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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Aquila Energy Efficiency Trust Plc | LSE:AEEE | London | Ordinary Share | GB00BN6JYS78 | ORD GBP0.01 (EUR) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.65 | 0.58 | 0.72 | 0.65 | 0.65 | 0.65 | 0.00 | 00:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | 5.4M | 304k | 0.0037 | 142.57 | 52.93M |
From Nov 2022 to Nov 2024
TIDMAEET
RNS Number : 9688X
Aquila Energy Efficiency Trust PLC
02 May 2023
LEI Number: 213800AJ3TY3OJCQQC53Aquila Energy Efficiency Trust
AQUILA ENERGY EFFICIENCY TRUST PLC
Aquila Energy Efficiency Trust Plc (the "Company" or "AEET") is pleased to announce its audited results for the year ended 31 December 2022.
Investment Objective
The Company seeks to generate attractive returns, principally in the form of income distributions by investing in a diversified portfolio of energy efficiency investments.
Highlights (Consolidated figures(1) )
Hot Features
Premium
As at 31 December As at 31 December
Financial information 2022 2021
NAV per Ordinary Share (pence)(2) 95.23 97.38
Ordinary Share price (pence) 71.00 95.75
Ordinary Share price discount
to NAV(2) (%) (25.4) (1.7)
Dividends per Ordinary Share
(pence)(3) 3.5 -
Net assets (in GBP million) 95.23 97.38
Ongoing charges(2) (%) 2.6 0.9
Performance summary % change % change
NAV total return per Ordinary
Share(2) 0.1 (0.6)
Share price total return per
Ordinary Share(2) (23.5) (4.3)
1 During the year under review, as a result of the development of the portfolio of investments, the actual investments made and the structure of those investments, many of which were receivables purchase investments with fixed rates of return, the Committee determined that this required judgement and re-assessment of the Company's investment entity status for the year ended 31 December 2022. As a result of this re-assessment, which identified that fixed rate of return investments constituted a substantial proportion of the pipeline of investments and resultant actual investments, the Committee determined that as from 1 January 2022 the Company was no longer an investment entity. Accordingly, the Company consolidates its subsidiaries at 31 December 2022. For more information, please see note 2 of the financial statements. The Company and its subsidiaries are together referred to as the "Group" in this report.
2 These are Alternative Performance Measures ("APMs") for the year ended 31 December 2022. Definitions of these APMs and other performance measures used, together with how these measures have been calculated can be found at the end of this announcement.
(3) Dividends declared relating to the year under review. Two dividends were paid during 2022 and a third one was paid in 2023 (in respect of the period from 1 October 2022 to 31 December 2022) of 1.25 pence per Ordinary Share.
CHAIR'S STATEMENT
On behalf of the Board, I am pleased to present the annual report (the "Annual Report") for Aquila Energy Efficiency Trust plc for the year ended 31 December 2022.
Investment Performance
The Company's NAV as at 31 December 2022 was GBP95.23m (GBP97.38m as at 31 December 2021). The principal contributor to the decrease in NAV was the payment of GBP2.25m in respect of two dividends in the six months ended 31 December 2022. These payments were not fully covered by earnings and were partly paid out of distributable reserves. The Company's share price has recorded total returns of minus 23.5% in sterling terms. The disappointing share price performance has yet to reflect the increasing level of commitments that has been achieved. The Company's share price has been at a significant discount to NAV since January last year with the discount widening with the impact of a higher interest rate environment.
Changes following the investment strategy review
The Board instigated a number of actions, following the investment strategy review in April 2022, to provide additional assurance to investors that measures were in place to support an accelerated pace of commitments and deployment of capital. A greater focus was placed on a smaller number of geographies, larger transactions, the establishment of partner relationships with a number of Energy Service Companies ("ESCOs") and an increase in dedicated resources by the Investment Adviser.
As part of this strategic review, it was agreed that a continuation vote would be put to Shareholders at a general meeting of the Company. This was held on 28 February 2023 (as further detailed below).
The Investment Adviser also agreed, as a result of the strategy review, to amend the original Investment Advisory Agreement such that any advisory fees payable to the Investment Adviser would be calculated on committed capital (funds contractually committed for deployment) rather than on the Net Asset Value of the Company, in order to ensure greater alignment of incentives for deployment. This revised fee basis was applied to all fees charged by the Investment Adviser from the date of the Company's Initial Public Offering ("IPO") in June 2021. This has had the effect of lowering the investment advisory fees by GBP0.3 million for the period from IPO to 31 December 2022.
Update on Deployment
As at 31 May 2022, GBP19.7 million of the Company's IPO proceeds had been committed for investment and approximately GBP15.7 million had been deployed, as disclosed in the Company's annual report for the period ended 31 December 2021. As at 31 December 2022, the total amounts committed and deployed were GBP96.7 million and GBP61.2 million respectively. Additional commitments of GBP7.3 million were made in the period up to 28 February 2023. However, the total amount committed as at 31 March 2023 was GBP98.7 million, a net increase of GBP2.0 million because the Company was able to withdraw from certain commitments. Amounts deployed as at 31 March 2023 increased to GBP62.2 million(1) . Since the date of the Continuation Vote, the Company has not entered into any new commitments and its investing activity is solely in respect of funding legal commitments to existing investments, with the aim of protecting the future returns from those existing investments and realisations.
Dividends
The Company targeted and paid a dividend of 3.5 pence per Ordinary Share for the year to 31 December 2022. Following consultation with Shareholders undertaken in April 2022, it was decided to pay this dividend largely out of capital. For the year to 31 December 2023, the Board was targeting a dividend of 5.0 pence per Ordinary Share. However, following the failure of the Continuation Vote, the Board has reviewed the dividend policy of the Company and future dividends will only be paid from net income, and after reviewing cash flow forecasts, and only in respect of six month periods not quarterly periods. Therefore, the next dividend declaration will be in respect of the six month period ended 30 June 2023.
General Meeting held in February 2023
The consultation with Shareholders in April 2022 indicated that the majority of Shareholders were supportive of the continuation of the Company. However, in order to provide Shareholders with the opportunity to review performance on commitments and deployment, it was agreed to hold a Continuation Vote in February 2023. Although the IPO proceeds had been substantially committed at that point, the continuation resolution proposed at the meeting on 28 February 2023 failed to pass, primarily, the Board understands, because of the relatively small size of the Company (and consequential lack of liquidity in the shares) and the discount to Net Asset Value at which the Company's shares trade.
A special resolution had been proposed to amend the Company's articles of association (the "Articles"), to revise the date of the subsequent continuation vote, which otherwise was and is required to be held by 30 June 2023. This vote required the support of 75% of those voting but was also not approved by Shareholders. As such, and in accordance with the Company's Articles, a further continuation vote is required to be held at the Company's Annual General Meeting ("AGM") in June 2023.
In response to the failed Continuation Vote, the Board is also proposing, at the AGM, along with the subsequent continuation vote, an amendment to the Company's Investment Policy whereby the Company is placed into a managed run-off (the "Managed Run-Off"). This resolution (the "Continuation Managed Run-Off Resolution") seeks to acknowledge and reflect the views expressed by Shareholders in the February 2023 Continuation Vote, whilst the Board continues to consider strategic solutions in respect of the Company's assets to realise maximum value for Shareholders in the shortest possible time, recognising the inherent difficulties in the construct of the portfolio, including the number of individual investments, multiple geographies and long tenors. The Continuation Managed Run-Off Resolution is described in greater detail in the Notice of Annual General Meeting, which can be found on the Company's website.
As announced on 15 March 2023, the Board appointed Stifel Nicolaus Europe Limited ("Stifel") as sole financial adviser and sole corporate broker, with immediate effect.
Board changes
The Board is now at full strength with the appointments of David Fletcher and Janine Freeman. David Fletcher is a highly experienced Non-executive Director and Audit Chair and was appointed as our new Chair of the Audit and Risk Committee ("ARC") and as Chair of the Remuneration Committee in April 2022. Janine Freeman is an experienced, senior energy industry executive and Non-executive Director with over 20 years' of involvement in the energy industry. Janine was appointed as a member of the Company's Audit and Risk, Nomination, Remuneration and Management Engagement Committees in November 2022. Biographical summaries for all the Directors of the Company can be found in the Company's Annual Report.
The need for Energy Ef ciency
The Board continues to believe that energy efficiency is the natural partner to renewable energy in achieving the European goal of net zero emissions by 2050. The more efficient use of energy is one of the main pillars of the energy transition away from fossil-based methods of energy production and consumption. The reduction of daily energy consumption is, conceptually, Europe's greatest energy resource. As part of the REPowerEU plan set out in May 2022, the energy efficiency target for 2030 was increased from 9% to 13% compared to 2020 reference levels. Energy efficiency must become part of our everyday lives, to consume less energy and consume it better. Efficiency protects businesses and consumers against increases in energy prices, is better for the environment and it improves the competitiveness of our economies. Increasing energy efficiency also ensures reduced dependence on energy imports, thereby improving energy security.
AEET was launched in recognition of the opportunities, both economic and social, that are available from investing in energy efficiency. In terms of implementation to date, energy efficiency thus far lacks the focus and attention that renewables have received. We believe this continues to be an area with significant growth potential and opportunities, both currently and for the foreseeable future.
Having explained why we believe investment in energy efficiency is important, I would like to express my thanks to my fellow Directors and the team who have supported the Company over what has been a challenging time since IPO in June 2021. This includes the Investment Adviser, the AIFM and our other advisors. I would be personally disappointed if the UK market sees the disappearance of an investment vehicle, which was established to provide funding to support the goal of reducing energy consumption and to play a part in the achievement of the goal of net zero.
Annual General Meeting ("AGM")
The Company's AGM will be held on 14 June 2023 at 2.00pm at the offices of Apex Listed Companies Services (UK) Limited located at 6th Floor, 125 London Wall, London, England, EC2Y 5AS. Further details can be found at the AGM Notice. Shareholders are encouraged to attend the AGM. Proxy voting figures will be made available shortly after the AGM on the Company's website where Shareholders can also find the Company's AGM Notice, Annual Report, factsheets and other relevant information.
Miriam Greenwood OBE DL
Chair of the Board
30 April 2023
([1]) Reflecting 31 December 2022 valuation in local currency (Euro), with investments at cost since then, translated into GBP, where relevant, at EUR 0.8853: GBP 1.00. The Company's next NAV per share will be published in respect of 30 June 2023.
INVESTMENT ADVISER'S REPORT
Investment Adviser's Background
The Company's AIFM, FundRock Management Company (Guernsey) Limited (formerly Sanne Fund Management (Guernsey) Limited), has appointed Aquila Capital Investmentgesellschaft mbH as the Investment Adviser to the AIFM in respect of the Company.
The Investment Adviser offers advice on potential energy efficiency investments in line with the Company's Investment Policy. Aquila Capital Investmentgesellschaft mbH is part of Aquila Group, an experienced and long-term investor in real asset investments. Founded in 2001 by Dieter Rentsch and Roman Rosslenbroich, Aquila Group currently manages and/or advises assets worth around EUR14.7 billion on behalf of institutional investors worldwide (as at 31 December 2022). Daiwa, one of Asia's largest investors, is a minority shareholder in the Group.
By investing in clean energy and sustainable infrastructure, Aquila Capital contributes to the global energy transition and strengthens the world's infrastructure backbone. Aquila Capital initiates, develops, and manages these essential assets along their entire value chain and lifetime. Aquila Capital's primary objective is to generate performance for its clients by managing the complexity of essential assets.
Currently, Aquila Capital manages wind energy, solar photovoltaics ("PV") and hydropower assets with a generating capacity of more than 17 Gigawatts ("GWs"). Additionally, 2.0 million square metres of real estate and green logistics projects have been completed or are under development. Aquila Capital also invests in energy efficiency, carbon forestry and data centres. Aquila Capital has been carbon neutral since 2006. Sustainability has always been part of the company's value system and is an integral part of its investment strategies, processes and the general management of its assets. The company has around 700 employees from 56 nations, operating in 17 offices in 16 countries worldwide.
Investment Advisory Team
Alex Betts - Senior Investment Manager: Alex Betts has over 30 years' experience in private equity and 15 years in resource efficiency and has invested in a range of industries, geographies and stages. Based in London, he joined Aquila Capital from Adaxia Capital Partners ("Adaxia"). Prior to Adaxia Alex was a member of the private equity team at Climate Change Capital ("CCC"), which span out into Adaxia. Prior to CCC he was Head of Royal Dutch Shell's corporate venture capital unit and a former partner of Montagu Private Equity. He is British and graduated in Classics from Oxford University.
Bruno Derungs - Senior Investment Manager: Bruno Derungs has over 25 years' experience in private equity and 21 years in resource efficiency and has invested in a range of industries, geographies and stages. Based in Zurich, he joined Aquila Capital from Adaxia. Bruno is a former member of the private equity team at CCC, principal at SAM Private Equity, managing director of ATV, a Swiss-based venture capital fund and consultant with Bain & Company. He holds a master's degree in electrical engineering from the ETH in Zurich and an MBA from Columbia Business School in New York. He is Swiss and speaks English, German, Italian and French.
Franco Hauri - Senior Investment Manager: Franco Hauri has over 20 years' of experience in private equity with 15 years in resource efficiency of which the last five years have been focused on investing in energy efficiency projects. Based in Zurich, he joined Aquila Capital from Adaxia. Franco is a former member of the private equity team at CCC, an Investment Adviser at NanoDimension, a venture capital firm investing in nanotechnology, and a consultant with Bain & Company. Franco holds an MBA from Harvard Business School and a master's degree in finance, accounting & controlling from the University of St. Gallen (HSG). He is Swiss and speaks English, German, Italian, Spanish and French.
Investment Activity
During 2022, the Company made substantial progress in executing its strategy to invest in energy efficiency projects. As at the year-end, the Company had entered into commitments to invest GBP96.7 million of which the total deployed in investments were GBP61.2 million. As at 31 March 2023, the total commitments had increased to GBP98.7 million and the income generating capital deployed since IPO increased to GBP62.2 million.
The Company's portfolio is characterised by projects with (i) a low technology risk through the use of proven technologies; (ii) medium to long term contracts providing for predictable cash flows; and (iii) counterparties with good creditworthiness. As at 31 March 2023, the portfolio of 38 investments was diversified across geographies (Italy, Spain, Germany and the United Kingdom), technologies, counterparties and ESCO partnerships.
The majority of the Company's forecast project cash flows, approximately 69%, are investment grade, as assessed by using both the Investment Adviser's credit analysis and external agencies. In projects which are non-investment grade, there are typically additional protections; these include the ability to export power to a grid and to extend the maturity of a contract with the ESCOs in question and the underlying counterparty to recover missed payments. The latter is possible because the Company's financing agreements are of a shorter duration than the useful life of equipment installed and, in many cases, of a shorter duration than the contract between the ESCO and the counterparty.
The Company's portfolio also benefits from a combination of fixed and variable return payments. While approximately 67% of the total investment value provides a fixed rate of return from contractual cash flows, approximately 33% by investment value has variable cash flows linked to power production and power prices, or inflation indexation. In many cases, these variable return investments have downside protections, for example, minimum contractual returns, which reduce the risk of lower than forecast cash flows.
This portfolio of investments is forecast to achieve an unleveraged, average yield of 8% per annum, which the Board believes is attractive given the credit quality of the portfolio.
The Company's investments provide funding to third parties to enable capital expenditure for energy efficiency projects. Rather than owning the assets installed in these projects, the Company has structured its investments as purchases of receivables, largely from contracted cash flows. The Investment Adviser has recommended this approach to reduce the costs of managing numerous special purpose vehicle ("SPVs") companies. Accordingly, the assets are owned by SPVs of the ESCOs that develop the projects. These SPVs contract to provide energy efficiency services to clients and receivables from these contracts are transferred to the Company, which takes a security interest in the assets together with undertakings and performance guarantees from the ESCOs themselves.
In Italy and Germany, the Company and its subsidiary, Attika Holdings Limited ("AHL" or "Attika"), purchases notes, which entitle the noteholders to the receivables, while in Spain and the United Kingdom, Attika purchases receivables from the projects direct. The use of notes is driven by the respective legal and regulatory frameworks in Italy and Germany.
All of the investments in Italy have been made by the Company through purchasing notes issued by an Italian special purpose vehicle ("SPV") established under securitisation laws in Italy. This SPV has made the respective capital investments in energy efficiency projects in consideration return for which receivables have been transferred to it. The receivables are the payments due from the purchase of tax credits in the case of the Superbonus investments and from operating leases and energy services agreements in the case of the investments developed by Noleggio Energia and CO-VER. The notes issued by the SPV entitle the Company to the economic return from the receivables and are structured to provide a fixed interest rate amounting to a 3% p.a. return on capital and variable interest to capture the return above 3% p.a.
In Germany, Attika has purchased notes issued by special purpose subsidiaries of the four ESCOs with which Attika has invested. These notes provide for a fixed rate of interest, repayment of capital and, in certain cases, a variable rate of interest, which provides the economic return from the receivables.
Investments in Italy
Investments in Italian "Superbonus" projects
In December 2021, the Company entered into commitments to finance two clusters of "Superbonus" energy efficiency projects for apartments and other residential buildings in Italy amounting to GBP16.8 million. "Superbonus" is an incentive measure introduced by the Italian government through Decree "Rilancio Nr. 34" on 19 May 2020, which aims to make residential buildings (condominiums and single houses) more energy efficient through improvements to thermal insulation and heating systems. When qualifying measures are completed, ESCOs delivering the measures are awarded a tax credit equal to 110% of the cost of the measures. These tax credits can then be sold to banks, insurance companies and other corporations and, thus, projects can be financed without the need for a financial contribution from landlords.
The projects which the Company committed to finance in 2021 are being managed by two ESCOs, Enerstreet and Enerqos Energy Solutions, and entail commitments of GBP10.7 million and GBP6.1 million respectively. The projects involve a range of energy efficiency measures including insulation, the replacement of heating systems with more efficient solutions, and energy efficient windows.
During 2022 the Company entered into three other commitments, totalling GBP16.7 million, to finance Superbonus projects, another GBP8.71 million project with Enerqos Energy Solutions and two projects, totalling GBP7.95 million, with Sol Lucet, an Italian ESCO. These investments are structured in a very similar way to the first Superbonus investments, using almost identical documentation, to provide for a contractual return of 8% p.a. These projects are being managed by Sol Lucet S.r.l., an energy services company which, since 2013, has successfully installed renewable energy plants with a generating capacity of 17.0 Megawatts peak ("MWp") as well as Combined Heat and Power ("CHP") plants producing 3.2 Megawatts electric (" MWe"). Sol Lucet is currently managing solar PV plants with a generating capacity of 14.0 MWp. The tax credits, which these projects are designed to generate, will be acquired by Credit Agricole, which has a short-term rating of A+ from S&P ("Standard & Poor's").
As at 31 December 2022, GBP32.95 million had been committed to Superbonus projects and were earning a contracted rate of return. Of this, GBP24.28 million had been deployed in cash. The balance of the commitments is forecast to be deployed before the end of October 2023. These projects, which are being delivered in a series of stages, generate tax credits which exceed the cost of the Company's investments. Six companies have agreed to purchase these tax credits, including four banks: BNP Paribas, Credit Agricole, Intesa Sanpaolo and Monte dei Paschi di Siena along with Assicurazioni Generali, one of the largest global insurance companies and Enel X, a subsidiary of Enel, Italy's largest utility company. The purchasers of the tax credits have S&P credit ratings of A+, AA-, BBB, B+, A+ and BBB+ respectively, with the lower rated bank being majority owned by the Italian state. The proceeds from the sale of the tax credits are forecast to redeem these investments before the end of January 2024. The investments are structured to deliver contracted returns of 8-9% per annum from the expected project start dates. This means that the investment commitments become income generating from the dates set out in the investment documentation and not from the date of cash deployment.
Solar PV Investments for self-consumption in Italy
The Company has committed GBP3.6 million to six rooftop Solar PV projects in Italy with an aggregate capacity of 3.6MWp. As at 31 December 2022, GBP2.5m had been deployed into four operational projects. The balance of the commitment will be deployed when the two other plants have become operational, which is expected to be achieved by the end of May 2023. These projects enable companies to reduce their energy expenses and CO(2) emissions and avoid grid losses through the self-consumption of the electricity produced.
Projects with Noleggio Energia
Five projects in which the Company has invested have been developed by the ESCO, Noleggio Energia, which was established in 2017 and is an Italian company that specialises in providing operating leases for energy efficiency and renewable energy projects for commercial and industrial clients in Italy . These projects are all structured as the purchase of receivables from operating leases with maturities of seven or ten years and all use very similar documentation. Noleggio Energia has transferred to SPV the monthly receivables from these operating lease agreements, which provide for fixed rates of return ranging between 7.2% p.a. and 9.4% p.a.
The first investment of GBP0.31 million which the Company made in Italy was completed at the end of June 2021 to finance a rooftop solar PV project with a capacity of 238 kilowatt peak ("kWp") located in Lombardy for the Italian food product manufacturer Galletti di Galletti Aurelio e C. snc ("Acetificio Galletti"). Acetificio Galletti is a family-owned business founded in 1871 and is a renowned producer of vinegars, dressings, pickles, and other food products. It has an investment grade credit rating (B1.2/BBB) from the credit ratings agency Cerved.
The second investment of GBP0.12 million was completed at the end of December 2021 to finance a rooftop solar PV project with a capacity of 127 kWp in Veneto for Enofrigo SpA. Enofrigo SpA, founded in 1978, is an Italian designer and manufacturer of wine cabinets and both hot and cold food display units for bars, restaurants, small supermarkets, and larger retail chain stores. Enofrigo SpA now serves more than 5,000 clients in more than 100 countries. Its Cerved credit rating is B2.1, equivalent to BB+.
The third investment of GBP1.32 million was committed to at the end of March 2022 to finance a 1MWp rooftop solar PV project in Lombardy for the engineering company, Tecnocryo SpA. The project, which included the refurbishment of the roof, was completed in August 2022 and is operational. T ecnocryo has been trading since 1992 and focuses on the design and realisation of machines for handling cryogenic fluids. The company has a Cerved credit rating of B2.1, equivalent to BB+, which is just below investment grade.
