into operation, the purchase price for these wind farms may be adjusted so that it is based on a two year operational record, once the operational data has become available.
On 24 March 2016 the Group agreed an amount of £1,200,000 to be paid from BayWa in settlement of the Kildrummy wind energy true-up. This amount was received by the Group on 7 April 2016. The Kildrummy load factor assumption has been reduced as a result.
During the year, the Group received £2,000,000 from Velocita in settlement of the Maerdy wind energy true-up that was agreed in December 2015.
Wind energy true-ups for Cotton Farm and Earl's Hall Farm were also agreed in the year which resulted in no net payment.
On 12 December 2016, the Group agreed an amount of £2,176,166 which was to be paid to Innogy in settlement of the Middlemoor wind energy true-up. This amount was paid on 16 December 2016. The Middlemoor load factor assumption has been increased as a result.
The following two wind energy true-ups remain outstanding and the maximum adjustment under each are as follows: Stroupster £6,100,000; and Clyde Extension £4,747,094.
The Directors and the Investment Manager are of the opinion that the estimate of the energy yield utilised at acquisition for the remaining assets is the most appropriate unbiased estimate of the yield following two years' operational data. Any variances of actual energy production from the date of acquisition to the date of signing this report are attributable to weather fluctuations and other short term operational factors rather than more fundamental factors that might influence the long term assessment. Therefore it is not appropriate to recognise an asset or liability in respect of these acquisitions.
15. Share capital - ordinary shares of £0.01
Date | Issued and fully paid | Number of shares issued | Share capital | Share premium | Total |
£'000 | £'000 | £'000 | |||
1 January 2016 | 506,787,431 | 5,068 | 253,310 | 258,378 | |
Shares issued to the Investment Manager | |||||
4 May 2016 | True-up of 2015 Equity Element | 7,686 | - | 6 | 6 |
4 May 2016 | Q1 2016 Equity Element | 246,275 | 2.5 | 255 | 257.5 |
4 May 2016 | Q2 2016 Equity Element | 247,475 | 2.5 | 254 | 256.5 |
2 August 2016 | Q3 2016 Equity Element | 270,296 | 3 | 279 | 282 |
7 November 2016 | Q4 2016 Equity Element | 267,222 | 3 | 284 | 287 |
1,038,954 | 11 | 1,078 | 1,089 | ||
Other shares issued | |||||
17 May 2016 | Capital raise | 95,238,101 | 952 | 99,048 | 100,000 |
17 May 2016 | Less share issue costs | - | - | (1,857) | (1,857) |
22 November 2016 | Capital raise | 133,636,364 | 1,336 | 145,664 | 147,000 |
22 November 2016 | Less share issue costs | - | - | (2,133) | (2,133) |
31 December 2016 | 736,700,850 | 7,367 | 495,110 | 502,477 | |
Date | Issued and fully paid | Number of shares issued | Share capital | Share premium | Total |
£'000 | £'000 | £'000 | |||
1 January 2015 | 460,715,847 | 4,607 | 205,023 | 209,630 | |
Shares issued to the Investment Manager | |||||
4 February 2015 | Q4 2014 Equity Element | 171,947 | 2 | 178 | 180 |
4 February 2015 | True-up of 2014 Equity Element | 40,908 | - | 47 | 47 |
4 February 2015 | Q1 2015 Equity Element | 230,358 | 2 | 241 | 243 |
5 May 2015 | Q2 2015 Equity Element | 230,580 | 2 | 238 | 240 |
30 July 2015 | Q3 2015 Equity Element | 230,695 | 2 | 238 | 240 |
29 October 2015 | Q4 2015 Equity Element | 230,810 | 2 | 239 | 241 |
1,135,298 | 10 | 1,182 | 1,192 | ||
Other shares issued | |||||
30 November 2015 | Capital raise | 44,936,286 | 449 | 47,857 | 48,306 |
30 November 2015 | Less share issue costs | - | - | (750) | (750) |
31 December 2015 | 506,787,431 | 5,068 | 253,310 | 258,378 | |
Shareholders are entitled to all dividends paid by the Company and, on a winding up, provided the Company has satisfied all of its liabilities, the shareholders are entitled to all of the residual assets of the Company.
Pursuant to the terms of the Investment Management Agreement, the Investment Manager receives an Equity Element as part payment of its investment management fee as disclosed in note 3 to the financial statements. The figures given in the table in note 3 include the true-up amount of the investment management fee for the periods calculated in accordance with the Investment Management Agreement and issued subsequent to 31 December 2016.