The other two projects with Noleggio Energia are under construction. In September 2022, the Company committed GBP0.35 million to a 443 kWp rooftop Solar PV project installed on the production facilities of Ali Group, a foodservice equipment manufacturer in Veneto, Northern Italy. Ali Group is an Italian corporation that was founded in 1963, it is one of the largest and most diversified global leaders in the food service equipment industry. The company has a Cerved credit rating of A2.1, equivalent to A+. In December 2022 the Company committed GBP0.82 million to an 876 kWp rooftop Solar PV project installed on the production facilities of Orlandi, a nonwovens manufacturer in Lombardy, Northern Italy. Since its establishment, the company has expanded its product offering, which now includes applications for a wide variety of sectors including medical, hygiene, home furnishing, industrial/household wipes and more. The company has a Cerved credit rating of B1.1, equivalent to BBB+/BBB-.
Project with CO-VER Power Technologies
In January 2022, the Company refinanced the acquisition of an existing rooftop solar PV plant in Ascoli Piceno (Central Italy) with a generating capacity of 902 kWp. The investment is based on the purchase of receivables generated by an energy service contract between the leading Italian engineering firm CO-VER Power Technologies ("CO-VER") and its subsidiary Futura APV S.r.l. ("Futura"). The contract governs the management of an operating roof-mounted solar PV plant until April 2028. Thereafter, the investment is based on a feed-in-tariff for an additional six years, aggregating to a 12-year tenor. The investment is forecast to generate a return ranging between 7.0% and 7.3% p.a.
CO-VER has a successful 20-year history in developing industrial projects in the areas of energy storage systems, co/tri-generation plants and renewable energies. Futura, which was established in 1981, specialises in the design and construction of overhead and floor conveyors and is the owner of the PV plant, which benefits from feed in tariffs payable by Gestore dei Servizi Energetici ("GSE"). GSE is a joint stock company managed by the Italian government which is responsible for promoting and developing the growth of renewable assets in Italy. GSE has a credit rating of BBB+ from the Italian government.
Investments in Spain
In line with its pan-European investment strategy, the Company, through its wholly owned subsidiary, Attika, had as at 31 December 2022 committed GBP32.6 million across ten Spanish projects, nine of which are Solar PV projects and one of which is a buildings energy efficiency project. The capital deployed as at 31 December 2022 was GBP4.9 million. Since 31 December 2022, the Company has committed to a further three projects with three new project developers. Due to various changes, including a withdrawal from one commitment, the Company's total commitments to investments in Spain as at 31 March 2023 were GBP31.5 million of which GBP6.0 million had been deployed. The balance of the commitments is expected to be largely deployed during 2023 at construction completion of relevant projects.
Solar PV investments in Spain
The market in Spain presents continuing and favourable prospects, particularly in the solar photovoltaic sector. The Company has committed capital to finance the development of ten solar PV installation projects throughout Spain with eleven project developers. Most of these projects have been structured under Power Purchase Agreements ("PPA") with maturities of up to 18 years and have variable revenues, which are often subject to production risk, power price fluctuation or inflation. In addition, excess production beyond the on-site demand may be injected into the grid. These variable revenue risks are mitigated by conducting technical due diligence prior to making commitments and by contracted prices within the PPAs.
Notable investments include:
-- GBP9.6m commitment for a group of five Solar PV installations with a total capacity of 12MWp, three of which are ground mounted, for a major battery manufacturer and other industrial businesses, which have a blended S&P equivalent rating of BBB+/ BBB-;
-- GBP6.2m commitment to finance an 8MWp ground-mounted solar PV project, with revenues generated through off-site Power Purchase Agreements to commercial clients around Borja (Zaragoza), which have a blended S&P equivalent rating of BB-;
-- GBP2.9m for a 3.83MWp roof mounted solar PV plant for an insulation material manufacturer located near Tarragona, which has a S&P equivalent rating of BBB+/ BBB-;
-- GBP1.7m commitment to finance Solar PV plant and battery projects developed by a major European technology manufacturer and to be deployed at sites of the leading owner and operator of wellness centres in Spain, which has a S&P equivalent rating of BBB+/ BBB-; and
-- GBP0.9m commitment to fund a Solar PV project for self-consumption, developed by a Valencia based ESCO, for a leading Spanish ceramic tiles manufacturer, which has a S&P equivalent rating of BBB+/ BBB-.
Since 31 December 2022, the Company has successfully completed a GBP3.5 million commitment to invest in ground mounted solar PV plants for self-consumption for four farms operated by a Spanish agricultural company with a capacity of approximately 4MWp. In addition, two smaller commitments of GBP0.7 million and GBP0.6 million were completed to finance groups of projects across Spain. Both transactions mark the start of new relationships with the respective project developers.
The credit ratings of the counterparties of the Spanish Solar PV investments have been rated as the S&P equivalent of between BB and BBB+/BBB-. These investments also have, in many cases, the benefit of being able to generate revenues from selling power to the grid if there are payment issues with the counterparty.
Buildings Energy Efficiency investments in Spain
The Spanish Government has established incentive schemes to promote buildings energy efficiency measures, including the "Programa de Rehabilitacion Energetica de Edificios" ("PREE"). PREE is a EUR402.5 million incentive scheme across the Spanish jurisdiction and is designated to promote and reward energy efficiency improvements for condominiums and buildings improving their energy rating by at least one energy class. Under this scheme the Company has committed GBP4.2 million to fund the refurbishment of condominiums, which is being managed by a leading ESCO specialised in designing and implementing energy efficiency and renewable energy projects in Spain. The investment cash flows are based on the purchase of receivables generated by the underlying energy saving contracts between the ESCO and the so-called "Comunidad de Proprietarios", the legal entities which represent each of the owners of the apartments in a residential building. The receivables have been rated as the S&P equivalent of A+/A.
Investments in Germany
As at 31 December 2022 the Company, through Attika, had made four investments in Germany through note subscriptions for a total commitment of GBP23.4 million of which GBP19.4 million had been deployed, across a variety of four technologies including smart metering technologies, water management solutions, heat pumps and Bio-LNG.
GBP1.8 million Investment in Comgy GmbH & Co KG ("Comgy")
In April 2022, the Company purchased a note for GBP1.8 million with a tenor of ten years issued by Comgy. The note is structured to provide a fixed return of in excess of 10% p.a. through a fixed interest rate of 6.5% p.a., repayments and a variable interest component, which takes account of the contracted cash flows through to the maturity of the investment. Comgy is a wholly owned subsidiary of Comgy GmbH, active in the German sub-metering market. Comgy provides metering equipment, billing and Operations and Maintenance ("O&M") services mainly to housing companies with an average rating comparable to an S&P rating of BBB+/BBB. The note is secured on sub-metering contracts, including equipment rental and billing as well O&M services with tenors of between five and ten years.
GBP8.3 million for the purchase and upgrade of a biogas plant in Northern Germany
In October 2022, the Company made an GBP8.3 million commitment to fund the acquisition of a biogas plant and an investment into liquefaction equipment by one of Germany's leading biogas development companies with more than 20 years' experience in the sector. The investment is structured as a note purchase. The terms of the note provide for the payment of interest at a fixed rate of 5% p.a. plus a variable return, which is equivalent to 8% of revenue generated by the asset company, capped at EUR1.3 million across eight years. Liquefaction of the biogas produced makes the resulting Bio-LNG eligible for greenhouse gas certificates under German energy law. These certificates are frequently resold on the secondary market to companies within carbon-intense industries under pressure to comply with emission regulations and as a result Bio-LNG is gaining popularity in the transportation market. The structure of this investment benefits from an extensive security package including a pledge over the assets and land, a parent company guarantee and step-in rights. The parent company was deemed to have an S&P rating of BB-. However, once the plant becomes operational, scheduled in September 2023, the underlying credit risk will shift to the counterparties purchasing the Bio-LNG and associated carbon credits, which are likely to be more highly rated businesses.
GBP11.0 million investment for water management solutions
In December 2022, the Company invested GBP11.0 million to acquire receivables due under water management service agreements for condominiums and multi-family homes in Germany, mainly managed by large property managers. As with the Company's other German investments, the investment is structured through a note purchase which provides for a fixed interest rate of 8% p.a., to be paid out on a quarterly basis over a ten year period. The developer's water management solutions consist of hardware and software detecting user behaviour and optimizing the temperature management of the house or condominium's waterflow, resulting in significant energy cost reductions for tenants. The counterparties comprise a large number of property management companies and have been evaluated with a weighted average S&P equivalent rating of BBB+.
GBP2.2 million junior loan purchase
The Company has purchased a subordinated note from a SPV set up by one of Germany's fast-growing heat pump companies. The note investment was purchased in December 2022 for a total price of GBP2.2 million, and is structured to pay a fixed annual interest rate of 7.5% p.a. The proceeds from this investment are being applied by the developer in its roll out of heat pumps across Germany. The note is subordinated to a loan from a large German Bank and consists of approximately 11% of the total loans issued by the SPV. The investment has a planned maturity of 15 years and benefits from a first rank guarantee from the SPV's parent company up to the nominal amount of the loan and includes covenants related to the minimum cash balance of the SPV as an additional security buffer. The cash flows due to the SPV are from German households, who are deemed to have an S&P equivalent rating of A+/A.
Investments in the United Kingdom
As at 31 December 2022 the Company, through Attika, had committed and deployed GBP4.1 million and GBP3.6 million respectively into investments in the United Kingdom comprising investments in CHP, Lighting and Wind Power projects. These investments were made with five different ESCOs.
CHP Investments
The Company has invested in CHP projects in the UK for a total investment value of GBP1.9 million developed by three separate ESCOs. The CHP projects are with a major convention centre, a hotel and a food producer, Vale of Mowbray. The convention centre and hotel have credit ratings of S&P equivalents of BBB+/BBB- and BB+/BB respectively. The Vale of Mowbray project is on hold because the company has entered into administration. The amount of GBP0.9 million has been invested in the project with the majority of the capital applied to acquire the CHP equipment, which is not yet onsite. The result of the administration is that the site was acquired in March 2023 by a cold storage logistics business with whom discussions are due to be held regarding utilisation of CHP at the site. Ega Energy, the ESCO developing the Vale of Mowbray project, has identified other clients who may use the CHP equipment. The Investment Adviser believes that its contractual arrangements with Ega Energy protect the value of the investment made to date.
Wind Power Investments
The Company has invested GBP2.0 million (GBP1.6 million at 31 December 2022) in five operational small wind farms in the UK, managed by a UK ESCO, which benefit from feed-in and export tariffs and provide onsite power for self-consumption. The Company's investments are structured to receive an agreed share of net revenues from these projects, which have remaining lives of approximately 10 years. The Company's investment income is dependent on the levels of power production, feed in tariff rates, which benefit from Retail Price Index ("RPI") indexation, and export tariff rates which are typically renegotiated annually, less direct operating costs such as rent, insurance and operational & maintenance costs, which are managed by the ESCO. The weighted average credit rating of the revenue streams for these projects are S&P equivalent ratings of BBB+/BBB- with the feed in tariff revenues being deemed to be UK Government risk, rated AA, and export tariffs payable by the utilities currently contracted being deemed to be sub-investment grade. However, it would be possible to replace the current utilities should they fail to pay amounts due.
Lighting Investments
Following an investment of GBP0.3 million in December 2021, the Company has invested an additional GBP0.1 million in operational lighting projects developed by a Northern Ireland based lighting services company, Lumenstream Limited. The Company's investments are structured as purchases of receivables under five-year lighting contracts with industrial companies and a leisure business. The weighted average credit rating of the receivables in this portfolio of projects is rated at an S&P equivalent of BBB+/BBB-.
Since 31 December 2022, the Company has committed and invested GBP0.9 million across two projects with two additional ESCOs providing lighting as a service for a variety of counterparties with contract maturities of up to ten years. These counterparties have a weighted average credit rating of an S&P equivalent of BBB+/BBB-.
Investments completed after 31 December 2022
A summary of the investments the Company has made since the year-end is set out below:
Description Receivables Term Technology Status Country Committed Deployed
Weighted years
Avg. Credit
rating GBP'000 GBP'000
Purchase of receivables
generated by an operating
lease linked to a solar
PV in self-consumption
installation for a
Spanish agricultural Solar
company BBB+ / BBB- 10 PV Construction Spain 3,490 -
-------------------------------- ------------- ----- ----------- ------------ --------- --------- --------
Purchase of receivables
from PPA agreements
for two solar PV plants
in self-consumption 14 Solar
in Spain BB+ / BB- / 15 PV Operating Spain 616 605
-------------------------------- ------------- ----- ----------- ------------ --------- --------- --------
Purchase of receivables
generated from grid
sales and PPA agreements
by financing four solar
PV plants in self-consumption Solar
in Spain. BBB+ / BBB- 18 PV Construction Spain 725 142
-------------------------------- ------------- ----- ----------- ------------ --------- --------- --------
Acquisition of receivables
of FiTs and export
tariffs generated from
an operating wind turbine United
in Scotland. BBB+ / BBB- 12 Wind Operating Kingdom 331 331
-------------------------------- ------------- ----- ----------- ------------ --------- --------- --------
Purchase of receivables
generated from the
installation and operation
of metering and LED
projects with eleven
different counterparties Lighting United
in the UK. BBB+ / BBB- 5-7 / Metering Construction Kingdom 457 404
-------------------------------- ------------- ----- ----------- ------------ --------- --------- --------
Financing the installation
of a roof mounted solar
PV plant for self-consumption Solar
in Central Italy. BB+ / BB 10 PV Construction Italy 857 -
-------------------------------- ------------- ----- ----------- ------------ --------- --------- --------
Purchase of receivables
generated from the
installation of a roof
mounted solar PV plant
for self-consumption Solar
in Northern Italy. A- 5 PV Construction Italy 513 -
-------------------------------- ------------- ----- ----------- ------------ --------- --------- --------
Purchase of receivables
generated from refinancing
the installation of
LED lighting projects
for 15 different clients United
in the UK. BBB+ / BBB- 5-10 Lighting Operating Kingdom 456 456
-------------------------------- ------------- ----- ----------- ------------ --------- --------- --------
Summary of all Investments that have Committed Capital as at 31 March 2023
Description Receivables Term Technology Status Country Committed Deployed
Weighted years
Avg. Credit
rating GBP'000 GBP'000
Receivables
(fixed)
from a 238 kWp
rooftop Solar PV
project
installed
at the
production
facilities of a
food
manufacturer Solar
in Lombardy. B 7 PV Operating Italy 314 314
----------------- -------------------- --------- ---------------- -------------- -------------- ------------ ------ --------
Receivables
(fixed)
from a 127 kWp
Solar PV project
installed on the
production
facilities
of a
manufacturer Solar
in Veneto. BBB+ / BBB- 7 PV Operating Italy 120 120
----------------- -------------------- --------- ---------------- -------------- -------------- ------------ ------ --------
Receivables
(fixed)
from sales of
tax
credits
generated
under the
Italian
Superbonus
scheme
, which supports
the energy
efficiency
retrofits
(insulation,
more efficient
heating etc. )
of residential Building
buildings. B+ 2 Retrofit Construction Italy 6,137 4,783
----------------- -------------------- --------- ---------------- -------------- -------------- ------------ ------ --------
Receivables
(fixed)
from sales of
tax
credits
generated
under the
Italian
Superbonus
scheme
, which supports
energy
efficiency
retrofits
(insulation,
more efficient
heating etc. )
of residential Building
buildings. A 2 Retrofit Construction Italy 10,668 10,164
----------------- -------------------- --------- ---------------- -------------- -------------- ------------ ------ --------
Receivables
(fixed
with RPI) from
lighting as a
service
contracts with United
6 UK companies. BBB+ / BBB- 5 Lighting Operating Kingdom 390 390
----------------- -------------------- --------- ---------------- -------------- -------------- ------------ ------ --------
Receivables
(fixed/variable)
from a 901.6 kWp
rooftop Solar PV
project at a
site
in Ascoli Piceno Solar
(Central Italy). BBB+ / BBB- 12 PV Operating Italy 740 740
----------------- -------------------- --------- ---------------- -------------- -------------- ------------ ------ --------
Receivables
(fixed)
from sales of
tax
credits
generated
under the
Italian
Superbonus
scheme
, which supports
the energy
efficiency
retrofits
(insulation,
more efficient
heating etc. )
of residential Building
buildings. AAA / AA- 2 Retrofit Construction Italy 1,601 1,601
----------------- -------------------- --------- ---------------- -------------- -------------- ------------ ------ --------
Receivables
(fixed)
from a 1,000 kWp
rooftop Solar PV
project to be
installed
at a
manufacturer's
production
facility Solar
in Lombardy. BB+ / BB 10 PV Operating Italy 1,325 1,325
----------------- -------------------- --------- ---------------- -------------- -------------- ------------ ------ --------
Receivables (fixed)
from sub-metering
hardware and services
contracts with
landlords
of multi-occupancy BBB+ /
buildings. BBB- 9 Sub-meters Operating Germany 1,821 1,821
---------------------- -------------------- ------------- --------------- ------------------ ---------------- ------ --------
Receivables (fixed)
from CHP Energy
Services Agreement
with a major
conference BBB+ / United
centre in Wales. BBB- 6 CHP Operating Kingdom 200 200
---------------------- -------------------- ------------- --------------- ------------------ ---------------- ------ --------
Receivables (fixed)
from CHP Energy
Services Agreement
with food United
manufacturer. BB+ / BB 7 CHP Construction Kingdom 1,396 951
---------------------- -------------------- ------------- --------------- ------------------ ---------------- ------ --------
Receivables (fixed)
from sales of tax
credits generated
under the Italian
Superbonus scheme
, which supports
the energy efficiency
retrofits
(insulation,
more efficient
heating
etc ) of residential BBB+ / Building
buildings. BBB- 2 Retrofit Construction Italy 8,714 6,529
---------------------- -------------------- ------------- --------------- ------------------ ---------------- ------ --------
Receivables (PPA
with fixed price)
from a 3,830 kWp
rooftop Solar PV
project to be
installed
at a facility in
Tarragona (North BBB+ / Solar
of Spain). BBB- 15 PV Construction Spain 2,947 1,468
---------------------- -------------------- ------------- --------------- ------------------ ---------------- ------ --------
Purchase of
receivables
generated through
a PPA from three
solar PV plants
in self-consumption
for a poultry Solar
producer. BB- 15 PV Construction Spain 286 235
---------------------- -------------------- ------------- --------------- ------------------ ---------------- ------ --------
R Receivables (fixed)
from CHP Energy
Services Agreement United
with a hotel BB+ / BB 8 CHP Operating Kingdom 433 425
---------------------- -------------------- ------------- --------------- ------------------ ---------------- ------ --------
R eceivables (fixed)
from sales of tax
credits generated
under the Italian
Superbonus scheme
, which supports
the energy efficiency
retrofits
(insulation,
more efficient
heating
etc. ) of residential Building
buildings. BB+ / BB 2 Retrofit Construction Italy 6,356 6,356
---------------------- -------------------- ------------- --------------- ------------------ ---------------- ------ --------
Purchase of
receivables
from five solar
PV plants in
self-consumption
in Spain. The
revenues
are generated through
PPAs with multiple BBB+ / Solar
counterparties. BBB- 15-18 PV Construction Spain 9,605 666
---------------------- -------------------- ------------- --------------- ------------------ ---------------- ------ --------
Purchase of receivables
generated through
an off-site PPA from
a ground-mounted
solar PV plant in
Zaragoza between
a Spanish developer Solar
and different clients. BB- 15 PV Construction Spain 6,321 1,559
--------------------------- -------------------------- ------- ------------------ ---------------------- ----------- --------- -----
Purchase of receivables
(fixed) generated
by two operating
lease agreements
between a Spanish
developer and two
counterparties in 10 Solar
Spain. BB- & 12 PV Construction Spain 155 155
--------------------------- -------------------------- ------- ------------------ ---------------------- ----------- --------- -----
Receivables (fixed)
from a 443 kWp rooftop
Solar PV project
installed on the
production facilities
of a foodservice
equipment manufacturer
in Veneto, Northern Solar
Italy. A- 7 PV Construction Italy 345 345
--------------------------- -------------------------- ------- ------------------ ---------------------- ----------- --------- -----
Purchase of receivables
generated by Power
Purchase Agreements
("PPA") between a
Spanish developer
and a Spanish ceramic Solar
tiles manufacturer. BBB+ / BBB- 15 PV Construction Spain 966 764
--------------------------- -------------------------- ------- ------------------ ---------------------- ----------- --------- -----
Acquisition of receivables
of FiTs and export
tariffs generated
from 3 operating
wind turbines in
the UK, of which
the generated energy
is used for
self-consumption
& for export to the United
grid. BBB+ / BBB- 10.6 Wind Operating Kingdom 484 484
--------------------------- -------------------------- ------- ------------------ ---------------------- ----------- --------- -----
Subscription for
a note for the refinancing
of an operating bio-gas
plant in north-eastern
Germany and an upgrade
to a Bio-LNG (1)
facility. The note
provides for a fixed
return plus an agreed Operational
share of revenues Biogas (Phase 2
from the Facility. BB- 8.25 / BioLNG construction) Germany 8,283 4,440
--------------------------- -------------------------- ------- ------------------ ---------------------- ----------- --------- -----
Receivables (PPA
with fixed price)
from six rooftop
solar PV projects
used for
self-consumption,
to be installed at
six different locations
in Cordoba and Granada Solar
in Spain. BB+ / BB- 15 PV Construction Spain 324 282
--------------------------- -------------------------- ------- ------------------ ---------------------- ----------- --------- -----
1 Bio-LNG is a highly sustainable version of liquefied natural gas (LNG), with almost the exact same chemical makeup. It is produced during the anaerobic digestion (AD) process, which breaks down organic matter (such as food or animal waste) in an oxygen-free tank to produce methane-rich biogas.
Receivables (fixed)
from solar PV plant
in self-consumption
for a total installed
capacity of 875.6kWp
located at the site
of nonwovens
manufacturer
in Lombardy, Northern
Italy. BB+ / BB 10 Solar PV Construction Italy 821 -
----------------------- -------------- ------- --------------- ----------------- ----------- --------- --------
Receivables from
service
agreements related
to the water
management
between the developer
and condominiums and
multi-family homes,
mainly managed by
large property
managers BBB+ / Water
via a note structure. BBB- 10 management Operating Germany 11,067 10,989
----------------------- -------------- ------- --------------- ----------------- ----------- --------- --------
Purchase of receivables
generated by 2 Energy
Saving Contracts
("ESC")
between the developer
and five Spanish
condominiums
located in the
proximity
of Madrid, Guadalajara
and Gerona, as well
as subsidies generated under the incentive Building scheme. A+ / A 15 Retrofit Construction Spain 4,330 211 ----------------------- -------------- ------- --------------- ----------------- ----------- --------- -------- Acquisition of receivables of FiTs and export tariffs generated from an operating wind turbine in BBB+ / United Scotland. BBB- 13 Wind Operating Kingdom 1,162 1,162 ----------------------- -------------- ------- --------------- ----------------- ----------- --------- -------- Subscription for a junior note issued by largest heating installer in Germany, entitling the noteholder to receivables generated through service and maintenance contracts for heat pump systems for the residential sector throughout Construction Germany. A+ / A 15 Heating & Operational Germany 2,240 2,213 ----------------------- -------------- ------- --------------- ----------------- ----------- --------- -------- Purchase of receivables (fixed) from Solar PV and battery installations for a leading operator of wellness centres BBB+ / in Spain. BBB- 12 Various Construction Spain 1,702 - ----------------------- -------------- ------- --------------- ----------------- ----------- --------- -------- Purchase of receivables (fixed) from solar PV installations for a leading agricultural business engaged in the cultivation of grapevines, cereals, onions, olives, almonds, and Solar peas. BBB+ / BBB- 10 PV Construction Spain 3,490 - ----------------- -------------- -------- ----------- ------------------ ------------ ---------- -------- Purchase of receivables from PPA agreements for two solar PV plants in self-consumption for a total installed capacity of 869kWp located around Alicante, 14 Solar Spain. BB+ / BB & 15 PV Construction Spain 616 605 ----------------- -------------- -------- ----------- ------------------ ------------ ---------- -------- Purchase of receivables generated from grid sales and PPA agreements through the investments financing four solar PV plants in self-consumption with combined capacity of 1.3MWp in Solar Spain. BBB+ / BBB- 18 PV Construction Spain 725 142 ----------------- -------------- -------- ----------- ------------------ ------------ ---------- -------- Acquisition of receivables of FiTs and export tariffs generated from an operating wind turbine in United Scotland. BBB+ / BBB- 12.37 Wind Operating Kingdom 331 331 ----------------- -------------- -------- ----------- ------------------ ------------ ---------- -------- Purchase of receivables (fixed) generated from the installation and operation of metering and LED projects with eleven different 5 counterparties to United in the UK. BBB+ / BBB- 7 Various Construction Kingdom 457 404 ----------------- -------------- -------- ----------- ------------------ ------------ ---------- -------- Financing (fixed payments indexed to CPI) the installation of a roof mounted solar PV plant for self-consumption in Central Italy, with a total installed capacity of approximately Solar 1.0 MWp. BB+/BB 10 PV Construction Italy 857 - ----------------- -------------- -------- ----------- ------------------ ------------ ---------- -------- Purchase of receivables (pre-determined fixed payments) generated from the installation of a roof mounted solar PV plant for self-consumption in Northern Italy, with a total installed capacity of ca. Solar 478.8 kWp. A- 5 PV Construction Italy 513 - ----------------- -------------- -------- ----------- ------------------ ------------ ---------- -------- Purchase of receivables (fixed) generated from refinancing the installation of LED lighting projects for 17 different clients in the UK. The various operating lease agreements range from five to ten United years. BBB+ / BBB- 10 Lighting Operating Kingdom 456 456 ----------------- -------------- -------- ----------- ------------------ ------------ ---------- --------
MARKET OUTLOOK
Electricity prices for industrial and residential customers across Europe have increased significantly since the Company's IPO in June 2021. Given this strong upward pressure on energy prices, we have seen a noticeable increase in investment opportunities. From our discussions with ESCOs and other market participants, it is clear that higher power prices compared with those seen prior to the Russia /Ukraine conflict, notwithstanding power prices since retreating to pre-conflict levels are accelerating investments in energy efficiency projects, and the Company is well positioned to benefit from this increased demand for funding of such projects.
Market Commentary
Introduction
The energy market crisis in 2022, caused by the Russia/Ukraine conflict brought critical issues of energy supply security to the fore. The European region's gas supply remains uncertain, even if the prices are no longer at the same elevated levels. Against this backdrop, the European Commission is deliberating on market reforms to devise better long-term incentives to help manage price and supply volatility. Incentives are also needed for the demand side, essential in balancing the system. Experience shows that investment in energy efficiency infrastructure is essential to delivering on climate-neutral goals.
The interaction between renewable energy and energy efficiency follows a complex relationship. The rising levels of distributed renewable energy penetration in most of the European region effectively displaces a proportional share of primary energy consumption. This assumes that primary energy consumption is measured net of distributed (or behind the meter) energy generation. Conversely carbon-saving measures (including electrification) enhance the scope for renewable energy. The inverse relation is most robust in countries with a high renewable energy share in the total energy mix. The historical trend in primary and renewable energy consumption shows this relationship. In this regard, the step-up in renewable energy projects establishes a strong case for energy efficiency.
There are steeper targets to build upon the progress in rationalising primary energy consumption. The active policy involvement in addressing immediate energy sector challenges will extend to hastening energy efficiency activities. Energy demand segments such as buildings and space heating/cooling are now attracting maximum attention for investments by public authorities and the private sector.
Policy and Regulatory Developments
Progressively, the European region has coordinated policy and regulatory measures for energy efficiency. Renewable energy targets are part of this framework for the overarching goal of a climate-neutral area by 2050. In September 2022, the European Parliament voted on Energy Efficiency and Renewable Energy Directives. Renewable energy-based sources are part of an envisaged integrated system in which energy efficiency standards are supposed to operate. The guiding principle of 'Energy Efficiency First' reinforced its place with the recent energy sourcing and pricing challenges. In March 2023, the European Commission approved the provisional agreement for setting higher energy efficiency targets. With this agreement, which requires 1.4% average annual energy savings by member countries during 2024-2030, there is legislative backing for reaching beyond the 'Fit for 55' plan. The annual targets are almost twice those in the original scheme.
While the end-use sectors continue to be buildings, industry and transportation, the focal points include the public sector (regional and local levels) and the companies (energy-intensive large entities). Also significant is the emphasis on energy efficiency financing to enable investment mobilization - the provisions require the promotion of financing schemes and lending products and involve a reporting structure.
The recent developments in the European Union's policy narrative on energy efficiency come after the collective action taken in 2022 to counter supply shocks (through price caps and windfall taxation). The measures also involved voluntary curtailment, most of which was borne by the energy-intensive industrial consumers. While the market intervention measures implemented to achieve these one-off actions may not be required further, there is still a strong case for continuing to reduce primary energy consumption.
The persistent geopolitical challenges and the uncertainty around energy security make it difficult to draw any visible signs of stability. For this reason, in March 2023, the EU Council agreed to a one-year extension of member states' voluntary 15% gas demand reduction. Thus, based on the average consumption between April 2017 and March 2022, member states should reduce their annual natural gas consumption by 15% between April 2023 and March 2024 (compared with the prior year).
Key Measures Introduced for Energy Efficiency
Date Country / region Policy / regulatory measures
March 2023 European Union
Final energy consumption target for 2030 raised to 11.7%. This is beyond
the targets in the
original 'Fit for 55' plan.
March/February 2023 UK
Energy Efficiency Taskforce launched for a 15% reduction in energy demand
by 2030. Earlier,
a GBP1.8 billion outlay was announced for energy efficiency initiatives.
October France
/December 2022 Energy Sobriety Plan (October 2022), aiming for a 10% reduction in
consumption by 2024, though
without binding targets. An enhanced outlay was provided for the
MaPrimeRénov retrofit
grant scheme due to the encouraging response.
October 2022 Germany
New energy efficiency law in discussions for binding targets at federal and
state level from
2024 onwards. Among other sectors to be potential in focus include data
centres.
May 2022 European Union
REPowerEU launched as a comprehensive policy about energy transition and
energy savings. About
30% of the estimated outlay was on energy efficiency.
==================== ================= =============================================================================
Measures introduced across these countries have varied. For most countries, energy efficiency was an urgent requirement in the aftermath of the Russia/Ukraine armed conflict. As a result, both renewable energy and efficiency, in tandem, took the highest priority. The measures so far have been a mix of incentives and related voluntary measures for reducing demand. Progressively, the need is for binding targets along the lines of the European Union's recent step.
Concrete policy measures with binding targets may take more work to implement, although efforts are underway to reach that goal. The German example is one case in point. The country's upcoming energy efficiency law is challenging (such as requiring new residential heating systems to be renewable-based from 2024 onwards) and subject to significant delays. The investor interest is high due to the potential opportunity. In January 2021, The Canadian infrastructure fund Brookfield acquired a majority stake in Thermondo, a German start-up specialised in technology-enabled space heating systems. Similar scope is observed in other markets. In the UK, a Parliamentary report (House of Commons Committee report) pointed out energy efficiency in buildings as among the glaring gaps in policy implementation. Similar issues exist across European countries regarding energy efficiency objectives against actual implementation through policy measures.
The policy paradigm is an evolving one given the short-term switching costs for households and businesses, e.g. to replace gas boilers with heat pumps. The policy response in the prevailing energy scenario is different from the one the same countries faced earlier as the case of Italy illustrates.
In 2020, during the COVID pandemic, the Italian government implemented the Decreto Rilancio, which introduced the Superbonus 110% scheme. This initiative aimed to stimulate the Italian economy by encouraging property owners, tenants, and others with a legal right to use a property to carry out anti-seismic renovations and energy efficiency improvements on Italian properties. Qualifying work for the Superbonus included the installation of photovoltaic systems and electric vehicle charging stations inside a property, among others.
The Italian Superbonus scheme provided a tax credit of up to 110% of the installation expenses for eligible renovation work. The Legislative Decree Aiuti quater, which is set to become law soon, reduces the Superbonus tax credit from 110% to 90% in 2023, but extends the possibility of applying the discount to invoices or assigning the tax credit in 10 instalments instead of 5. The Superbonus scheme will continue into 2024 and 2025, but the tax credit will decrease to 75% in 2024 and 65% in 2025.
However, the Italian Budget Law 2023 allows condominiums that submitted a CILA (Comunicazione di Inizio Asseverata) before 31 December 2022, to remain eligible for the full 110% Superbonus tax credit. Additionally, single-family properties can also qualify for the full Superbonus tax credit if at least 30% of the renovation work was completed by 30 September 2022, and all of the work was finished by 31 March 2023. None of our projects should be impacted by the change in the regulatory framework since (i) the development of the projects is significantly prior to said change and ii) all the projects should be completed and revised by the various advisors (asseverazione) before the end of the current year.
As a tool, overall(2) the Italian Superbonus programme had an important impact on the construction sector overall which in turn stimulated GDP growth and job creation. Italy's economic output is estimated to have grown by 3.9% in 2022, driven by domestic demand, in particular housing investment. After contracting by 5.5% in 2020 due to the impact of COVID, investment in construction in the country grew rapidly by 24.6% in 2021. In 2022, the industry continued to expand by approximately 15.4%, with a significant boost from a 25.7% increase in the home renovation sector. According to ANCE, Italy's national builders' association, construction investment reached an estimated EUR172bn in 2022. This surge in activity marks a reversal of the industry's decade-long decline, which saw a drop of almost a quarter in total construction revenues and almost a third of workers losing their jobs between 2010 and 2020, according to the European Commission.
Investment environment
Private sector financing has yet to play a more significant role in facilitating energy efficiency projects. Part of the reason is the impact potential of such projects with social implications and the return potential but the constraints to more capital allocation remain with market fragmentation, scalability and scarcity of dedicated players. Energy efficiency in the residential housing segment is one such area.
There is significant scope for the deployment of private capital in the emerging energy efficiency space. The need is to develop innovative financing models to help adoption. There has been a rise in funding activity in the overall Climate and Sustainability space, with about $37 billion(1) in dry powder understood to be available for deployment as of March 2023. Of the various investment subsectors, an important one is the buildings sector. A combination of distributed energy resources (such as solar) and energy efficiency (space heating/cooling) systems present an effective means of mitigating emissions in the buildings sector. The investment upside is significant for the near-untapped potential in most of the markets.
(1) The data point of $37 billion was sourced from a BCG article dated 30 March 30 2023. BCG's article attributed this data to the Center for Climate-Aligned Finance. https://www.bcg.com/publications/2023/private-capital-and-climate-opportunity-europe
As of November 2022, the energy efficiency sector had seen investment in 280 deals backed by private equity and venture capital worth $31.79 billion. Comparatively, the total transaction volume for 2021 stood at $16.36 billion across 307 transactions involving companies in the energy efficiency, energy management, innovative energy, and carbon emission sectors. Investments in this field defied the general downward trend of private equity and venture capital deployment in 2022, reflecting nations and companies racing to meet carbon emission reduction targets through sustainable energy management strategies. As VC and PE capital continues to flow into the sector, it is critical to support this with dedicated lending solutions for asset and working capital finance as banks often face internal organisational issues that limit their capacity to follow the market or increase the costs of energy efficiency funding. These issues include the availability of resources, the need to build capacity among loan officers and develop innovative solutions for energy efficiency financing.
The emergence of dedicated energy efficiency funds in recent years has been notable, but their number and with that competition for projects remains small compared to the market size. This allows them to access a complexity premium for their capital deployed and they also play a significant role in certain markets due to their in-depth understanding of energy efficiency risk characteristics.
While several funds have also reported initial difficulties in deploying their capital, many have crossed this hurdle and have now established proven models to successfully deploy capital across and expanding the range of energy efficiency sectors such as building retrofit, Building Management System improvements, heating as a service, and storage, among others. These funds are in fact specialised financial players with a strong knowledge of the market, creating a reliable source of capital for such projects and support the development of dedicated service providers.
In the larger global context, the European region's funding commitments towards energy would need to rise by a significant margin. A recent and notable example for comparison comes from the US legislation, the Inflation Reduction Act ("IRA"). The latter has been in focus for its generous incentives to attract projects. Under the Recovery and Resilience Facility ("RRF"), the European funding devotes a proportionate amount towards energy efficiency projects. In absolute terms, though, there is a stark difference. The US IRA allocates about $96 billion in energy efficiency, which is 33% higher than the $73 billion allocated by the EU RRF.
Energy Price/Cost Summary View
The steadily rising wholesale power price through 2021, and its unprecedented spike in 2022, triggered a rush towards prioritising energy efficiency at enterprise and policy levels. A significant impact of the price rise was in terms of reduced demand. International Energy Agency ("IEA") estimates show a 13% decline in the European Union's gas demand in 2022. It was the steepest fall in the region's history and was primarily led by the energy-intensive industrial sectors.
At a policy level, some of the most severe austerity measures were implemented to manage the crisis. The primary energy demand in this context varied across the sectors. The power sector had a net rise in the total demand (additional gas and coal) due to the lack of compensating supply sources (renewable, hydro and nuclear energy). Other sectors, such as process-based energy-intensive industries (such as steel) and households, bore the brunt of energy austerity measures.
Market Intervention by European Countries during 2022
Country Market intervention during 2022
Spain
and Portugal In April 2022, Spain and Portugal obtained agreement from the European Commission for a EUR50/MWh
cap on the gas price paid by consumers, thereby decoupling gas and electricity markets for
a period of up to 12 months.
France
Imposed cap on gas prices for final consumers (though not for wholesale prices) and undertook
measures for curbing the regulated prices.
Austria
Windfall energy taxes and revenue caps imposed on utilities and energy producers to claw back
profits earned from abnormally high prices. The measures were supposed to be valid until the
end of 2023.
Germany
Dual target of reducing gas demand and shielding consumers. The German government had imposed
windfall profit tax and activated revenue caps for both consumers across residential, commercial,
and industrial segments until April 2024.
============== ====================================================================================================
Prices have moderated since their peaks of 2022. By February 2023, European gas prices had declined by about 85% since August 2022. Prices are still higher than historically, but the corresponding demand rationalization by industries has helped. Additional factors, such as the abatement in winter demand and a rise in gas storage levels, reinforce the price trend. But the phase of price rises may be far from over. Higher futures contract prices for 2023/2024 indicate persistent supply uncertainties (IEA).
Development in Focus: Energy communities
Energy communities consist of various entities such as municipalities, households, public institutions, private businesses, and cooperatives. A significant increase in the number of energy communities is expected to occur in the near future. According to a study conducted by the Politecnico di Milano (Electricity Market Report), it is estimated that by 2025, there will be approximately 40,000 energy communities in Italy, involving 1.2 million households, 200,000 offices, and 10,000 SMEs. In Europe, a federation of energy cooperatives has been established, which includes more than 1.2 million citizens from around 1,900 cooperatives. The European Union's Joint Research Center conducted a study in 2020 that found Germany to have the highest number of energy communities (1,750), followed by Denmark (700) and the Netherlands (500). Energy communities, as per EU legislation, can be structured as an association, cooperative, partnership, non-profit organization, or limited liability company, among others. Participation is voluntary, and the primary goal is to provide environmental, economic, or social benefits to members and the local areas they serve. These communities are considered legal entities and should have equal access to energy markets as other market actors. Due to their strict participation and governance criteria, they receive additional benefits, such as access to financing, support schemes, capacity building, and information.
As the concept of energy communities has emerged from the ground up, EU countries have implemented national policies to support them and related business models. For example, the Netherlands offers regulatory exemptions in licensing requirements for new business models, while Germany applies special rules in auction schemes for renewable energy source support.
Energy communities can engage in a range of activities, including energy production, distribution, supply, consumption, aggregation, storage, energy efficiency services, electromobility, and other energy services for their members or shareholders.
The most common business models for energy communities today include generation and supply, where they supply electricity and gas sourced from local producers is supplied through power purchase agreements or community-owned production capacity to their customers. Another model is collective investments in production installations, where consumers pay a fixed membership fee or variable stake to become members of an energy community that acts as an energy producer. Power purchase agreements are often used in cooperative investments to cover the produced energy and related financial products like green certifications or guarantees of origin. Collective self-consumption is another model where energy consumers and producers in the same area are linked. However, the ability of members to sell their electricity to other community members and use the off-setting mechanisms of electricity meters may vary based on national regulations.
These models can be combined and are not exhaustive; they are likely linked to the continued growth of C&I and residential solar. As part of the Rooftop Solar Initiative, the European Commission has proposed a solar rooftop mandate for all commercial and public buildings by 2027, and for new residential buildings by 2029. In 2022, the German state of Baden-Wurttemberg implemented its first rooftop solar mandate. With solar mandates becoming a standard for new buildings, architects will now integrate solar PV into their building practices. The industry association SolarPower Europe sees that rooftop solar is primarily limited by installers' capacities, while permitting issues, which affect much more the large-scale systems, are yet to be fixed in most member states and on local levels, as government market interventions are starting to cause insecurity among investors and lending institutions.
Evidence(1) increasingly suggests that energy community projects have a positive impact on the local economy and job creation, although the magnitude and nature of these effects vary depending on the specific community. As part of the trend towards decentralization of the energy system, energy communities are expected to have significant impacts on the distribution network, but more research is needed to determine the exact positive and negative effects.
On the other hand, research has shown that community projects can increase local acceptance of renewable energy and support for climate action. Additionally, participation in community projects is linked to more energy-efficient behavior, increased knowledge and skills, and stronger social trust and capital to some extent.
Outlook
Global energy supply security remains uncertain for a mix of macroeconomic and geopolitical factors but has worked to act as a headwind for the energy efficiency sector. The stress on the demand-supply balance in natural gas, Europe's critical primary energy resource, could also be accentuated as the region's winter demand is unlikely to be as unseasonably mild as in 2022. The urgency for energy efficiency thus continues. IEA's study indicates a EUR95 billion funding requirement to bridge the projected gas demand-supply deficit in 2023 through incentivizing faster improvements in energy efficiency, renewable energy integration, electrification of heat sources, and behavioural changes in energy consumption.
The investment requirement for energy efficiency for 2023 and beyond is far less than the resources expended to counter the energy crisis. EU region's countries are estimated to have allocated about EUR681 billion so far (since September 2021) in energy crisis spending. The UK and Norway added to this with another EUR103 billion and EUR8 billion, respectively. It is unsustainable for public finances and largely mistargeted as fossil fuel consumption was subsidised. A realignment in budgets is overdue. In the UK, for instance, about a third of the allocated funding for energy-efficient buildings in 2020-2025 was unspent as of February 2023.
With timely investments, the region's built environment could be vital in transforming the landscape. The existing buildings' stock significantly contributes to decarbonisation (35% of energy-related emissions) and rationalisation of primary energy consumption (32% of natural gas consumption). Despite the challenges involved, some major areas of interventions with maximum impact include rooftop solar, replacement of gas boilers with heat pumps, insulation, smart thermostats, and district heating.
McKinsey's projections indicate that to adhere to the 'Fit for 55' and RePowerEU targets, the buildings' renovation rates need to be 15 times the current level of 0.2% per year. The corresponding investment requirements are enormous, translating to an attractive market opportunity if followed through with an actionable plan.
The projected energy efficiency investment and the resulting market size are simply quantified reiterations of the low-hanging untapped opportunity. The ambitious objectives of climate neutrality require a cohesive approach, incorporating multiple lines of action. The measures related to energy efficiency offer the most optimum and cost-effective solutions to address immediate and long-run targets for carbon reduction in businesses and society at large.