16. Net assets per share
Group | 31 December 2016 | 31 December 2015 |
Net assets - £'000 | 800,138 | 529,766 |
Number of ordinary shares issued | 736,700,850 | 506,787,431 |
Total net assets - pence | 108.6 | 104.5 |
Company | 31 December 2016 | 31 December 2015 |
Net assets - £'000 | 800,138 | 529,766 |
Number of ordinary shares issued | 736,700,850 | 506,787,431 |
Total net assets - pence | 108.6 | 104.5 |
17. Reconciliation of operating profit for the year to net cash from operating activities
Group |
For the year ended |
For the year ended |
£'000 | £'000 | |
Operating profit for the year | 67,488 | 34,823 |
Adjustments for: | ||
Movement in fair value of investments (note 9) | (20,137) | 10,883 |
Adjustment to purchase price of investment (note 14) | 976 | - |
Investment acquisition costs | 2,562 | 263 |
Increase in receivables | (2,533) | (984) |
Increase in payables | 1,350 | 1,164 |
Equity Element of Investment Manager's fee (note 3) | 1,117 | 1,192 |
Consideration for investee company tax losses (note 19) | 1,393 | 1,127 |
Net cash flows from operating activities | 52,216 | 48,468 |
Company |
For the year ended |
For the year ended |
£'000 | £'000 | |
Operating profit for the year | 68,917 | 35,686 |
Adjustments for: | ||
Movement in fair value of investments (note 9) | (76,313) | 8,164 |
(Increase)/decrease in receivables | (2,278) | 608 |
Increase in payables | 7,007 | 341 |
Equity Element of Investment Manager's fee (note 3) | 1,117 | 1,192 |
Net cash flows from operating activities | (1,550) | 45,991 |
18. Financial risk management
The Investment Manager and the Administrator report to the Board on a quarterly basis and provide information to the Board which allows it to monitor and manage financial risks relating to its operations. The Group's activities expose it to a variety of financial risks: market risk (including price risk, interest rate risk and foreign currency risk), credit risk and liquidity risk.
The Group's market risk is managed by the Investment Manager in accordance with the policies and procedures in place. The Group's overall market positions are monitored on a quarterly basis by the Board of Directors.
Price risk
Price risk is defined as the risk that the fair value of a financial instrument held by the Group will fluctuate. Investments are measured at fair value through profit or loss and are valued on an unlevered, discounted cash flow basis. Therefore, the value of these investments will be (amongst other risk factors) a function of the discounted value of their expected cash flows and, as such, will vary with movements in interest rates and competition for such assets. As disclosed in note 9, the discount factors are subjective and therefore it is feasible that a reasonable alternative assumption may be used resulting in a different valuation for these investments.
Interest rate risk
The Group's interest rate risk on interest bearing financial assets is limited to interest earned on cash. The Group's only other exposure to interest rate risk is due to floating interest rates required to service external borrowings through the revolving credit facility. An increase of 1 per cent. represents the Investment Manager's assessment of a reasonably possible change in interest rates. Should the LIBOR rate increase from 0.25 per cent. to 1.25 per cent., the annual interest due on the facility would increase by £nil (2015: £600,000). The Investment Manager regularly monitors interest rates to ensure the Group has adequate provisions in place in the event of significant fluctuations.
The associated interest rate swaps on amounts drawn under the seven year term debt facility with CBA effectively set interest payable at a fixed rate for the full term of the loan, thereby mitigating the risks associated with the variability of cash flow arising from interest rate fluctuations.
The Directors consider that, as shareholder loan investments bear interest at a fixed rate, they do not carry any interest rate risk.