(1) Source: https://cadmus.eui.eu/bitstream/handle/1814/68383/QM-04-20-447-EN-N.pdf?sequence=1
Acronyms used for Power Market Price Trend
Acronym Full form
DEU/AUT (EPEX) European Power Exchange Spot
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FRA France
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NLD The Netherlands
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Nordpool Nord Pool AS
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DK1 DK1 price zone (western) of Denmark
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DK2 DK2 price zone (eastern) of Denmark
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SE4 SE4 price region of Swedish power market
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NO2 NO2 price zone of Norwegian power market
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DEU/AUT (EXAA) Energy Exchange Austria
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CHE Switzerland
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BEL Belgium
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ESP Spain
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ITA Italy
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ITA North Northern Italy
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ITA South Southern Italy
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CZE Czech Republic
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SVK Slovakia
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POL Poland
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HUN Hungary
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ROU Romania
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GRC Greece
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BGR Bulgaria
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SVN Slovenia
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DEU (EPEX) EPEX spot price -Germany
=========================================
AUT(EPEX) EPEX spot price -Austria
=========================================
DEU(EXAA) EXAA spot price -Germany
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AUT(EXAA) EXAA spot price -Austria
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG")
Introduction
The Company's goal is to generate attractive returns for investors by reducing Primary Energy Consumption ("PEC"). AEET seeks to achieve this through investing principally in a diversified portfolio of energy efficiency projects with high-quality counterparties. AEET's investments positively impact the environment by reducing the amount of carbon dioxide produced, by decreasing PEC and by increasing the amount of renewable energy used. The synergies generated by the reduction of PEC and simultaneously using renewable energy sources further decrease CO(2) emissions.
This is reflected across the investment philosophy and approach, including the Company's investment adviser, Aquila Capital Investmentgesellschaft mbH, which is dedicated to the green energy transition. The Company is committed to being a responsible investor, ensuring that environmental, social and governance criteria are incorporated into day-to-day investment decisions as well as generating a positive impact for society. By reducing PEC, the Company often improves life standards for end users, for example, better lights, easier maintenance, reduced danger, security of supply and very importantly, the reduction of emissions like Nitrogen Oxides ("NOX").
Investment Approach and ESG Approach
AEET's investment approach is focused on investments in energy efficiency projects located primarily in Europe. These assets are predominantly proven operational projects that deliver energy savings for commercial, industrial, and public sector buildings. AEET seeks to invest in projects for the long term with a focus on optimizing and improving the assets' PEC.
Technologies typically include:
-- LED Lighting Systems: significant reduction of consumed energy (up to 70%) and other positive outcomes: reduced heat emission and therefore less need for ventilation and cooling; better light for workplaces; less maintenance work; reduction in the use of glass (particularly beneficial in food production).
-- LED Street Light Systems: significant reduction of consumed energy, increased safety (better light, light where needed, choice of light colour); integration of other technologies such as sensing (traffic control), mobile communication systems etc.
-- Solar PV: increases the level of efficient and locally produced renewable energy. Lower transportation costs, free energy source.
-- Biomass Boilers: locally consumed; generate energy (heat, cooling and electricity) from renewable sources, very often contributing to local job creation. The exhaust dust needs to be managed and fulfil strict environmental regulations.
-- Combined Heat and Power plants (CHP): Highly efficient generation of combined energy outputs like electricity and heat or cooling.
-- Electrification of transportation vehicles (batteries) such as trains, trams, buses, ferries, boats etc; replacement or hybridization of large fossil fuel engines; significant reduction of fossil fuel consumption, other emissions, NOX and Sulphur Oxides ("SOX"); often create a greener and healthier local environment e.g. by electrification of inner-city buses.
-- HVAC/buildings: Highly efficient heating, ventilation and air conditioning systems. Often a combination of more efficient use of energy while simultaneously increasing wellbeing, effectiveness, and controllability of systems e.g., avoid overheating/cooling of workspace by taking weather conditions into consideration.
-- Smart Metering/Submetering: Often providing real-time or timely information about personal consumption volume, patterns and costs of energy (heating, electricity, water or gas) to enable energy consumers to manage usage and costs. Pre-requisite to change consumer behaviour which in itself could reduce energy consumption by up to 20% (e.g. avoiding standby electricity consumption).
Environmental Impact
The Company's investment approach is focused on reducing PEC, which should lead to significant reductions in carbon dioxide emissions. In addition, local production of energy (CHP, Biomass Boilers, Solar PV) reduces transportation energy losses and grid over-utilisation. Smart Meters and other control technologies enable a better visibility and management of energy and therefore represent a basis for energy savings.
All projects are managed within the guidelines of local, regional, and national environmental laws in order to adhere to the Do No Significant Harm ("DNSH") principles. Aquila Capital ensures all required regulations and corresponding approvals are completed prior to the acquisition of the assets (for example, any required planning permissions).
Social Impact
Energy efficiency measures not only reduce PEC but typically also increase the life quality and health aspects for stakeholders, employees, users of public facilities and/or private individuals. This is mainly achieved through advanced solutions for lighting, heating, cooling and ventilation and the associated control units.
All project developers are required to adhere to local, regional, and national health & safety laws, to train and educate employees accordingly to ensure casualties and injuries are avoided.
We incorporate Aquila Capital's ESG policy, which excludes suppliers and manufacturers that do not meet Aquila Capital's criteria (exclusion of sectors/subsectors, companies that use unfavourable labour conditions etc).
For all counterparties a rating exercise is performed (in collaboration with a third-party rating agency) assessing creditworthiness of the client as well as a Know Your Client check being undertaken for the relevant parties involved.
Governmental Impact
All our business partners are required to adhere to the requirements of the national social security and tax authorities.
Where required by local, regional and/or national authorities our business partners need to provide evidence that they adhere to anti bribery and corruption laws.
Due Diligence
The Investment Adviser performs detailed ESG due diligence for each asset prior to investment. The investment management team follows a structured screening, due diligence and investment process which is designed to ensure that investments are reviewed and compared on a consistent basis. Execution of this process is facilitated by the team's deep experience in energy efficiency project investing. As part of this process, the Investment Adviser will, as relevant for each investment, consider:
-- total PEC reduction, and implied greenhouse gas emissions reduced and/or avoided; and/or -- total energy production from renewable and non-renewable sources.
As part of this due diligence, various risks are assessed and documented including risk of climate change, risk of harm to local biodiversity and other environmental risks. These risks are evaluated as part of the technical, legal and insurance due diligence as applicable. The independent risk management team evaluates the initial evaluation of the investment management team in assessing each asset for acquisition. The Investment Adviser considers the ability for the acquisition to contribute to the UN Sustainable Development Goals and whether it fits within the Principles for Responsible Investment ("PRI").
Governance Framework
AEET benefits from an independent Board of Directors, as well as FundRock Management Company (Guernsey) Limited (part of Apex Group, previously known as Sanne Fund Services UK Limited) as the Alternative Investment Fund Manager ("AIFM"). The Board of Directors supervises the AIFM, which is responsible for making recommendations in relation to investment proposals put forward by the Investment Adviser. The Investment Adviser is fully regulated and supervised by BaFin in Germany.
The Company has established procedures to deal with any potential conflicts of interest in circumstances where Aquila Capital (or any affiliate) is advising both the AIFM (for the Company) and other Aquila Capital managed funds who are counterparties to the Company. In the context of an investment decision, these procedures may include a fairness opinion in relation to the valuation of an investment, which is obtained from an independent expert.
Monitoring of Environmental, Social & Governance Characteristics
After an investment has been made, ongoing monitoring commences at both the portfolio and asset levels by the Investment Adviser. The aim of this ongoing monitoring is to monitor and calculate the energy consumption/reduction and derive the CO2 reduction from that .
The environmental characteristics of the Company are monitored throughout the lifecycle of investments, including:
-- ongoing monitoring of the PEC based on the energy consumption and derive from that the CO2 savings, where appropriate, monitoring additional environment and ESG relevant developments both at the portfolio and asset level; and
-- annual reporting, including ESG aspects, to relevant stakeholders including ad-hoc reporting of any material. and urgent issues identi ed in the monitoring process.
AEET has been awarded the Green Economy Mark from the London Stock Exchange. The Green Economy Mark identifies London-listed companies and funds that generate between 50% and 100% of total annual revenues from products and services that contribute to the global green economy.
INVESTMENT POLICY
As at the date of this Annual Report, the Company's investment policy (including defined terms) is as set out in its IPO prospectus dated 10 May 2021.
The Company will seek to achieve its investment objective through investment in a diversified portfolio of Energy Efficiency Investments (as defined below) located in Europe, with private and public sector counterparties. The Company will predominantly invest in (i) energy efficiency investments including the installation, in the built environment, transportation industry and other sectors of the economy, of proven technologies and solutions such as energy efficient lighting, smart building and metering services, cogeneration plants, heating, ventilation and air conditioning (HVAC) systems, efficient boilers, solar photo voltaic plants, batteries, other energy storage solutions, electric vehicles and associated charging infrastructure as well as (ii) in the acquisition of majority or minority shareholdings in companies with a strategy that aligns with the Company's investment objective, such as developers, operators or managers of energy efficiency projects ("Equity Investments") ("Energy Efficiency Investments"). These investments seek to reduce primary energy consumption, reduce CO2 emissions and in many cases deliver economic savings and other benefits to the counterparties including improved air quality. The Company will not invest in fossil fuel extraction or mineral extraction projects. The capital value of the investment portfolio will be supplemented and supported through reinvestment of excess cash flows, asset management initiatives and the use of leverage.
The Energy Efficiency Investments will typically include long term contracts, which entitle the Company or its subsidiaries to receive stable, predictable cash flows payable by the counterparties, who will benefit from the use of the installed equipment during a contractual period typically ranging from five to fifteen years.
The Company will make Energy Efficiency Investments in operational, ready-to-build or under construction assets. The Company may, when making Equity Investments, through such investments, indirectly hold investments that are in the development phase.
In respect of each type of investment, the Company will seek to diversify its commercial exposure by contracting, where practicable, with a range of different equipment manufacturers, project developers and other service providers, as well as off-takers.
Whilst the Company will seek to diversify its commercial exposure by investing in a diversified mix of technologies, the assets of the Company may be predominantly concentrated in a small number of proven technologies.
Investments may be acquired from a single or a range of vendors and the Company may also enter into joint venture or co-investment arrangements alongside one or more co-investors, including Aquila Managed Funds.
The Company will acquire controlling and, opportunistically, non-controlling interests in Energy Efficiency Investments and may use a range of investment instruments in the pursuit of its investment objective, including but not limited to equity, mezzanine or debt investments.
In circumstances where the Company does not hold a controlling interest in the relevant investments, the Company will secure its rights through contractual and other arrangements, to, inter alia, ensure that the Energy Efficiency Investment is operated and managed in a manner that is consistent with the Company's Investment Policy.
Investment restrictions
The Company aims to achieve diversification principally through investing in a range of portfolio assets across a number of distinct geographies and a mix of technologies. The Company will observe the following investment restrictions when making investments:
-- no more than 20 per cent. of its Gross Asset Value will be invested in any single asset;
-- no more than 20 per cent. of its Gross Asset Value will be invested in Energy Ef ciency Investments with the same Counterparty;
-- following full investment of the Net Issue Proceeds, the Company's portfolio will comprise no fewer than ten Energy Ef ciency Investments;
-- no investments will be made outside of Europe; and
-- no more than 7.5 per cent. of its Gross Asset Value, in aggregate, will be invested in Equity Investments, and at all times such investments will only be made with appropriate share holder protections in place.
The Company will hold its investments directly or through one or more SPVs and the investment restrictions will be applied on a look-through basis.
The Company complies with the investment restrictions set out below and will continue to do so for so long as they remain a requirement of the FCA:
" neither the Company nor any of its subsidiaries will conduct any trading activity which is signi cant in the context of the Group as a whole;
" the Company must at all times, invest and manage its assets in a way which is consistent with its object of spreading investment risk and in accordance with the published investment policy; and
" not more than 15 per cent. of the Gross Asset Value at the time an investment is made will be invested in other closed- ended investment funds which are listed on the Of cial List.
Currency and hedging
The Company does not intend to use hedging or derivatives for investment purposes. The functional currency of the Company is sterling. With many of its investment assets in euros the Company uses a series of regular forward foreign exchange contracts to provide protection against movements in the sterling exchange rate. Under these arrangements the Company is required to provide GBP5 million in cash as collateral for these forward foreign exchange contracts. Following the failure of the Continuation vote the Company is currently reviewing the strategic options for realising value for shareholders. The Board will consider the appropriateness of the current hedging arrangements and the cash collateral as part of the review of strategic options and In light of the cash requirements of the Company.
Borrowing policy
The Company may make use of long-term debt on both a limited recourse and full recourse basis to finance the acquisition or construction of Energy Efficiency Investments and for working capital purposes. Gearing will be employed at the level of the Company, at the level of any intermediate wholly owned subsidiary of the Company or at the level of the relevant SPV, and any limits set out in this document shall apply on a look-through basis. In addition, the Company may make use of short-term debt, such as a revolving credit facility, to assist with the acquisition of or investment in suitable opportunities as and when they become available. Aggregate gearing, whether via long-term or short-term debt, will not exceed 50 per cent. of Gross Asset Value, calculated at the time of drawdown. The Company will target aggregate gearing, whether via long term or short-term debt, of 35 between 40 per cent. of Gross Asset Value, but in any event will not exceed 50 per cent. of Gross Asset Value, in each case calculated at the time of drawdown.
Debt may be secured with or without a charge over some or all of the Group's assets depending on the optimal structure for the Group and having consideration to key metrics including lender diversity, cost of debt, debt type and maturity profiles. Intra-group debt between the Company and subsidiaries will not be included in the definition of borrowings for these purposes.
In circumstances where the above limits are exceeded as a result of gearing of one or more Energy Efficiency Investments in which the Company has a non-controlling interest, the borrowing restrictions will not be deemed to be breached. However, in such circumstances, the matter will be brought to the attention of the Board who will determine the appropriate course of action.
Cash management
Cash held pending investment in Energy Efficiency Investments or for working capital purposes will either be held in cash or invested in cash, cash equivalents, near cash instruments, bearer bonds and/or money market instruments ("Cash and Cash Equivalents"). There is no restriction on the amount of Cash and Cash Equivalents that the Company may hold and there may be times when it is appropriate for the Company to have a significant Cash and Cash Equivalents position. For the avoidance of doubt, the restrictions set out above in relation to investing in UK listed closed-ended investment companies do not apply to money market type funds.
Changes to and compliance with the Investment Policy
As required by the Listing Rules, any material changes to the Company's Investment Policy as set out above will require the approval of Shareholders by way of an ordinary resolution at a general meeting and the approval of the FCA.
Compliance with the above restrictions will be measured at the time of investment and non-compliance resulting from changes in the price or value of assets following investment will not be considered as a breach of the investment restrictions.
In the event of a breach of the investment guidelines and the investment restrictions set out above, the AIFM shall inform the Board upon becoming aware of the same and if the Board considers the breach to be material, notification will be made to a Regulatory Information Service.
Following the unsuccessful Continuation Vote, the Directors are proposing amendments to the Company's Investment Policy in a resolution at the Annual General Meeting of Shareholders on 14 June 2023. For more information, please see the Chair's Statement.
KEY PERFORMANCE INDICATORS
The Board measures the Company's success in achieving its investment objective by reference to the Key Performance Indicators ("KPIs") described below:
Deployment of IPO proceeds
In the Company's IPO prospectus published on 10 May 2021, it was stated that the proceeds would be significantly deployed or committed to acquire suitable assets within twelve months from IPO (2 June 2022). As announced on 21 April 2022, the Investment Adviser revised this target to the end of December 2022.
The Company achieved its revised target to substantially commit the gross proceeds raised through its IPO by the end of 2022. As at 31 May 2022, GBP19.7 million of the Company's IPO proceeds had been committed for investment and approximately GBP15.7 million had been deployed. As at 31 December 2022, the total amounts committed and deployed were GBP96.7 million and GBP61.2 million, respectively. Commitments continued to increase at a steady pace in 2023 until the continuation vote on 28 February 2023 ("Continuation Vote"). The total amounts committed and deployed as at 31 March 2023 were GBP98.7 million and GBP62.2 million, respectively, taking into account the timing of the realisation of funds from the Italian Superbonus investments.
To meet its target total dividend in each nancial year
As disclosed in the Company's IPO prospectus published on 10 May 2021, the Company was targeting a dividend of a minimum of 3.5 pence per Ordinary Share in relation to the financial year ended 31 December 2022, and a minimum of 5 pence per Ordinary Share in relation to the financial year ending 31 December 2023, with the aim of increasing this dividend progressively over the medium term. The Company did not intend to pay a dividend in the first financial period to 31 December 2021, whilst it was deploying the IPO Proceeds.
As previously announced on 21 April 2022 and in subsequent dividend declaration announcements, the Board did not expect that this stated dividend target would be fully covered by earnings, due to slower than anticipated deployment. However, the Board decided that it would retain the 2022 dividend target and meet any earnings shortfall through paying out of distributable reserves. Accordingly, the Board declared three interim dividends totalling 3.5 pence during the financial year ended 31 December 2022 (for the period ended 31 December 2021: Nil).
Following the failure of the Continuation Vote on 28 February 2023, the Board has reviewed the dividend policy of the Company and future dividends will be paid from net income after taking into account cash flow forecasts, and only in respect of 6 monthly periods, rather than quarterly periods. Further details are set out in the Chair's Statement.
Discount of share price to NAV
The Board monitors the price of the Company's shares in relation to their NAV and the premium or discount at which they trade. The share price closed at a 25.6% discount to the NAV as at 31 December 2022.
Between 31 January 2022 and 21 April 2022, the Board performed an Investment Strategy Review and throughout the year 2022 was engaging very closely with the Company's major Shareholders. On 28 February 2023 the Company held a General Meeting when the Continuation Vote did not pass. For more details, please see the Chair's Statement. The Company has shareholder authority to buy back shares, if appropriate.
Maintenance of a reasonable level of ongoing charges
The expenses of managing the Group are carefully monitored by the Board. The Board receives and reviews management accounts which contain an analysis of expenditure which are reviewed at quarterly Board meetings. The Board reviews the ongoing charges on a quarterly basis and considers these to be reasonable in comparison to its peer group of investment trust corporates.
Based on the Group's average net assets during the year ended 31 December 2022, the Group's ongoing charges figure calculated in accordance with the AIC methodology was 2.6% (Period from IPO to 31 December 2021: 0.9%).
RISK MANAGEMENT
Principal risks and uncertainties
During the year under review, the Company has carried out a robust assessment of its principal and emerging risks and the procedures in place to identify any emerging risks are described below.
Procedures to identify principal or emerging risks:
The Board regularly reviews the Company's risk matrix, with a focus on ensuring that the appropriate controls are in place to mitigate each risk. The experience and knowledge of the Board is important, as is advice received from the Board's service providers, specifically the AIFM, which is responsible for the risk and portfolio management services and outsources the portfolio management to the Investment Adviser.
1. Investment Adviser: the Investment Adviser provides a report to the Board on a quarterly basis or such other period as required on industry trends, insight into future challenges in the energy efficiency sector including the regulatory, political and economic changes likely to impact the sector;
2. Alternative Investment Fund Manager: following advice from the Investment Adviser and other service providers, the AIFM maintains a register of identified risks including emerging risks likely to impact the Company;
3. Broker: provides advice periodically specific to the Company on the Company's sector, competitors and the investment company market whilst working with the Board and Investment Adviser to communicate with Shareholders;
4. Company Secretary: briefs the Board on forthcoming legislation/ regulatory change that might impact on the Company; and
5. Association of Investment Companies ("AIC"): The Company is a member of the AIC, which provides regular technical updates as well as drawing members' attention to forthcoming industry and regulatory issues.
Procedure for oversight
Audit and Risk Committee: Undertakes a review at least twice a year of the Company's risk matrix and a formal review of the risk procedures and controls in place at the AIFM and other key service providers to ensure that emerging (as well as known) risks are adequately identified and, so far as is practicable, mitigated.
Principal risks
The Board considers the following to be the principal risks faced by the Company along with the potential impact of these risks and the steps taken to mitigate them.
Principal Potential Impact/Description Mitigation
Risks
Portfolio
Counterparty The risk that the Company The Company seeks to invest mostly,
/ Credit allocates funds to a Counterparty although not exclusively, in projects
that defaults on its obligations. where the counterparties have an
This could impact the financial investment grade or near investment
performance of the Company grade rating. The Investment Adviser
and its ability to meet uses third party credit rating service
dividends as well as achieving providers to support its credit
its intended goals and risk assessments.
returns for its investors. Continued monitoring of the investments
and the associated counterparties/service
providers, including the use of
credit rating data providers, allows
the Investment Adviser to identify
and address these risks early. The
Investment Adviser seeks to mitigate
credit risks, for example, in the
case of Solar PV investments, by
the counterparty having the opportunity
to sell electricity to the grid
or other customers where possible.
The Investment Adviser also seeks
to structure investments whereby
contracts can be adapted/extended
to accommodate periods of payment
defaults.
Diversification of counterparties
and service providers ensures any
impact is limited. In addition,
a diversified portfolio provides
further mitigation.
----------------------------------------- ---------------------------------------------------
Concentration The risk that the concentration The AIFM and the Investment Adviser
Risk of investments in a limited continuously monitor the existing
number of countries, counterparties, portfolio and any proposed investments
geographical markets, tenure (in advance of completion) against
and currencies could expose the Company ' s portfolio concentration
the Company to unnecessary limits and investment policy. This
fluctuations in a narrow mitigates the risk by ensuring that
range of markets. This concentration limits and asset diversification
risk could negatively impact limits are observed.
the Company's performance As at 31 March 2023, the Company
and ability to meet strategic had no substantial geographic exposure
targets. to any one country (with assets
principally in Italy, Spain, Germany
and the UK).
----------------------------------------- ---------------------------------------------------
Environmental/ Failure to adequately consider The Investment Adviser performs
Social/ Governance ESG implications when making detailed due diligence on ESG for
( " ESG " and monitoring investments each asset prior to recommendation.
) could lead to reputational General standards including IFS
risk: exposure to greenwashing Performance Standards, IFC Environmental
claims and potentially Health and Safety Guidelines ( "
have an adverse impact EHS " ) and Equator Principles as
on the portfolio ' s ability well as local health and safety
to achieve its targeted and social laws are reviewed on
returns. a regular basis for all assets depending
on the location and development
status of each asset .
----------------------------------------- ---------------------------------------------------
Economic and Markets
Discount Management Market sentiment moves The Company's Broker monitors the
share price to a discount market for the Company's shares
which would make it more and reports at quarterly Board
difficult for the Company meetings. The Company has the authority,
to issue new equity. if appropriate, to purchase Ordinary
The Ordinary Shares may Shares in the market with the result
trade at a discount to of, amongst other things, enhancing
Net Asset Value and not the Net Asset Value per Ordinary
be liquid, resulting in Share.
Shareholders being unable
to realise their investments The Board and Broker maintains
through the secondary market engagement with Shareholders and
at Net Asset Value or at ensures good market information
market price. is available to investors.
Loss of market confidence
in the Board /Investment Following the unsuccessful Continuation
Adviser. Vote in February 2023, the Board,
with its advisers, is considering
strategic options to maximise value
for Shareholders. For more information
following the Continuation Vote
not passing, please see the Chair's
Statement
----------------------------------------- ---------------------------------------------------
Interest Rates/ Changes to interest rates The Company's investments, which
Inflation may impact the valuation provide in many cases for fixed
of the investment portfolio returns, are not significantly
by impacting the valuation exposed to inflation and interest
discount rate. This in rate movements because the income
turn may have an adverse streams from investments are not
impact on the attractiveness subject to significant deductions
of returns. for operating costs associated
In addition, inflation with the investments. While there
and interest rate movement may be O&M costs these are not
can affect the spread between, a high percentage of revenues and
amongst other things, the so any inflationary pressures on
income on the Company's such costs are not expected to
assets and the value of have a significant impact. Furthermore,
its interest-earning assets the Company has not taken on indebtedness
and its ability to realise to finance its investments and
gains from the sale of so there is no risk of the costs
assets. of indebtedness negatively impacting
The current energy geopolitical the revenues from investments.
crisis in Europe is driving Were the Company to take on indebtedness
increasing energy prices it may use derivative instruments
and volatility which is such as futures, options and swaps
likely to have an impact to protect the Company from fluctuations
on performance. in interest rates.
The Investment Adviser manages
the correlation of cash flows to
inflation and resilience to the
economic environment.
The Investment Adviser seeks to
incorporate RPI adjustments in
investment documentation where
possible.
In addition, investing in energy
efficiency assets can in some cases
provide an effective protection
against inflation, as many such
assets benefit from rising electricity
prices with no burden on the cost
side in relation to the use of
resources.
----------------------------------------- ---------------------------------------------------
Exchange Rates The Company holds investments The Company maintains the majority
in currencies other than of uninvested cash in its base
British Pounds. Changes currency (GBP or GBP).
in foreign currency rates For any non-base currency assets,
may therefore impact the the Investment Adviser can use
value in Sterling between forward foreign exchange contracts
the time at which the investment to seek to hedge up to 100% of
is made and the time of non-GBP exposure.
receipt of the return on The Company does not intend to
any such investment. use hedging or derivatives for
The implementation of forward investment purposes but may use
foreign exchange contracts derivative instruments such as
can result in a cash settlement forwards, options, future contracts
at the maturity of the and swaps to hedge currency, inflation,
contract or a margin call interest rates, commodity prices
from the Company to the and/or electricity prices.
bank counterparty for the With many of its investment assets
forward foreign exchange being held in Euros, the Company
contract and vice versa uses a series of regular forward
with the amount depending foreign exchange contracts to provide
on the movement in foreign a level of protection against movements
exchange rates. in the Euro: Sterling exchange
rate. Under these arrangements
the Company is required to provide
GBP5 million in cash as collateral
for such forward foreign exchange
contracts.
Following the failure of the Continuation
Vote, the Company is currently
reviewing the strategic options
for realising value for Shareholders.
The Board will consider the appropriateness
of the current hedging arrangements
and the required cash collateral
as part of the review of strategic
options and in light of the cash
requirements of the Company.
----------------------------------------- ---------------------------------------------------
Portfolio Management
Investment With investment concentration The Investment Adviser has a well-defined
Performance in the energy efficiency investment strategy and process
space, which are unquoted in place which is regularly reviewed
investments, changes to and monitored by the AIFM and the
regulatory frameworks or independent Board of Directors.
poor investment decisions There is limited development and
could result in portfolio regulatory risk exposure due to
underperformance and as focus on projects with authorisation
a result, the target returns and project business plans with
not being met over the limited exposure (on an overall
longer term. This could portfolio basis) to government
lead to lack of dividend subsidies.
coverage and/or an inability The Investment Adviser has good
to pay the target dividend. experience in renewable sustainability/energy
transition and understands and
manages the risks closely.
----------------------------------------- ---------------------------------------------------
Changes to The value of the Company's Diversification of investments
subsidies or investments may be adversely by technology and geography mitigates
other support affected if subsidies or the impact of any such risks. Many
mechanisms for other support mechanisms, of the investments which the Investment
the Company's on which such investments Adviser seeks do not rely on subsidies
investments may depend, are changed or other support mechanisms.
negatively.
----------------------------------------- ---------------------------------------------------
Inappropriate Potential lack of resource, The Investment Adviser has substantial
Investment Advice experience or depth in resources and is not required to
the Investment Adviser's commit all of its resources to
team to source and vet the Company.
appropriate investments. The Company and AIFM are made aware
Possible conflicts with of and review potential conflicts
other private Aquila clients of interest at the time of each
and private investing vehicles investment being made.
which Aquila cannot disclose Conflicts of interest and investment
to the Board or the AIFM. allocation policies are in place
The Investment Adviser and agreed with the Board.
is dependent on key people The strength and depth of the Investment
to identify, acquire and Adviser's resources mitigate the
manage the Company's investments. risk of a key person departure
and provides the ability to draw
skills from other areas if needed.
Investment focus on proven technologies
and standardised technical and
financial suppliers' due diligence,
including an assessment of each
supplier's reference projects,
reduce the acquisition risks.
----------------------------------------- ---------------------------------------------------
Operational
IT Security A hacker or third party Service providers have been carefully
could obtain access to selected for their expertise and
the Investment Adviser reputation in the sector. Each
or any other service provider service provider has provided assurances
and destroy data or use to both the AIFM and the Company
it for malicious purposes on their cyber policies and business
resulting in reputational continuity plans along with external
damage and possible GDPR audit reviews of their procedures
concern. where applicable.
Data records could be destroyed The AIFM, Administrator and Board
resulting in an inability include Cyber Risk in their reviews
to make investment decisions of counterparties.
and/or monitor investments.
------------------------------------ -------------------------------------------
Service Provider The Company has no employees All service providers have contracts
and is reliant on the performance with the Company which clearly
of third party service set out their responsibilities.
providers (including the The Board meets with the Investment
Investment Adviser). Adviser, the AIFM and the Administrator
on a regular basis to review their
work and monitor their performance.
Additionally, through the Management
Engagement Committee, the Board
conducts a formal assessment of
each key service provider ' s performance
once a year. To assist its ability
to properly oversee the Company
' s service providers, the Board
requires each service provider
to notify it as soon as reasonably
practicable following any material
breach of its contract with the
Company.
------------------------------------ -------------------------------------------
Financial
Portfolio Valuation The principal component The Investment Adviser has experience
of the Company 's balance in undertaking valuations of renewable
sheet is its portfolio sustainability/energy transition
of energy efficiency assets. assets.
The Investment Adviser The AIFM and the Board review and
is responsible for preparing interrogate the valuations and
a fair market value of underlying assumptions provided
the investments where such by the Investment Adviser.
investments have variable It should be noted that valuations
returns. Fair value calculations are held at fair value and at amortised
rely on projections, which cost and not at net realisable
involve estimates of the value.
future, which are inherently
judgmental.
There is a risk that these
valuations and underlying
assumptions such as discount
rates being applied are
not a fair reflection of
an open market valuation,
therefore the investment
portfolio could be over
or under valued.
Investments with fixed
returns are measured at
amortised cost and subject
to expected credit loss
provisions, which are based
on numerous assumptions
and judgments.
------------------------------------ -------------------------------------------
Act of War/ As evidenced with the ensuing The invasion of Ukraine by Russia
Sanctions war in Ukraine and the brings uncertainty to the commodities
various sanctions and restrictions market and how price levels of
imposed, there is a possibility modules and other hardware will
that there could be supply be impacted directly or indirectly.
delays for Operations and The Company does not have any direct
Maintenance (O&M), sanction exposure in Ukraine or Russia,
considerations, volatile there are also no direct business
markets and general uncertainty. relationships with counterparties
More difficult energy markets from these countries; therefore,
are expected along with preliminary assessments lead the
inflationary pressures Company to the conclusion that
on inputs. its investments in Europe are not
impacted directly at this time.
It has also led to short
term price increases and
more focus on renewable
energy infrastructure.
Possible change to the
world order and globalisation.
------------------------------------ -------------------------------------------
Emerging Risks
The consequences In accordance with the The Directors are fully focused
to shareholder Company's Articles of Association, on determining the optimum solution
value of the by 28 August 2023, being for Shareholders. They are being
unsuccessful 6 months following the actively and constructively supported
Continuation date of the Continuation by the Company 's advisers and
Vote on 28 February Vote, the Directors will service providers and will engage
2023 recommend to Shareholders with Shareholders on the best options
whether the Company will for the Company and Shareholders.
be reconstructed, reorganised As set out in the notice (the "Notice")
or placed into liquidation, of the AGM, the Company is seeking
having explored all options Shareholder approval to re-organise
and having determined the the Company and put the Company
best solution from the into Managed Run-Off (as defined
perspective of delivering in the AGM Notice), necessitating
best value to Shareholders. a change to the Company's current
In assessing each of these Investment Objective and Investment
options, the Directors Policy. In addition, the Board,
have ceased new investment with its advisers, will continue
activity, other than honouring to consider other strategic solutions
contracted investment commitments, in respect of the Company's assets
and are focussed on returning which have the potential to deliver
or delivering best value greater Shareholder value than
to Shareholders. While the Managed Run-Off.
such exercise is being
carried out, the outcome
for both the Company and
its Shareholders is uncertain
both in terms of financial
and timing consequences.
------------------------------------ -------------------------------------------
Potential banking The Company's cash deposits The Company has reviewed its banking
sector instability might be adversely affected. arrangements and its portfolio
The Company does not have of investments to determine if
any borrowings. there was any exposure to this
emerging risk. No direct exposures
were identified. Cash deposits
are held with highly rated banks
and the Company reviews the credit
rating of its deposit holding banks
on a regular basis.
------------------------------------ -------------------------------------------
Viability statement
In accordance with the UK Corporate Governance Code ("UK Code") and the Listing Rules, the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the 'Going Concern' provision.
In reviewing the Company's viability, the Directors have assessed the viability of the Company for the period to 31 December 2025 (the "Look-forward Period").
The Company's Shareholders had the opportunity to vote on an ordinary resolution on the continuation of the Company at the General Meeting held on 28 February 2023. The Continuation Vote did not pass.
In response to the failed Continuation Vote, the Board is proposing at the AGM an amendment to the Company's Investment Policy whereby the Company is placed into a Managed Run-Off. This Continuation Managed Run-Off Resolution seeks to acknowledge and reflect the views expressed by Shareholders in the February 2023 Continuation Vote whilst the Board continues to consider strategic solutions in respect of the Company's assets to realise the maximum value for Shareholders in the shortest possible time, recognising the inherent difficulties in the construction of the portfolio, including the number of individual investments, multiple geographies and long tenors. The Continuation Managed Run-Off Resolution is described in greater detail in the accompanying Notice of Annual General Meeting. Accordingly, t he Directors recognise that the outcome of Continuation Managed Run-off Resolution is not yet known and therefore, creates material uncertainty around going concern, and may cast significant doubt about the Company's viability.
Notwithstanding the above, the Board believes that the Look-forward Period, being approximately three years, is an appropriate time horizon over which to assess the viability of the Company, particularly when taking into account the long-term nature of the maturity of the Company's assets, which is modelled over three years and the principal risks outlined above. In considering the prospects of the Company, the Directors looked at the key risks facing the Company, 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.
On the assumption that the resolution in respect of the Continuation Managed Run-Off (as explained in the Chair's Statement and the Chair's letter accompanying the AGM Notice, which can be found on the Company's website) is approved at the Company's AGM in June 2023 and a fter undertaking prudent and robust enquiries, and assessing all data relating to the Company's current liquidity and forecast liquidity based on downside scenarios , the Directors have a reasonable expectation that the Company has adequate resources to: continue in operation; realise the Company's assets in an orderly manner; and meet its liabilities as they fall due, over the Look-forward Period.
Going concern
The Directors have adopted the going concern basis in preparing the financial statements. The following is a summary of the Directors' assessment of the going concern status of the Group and Company.
The Group and Company continues to meet day-to-day liquidity needs through its cash resources. The Directors have a reasonable expectation that the Group and Company has adequate resources to continue in operational existence for at least twelve months from the date of this document.
In reaching this conclusion, the Directors have considered the Group's investment commitments, cash position, income and expense flows. As at 31 March 2023, the latest practicable date before publication of this report, the total commitments were GBP98.7 million and income generating capital deployed since IPO was GBP62.2 million, after realisations of GBP0.5 million. As at 31 March 2023, the Group had cash of GBP33 million (including the GBP5 million held as collateral for FX hedging) and no debt as at that date. The Directors are also satisfied that the Group and Company would continue to remain viable under downside scenarios, including a delay in realisations of cash from investments. The Group and Company continues to meet its day-to-day liquidity needs through its cash resources. Total expenses for the year ended 31 December 2022 were GBP2.54 million (Period from incorporation to 31 December 2021: GBP0.92 million annualised), which represented approximately 2.63% of average net assets during the year ended 31 December 2022 (Period from incorporation to 31 December 2021: 0.94%). At the date of approval of this document, based on the aggregate of investments and cash held, the Group and Company has substantial operating expenses cover.
Since the date of the Continuation Vote, t he Group has not entered any new commitments and its investing activity is solely in respect of funding legal commitments to existing investments, with the aim of protecting the future returns from those existing investments and realisations. The Company has amended its dividend policy and has indicated that it will only pay dividends which are covered by net income, and after reviewing cash flow forecasts, and only in respect of 6 month periods not quarterly periods. Therefore the next dividend declaration will be in respect of the 6 month period ended 30 June 2023. In addition, the Group will review its current policy on hedging its euro investments, taking into account the consideration of its strategic options following the failure of the Continuation Vote and cash flow requirements.
Following consultation with the Company's Shareholders in April 2022, who were supportive of the continuation of the Company in the context of its plan to commit and deploy the IPO proceeds by the end of 2022 or early 2023, it was agreed to hold a continuation vote in February 2023. With the IPO proceeds now fully committed, Shareholders voted at the meeting on 28 February 2023 against continuation.
At the general meeting held at the end of February 2023, the resolution to amend the Articles relating to future continuation votes was not approved by Shareholders and therefore the next continuation vote will be at the AGM in June 2023, in accordance with the Articles, prior to the current commitment in the Articles, following the vote against continuation, to put proposals to Shareholders for the reconstruction, reorganisation or liquidation of the Company by 28 August 2023.
As summarised in the Chair's Statement and the Chair's letter accompanying the AGM Notice, given the private and illiquid nature of the investments, the duration and the complexities of the Portfolio, the Directors do not believe it is in the best interests of Shareholders to place the Company into liquidation at this time. The Board is proposing a resolution at the Company's AGM in June 2023 that the Company be re-organised and put into Managed Run-Off whereby assets will be realised at the best value which the Directors consider can be achieved within a reasonable timeframe.
During the period of managed run-off, the Board will continue to consider all strategic options in respect of the Group's assets, some, but not all of which would result in the restructuring and winding up of the Group and Company in due course. The Directors also recognise that any proposals put to Shareholders are yet to be approved by the Shareholders. The Directors note that these conditions indicate the existence of material uncertainty which may cast significant doubt about the Group and Company's ability to continue as a going concern.
However, based on the assessment and considerations above the Directors have concluded that the financial statements of the Group and Company should be prepared on a going concern basis. The financial statements do not include the adjustments that would result if the Group and Company was unable to continue as a going concern.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group's and the Company's financial statements in accordance with UK adopted international financial reporting standards in conformity with the requirements of the Companies Act 2006.
Under company law, 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 the Company and of the profit or loss of the Group and the Company for that year. In preparing the financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable UK adopted international financial reporting standards in conformity with the requirements of the Companies Act 2006 have been followed, subject to any material departures disclosed and explained in the financial statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.
The Directors 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 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 and the Directors' Remuneration Report comply with the Companies Act 2006.
The Directors have delegated responsibility to the Investment Adviser for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
Directors' con rmations
The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group's and the Company's position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the Corporate Governance section confirm that, to the best of their knowledge:
-- the Group's and the Company's financial statements, which have been prepared in accordance with UK adopted international financial reporting standards in conformity with the requirements of the Companies Act 2006, give a true and fair view of the assets, liabilities, financial position and loss of the Group and the Company; and
-- the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and the Company, together with a description of the principal risks and uncertainties that it faces.
In the case of each Director in office at the date the Directors' report is approved:
-- so far as the Director is aware, there is no relevant audit information of which the Group's and Company's auditors are unaware; and
-- they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group's and the Company's auditors are aware of that information.
For and on behalf of the Board,
Miriam Greenwood OBE DL
Chair of the Board
30 April 2023
Financial Statements
AQUILA ENERGY EFFICIENCY
TRUST PLC
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME
For the year ended 31 December 2022
For the period from
9 April 2021 (Date
For the year ended of Incorporation)
31 December 2022 to
31 December 2021
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- ------ ------------------ ------------- --------- ------------------------------------------------------------- ----------------------------------- -------------------------------
Unrealised
gain/(loss)
on investments 4 - 1,211 1,211 - (17) (17)
Unrealised loss on
derivatives - (1,016) (1,016) - - -
Net foreign
exchange
gain/(loss) - 282 282 - (29) (29)
Investment Income 5 2,197 - 2,197 91 - 91
Investment
Advisory
fees 6 (615) - (615) (77) - (77)
Impairment loss 4 (136) - (136) - - -
Other expenses 7 (1,786) - (1,786) (587) - (587)
Profit/(Loss) on
ordinary
activities
before taxation (340) 477 137 (573) (46) (619)
------------------- ------ ------------------ ------------- --------- ------------------------------------------------------------- ----------------------------------- -------------------------------
Taxation 8 - - - - - -
Profit/(Loss) on
ordinary
activities
after taxation (340) 477 137 (573) (46) (619)
------------------- ------ ------------------ ------------- --------- ------------------------------------------------------------- ----------------------------------- -------------------------------
Return per
Ordinary
Share 9 (0.34p) 0.48p 0.14p (0.72p) (0.06p) (0.78p)
------------------- ------ ------------------ ------------- --------- ------------------------------------------------------------- ----------------------------------- -------------------------------
The total column of the Consolidated Statement of Profit or Loss and
Comprehensive Income is the profit and loss account of the Group.
All revenue and capital items in the above consolidated statement
derive from continuing operations. The acquisition of Attika Holdings
Limited and SPV Project 2013 S.r.l. effective 1 January 2022 has been
reflected in the above statement for the year ended 31 December 2022.
No operations were discontinued during the year.
Profit/(loss) on ordinary activities after taxation is also the "Total
comprehensive income/(expense) for the year".
The notes are an integral part of these financial statements.
AQUILA ENERGY EFFICIENCY
TRUST PLC
COMPANY STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE
INCOME
For the year ended 31 December 2022
For the year ended For the period from
31 December 2022 9 April 2021 (Date
of Incorporation)
to 31 December 2021
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- ------ ------------- ------------- -------------- -------------------------------- --------------------------------------------- -----------------------------------
Unrealised
gain/(loss)
on investments 4 - 2,144 2,144 - (17) (17)
Net foreign
exchange
losses - (99) (99) - (29) (29)
Investment income 5 697 - 697 91 - 91
Investment
Advisory
fees 6 (615) - (615) (77) - (77)
Other expenses 7 (1,375) - (1,375) (587) - (587)
Profit/(Loss) on
ordinary
activities
before taxation (1,293) 2,045 752 (573) (46) (619)
------------------- ------ ------------- ------------- -------------- -------------------------------- --------------------------------------------- -----------------------------------
Taxation 8 - - - - - -
Profit/(Loss) on
ordinary
activities
after taxation (1,293) 2,045 752 (573) (46) (619)
------------------- ------ ------------- ------------- -------------- -------------------------------- --------------------------------------------- -----------------------------------
Return per
Ordinary
Share 9 (1.29p) 2.05p 0.75p (0.72p) (0.06p) (0.78p)
------------------- ------ ------------- ------------- -------------- -------------------------------- --------------------------------------------- -----------------------------------
The total column of the Company Statement of Profit or Loss and
Comprehensive Income is the profit and loss account of the Company.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the year.
Profit/(loss) on ordinary activities after taxation is also the
"Total comprehensive income/(expense) for the year".
The notes are an integral part of these financial statements.
AQUILA ENERGY EFFICIENCY TRUST PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
2022 2021
Notes GBP'000 GBP'000
--------------------------------------------------------- -------------- ------------------------------------------------------------- --------------------------------------------------------------------
Fixed assets
Investments at fair value through profit
or loss 4 11,742 12,307
Investments at amortised cost 4 38,550 -
--------------------------------------------------------- -------------- ------------------------------------------------------------- --------------------------------------------------------------------
50,292 12,307
Current assets
--------------------------------------------------------- -------------- ------------------------------------------------------------- --------------------------------------------------------------------
Trade and other receivables 10 70 5,274
Cash and cash equivalents 46,625 80,129
------------------------------------------------------------- --------------------------------------------------------------------
46,695 85,403
--------------------------------------------------------- -------------- ------------------------------------------------------------- --------------------------------------------------------------------
Creditors: amounts falling due within
one year 11 (904) (329)
Derivative financial instrument (856) -
Net current assets 44,935 85,074
--------------------------------------------------------- -------------- ------------------------------------------------------------- --------------------------------------------------------------------
Net assets 95,227 97,381
--------------------------------------------------------- -------------- ------------------------------------------------------------- --------------------------------------------------------------------
Capital and reserves: equity
Share capital 12 1,000 1,000
Special reserve 13 94,750 97,000
Capital reserve 431 (46)
Revenue reserve (954) (573)
Shareholders' funds 95,227 97,381
--------------------------------------------------------- -------------- ------------------------------------------------------------- --------------------------------------------------------------------
Net assets per Ordinary Share 14 95.23p 97.38p
--------------------------------------------------------- -------------- ------------------------------------------------------------- --------------------------------------------------------------------
No. of ordinary shares in issue 100,000,000 100,000,000
--------------------------------------------------------- -------------- ------------------------------------------------------------- --------------------------------------------------------------------
Approved by the Board of directors and authorised for issue
on 30 April 2023.