The Group's interest and non-interest bearing assets and liabilities as at 31 December 2016 are summarised below:
Interest bearing | Non-interest | |||
Group | Fixed rate | Floating rate | bearing | Total |
£'000 | £'000 | £'000 | £'000 | |
Assets | ||||
Cash at bank | - | 3,606 | 2,254 | 5,860 |
Other receivables | - | - | 3,759 | 3,759 |
Investments | 107,673 | - | 787,118 | 894,791 |
107,673 | 3,606 | 793,131 | 904,410 | |
Liabilities | ||||
Other payables | - | - | (4,351) | (4,351) |
Loans and borrowings | (100,000) | - | - | (100,000) |
(100,000) | - | (4,351) | (104,351) | |
Interest bearing | Non-interest | |||
Group | Fixed rate | Floating rate | bearing | Total |
£'000 | £'000 | £'000 | £'000 | |
Assets | ||||
Cash at bank | - | 6,572 | 659 | 7,231 |
Other receivables | - | - | 3,540 | 3,540 |
Investments | - | - | 657,591 | 657,591 |
- | 6,572 | 661,790 | 668,362 | |
Liabilities | ||||
Other payables | - | - | (3,675) | (3,675) |
Loans and borrowings | (75,000) | (60,000) | - | (135,000) |
(75,000) | (60,000) | (3,675) | (138,675) | |
The Company's interest and non-interest bearing assets and liabilities as at 31 December 2016 are summarised below:
Interest bearing | Non-interest | |||
Company | Fixed rate | Floating rate | bearing | Total |
£'000 | £'000 | £'000 | £'000 | |
Assets | ||||
Cash at bank | - | 572 | 1 | 573 |
Other receivables | - | - | 2,716 | 2,716 |
Investments | - | - | 906,532 | 906,532 |
- | 572 | 909,249 | 909,821 | |
Liabilities | ||||
Other payables | - | - | (9,760) | (9,760) |
Loans and borrowings | (100,000) | - | - | (100,000) |
(100,000) | - | (9,760) | (109,760) | |
The Company's interest and non-interest bearing assets and liabilities as at 31 December 2015 are summarised below:
Interest bearing | Non-interest | |||
Company | Fixed rate | Floating rate | bearing | Total |
£'000 | £'000 | £'000 | £'000 | |
Assets | ||||
Cash at bank | - | 3 | 1 | 4 |
Other receivables | - | - | 30 | 30 |
Amounts due from Group companies | 400 | 400 | ||
Investments | - | - | 667,198 | 667,198 |
- | 3 | 667,629 | 667,632 | |
Liabilities | ||||
Other payables | - | - | (2,945) | (2,945) |
Loans and borrowings | (75,000) | (60,000) | - | (135,000) |
(75,000) | (60,000) | (2,945) | (137,945) | |
Foreign currency risk
Foreign currency risk is defined as the risk that the fair values of future cash flows will fluctuate because of changes in foreign exchange rates. The Group's financial assets and liabilities are denominated in GBP and substantially all of its revenues and expenses are in GBP. The Group is not considered to be materially exposed to foreign currency risk.
Credit risk
Credit risk is the risk of loss due to the failure of a borrower or counterparty to fulfil its contractual obligations. The Group is exposed to credit risk in respect of other receivables, cash at bank and loan investments. The Group's credit risk exposure is minimised by dealing with financial institutions with investment grade credit ratings and making loan investments which are equity in nature. The Company has advanced loans to Holdco, however does not consider these loans a risk as they are intra-Group. No balances are past due or impaired.
The table below details the Group's maximum exposure to credit risk:
Group | 31 December 2016 | 31 December 2015 |
£'000 | £'000 | |
Other receivables | 3,759 | 3,540 |
Cash at bank | 5,860 | 7,231 |
Loan investments | 107,673 | - |
117,292 | 10,771 |
The table below details the Company's maximum exposure to credit risk:
Company | 31 December 2016 | 31 December 2015 |
£'000 | £'000 | |
Other receivables | 2,716 | 30 |
Cash at bank | 573 | 4 |
Loan investments | 246,534 | 83,513 |
249,823 | 83,547 |
The table below shows the cash balances of the Group and the Standard & Poor's credit rating for each counterparty:
Group | Rating | 31 December 2016 | 31 December 2015 |
£'000 | £'000 | ||
Royal Bank of Scotland PLC | BBB- | 5,283 | 6,654 |
Barclays Bank PLC | BBB | 577 | 577 |
5,860 | 7,231 |
The table below shows the cash balances of the Company and the Standard & Poor's credit rating for each counterparty:
Company | Rating | 31 December 2016 | 31 December 2015 |
£'000 | £'000 | ||
Royal Bank of Scotland PLC | BBB- | 573 | 4 |
573 | 4 |
Liquidity risk
Liquidity risk is the risk that the Group and the Company may not be able to meet a demand for cash or fund an obligation when due. The Investment Manager and the Board continuously monitor forecast and actual cash flows from operating, financing and investing activities to consider payment of dividends, repayment of the Company's outstanding debt or further investing activities.
As disclosed in note 14, the purchase price of wind farms acquired which have less than twelve months' operational data, may be adjusted once two years of operational data becomes available.