Signed on behalf of the Board of Directors
Miriam Greenwood OBD DL
Aquila Energy Efficiency Trust PLC is incorporated in England
and Wales with Company number 13324616.
The notes are an integral part of these financial statements.
AQUILA ENERGY EFFICIENCY TRUST PLC
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
2022 2021
Notes GBP'000 GBP'000
---------------------------------------------------- -------- ------------------------------------------------------------------------ --------------------------------------------------------------------
Fixed assets
Investment in subsidiaries 4 31,220 12,307
Current assets
---------------------------------------------------- -------- ------------------------------------------------------------------------ --------------------------------------------------------------------
Cash and cash equivalents 32,714 80,129
Intercompany receivable 10 32,966 5,170
Trade and other receivables 10 33 104
------------------------------------------------------------------------ --------------------------------------------------------------------
65,713 85,403
---------------------------------------------------- -------- ------------------------------------------------------------------------ --------------------------------------------------------------------
Creditors: amounts falling due within
one year 11 (1,050) (329)
Net current assets 64,663 85,074
---------------------------------------------------- -------- ------------------------------------------------------------------------ --------------------------------------------------------------------
Net assets 95,883 97,381
---------------------------------------------------- -------- ------------------------------------------------------------------------ --------------------------------------------------------------------
Capital and reserves: equity
Share capital 12 1,000 1,000
Special reserve 13 94,750 97,000
Capital reserve 1,999 (46)
Revenue reserve (1,866) (573)
Shareholders' funds 95,883 97,381
---------------------------------------------------- -------- ------------------------------------------------------------------------ --------------------------------------------------------------------
Approved by the Board of directors and authorised for issue on 30 April
2023.
Signed on behalf of the Board of Directors
Miriam Greenwood OBE DL
Aquila Energy Efficiency Trust PLC is incorporated in England and Wales
with Company number 13324616.
The notes are an integral part of these financial statements.
AQUILA ENERGY EFFICIENCY TRUST PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31
December 2022
Share
Share premium Special Capital Revenue
capital account reserve reserve reserve Total
For the year ended 31
December 2022 Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ----------- ------------ ------------ -------------- --------------- -------------------- ---------------------------
Opening equity as at
1 January 2022 1,000 - 97,000 (46) (573) 97,381
Impact of the acquisition
of subsidiaries on 1
January
2022 - - - - (41) (41)
Dividends paid 15 - - (2,250) - - (2,250)
Profit/(loss) for the
year - - - 477 (340) 137
-------------------------- ----------- ------------ ------------ -------------- --------------- -------------------- ---------------------------
Closing equity as at
31 December 2022 1,000 - 94,750 431 (954) 95,227
-------------------------- ----------- ------------ ------------ -------------- --------------- -------------------- ---------------------------
Share
Share premium Special Capital Revenue
capital account reserve reserve reserve Total
For the period from
9 April 2021 (date
of incorporation)
to
31 December 2021 Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- --------- -------------------- -------------------- ---------- -------------------- -------------------- ------------------
Opening equity as
at 9 April 2021 - - - - - -
Shares issued in
period 12 1,000 99,000 - - - 100,000
Share issue costs - (2,000) - - - (2,000)
Transfer to special
reserve 13 - (97,000) 97,000 - - -
Loss for the period - - - (46) (573) (619)
Closing equity as
at 31 December
2021 1,000 - 97,000 (46) (573) 97,381
-------------------- --------- -------------------- -------------------- ---------- -------------------- -------------------- ------------------
The notes are an integral part of these financial statements.
AQUILA ENERGY EFFICIENCY TRUST PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December
2022
Share
Share premium Special Capital Revenue
capital account reserve reserve reserve Total
For the year
ended 31 December
2022 Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ------ --------- --------- --------- --------- --------- -----------
Opening equity
as at 1 January
2022 1,000 - 97,000 (46) (573) 97,381
Dividends paid 12 - - (2,250) - - (2,250)
Profit/(loss)
for the year - - - 2,045 (1,293) 752
Closing equity
as at 31 December
2022 1,000 - 94,750 1,999 (1,866) 95,883
-------------------- ------ --------- --------- --------- --------- --------- -----------
Share
Share premium Special Capital Revenue
capital account reserve reserve reserve Total
For the period
from
9 April 2021
(date
of
incorporation)
to
31 December
2021 Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ------ ------------------ ------------------ -------- ------------------ ------------------ ------------------
Opening equity
as
at 9 April 2021 - - - - - -
Shares issued
in period 12 1,000 99,000 - - - 100,000
Share issue
costs - (2,000) - - - (2,000)
Transfer to
special
reserve 13 - (97,000) 97,000 - - -
Loss for the
period - - - (46) (573) (619)
Closing equity
as
at 31 December
2021 1,000 - 97,000 (46) (573) 97,381
---------------- ------ ------------------ ------------------ -------- ------------------ ------------------ ------------------
The notes are an integral part of these financial statements.
AQUILA ENERGY EFFICIENCY TRUST
PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
--------------------------------------------------------------------- ----------------
For the
period
from 9
April 2021
(date of
incorporation)
For the year ended to 31 December
31 December 2022 2021
Notes GBP'000 GBP'000
---------------------------------------- ------ ------------------- ----------------
Operating activities
Profit/(loss) on ordinary activities
before taxation 137 (619)
Adjustments for:
Unrealised (gain)/loss on investments 4 (1,211) 17
Unrealised loss on derivative 1,016 -
instruments
Impairment loss 136 -
Decrease/(increase) in trade
and other receivables 34 (5,274)
Increase in creditors: amounts
falling due within one year 570 329
Interest receivable from amortised (1,349) -
cost investments
Net cash flow used in operating
activities (667) (5,547)
---------------------------------------- ------ ------------------- ----------------
Investing activities
Purchase of investments 4 (47,602) (12,324)
Repayment of investments 4 264 -
Net cash received on acquisition 5,000 -
of Attika Holdings Ltd.
Net cash received on acquisition 11,751 -
of SPV Project 2013 S.r.l.
---------------------------------------- ------ ------------------- ----------------
Net cash flow used in investing
activities (30,587) (12,324)
---------------------------------------- ------ ------------------- ----------------
Financing activities
Proceeds of share issues 12 - 100,000
Share issue costs - (2,000)
Dividends paid 15 (2,250) -
---------------------------------------- ------ ------------------- ----------------
Net cash flow (used in)/from
financing activities (2,250) 98,000
---------------------------------------- ------ ------------------- ----------------
(Decrease)/Increase in cash
and cash equivalents (33,504) 80,129
---------------------------------------- ------ ------------------- ----------------
Cash and cash equivalents at 80,129 -
start of year/period
---------------------------------------- ------ ------------------- ----------------
Cash and Cash equivalents at
end of year/period 46,625 80,129
---------------------------------------- ------ ------------------- ----------------
The notes are an integral part of these financial statements.
AQUILA ENERGY EFFICIENCY TRUST PLC
COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
For the period
from 9 April 2021
For the year (date of incorporation)
ended 31 December to 31 December
2022 2021
Notes GBP'000 GBP'000
----------------------------------------- ------ ------------------- -------------------------
Operating activities
Profit/(loss) on ordinary activities
before taxation 752 (619)
Adjustments for:
Unrealised (gain)/loss on investments 4 (2,144) 17
Increase in intercompany receivables (27,796) (5,170)
Decrease/(increase) in trade and
other receivables 71 (104)
Increase in creditors: amounts falling
due within one year 544 329
Net cash flow used in operating
activities (28,573) (5,547)
----------------------------------------- ------ ------------------- -------------------------
Investing activities
Purchase of investments 4 (16,592) (12,324)
Net cash flow used in investing
activities (16,592) (12,324)
----------------------------------------- ------ ------------------- -------------------------
Financing activities
Proceeds of share issues 12 - 100,000
Share issue costs - (2,000)
Dividends paid 15 (2,250) -
Net cash flow (used in)/from financing
activities (2,250) 98,000
----------------------------------------- ------ ------------------- -------------------------
(Decrease)/Increase in cash and
cash equivalents (47,415) 80,129
----------------------------------------- ------ ------------------- -------------------------
Cash and cash equivalents at start 80,129 -
of year/period
----------------------------------------- ------ ------------------- ------------------------- Cash and cash equivalents at end of year/period 32,714 80,129 ----------------------------------------- ------ ------------------- -------------------------
The notes are an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
1. GENERAL INFORMATION
Aquila Energy Efficiency Trust Plc (the "Company") is a public Company limited by shares incorporated in England and Wales on 9 April 2021 with registered number 13324616. The Company is domiciled in England and Wales . The Company is a closed-ended investment company with an indefinite life. The Company commenced its operations on 2 June 2021 when the Company's Ordinary Shares were admitted to trading on the London Stock Exchange. The Directors intend, at all times, to conduct the affairs of the Company as to enable it to qualify as an investment trust for the purposes of section 1158 of the Corporation Tax Act 2010, as amended.
The Company owns 100% of its subsidiary, Attika Holdings Limited (the "HoldCo" or "AHL") and 100% of the notes issued by one compartment of SPV Project 2013 S.r.l. (the "SPV" or "Italian SPV") issued to the Company, which entitles the Company to a 100% economic interest in the receivables purchased through the proceeds of these notes, together the "Group".
The registered office address of the Company is 6th Floor, 125 London Wall, London, EC2Y 5AS.
The Company's investment objective is to generate attractive returns, principally in the form of income distributions, by investing in a diversified portfolio of Energy Efficiency Investments.
FundRock Management Company (Guernsey) Limited (formerly Sanne Fund Management (Guernsey) Limited) acts as the Company's Alternative Investment Fund Manager (the "AIFM") for the purposes of Directive 2011/61/EU on alternative investment fund managers ("AIFMD").
The Group's Investment Adviser is Aquila Capital Investmentgesellschaft mbH authorised and regulated by the German Federal Financial Supervisory Authority.
Apex Listed Companies Services (UK) Limited (the "Administrator") (formerly Sanne Fund Services (UK) Limited) provides administrative and company secretarial services to the Group under the terms of an administration agreement between the Company and the Administrator. The Italian SPV is administered by Zenith Service S.p.A.
2. BASIS OF PREPARATION
Group Financial Statements
The consolidated financial statements have been prepared in accordance with UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.
The consolidated financial statements have also been prepared as far as is relevant and applicable to the Group in accordance with the Statement of Recommended Practice ("SORP") issued by the Association of Investment Companies ("AIC") in July 2022.
The consolidated financial statements are prepared on the historical cost basis, except for the revaluation of certain financial instruments at fair value through profit or loss. The principal accounting policies adopted are set out below. These policies are consistently applied.
The financial statements are presented in Sterling rounded to the nearest thousand. They have been prepared on the basis of the accounting policies, significant judgements, key assumptions and estimates as set out below.
Company Financial Statements
The financial statements have been prepared in accordance with the UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.
The financial statements have also been prepared as far as is relevant and applicable to the Company in accordance with the Statement of Recommended Practice ("SORP") issued by the AIC in July 2022.
The financial statements are prepared on the historical cost basis, except for the revaluation of certain financial instruments at fair value through profit or loss. The principal accounting policies adopted are set out below. These policies are consistently applied.
The functional currency of the Company is Sterling. The capital of the Company was raised in Sterling and majority of its expenses are in Sterling. The liquidity of the Company is managed in Sterling as the Company's performance is evaluated in that currency. Accordingly, the financial statements are presented in Sterling rounded to the nearest thousand. They have been prepared on the basis of the accounting policies, significant judgements, key assumptions and estimates as set out below.
Basis of consolidation
The Group's financial statements consolidate those of the Company and of its subsidiaries at 31 December 2022. The subsidiaries have a reporting date of 31 December. AHL's functional currency is Sterling. The Italian SPV's functional currency is Euro. However, to align with the Group's functional currency, the balances of Italian SPV have been converted to Sterling at a year-end rate for the Statement of Financial Position accounts and at an average rate during the year for the Statement of Profit or Loss and Comprehensive Income accounts.
All transactions and balances between Group companies are eliminated on consolidation. The accounting policies adopted by the Group are consistent with those adopted by the Company and the subsidiaries.
Characteristics of an investment entity
Under the definition of an investment entity, the Company should satisfy all three of the following tests:
I. Company obtains funds from one or more investors for the purpose of providing those investors with investment management services;
II. Company commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and
III. Company measures and evaluates the performance of substantially all of its investments on a fair value basis.
Investment entity status
From inception and in the prior period, the Directors were of the opinion that the Company met all the typical characteristics of an investment entity and therefore met the definition set out in IFRS 10. The Directors agreed that investment entity accounting treatment appropriately reflected the Company's activities as an investment trust. In the prior year, the Directors assessed that:
I. The Company had multiple investors and obtained funds from a diverse group of shareholders who would otherwise not have had access individually to investing in Energy Efficiency Investments due to high barriers to entry and capital requirements;
II. The Company intended to hold these Energy Efficiency Investments over the contractual period of the asset for the purpose of capital appreciation and investment income. Thereby, the exit strategy for AEET referred to the end point of the contractual period for all Energy Efficiency investments. The Energy Efficiency Investments that had committed capital were expected to generate renewable energy output between 1 and 7 years from their relevant commercial operation date (with the potential to be longer depending on the tenor of future investments), the Directors believed the Company was able to generate returns to the investors during that period; and
III. The Company measured and evaluated the performance of all of its investments on a fair value basis which is the most relevant for investors in the Company. Management used fair value information as a primary measurement to evaluate the performance of all of the investments and in decision making.
Changes in the current year
During the current year, as a result of the development of the portfolio of investments, the actual investments made and the structure of those investments, many of which were receivables purchase investments with fixed rates of return, the Directors determined that this required judgement and re-assessment of the Company's investment entity status for the current year. As a result of this re-assessment, which identified that fixed rate of return investments constituted a substantial proportion of the pipeline of investments and resultant actual investments, the Directors determined that as from 1 January 2022 the Company does not meet the characteristic of an investment entity for the following reasons:
I. The Company is in full control of its subsidiary AHL and the notes in the Italian SPV;
II. The majority of the investments held and added to during the year for the Italian SPV are valued at amortised cost rather than on a fair value basis; and
III. The majority of the investments held and purchased during the year in AHL are valued at amortised cost rather than on a fair value basis.
For the year ended 31 December 2022, the financial statements are presented on a consolidated basis of the Company, AHL and the Italian SPV. The prior year comparative figures for the consolidated financial statements are the Company's prior year figures. There is no adjustment to the prior year Net Asset Value due to the consolidation of the Company, AHL and the Italian SPV. The current year financial statements also present both the year ended 31 December 2022 and the period ended 31 December 2021 at the Company level.
Acquisition of Subsidiary and wholly owned entity
The Directors are of the opinion that the Company has full control of its subsidiary AHL and one compartment of the loan notes in the Italian SPV. The Company has full control of these entities for the following reasons:
1. the Company has the power over these entities;
2. the Company is exposed, or has rights, to variable returns from its involvement with the entities; and
3. the Company has the ability to use its power to affect its returns.
Acquisition of AHL
In the period from 9 April 2021 to 31 December 2021, the subsidiary has been valued by the Company and included in its financial statements as investment at fair value through profit or loss which equated to cost given the investments were made close to period end date. The valuation and assumptions used in the prior year remained appropriate. The Net Assets acquired by the Company from AHL on 1 January 2022 amounted to GBP153,000. The amount of assets and liabilities as at 1 January 2022 of AHL have been consolidated by the Company at the acquisition date. The opening assets, liabilities, equity and reserves of the Company remained the same due to the acquisition of the subsidiary.
The cost of acquisition of AHL is the deemed valuation at 1 January 2022 which was GBP153,000. No additional consideration was paid and since the acquisition of the subsidiary is not considered to constitute a business under IFRS 3, no goodwill arises. The assets and liabilities acquired are as follows:
Assets GBP ' 000 --------------------------------- ---------- Investments at amortised cost 170 Cash 5,000 Derivative financial instrument 159 Liabilities --------------------------------- ---------- Intercompany payable to parent (5,170) Other creditors (6) --------------------------------- ---------- Net Assets 153 --------------------------------- ----------
Acquisition of the Italian SPV
In the period from 9 April 2021 to 31 December 2021, the Italian SPV has been valued by the Company at investment at fair value through profit or loss which equated to cost given the investments were made close to period end date. The valuation and assumptions used in the prior year remained appropriate. The amount of assets and liabilities as at 1 January 2022 of the Italian SPV have been consolidated by the Company at the acquisition date. The opening assets, liabilities, equity and reserves of the Company remained the same due to the acquisition of this wholly owned compartment.
The cost of acquisition of the Italian SPV is the deemed valuation at 1 January 2022 which was (GBP170,000). No additional consideration was paid and since the acquisition of the subsidiary is not considered to constitute a business under IFRS 3, no goodwill arises. The assets and liabilities acquired are as follows:
Assets GBP'000 ---------------------------- --------- Investments at amortised cost 570 Cash 11,751 Liabilities Liabilities including note owned by the Company (12,491) Net Liabilities (170) ---------------------------- ---------
Accounting for wholly owned entities
AHL
The Company owns 100% of its subsidiary, AHL. The registered office address of AHL is Leaf B(,) 20th Floor, Tower 42, Old Broad Street, London, England, EC2N 1HQ . The Company has acquired Energy Efficiency Investments through its investment in the subsidiary. The Company will finance the subsidiary through a mix of equity and debt instruments. The Company consolidates the subsidiary.
Italian SPV
The Italian SPV is a Company established under the laws of Italy to hold securitised receivables. The Company does not hold any equity in the SPV. However, it does own 100% of the notes issued by one compartment of the SPV which entitles the Company to an 100% economic interest in the receivables purchased through the proceeds of this notes. The Company does not have an economic interest in any of the other securities receivables issuances by the Italian SPV. The notes subscribed by the Company, issued by the Italian SPV, and the receivables purchased from the proceeds of these notes, together with all associated assets and liabilities and income and costs, are ring-fenced from other assets and liabilities of the Italian SPV and thus the Company's holdings have been deemed a silo under IFRS 10 paragraph b 77. The Company consolidates the results of the Italian SPV in respect of the performance of the receivables in the silo.
Going concern
The Directors have adopted the going concern basis in preparing the financial statements. The following is a summary of the Directors' assessment of the going concern status of the Group and Company.
The Group and Company continues to meet day-to-day liquidity needs through its cash resources. The Directors have a reasonable expectation that the Group and Company has adequate resources to continue in operational existence for at least twelve months from the date of this document.
In reaching this conclusion, the Directors have considered the Group's investment commitments, cash position, income and expense flows. As at 31 March 2023, the latest practicable date before publication of this report, the total commitments were GBP98.7 million and income generating capital deployed since IPO was GBP62.2 million, after realisations of GBP0.5 million. As at 31 March 2023, the Group had cash of GBP33 million (including the GBP5 million held as collateral for FX hedging) and no debt as at that date. The Directors are also satisfied that the Group and Company would continue to remain viable under downside scenarios, including a delay in realisations of cash from investments. The Group and Company continues to meet its day-to-day liquidity needs through its cash resources. Total expenses for the year ended 31 December 2022 were GBP2.54 million (Period from incorporation to 31 December 2021: GBP0.92 million annualised), which represented approximately 2.63% of average net assets during the year (Period from incorporation to 31 December 2021: 0.94%). At the date of approval of this document, based on the aggregate of investments and cash held, the Group and Company has substantial operating expenses cover.
Since the date of the Continuation Vote, the Group has not entered any new commitments and its investing activity is solely in respect of funding legal commitments to existing investments, with the aim of protecting the future returns from those existing investments and realisations. The Company has amended its dividend policy and has indicated that it will only pay dividends which are covered by net income, and after reviewing cash flow forecasts, and only in respect of 6 month periods not quarterly periods. Therefore the next dividend declaration will be in respect of the 6 month period ended 30 June 2023. In addition, the Group will review its current policy on hedging its euro investments, taking into account the consideration of its strategic options following the failure of the Continuation Vote and cash flow requirements.
Following consultation with the Company's Shareholders in April 2022, who were supportive of the continuation of the Company in the context of its plan to commit and deploy the IPO proceeds by the end of 2022 or early 2023, it was agreed to hold a continuation vote in February 2023. With the IPO proceeds now fully committed, Shareholders voted at the meeting on 28 February 2023 against continuation.
At the general meeting held at the end of February 2023, the resolution to amend the Articles relating to future continuation votes was not approved by Shareholders and therefore the next continuation vote will be at the AGM in June 2023, in accordance with the Articles, prior to the current commitment in the Articles, following the vote against continuation, to put proposals to Shareholders for the reconstruction, reorganisation or liquidation of the Company by 28 August 2023.
As summarised in the Chair's Statement and the Chair's letter accompanying the AGM Notice, given the private and illiquid nature of the investments, the duration and the complexities of the Portfolio, the Directors do not believe it is in the best interests of Shareholders to place the Company into liquidation at this time. The Board is proposing a resolution at the Company's AGM in June 2023 that the Company be re-organised and put into Managed Run-Off whereby assets will be realised at the best value which the Directors consider can be achieved within a reasonable timeframe.
During the period of managed run-off, the Board will continue to consider all strategic options in respect of the Group's assets, some, but not all of which would result in the restructuring and winding up of the Group and Company in due course. The Directors also recognise that any proposals put to Shareholders are yet to be approved by the Shareholders. The Directors note that these conditions indicate the existence of material uncertainty which may cast significant doubt about the Group and Company's ability to continue as a going concern.
However, based on the assessment and considerations above the Directors have concluded that the financial statements of the Group and Company should be prepared on a going concern basis. The financial statements do not include the adjustments that would result if the Group and Company was unable to continue as a going concern.
Critical accounting judgements, estimates and assumptions
The preparation of the consolidated financial statements requires the application of estimates and assumptions which may affect the results reported in the consolidated 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 and expected credit loss as disclosed in note 4 to the consolidated financial statements.
Investment fair value
The key assumptions that have a significant impact on the value of the Group's investments are discount rates, energy yield, power prices and capital expenditure factors, the price at which the power and associated benefits can be sold and the energy yield are expected to produce. The impact of risks associated with climate change is assessed on an investment by investment basis and factored into the underlying cash flows where relevant.
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 cashflows are reviewed semi-annually by the Investment Adviser to ensure they are at the appropriate level. The Investment Adviser will take into consideration market transactions, where they are of similar nature, when considering changes to the discount factors used.
The operating costs of the operating companies are frequently partly or wholly subject to indexation and an assumption is made that inflation will increase at a long-term rate.
The values of Energy Efficiency investments are not significantly sensitive to fluctuations in future revenues if a fixed indexation clause is applied to its cash flow schedule.
Expected Credit loss ("ECL") allowance for financial assets measured at amortised cost
The calculation of the Group's ECL allowances and provisions against receivable purchase agreements under IFRS 9 is complex and involves the use of significant judgement and estimation. Fixed interest investment provisions represent an estimate of the losses incurred in the loan portfolios at the balance sheet date. Individual impairment losses are determined as the difference between the carrying value and the present value of estimated future cash flows, discounted at the loans' original effective interest rate ("EIR"). The calculation involves the formulation and incorporation of multiple conditions into ECL to meet the measurement objective of IFRS 9. Refer to Note 4 for more details.
Investment entity status assessment
Refer to the assessment in the previous sections of this note.
Adoption of new IFRS standards from 1 January 2022
A number of new standards and amendments to standards are effective for the annual periods beginning after 1 January 2022. None of these have a significant effect on the measurement of the amounts recognised in the financial statements of the Group.
New standards and amendments issued but not yet effective
The relevant new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's financial statements are disclosed below. These standards are not expected to have a material impact on the entity in future reporting periods and on foreseeable future transactions.
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments are effective for annual reporting periods beginning on or after 1 January 2023.
Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which it introduces a definition of 'accounting estimates'. The amendments are effective for annual reporting periods beginning on or after 1 January 2023.
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements. The amendments to IAS 1 are applicable for annual periods beginning on or after 1 January 2023.
3. SIGNIFICANT ACCOUNTING POLICIES
Financial Instruments
Financial assets
The Group's financial assets principally comprise of cash and cash equivalents, investments held at fair value through profit and loss, investments held at amortised cost, derivative financial instruments, interest income receivables and prepayments and other receivables.
Interest income receivables, prepayments and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method.
The Group's investments are debt instruments held at fair value through profit or loss and debt instruments at amortised cost. Gains or losses resulting from the movements in the fair value are recognised in the Group's Consolidated Statement of Profit or Loss and Comprehensive income under capital column. Debt instruments at amortised cost are revalued with the functional currency exchange rate at each valuation point and recognised in the Group's Consolidated Statement of Profit or Loss and Comprehensive income and are subject to ECL.
Derivatives comprise of currency forward transactions used to hedge the Group's foreign currency exposure. The fair value of the currency forward transactions is the difference between the spot rate and the forward rate at the date of the Consolidated Statement of Financial Position.
Investment in subsidiaries
The Company's investment in its subsidiary, AHL, is held at cost less impairment in the Company's Statement of Financial Position. The Company's investment in its subsidiary, SPV, is held at fair value through profit or loss. The fair value of SPV as at 31 December 2022 has been determined through an aggregation of the fair value of SPV's individual investments adjusted for the cash and liabilities of SPV as at 31 December 2022. The fair values of SPV's individual investments take account of forecast power production, power price curves provided by independent research companies, discounts rates which seek to take account of the risk profile of the counterparty, and other areas of judgment.
Financial liabilities
The Group's financial liabilities 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. The Group's financial liabilities also include derivative financial instruments.
Recognition and derecognition
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. Financial assets and financial liabilities are initially measured at fair value.
At initial recognition, financial instruments classified at fair value through profit or loss are measured at fair value which is normally the transaction price. Other financial instruments not classified at fair value through profit or loss are measured initially at fair value but are adjusted for incremental and directly attributable transaction costs.
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
A Financial liability (in whole or in part) is recognised when the Group has extinguished its contractual obligations, it expires or is cancelled. Financial assets are recognised when the rights to receive cash flows from the investments have expired or the Group has transferred substantially all risks and rewards of ownership.
Classification and measurement of financial assets
IFRS 9 contains a classification and measurement approach for debt instruments that reflects the business model in which assets are managed and their cash flow characteristics. For debt instruments two criteria are used to determine how financial assets should be classified and measured:
-- The entity's business model (i.e. how an entity manages its debt Instruments in order to generate cash flows by collecting contractual cash flows, selling financial assets or both); and
-- The contractual cash flow characteristics of the financial asset (i.e. whether the contractual cash flows are solely payments of principal and interest).
A debt instrument is measured at amortised cost if it meets both of the following conditions and is not designated as at fair value through profit and loss ("FVTPL"): (a) it is held within a business model whose objective is to hold assets to collect contractual cash flows; and (b) its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt instrument is measured at fair value through other comprehensive income ("FVOCI") if it meets both of the following conditions and is not designated as at FVTPL:
(a) it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
(b) its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
In assessing whether the contractual cash flows are solely payments of principal and interest, the contractual terms of the instrument are considered. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition.
Subsequent to initial recognition, financial assets that are classified as measured at fair value through profit or loss are measured at fair value in the Consolidated Statement of Financial Position (with no deduction for sale or disposal costs). Gains and losses resulting from the movement in fair value are recognised in the Consolidated Statement of Profit or Loss and Comprehensive Income.
Subsequent to initial recognition, financial assets that are measured at amortised cost require the use of the effective interest method and are subject to expected credit loss.
Taxation
Investment trusts which have approval under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains. Shortly after listing the Company received approval as an Investment Trust by HMRC. Current tax is the expected tax payable on the taxable income for the year, using tax rates that have been enacted or substantively enacted at the date of the Consolidated Statement of Financial Position.
Taxation of subsidiary entities
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax payable is based on taxable profit for the year. There is no tax payable at 31 December 2022. Taxable profit differs from profit as reported in the Statement of Profit or Loss and Comprehensive Income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Company's liability for current taxes is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the statement of financial position liability method. Deferred tax liabilities are 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 recognised.
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 recognised. Deferred tax is charged or credited to the Consolidated Statement of Profit or Loss and 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.
Segmental reporting
The Chief Operating Decision Maker ("CODM"), which is the Board, is of the opinion that the Group is engaged in a single segment of business, being investment in energy efficiency assets to generate investment returns whilst preserving capital. The financial information used by the CODM to manage the Group presents the business as a single segment.
Income
Income includes investment interest income from financial assets at amortised cost, dividend income and bank interest income.
Investment interest income for the year is recognised in the Consolidated Statement of Profit or Loss and Comprehensive income using effective interest method calculation.
Dividend income is recognised when the right to receive it is established and is reflected in the Consolidated Statement of Profit or Loss and Comprehensive Income as Investment Income.
Bank interest income is recognised for the year in the Consolidated Statement of Profit or Loss and Comprehensive income on an accrual basis.
Expenses
All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Consolidated Statement of Profit or Loss and Comprehensive Income, all expenses are presented as revenue as it is directly attributable to the operations of the Group.
Details of the Group's fee payments to the Investment Adviser are disclosed in note 6 to the consolidated financial statements. Details of the Group's other expenses are disclosed in note 7 to the consolidated financial statements. These fees are presented under the revenue column in Consolidated Statement of Profit or Loss and Comprehensive Income.
Foreign currency
Transactions denominated in foreign currencies are translated into Sterling at actual exchange rates as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at year-end are reported at the rates of exchange prevailing at the year-end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss to capital or revenue in the Consolidated Statement of Profit or Loss and Comprehensive Income as appropriate. Foreign exchange movements on investments are included in the Capital account of the Consolidated Statement of Profit or Loss and Comprehensive Income.
Cash and cash equivalents
Cash and cash equivalents include deposits held at call with banks and other short-term deposits with original maturities of three months or less.
Trade and other payables
Trade and other payables are initially recognised at fair value, and subsequently re-measured at amortised cost using the effective interest method where necessary.
Share capital and share premium
Ordinary Shares are classified as equity. Costs directly attributable to the issue of new shares (that would have been avoided if there had not been a new issue of new shares) are recognised against the value of the ordinary share premium account.
Repurchase of the Company's own shares are recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.
Expected credit loss allowance for financial assets measured at amortised cost
Many of the Group's investments are financial assets measured at amortised cost. These investments are structured as purchases of receivables or purchases of notes which have the right to receivables. The purchased receivables derive from energy services agreements for the provision of energy efficiency and/or renewable energy solutions provided by ESCOs to their corporate clients and these receivables provide a fixed return for the Group. The receivables are due to be received over a range of maturities from less than 12 months to more than fifteen years. Individual agreements provide for the receivables to be paid mostly on a monthly or quarterly basis.
Under the IFRS 9 expected credit loss model, expected credit losses are recognised at each reporting period, even if no actual loss events have taken place. In addition to past events and current conditions, reasonable and supportable forward-looking information that is available without undue cost or effort is considered in determining impairment, with the model applied to all financial instruments subject to impairment testing.
At initial recognition, allowance is made for expected credit losses resulting from default events that are possible within the next 12 months (12-month expected credit losses). In the event of a significant increase in credit risk, allowance (or provision) is made for expected credit losses resulting from all possible default events over the expected life of the financial instrument (lifetime expected credit losses).
Financial assets where 12-month expected credit losses are recognised are Stage 1; financial assets which are considered to have experienced a significant increase in credit risk are in Stage 2; and financial assets which have defaulted or are otherwise considered to be credit-impaired are allocated to Stage 3. Stage 2 and Stage 3 are based on lifetime expected credit losses.
The measurement of expected credit loss, referred to as "ECL", is primarily based on the product of the instrument's probability of default ("PD"), loss given default ("LGD"), and exposure at default ("EAD"), taking into account the value of any collateral held or other mitigants of loss and including the impact of discounting using the EIR.
-- The PD represents the likelihood of a borrower defaulting on its financial obligation, either over the next 12 months ("12M PD"), or over the remaining lifetime ("Lifetime PD") of the obligation. This has been calculated by an external third-party credit rating agency using a wide range of parameters such as the company's financial statements and the macroeconomic environment. The external credit rating company have also designed a downside scenario based on historic data. Company financials are modified to reflect various factors leading to a deterioration in performance. An example of these factors is a significant decrease in GDP and profitability of the counterparty.
-- The EAD represents the amounts the Group expects to be owed at the time of default.
-- LGD represents the Group's expectation of the extent of loss on a defaulted exposure. LGD varies by type of counterparty, type and seniority of claim and availability of collateral or other credit support. LGD is expressed as a percentage loss per unit of EAD. LGD is calculated on a 12-month or lifetime basis, where 12-month LGD is the percentage of loss expected to be made if the default occurs in the next 12 months and lifetime LGD is the percentage of loss expected to be made if the default occurs over the remaining expected lifetime of the loan ("Lifetime LGD").
LGD in the base case has been calculated based on the following assumptions:
1. For contracts, other than Superbonus investments, the Group has assumed that there is 90% probability that the business gets sold as a going concern if it were to enter into administration. If this happens, the Group has assumed that it would lose 3 months of revenue, representing the estimated number of months of missed payments before the Group take action before an administration commences. In such circumstances the Group do not assume any recovery from the administration proceeds. However, the Group assumed that the business continues to use and pay for the energy efficient solution for the remaining life of the investment but the Group would not recover the 3 months of lost payments. The Group assumed that there is a 10% probability that the business is not sold as a going concern and the asset is redeployed. If this happens, the Group assumed that it would take a 10% discount on the asset.
2. For the Superbonus projects, the Group has assumed that there is a 90% probability of the project completing and, if this happens, the Group can sell the tax credit asset at a 5% discount. If the project does not complete, the Group assume that there is a 10% discount. This reflects an assumption that the Group may have to pay for additional works which are not fully recoverable.
LGD in the downside case has been calculated based on the following assumptions:
1. For the contracts, other than Superbonus investments, the Group assumed that there is a 75% probability (versus 90% in the base case) that the business gets sold as a going concern. In this circumstance the Group assume that the lost revenue is the same as in the base case, i.e. 3 months of revenues. The Group assumed that there is a 25% probability that the business is not sold as a going concern and the asset is redeployed. If this happens, the Group has assumed that it will take a 20% discount on the asset as opposed to 10% in the base case.
2. For the Superbonus projects, the Group has assumed that there is an 80% probability of the project completing (versus 90% in the base case) and if this happens the Group will sell the asset at a 10% discount (the same as the base case). If the project does not complete, the Group assume that there is a 20% discount versus 10% in the base case.
These assumptions are judgemental, given the investments are relatively new. However, t he Group expects that credit losses are likely to be less than in more conventional credit investments because the investments provide for "mission critical" energy related services at a lower cost than would be available from other sources were the equipment installed through our investments be withdrawn. In addition, rooftop Solar PV investments can in most circumstances export power to the grid if the onsite demand is not there or if there are payment issues. In these circumstances, which the Group would expect to be temporary in most cases, the achievable revenues may be lower than the contracted price (although in the current market conditions wholesale market prices for electricity may exceed prices negotiated with corporate clients. The other consideration is that the useful life of the assets financed by the Group's investments is longer than the contracted term of its investments. This means that there is the opportunity to recover investments over a longer period than the initial term.
The ECL is determined by estimating the PD, LGD, and EAD for each individual exposure or collective segment. These three components are multiplied together and adjusted for the likelihood of survival (i.e., the exposure has not prepaid or defaulted in an earlier month). This effectively calculates an ECL. Management is aware that there is a high level of judgement in calculating the scenarios and the inputs given the assets are relatively recent with minimal historic data.
The main difference between Stage 1 and Stage 2 is the respective PD horizon. Stage 1 estimates use a maximum of a 12-month PD, while Stage 2 estimates use a lifetime PD. The main difference between Stage 2 and Stage 3 is that Stage 3 is effectively the point at which there has been a default event. For financial assets in Stage 3, entities continue to recognise lifetime ECL but now recognise interest income on a net basis.
Movements between Stage 1 and Stage 2 are based on whether an instrument's credit risk as at the reporting date has increased significantly relative to the date it was initially recognised. Where the credit risk subsequently improves such that it no longer represents a significant increase in credit risk since origination, the asset is transferred back to Stage 1.
In assessing whether a counterparty has had a significant increase in credit risk the following indicators are considered:
1. Early signs of cashflow/liquidity problems such as delay in servicing of payables; 2. Significant increase in PD. 3. Actual or expected late payments or restructuring of payments due;
4. Actual or expected significant adverse change in operating results of the borrower, where this information is available; and
5. Significant adverse changes in business, financial and/or economic conditions in which the counterparty operates.
However, as a backstop, unless identified at an earlier stage, the credit risk of financial assets is deemed to have increased significantly when repayments are more than 30 days past due. Movements between Stage 2 and Stage 3 are based on whether financial assets are credit-impaired as at the reporting date. IFRS 9 contains a rebuttable presumption that default occurs no later than when a payment is 90 days past due. The Group uses this 90-day backstop for all its assets. Assets can move in both directions through the stages of the impairment model.
The Group recognise that individual credit exposures, which define the Group's investments, are different from, for example, consumer mortgage or consumer car loan portfolios. Late payments can arise due to the corporate counterparties refusing to utilise direct debit or standing order payment processes with the result that payment chasing can be required for relatively small amounts, e.g. lighting service contracts. Accordingly, the Group does expect that in certain cases late payments may not lead to movements through the ECL stages.
4 INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
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 3 levels:
Level 1
The unadjusted quoted price in an active market for identical assets or liabilities that the entity can
access at the measurement date.
Level 2
Inputs other than quoted prices included within Level 1 that are observable
(i.e. developed using market data) for the asset or liability, either directly
or indirectly.
Level 3
Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.
The classification of the Group's investments held is detailed in the table below:
Group 31 December 2022
-------------------- ------------------------------------------------------------------------------------------------
Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------------------------- ------------------------------- --------- -----------
Investments at fair value
through profit and loss - - 11,742 11,742
Derivative financial instrument - (856) - (856)
--------------------------------- -------------------------- ------------------------------- --------- -----------
- (856) 11,742 10,886
--------------------------------- -------------------------- ------------------------------- --------- -----------
There are no transfers between investment levels for the Group during the year.
The classification of the Company's investments held is detailed in the table below:
Company 31 December 2022 31 December 2021
----------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- ----------------------------- ---------------------------- --------- --------- ------------------------- --------------------------- -------------------------------- --------------------------------
Investments in
subsidiaries - - 31,220 31,220 - - 12,307 12,307
- - 31,220 31,220 - - 12,307 12,307
----------------------------- ---------------------------------------------- --------- --------- ------------------------- --------------------------- -------------------------------- --------------------------------
There are no transfers between investment levels for the Company during the year.
The movement on the Level 3 unquoted investments of the Group during the year is shown below:
31 December
2022
GBP'000
Opening balance -
Additions during the year 10,926
Disposals during the year (43)
Unrealised gain on investments 859
--------------------------------- ------------
Closing balance 11,742
--------------------------------- ------------
The movement on the Level 3 unquoted investments of the Company during the year is shown below:
31 December 2022 31 December 2021
Company Company
GBP'000 GBP'000
Opening balance 12,307 -
Additions during the year/period 16,769 12,324
Unrealised gain/(loss) on investments 2,144 (17)
Closing balance 31,220 12,307
---------------------------------------- ------------------- --------------------------------
Assets and liabilities not carried at fair value but for which are fair value is disclosed
The following table presents the fair value of the Group's assets and liabilities not measured at fair value through profit and loss at 31 December 2022 but for which fair value is disclosed:
Carrying Value Fair Market Value
GBP'000 GBP'000
------------------------------- --------------- ------------------
Assets
Investments at amortised cost 38,550 38,755
------------------------------- --------------- ------------------
Total 38,550 38,755
------------------------------- --------------- ------------------
For all other assets and liabilities not carried at fair value, the carrying value is a reasonable approximation of fair value.
Valuation Methodology
Debt instruments at fair value through profit or loss
The Group through its subsidiary (AHL) and its notes in the Italian SPV has continued to acquire debt instruments at fair value through profit or loss. The Investment Adviser has determined the fair value of debt investments as at 31 December 2022. The Directors have satisfied themselves as to the fair value of the debt instrument investments as at 31 December 2022.
Valuation Assumptions
The Investment Adviser has carried out fair market valuations on some of the Debt instruments held by the subsidiaries as at 31 December 2022 and the Directors have satisfied themselves as to the methodology used, the discount rates and key assumptions applied, and the valuation. Investments that are valued at fair value through profit or loss are valued using the IFRS 13 framework for fair value measurement. The following economic assumptions were used in the valuation of the investments.
Valuation Assumptions
Discount rates The discount rate used in the valuations is derived according to internationally recognised methods. Typical components of the discount rate are risk free rates, country-specific and asset-specific risk premia.
The latter comprise the risks inherent to the respective asset class as well as specific premia for other risks such as development and construction.
Power price Power prices are based on power price forecasts from leading market analysts. The forecasts are independently sourced from a provider with coverage in almost all European markets as well as providers with regional expertise.
Energy yield Estimated based on third party energy yield assessments campaigns as well as operational performance data (where applicable) by taking into account regional expertise of a second analyst.
Inflation rates Long-term inflation is based on central bank targets for the respective jurisdiction.
Capital expenditure Based on the contractual position (e.g. engineering, procurement and construction agreement), where applicable.
Valuation Sensitivities
For each of the sensitivities, it is assumed that potential changes occur independently of each other with no effect on any other base case assumption, and that the number of investments remains static throughout the modelled life.
The Net Asset Value impacts from each sensitivity is shown below.
Discount rates
The Discounted Cash Flow ( " DCF " ) valuation of the investments which are held at fair value represents one component of the Net Asset Value of the Group and the key sensitivities are considered to be the discount rate used in the DCF valuation and assumptions.
The weighted average valuation discount rate applied to calculate the investment valuation is 8.3% at 31 December 2022. An increase or decrease in this rate by 0.5% at investment level has the following effect on valuation.
-0.5% +0.5%
Change Change
Discount rate (GBP'000) (GBP'000)
============================ ========= =========
Valuation as of 31 December
2022 (488) 512
============================ ========= =========
Power price
Long term power price forecasts are provided by leading market consultants and are updated quarterly. The sensitivity below assumes a 10% increase or decrease in merchant power prices relative to the base case for every year of the asset life. The sensitivity considers a flat 10% movement in power prices for all years, i.e. the effect of adjusting the forecast electricity price assumptions in each of the jurisdictions applicable to the investments down by 10% and up by 10% from the base case assumptions for each year throughout the operating life of the investment.
A change in the forecast electricity price assumptions by plus or minus 10% has the following effect on valuation, as shown below.
-10.0% +10.0%
Change Change
Power price (GBP'000) (GBP'000)
============================ ========= =========
Valuation as of 31 December
2022 (542) 547
============================ ========= =========
Energy yield
The base case assumes a " P50 " level of output. The P50 output is the estimated annual amount of electricity generation (in MWh) that has a 50% probability of being exceeded both in any single year and over the long term and a 50% probability of being under achieved. Hence the P50 is the expected level of generation over the long term. The sensitivity illustrates the effect of a 10% lower annual production (a downside case) and a 10% higher annual production (upside case). The sensitivity is applied throughout the whole term of the projects.
The table below shows the sensitivity of the project values to changes in the energy yield applied to cash flows from project as explained above.
-10.0% +10.0%
Change Change
Energy yield (GBP'000) (GBP'000)
============================ ========= =========
Valuation as of 31 December
2022 (1,570) 1,866
============================ ========= =========
Inflation rates
As most payments are fixed and not linked to the inflation rate, a sensitivity of the inflation rate has only a negligible impact on the NAV.
Capital expenditure
The Company has contractual protections if capex is delayed (i.e. reduce the capex or increase receivable s due) and the Company is not obliged to fund the overrun costs. Therefore, capex sensitivities are not appropriate for the Company's type of investments.
Investments at Amortised Cost
a) Investments at amortised cost
The disclosure below presents the gross carrying value of financial instruments to which the impairment requirements in IFRS 9 are applied and the associated allowance for ECL. Please see Note 3 for more detail on the allowance for Expected Credit Loss ("ECL") where the Group has classified the investment portfolio according to stages.