The following tables detail the Group's expected maturity for its financial assets (excluding equity) and liabilities together with the contractual undiscounted cash flow amounts:
Group - 31 December 2016 | Less than 1 year | 1 - 5 years | 5+ years | Total |
£'000 | £'000 | £'000 | £'000 | |
Assets | ||||
Other receivables | 3,759 | - | - | 3,759 |
Cash at bank | 5,860 | - | - | 5,860 |
Loan investments | - | - | 107,673 | 107,673 |
Liabilities | ||||
Other payables | (4,351) | - | - | (4,351) |
Loan facility - CBA | (3,413) | (13,650) | (101,963) | (119,026) |
1,855 | (13,650) | 5,710 | (6,085) |
Group - 31 December 2015 | Less than 1 year | 1 - 5 years | 5+ years | Total |
£'000 | £'000 | £'000 | £'000 | |
Assets | ||||
Other receivables | 3,540 | - | - | 3,540 |
Cash at bank | 7,231 | - | - | 7,231 |
Liabilities | ||||
Other payables | (3,675) | - | - | (3,675) |
Loan facility - RBS | (1,500) | (61,964) | - | (63,464) |
Loan facility - CBA | (2,693) | (10,770) | (79,242) | (92,705) |
2,903 | (72,734) | (79,242) | (149,073) |
The following tables detail the Company's expected maturity for its financial assets (excluding equity) and liabilities together with the contractual undiscounted cash flow amounts:
Company - 31 December 2016 | Less than 1 year | 1 - 5 years | 5+ years | Total |
£'000 | £'000 | £'000 | £'000 | |
Assets | ||||
Other receivables | 2,716 | - | - | 2,716 |
Cash at bank | 573 | - | - | 573 |
Loan investments | - | - | 246,534 | 246,534 |
Liabilities | ||||
Other payables | (9,760) | - | - | (9,760) |
Loan facility - CBA | (3,413) | (13,650) | (101,963) | (119,026) |
(9,884) | (13,650) | 144,571 | 121,037 |
Company - 31 December 2015 | Less than 1 year | 1 - 5 years | 5+ years | Total |
£'000 | £'000 | £'000 | £'000 | |
Assets | ||||
Other receivables | 30 | - | - | 30 |
Cash at bank | 4 | - | - | 4 |
Loan investments | - | - | 83,513 | 83,513 |
Liabilities | ||||
Other payables | (2,945) | - | - | (2,945) |
Loan facility - RBS | (1,500) | (61,964) | - | (63,464) |
Loan facility - CBA | (2,693) | (10,770) | (79,242) | (92,705) |
(7,104) | (72,734) | 4,271 | (75,567) |
The Group and Company will use cash flow generation, equity raisings, debt refinancing or disposal of assets to manage liabilities as they fall due in the longer term.
Capital risk management
The Company considers its capital to comprise ordinary share capital, distributable reserves and retained earnings. The Company is not subject to any externally imposed capital requirements.
The Group's and the Company's primary capital management objectives are to ensure the sustainability of its capital to support continuing operations, meet its financial obligations and allow for growth opportunities. Generally, acquisitions are anticipated to be funded with a combination of current cash, debt and equity.
19. Related party transactions
On 18 March 2016, the Company drew down £165,000,000 from its revolving credit facility and £25,000,000 from the extended CBA facility and increased its loan to Holdco by £190,000,000 relating to the acquisition of Clyde. On 29 June 2016, the Company drew down £20,000,000 from its revolving credit facility and increased its loan to Holdco by £20,000,000 relating to the acquisition of Screggagh. The loan provided by the Company to Holdco is interest free and repayable upon demand. During the year, Holdco repaid £46,978,735 of the loan and the amount outstanding at the year end was £246,534,375 (2015: £83,513,110).
As disclosed in note 10, on 18 March 2016 Holdco advanced a loan to Clyde of £113,380,464 to replace loans from former shareholders. The loan accrues interest at a rate of 5.8 per cent. per annum. The Group received loan capital repayments of £5,724,600 and loan interest repayments of £5,059,207 during the year from Clyde in relation to this shareholder loan. The balance of the loan receivable from Clyde at 31 December 2016 was £107,655,864.
During the year, £790,937 (2015: £172,000) was received from Little Cheyne Court, £958,392 (2015: £955,202) was received from Braes of Doune and £356,369 (2015: £nil) was paid to Rhyl Flats, as compensation for corporation tax losses surrendered via consortium relief through the Group.
As at 31 December 2016, amounts of: £897,321 (2015: £958,392) was due from Braes of Doune and £nil (2015: £258,854) was due from Little Cheyne Court as disclosed in note 11, and £nil (2015: £356,369) was due to Rhyl Flats in relation to corporation tax losses surrendered through the Group.
Under the terms of a Management Services Agreement with Holdco, the Company receives £800,000 per annum in relation to management and administration services. During the year, £1,200,000 (2015: £400,000) was paid from Holdco to the Company under this agreement and amounts due to the Company at the year end were £nil (2015: £400,000) as disclosed in note 11.
Holdco has Management Service Agreements with Braes of Doune, Tappaghan, Bin Mountain, Carcant, Cotton Farm, Earl's Hall Farm, Kildrummy, Maerdy, North Rhins, Drone Hill, Sixpenny Wood and Yelvertoft for which Holdco receives £31,212 (2015: £30,600) per annum and with Stroupster and Screggagh for which Holdco receives £41,616 (2015: £40,800) per annum in relation to administration services. Amounts due to Holdco in respect of these fees as at 31 December 2016 were £nil (2015: £3,400) which are included in other receivables in note 11.
The table below shows dividends receivable in the year from the Group's investments.
For the year ended |
For the year ended | |
£'000 | £'000 | |
SYND Holdco | 6,762 | 7,758 |
Stroupster | 6,231 | - |
Rhyl Flats | 4,968 | 5,763 |
Maerdy | 4,820 | 4,208 |
Kildrummy | 4,739 | 4,951 |
Cotton Farm | 4,564 | 4,054 |
Braes of Doune | 4,337 | 5,368 |
ML Wind | 4,283 | 5,873 |
Tappaghan | 3,634 | 3,643 |
Little Cheyne Court | 3,563 | 4,222 |
Earl's Hall Farm | 3,194 | 2,326 |
Bin Mountain | 1,281 | 1,445 |
Carcant | 989 | 1,309 |
Screggagh | 867 | - |
54,232 | 50,920 |
The Group's investments in Drone Hill, North Rhins, Sixpenny Wood and Yelvertoft are held through SYND Holdco.
The Group's investments in Middlemoor and Lindhurst are held through ML Wind.
20. Ultimate controlling party
In the opinion of the Directors, on the basis of the shareholdings advised to them, the Company has no ultimate controlling party.
21. Subsequent events
On 30 January 2017, the Company announced a dividend of £11.7 million, equivalent to 1.585 pence per share with respect to the quarter ended 31 December 2016, bringing the total dividend declared with respect to the year to 31 December 2016 to 6.34 pence per share. The record date for the dividend was 10 February 2017 and the payment date is 24 February 2017.
Defined Terms
Adjusted Portfolio Valuemeans Gross Asset Value
AGMmeans Annual General Meeting of the Company
AICmeans the Association of Investment Companies
AIC Codemeans the AIC's Code of Corporate Governance by way of reference to the AIC Guide
AIC Guidemeans the AIC's Corporate Governance Guide for Investment Companies
AIFmeans an Alternative Investment Fund as defined under the AIFMD
AIFMmeans an Alternative Investment Fund Manager as defined under the AIFMD
AIFMDmeans the Alternative Investment Fund Managers Directive
Base Feemeans the cash fee that the Investment Manager was entitled to under the Investment Management Agreement prior to 31 March 2015
BDO LLPmeans the Company's Auditor as at the reporting date
Bin Mountainmeans Bin Mountain Wind Farm (NI) Limited
Boardmeans the Directors of the Company
Braes of Dounemeans Braes of Doune Wind Farm (Scotland) Limited
Carcantmeans Carcant Wind Farm (Scotland) Limited
Cash Feemeans the cash fee that the Investment Manager is entitled to under the Investment Management Agreement
CBAmeans Commonwealth Bank of Australia
Clydemeans Clyde Wind Farm (Scotland) Limited
Clyde Extensionmeans the Clyde extension wind farm currently being developed by SSE adjacent to the operational Clyde wind farm
Companymeans Greencoat UK Wind PLC
Cotton Farmmeans Cotton Farm Wind Farm Limited
CPImeans the Consumer Price Index
DCFmeans Discounted Cash Flow
Drone Hillmeans Drone Hill Wind Farm Limited
Earl's Hall Farmmeans Earl's Hall Farm Wind Farm Limited
Equity Elementmeans the ordinary shares issued to the Investment Manager under the Investment Management Agreement
EUmeans the European Union
FRCmeans the Financial Reporting Council
GAVmeans Gross Asset Value as defined in the prospectus
GLILmeans GLIL Corporate Holdings Limited, the infrastructure investment vehicle of certain local authority pension funds, originally founded by the Greater Manchester Pension Fund and the London Pensions Fund Authority
Groupmeans Greencoat UK Wind PLC and Greencoat UK Wind Holdco Limited
Holdcomeans Greencoat UK Wind Holdco Limited
IASmeans International Accounting Standard
IFRSmeans International Financial Reporting Standards
Investment Management Agreementmeans the agreement between the Company and the Investment Manager
Investment Managermeans Greencoat Capital LLP
IPEV Valuation Guidelinesmeans the International Private Equity and Venture Capital Valuation Guidelines
IPOmeans Initial Public Offering
IRRmeans Internal Rate of Return
Kildrummymeans Kildrummy Wind Farm Limited
KPImeans Key Performance Indicator
Lindhurstmeans Lindhurst Wind Farm
Listing Rulesmeans the listing rules made by the UK Listing Authority under Section 73A of the Financial Services and Markets Act 2000
Little Cheyne Courtmeans Little Cheyne Court Wind Farm Limited
LLPmeans Greencoat UK Wind 1 LLP, a limited liability partnership of which the Company and the Investment Manager were the members prior to its dissolution on 29 December 2015
Maerdymeans Maerdy Wind Farm Limited
Middlemoormeans Middlemoor Wind Farm
ML Windmeans ML Wind LLP
NAVmeans Net Asset Value as defined in the prospectus
NAV per Sharemeans the Net Asset Value per Ordinary Share
North Rhinsmeans North Rhins Wind Farm Limited
PFImeans Private Finance Initiative
PPAmeans Power Purchase Agreement entered into by the Group's wind farms
PPSmeans share of profit as governed by the Investment Management Agreement prior to 31 March 2015
RBCmeans the Royal Bank of Canada
RBSmeans the Royal Bank of Scotland PLC
Review Sectionmeans the front end review section of this report (including but not limited to the Chairman's Statement, Strategic Report, Investment Manager's Report and Report of the Directors)
Rhyl Flatsmeans Rhyl Flats Wind Farm Limited
RPImeans the Retail Price Index
Santandermeans Santander Global Banking and Markets
Screggaghmeans Screggagh Wind Farm Limited
Sixpenny Woodmeans Sixpenny Wood Wind Farm Limited
SPVsmeans the Special Purpose Vehicles which hold the Group's investment portfolio of underlying operating wind farms
Stroupstermeans Stroupster Caithness Wind Farm (Scotland) Limited
SYND Holdcomeans SYND Holdco Limited
Tappaghanmeans Tappaghan Wind Farm (NI) Limited
TSRmeans Total Shareholder Return
UKmeans the United Kingdom of Great Britain and Northern Ireland
UK Codemeans the UK Corporate Governance Code issued by the FRC
Yelvertoftmeans Yelvertoft Wind Farm Limited
Cautionary Statement
The Review Section of this report has been prepared solely to provide additional information to shareholders to assess the Company's strategies and the potential for those strategies to succeed. These should not be relied on by any other party or for any other purpose.
The Review Section may include statements that are, or may be deemed to be, 'forward-looking statements'. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms 'believes', 'estimates', 'anticipates', 'expects', 'intends', 'may', 'will' or 'should' or, in each case, their negative or other variations or comparable terminology.
These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include statements regarding the intentions, beliefs or current expectations of the Directors and the Investment Manager concerning, amongst other things, the investment objectives and Investment Policy, financing strategies, investment performance, results of operations, financial condition, liquidity, prospects, and distribution policy of the Company and the markets in which it invests.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Company's actual investment performance, results of operations, financial condition, liquidity, distribution policy and the development of its financing strategies may differ materially from the impression created by the forward-looking statements contained in this document.
Subject to their legal and regulatory obligations, the Directors and the Investment Manager expressly disclaim any obligations to update or revise any forward-looking statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
In addition, the Review Section may include target figures for future financial periods. Any such figures are targets only and are not forecasts.
This Annual Report has been prepared for the Company as a whole and therefore gives greater emphasis to those matters which are significant in respect of Greencoat UK Wind PLC and its subsidiary undertakings when viewed as a whole.
Greencoat UK Wind plc published this content on 23 February 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 23 February 2017 08:31:13 UTC.
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