The following table analyses loans by staging for the Group as at 31 December 2022:
31 December 2022
Gross Carrying Allowance Net Carrying
-------------- ---------------- ----------- --------------
Group Amount for ECL Amount
-------------- ---------------- ----------- --------------
GBP'000 GBP'000 GBP'000
-------------- ---------------- ----------- --------------
Fixed Value Investments at
amortised cost
============================================== ==============
Stage 1 37,735 (77) 37,658
--------------- ---------------- ----------- --------------
Stage 2 951 (59) 892
=============== ================ =========== ==============
Total Assets 38,686 (136) 38,550
--------------- ---------------- ----------- --------------
b) Expected Credit Loss allowance for IFRS 9
Impairment Provisions are driven by changes in credit risk of instruments, with a provision for lifetime expected credit losses recognised where the risk of default of an instrument has increased significantly since initial recognition.
The following table analyses Group ECL by stage.
Group 2022
GBP'000
=================================== ========
At 1 January 2022 -
=================================== ========
Charge for the period - Stage 1 77
=================================== ========
Charge for the period - Stage 2 59
=================================== ========
Allowance for ECL at 31 December
2022 136
=================================== ========
Measurement uncertainty and sensitivity analysis of ECL
The recognition and measurement of ECL is complex and involves the use of judgement and estimation. This includes the formulation and incorporation of multiple forward- looking economic conditions into ECL to meet the measurement objective of IFRS 9.
The ECL recognised in the financial statements reflect the effect on expected credit losses of two possible outcomes, calculated on a probability- weighted basis, based on the economic scenarios described in Note 3 to the financial statements, including management overlays where required. The probability-weighted amount is typically a higher number than would result from using only the Base (most likely) case scenario. ECLs typically have a non-linear relationship to the many factors which influence credit losses, such that more favourable macroeconomic factors do not reduce defaults as much as less favourable macroeconomic factors increase defaults. The ECL calculated for each of the Base and Downside scenarios represent the two outcomes that have been evaluated to estimate ECL. As a result, the ECL calculated for the Base and Downside scenarios should not be taken to represent the upper and lower limits of possible actual ECL outcomes. There is a high degree of estimation uncertainty in numbers representing tail risk scenarios when assigned a 100 per cent% weight. A wider range of possible ECL outcomes reflects uncertainty about the distribution of economic conditions and does not necessarily mean that credit risk on the associated loans is higher than for loans where the distribution of possible future economic conditions is narrower.
In the Base case scenario, the ECL at year end is GBP91,790. In the Downside case scenario the ECL increases to GBP268,110. Giving the Base case scenario a 75% weighting and the Downside case scenario a 25% weighting, this results in an ECL provision in the accounts of GBP135,874.
Furthermore, if the Group assumes that in the Downside case scenario LGD increased to 100%, this would increase the provision to GBP486,341. Finally using an LGD of 100% in both the Base case and Downside case scenario, the maximum ECL would total GBP2,646,060.
5 INVESTMENT INCOME
For the period
from 9 April 2021
For the year ended (date of incorporation)
31 December 2022 to 31 December 2021
Group GBP'000 GBP'000
---------------- -------------------------------------- ---------------------------------------------------------------------------------------------------------
Investment interest income 1,646 36
Bank interest income 551 55
-------------------------------------------------------- ----------------------- ------------------------------------------------------------------------------------
Total Investment Income 2,197 91
-------------------------------------------------------- ----------------------- ------------------------------------------------------------------------------------
For the period
from 9 April 2021
(date of incorporation)
For the year ended to 31 December
Company 31 December 2022 2021
GBP'000 GBP'000
----------------------------------------------------------------------------------------- -----------------------------------------------------------------------
Investment
interest
income 235 36
Bank interest
income 462 55
---------------- ------------------------------------------------------------------------ -----------------------------------------------------------------------
Total
Investment
Income 697 91
---------------- ------------------------------------------------------------------------ -----------------------------------------------------------------------
6 INVESTMENT ADVISORY FEES
For the period
from 9 April 2021
For the year ended (date of incorporation)
31 December 2022 to 31 December 2021
Revenue Capital Total Revenue Capital Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------ ------------------------- ------------------------------ ------------------------- -------- ------------------------------ ------------------------
Investment
Advisory
fees 615 - 615 77 - 77
------------ ------------------------- ------------------------------ ------------------------- -------- ------------------------------ ------------------------
For the period from 9
For the year ended 31 December April 2021 (date of incorporation)
2022 to 31 December 2021
------------------ -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------
Revenue Capital Total Revenue Capital Total
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ------------------------- ------------------------------ --------------------------- --------------------------- --------------------------- ---------------------------
Investment
Advisory
fees 615 - 615 77 - 77
------------------ ------------------------- ------------------------------ --------------------------- --------------------------- --------------------------- ---------------------------
Under the Investment Advisory Agreement, the following fee is payable
to the Investment Adviser:
(i) 0.95 per cent. per annum of Committed Capital of the Company up
to and including GBP500 million; and
(ii) 0.75 per cent. per annum of Committed Capital of the Company
above GBP500 million.
7 OTHER EXPENSES
For the period from 9 April
For the year ended 31 December 2021 (date of incorporation)
2022 to 31 December 2021
----------------------------------- ----------------------------------
Revenue Capital Total Revenue Capital Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ----------- ---------- ---------- ---------- ---------- ----------
Secretary and administrator
fees 319 - 319 108 - 108
Tax compliance 37 - 37 13 - 13
Directors' fees 143 - 143 111 - 111
Broker's fees 61 - 61 30 - 30
Auditors' fees 227 - 227 119 - 119
AIFM fees 98 - 98 51 - 51
Registrar's fees 16 - 16 13 - 13
Marketing fees 107 - 107 58 - 58
FCA and listing
fees 17 - 17 12 - 12
Investment expenses 222 - 222 - - -
Legal fees 365 - 365 - - -
Other expenses 174 - 174 72 - 72
----------------------------- ----------- ---------- ---------- ---------- ---------- ----------
Total other expenses 1,786 - 1,786 587 - 587
----------------------------- ----------- ---------- ---------- ---------- ---------- ----------
For the period from 9 April
For the year ended 31 2021 (date of incorporation)
December 2022 to 31 December 2021
---------------------------- ----------------------------------
Revenue Capital Total Revenue Capital Total
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- -------- -------- -------- ---------- ---------- ----------
Secretary and administrator
fees 233 - 233 108 - 108
Tax compliance 37 - 37 13 - 13
Directors' fees 108 - 108 111 - 111
Broker's fees 61 - 61 30 - 30
Auditor's fees 227 - 227 119 - 119
AIFM fees 98 - 98 51 - 51
Registrar's fees 16 - 16 13 - 13
Marketing fees 107 - 107 58 - 58
FCA and listing fees 17 - 17 12 - 12
Legal fees 351 - 351 - - -
Other expenses 120 - 120 72 - 72
----------------------------- -------- -------- -------- ---------- ---------- ----------
Total other expenses 1,375 - 1,375 587 - 587
----------------------------- -------- -------- -------- ---------- ---------- ----------
For the year to 31 December 2022, the statutory audit fees to the Company's auditors and its associates for the audit of the Company and consolidated financial statements was GBP187,000 (2021: GBP99,000) excluding VAT. The audit fees payable to the Company's auditors and its associates for the audit of the Company's subsidiaries is GBP16,000 (2021: GBP10,000) excluding VAT.
For the period from 9 April 2021 (date of incorporation) to 31 December 2021, the auditors received a fee of GBP109,200 (including VAT of GBP18,200) for non-audit reporting accountant services in relation to the Company's IPO, which have been treated as a capital expense and included in 'share issue costs' disclosed in the Statement of Changes in Equity. There are no non-audit services in relation to the current year.
8 TAXATION
(a) Analysis of charge in the year/period
For the period from 9 April
For the year ended 31 December 2021 (date of incorporation)
2022 to 31 December 2021
------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------
Revenue Capital Total Revenue Capital Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- ------------------------------- ----------------------------- --------------------------------------------- ------------------------- ----------------- ---------------------------
Corporation tax - - - - - -
----------------- ------------------------------- ----------------------------- --------------------------------------------- ------------------------- ----------------- ---------------------------
Taxation - - - - - -
----------------- ------------------------------- ----------------------------- --------------------------------------------- ------------------------- ----------------- ---------------------------
For the period from 9 April
For the year ended 31 December 2021 (date of incorporation)
2022 to 31 December 2021
------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- --------------------------------- ------------------------------------------- ------------------------- ----------------- ---------------------------
Corporation tax - - - - - -
Taxation - - - - - -
----------------- --------------------------- ------------------------------- ------------------------------- ----------------------------- ----------------------------- ---------------------------
( b) Factors affecting total tax charge for the year/period
The effective UK corporation tax rate applicable to the Group for the year is 19% (2021: 19%). The tax charge differs from the charge resulting from applying the standard rate of UK corporation tax for an investment trust company.
The differences are explained below:
For the year ended 31 For the period ended
December 2022 31 December 2021
----------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------
Revenue Capital Total Revenue Capital Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- --------------------------- ----------------------------- ----------------------------- --------------------------- ----------------------------- ---------------------------------
Profit/(Loss) on
ordinary
activities before
taxation (340) 477 137 (573) (46) (619)
---------------------- --------------------------- ----------------------------- ----------------------------- --------------------------- ----------------------------- ---------------------------------
Corporation tax at
19% (65) 91 26 (109) (9) (118)
Effects of:
Unutilised management
expenses 65 - 65 109 - 109
(Gain)/loss on
investments
not taxable - (91) (91) - 9 9
Total tax charge for
the year/period - - - - - -
---------------------- --------------------------- ----------------------------- ----------------------------- --------------------------- ----------------------------- ---------------------------
For the year ended 31 December For the period ended
2022 31 December 2021
------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------
Revenue Capital Total Revenue Capital Total
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- ---------------------------
Loss on
ordinary
activities
before
taxation (1,293) 2,045 752 (573) (46) (619)
------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- ---------------------------
Corporation
tax at 19% (246) 389 143 (109) (9) (118)
Effects of:
Unutilised
management
expenses 246 - 246 109 - 109
Gain on
investments
not taxable - (389) (389) - 9 9
Total tax
charge for
the
year/period - - - - - -
------------- --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- ---------------------------
Investment companies which have been approved by the HM Revenue & Customs under section 1158 of the Corporation Tax Act 2010 are exempt from tax on capital gains. Due to the Company's status as an investment trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided for deferred tax on any capital gains or losses arising on the revaluation of investments.
9. RETURN PER ORDINARY SHARE
Group
Return per share is based on the consolidated profit for the year of GBP137,000 attributable to the weighted average number of Ordinary Shares in issue 100,000,000 in the year to 31 December 2022 (2021: Company loss of GBP619,000; weighted average number of Ordinary Shares in issue 79,699,248).
Consolidated revenue loss and capital gains are GBP340,000 (2021: Company revenue loss of GBP573,000) and GBP477,000 (2021: Company capital loss of GBP46,000) respectively.
Company
Return per share is based on the gain for the year of GBP752,000 attributable to the weighted average number of Ordinary Shares in issue 100,000,000 in the year to 31 December 2022 (2021: Company loss of GBP619,000; weighted average number of Ordinary Shares in issue 79,699,248).
Company revenue loss and capital gain are GBP1,293,000 (2021: Company revenue loss of GBP573,000) and GBP2,045,000 (2021: Company capital loss of GBP46,000) respectively.
10. TRADE AND OTHER RECEIVABLES
As at 31 December As at 31 December
2022 2021
----------------------------- -------------------- --------------------
Company Group Company Group
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- --------- --------- --------- ---------
Intercompany receivable 32,966 - 5,170 5,170
Trade and other receivables 33 70 104 104
----------------------------- --------- --------- --------- ---------
Total 32,999 70 5,274 5,274
----------------------------- --------- --------- --------- ---------
The intercompany balances are receivables from the Company's subsidiary, AHL. The amount is non-interest bearing and payable on demand.
11. CREDITORS: AMOUNTS FALLING DUE IN ONE YEAR
As at 31 December As at 31 December
2022 2021
---------------------- -------------------- --------------------
Company Group Company Group
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- --------- --------- --------- ---------
Accrued expenses 867 892 329 329
Unsettled payment of - - -
notes purchased 177
Other creditors 6 12 - -
---------------------- --------- --------- --------- ---------
Total 1,050 904 329 329
---------------------- --------- --------- --------- ---------
12. SHARE CAPITAL
As at 31 December
As at 31 December 2022 2021
No. of shares GBP'000 No. of shares GBP'000
---------------------------- ------------------------------------ --------------------------------------- ------------------------------------- --------------------------------------------
Allotted, issued and fully
paid:
Ordinary Shares of 1p each
('Ordinary Shares') 100,000,000 1,000 100,000,000 1,000
Total 100,000,000 1,000 100,000,000 1,000
---------------------------- ------------------------------------ --------------------------------------- ------------------------------------- --------------------------------------------
On incorporation, the issued share capital of the Company was 1 ordinary share
of GBP0.01 issued to the subscriber to the Company's memorandum. The Company's
issued share capital was increased by GBP50,000 represented by 50,000 Management
Shares of nominal value GBP1.00 each, which were subscribed for by the Investment
Adviser. Following admission, the Management Shares were redeemed by the holder.
On incorporation 2 June 2021, 99,999,999 Ordinary Shares were allotted and issued
to Shareholders as part of the placing and offer for subscription in accordance
with the Company's prospectus dated 10 May 2021.
Shares in
Shares is issue issue at the
For the year ended 31 Dec at the beginning end of the
2022 of the year Shares subscribed year
--------------------------- ------------------ ------------------ --------------
Management shares - - -
Ordinary shares 100,000,000 - 100,000,000
Shares
Shares is issue in issue
For the period from 9 April at the beginning at the end
2021 to 31 December 2021 of the period Shares subscribed of the period
Management shares - - -
Ordinary shares - 100,000,000 100,000,000
13. SPECIAL RESERVE
As indicated in the Company's prospectus dated 10 May 2021, following admission
of the Company's Ordinary Shares to trading on the London Stock Exchange, the
Directors applied to the Court and obtained a judgement on 12 August 2021 to
cancel the amount standing to the credit of the share premium account of the
Company. The amount of the share premium account cancelled and credited to
a special reserve was GBP97,000,000. As at 31 December 2022 the total special
reserves were GBP94,750,000 (2021: GBP97,000,000).
14. NET ASSETS PER ORDINARY SHARE
The Group's net assets per ordinary share as at 31 December 2022 is based on
GBP95,227,000 (2021: GBP97,381,000) of net assets of the Group attributable
to the 100,000,000 Ordinary Shares in issue as at 31 December 2022 (2021: 100,000,000).
The Company's net assets per ordinary share as at 31 December 2022 is based
on GBP95,883,000 (2021: GBP97,381,000) of net assets of the Company attributable
to the 100,000,000 Ordinary Shares in issue as at 31 December 2022 (2021: 100,000,000).
15. DIVID
The Company has paid the following interim dividends in respect of the year under review:
For the period
For the year ended from 9 April 2021
31 December 2022 to 31 December 2021
Pence
per Ordinary Total Pence per Total
Total dividends paid in the year Share GBP'000 Ordinary Share GBP'000
30 June 2022 interim - Paid 31 October
2022 1.00p 1,000 - -
30 September 2022 interim - Paid 9
December 2022 1.25p 1,250 - -
Total 2.25p 2,250 - -
The dividend relating to the year ended 31 December 2022, which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered is detailed below:
For the period
For the year ended from 9 April 2021
31 December 2022 to 31 December 2021
Pence Pence
per Ordinary Total per Ordinary Total
Total dividends declared in the year/period Share GBP'000 Share GBP'000
30 June 2022 interim - Paid 31 October
2022 1.00p 1,000 - -
30 September 2022 interim - Paid 9
December 2022 1.25p 1,250 - -
31 December 2022 interim - Paid 20
March 2023* 1.25p 1,250 - -
Total 3.50p 3,500 - -
*Not included as a liability in the year ended 31 December 2022 financial statements.
16. FINANCIAL RISK MANAGEMENT
The Investment Adviser, AIFM 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 the Group's 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. These risks are monitored by the AIFM. Each risk and its management are summarised below.
(i) Currency risk
Foreign currency risk is defined as the risk that the fair values of future cashflows will fluctuate because of changes in foreign exchange rates. The Group's and the Company's financial assets and liabilities are denominated in GBP and EUR and substantially all of its revenues and expenses are in GBP and EUR. The Group's and the Company is therefore exposed to foreign currency risk.
For any non-base currency assets, the Investment Adviser can use forward foreign exchange contracts to seek to hedge up to 100% of non-GBP exposure.
The Company does not intend to use hedging or derivatives for investment purposes but may use derivative instruments such as forwards, options, future contracts and swaps to hedge currency, inflation, interest rates, commodity prices and/or electricity prices.
With many of its investment assets held in euros, the Group uses a series of regular forward foreign exchange contracts to provide a level of protection against movement in the sterling exchange rate. Under these arrangements the Group is required to provide GBP5 million in cash as collateral for these forward foreign exchange contracts. Following the failure of the Continuation vote the Group is currently reviewing the strategic options for realising value for Shareholders. The Board will consider the appropriateness of the current hedging arrangements and the cash collateral as part of the review of strategic options and in light of the cash requirements of the Group.
The currency profile of the Group as at 31 December 2022 is as follows:
31 December 2022 31 December 2021
GBP EUR Total GBP EUR Total
Assets GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and cash
equivalents 37,444 9,181 46,625 79,743 386 80,129
Trade and other
receivables 33 37 70 5,238 36 5,274
Investments 4,306 45,986 50,292 - 12,307 12,307
Total assets 41,783 55,204 96,987 84,981 12,729 97,710
Liabilities
Creditors (900) (4) (904) (329) - (329)
Derivative
financial instruments (856) - (856) - - -
Total liabilities (1,756) (4) (1,760) (329) - (329)
If the value of Sterling against Euro increased or decreased by 10% (2021: 10%), if all other variables remained constant, the NAV of the Group would increase or decrease by GBP5,520,000 (2021: GBP1,279,000).
The currency profile of the Company as at 31 December 2022 is as follows:
31 December 2022 31 December 2021
GBP EUR Total GBP EUR Total
Assets GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------
Cash and cash
equivalents 32,169 545 32,714 79,743 386 80,129
Interest income
receivable 16,371 16,595 32,966 5,170 - 5,170
Prepayments
and other receivables 33 - 33 68 36 104
Investments - 31,220 31,220 - 12,307 12,307
Total assets 48,573 48,360 96,933 84,981 12,729 97,710
Liabilities
Creditors (1,050) - (1,050) (329) - (329)
Total liabilities (1,050) - (1,050) (329) - (329)
If the value of the Sterling against Euro increased or decreased by 10% (2021: 10%), if all other variables remained constant, the NAV of the Group would increase or decrease by GBP4,836,000 (2021: GBP 1,279,000 ).
(ii) Interest rate risk
The Group's interest rate risk on interest bearing financial assets is limited to interest earned on cash and investments. The interest rates of investments held at amortised cost are fixed therefore the interest rate risk is minimal. Investments held at fair value through profit or loss have variable returns based on e.g. power production levels and not on variability in interest rates.
The Group's interest rate risk on interest bearing financial assets is limited to interest earned on cash and investments. The interest rates of investments are fixed therefore the interest rate risk is minimal.
The Group's interest and non-interest bearing assets and liabilities as at 31 December 2022 are summarised below:
31 December 2022 31 December 2021
Interest Non-interest Interest Non-interest
bearing bearing Total bearing bearing Total
Assets GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and cash
equivalents 44,854 1,771 46,625 38,055 42,074 80,129
Trade and
other
receivables - 70 70 - 5,274 5,274
Investments 38,550 11,742 50,292 12,154 153 12,307
Total assets 83,404 13,583 96,987 50,209 47,501 97,710
Liabilities
Creditors - (904) (904) - (329) (329)
Derivative
financial
instruments - (856) (856) - - -
Total
liabilities - (1,760) (1,760) - (329) (329)
The Company's interest and non-interest bearing assets and liabilities as at 31 December in each reporting period are summarised below:
31 December 2022 31 December 2021
Interest Non-interest Interest Non-interest
bearing bearing Total bearing bearing Total
Assets GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------
Cash and cash
equivalents 31,174 1,540 32,714 38,055 42,074 80,129
Trade and other
receivables - 33 33 - - -
Intercompany
receivable - 32,966 32,966 - 5,274 5,274
Investments 31,220 - 31,220 12,154 153 12,307
Total assets 62,394 34,539 96,933 50,209 47,501 97,710
Liabilities
Creditors - (1,050) (1,050) - (329) (329)
Total liabilities - (1,050) (1,050) - (329) (329)
(iii) Price risk
Price risk is defined as the risk that the fair value of a financial instrument held by the Group will fluctuate. As of 31 December 2022 the Group held investments at fair value through profit or loss with an aggregate fair value of GBP11,742,000 (2021: GBP12,307,000). All other things being equal, the effect of a 10% increase or decrease in the prices of the investments held at the year-end would have been an increase or decrease of GBP1,174,000 (2021: GBP1,231,000) in the profit after taxation for the year ended 31 December 2022 and the Group's net assets at 31 December 2022.
As of 31 December 2022 the Company held investments at fair value through profit or loss with an aggregate fair value of GBP31,220,000 (2021: GBP12,307,000). All other things being equal, the effect of a 10% increase or decrease in the prices of the investments held at the year-end would have been an increase or decrease of GBP3,122,000 (2021: GBP1,231,000) in the profit after taxation for the year ended 31 December 2022 and the Company's net assets at 31 December 2022.
(iv) 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 and the Company is exposed to credit risk in respect of the investments valued at amortised cost, interest income receivable and other receivables and cash at bank. The Group and the Company's credit risk exposure is minimised by dealing with financial institutions with investment grade credit ratings.
Continued monitoring of the investments and the counterparties/ service providers, including the use of credit rating data providers, allows the Investment Adviser to identify and address these risks early. Where possible, the Investment Adviser seeks to mitigate credit risks by the counterparty having the opportunity to sell electricity to the grid or other customers. The Investment Adviser also seeks to structure investments whereby contracts can be adapted/extended to accommodate periods of payment defaults. Diversification of counterparties and service providers ensures any impact is limited. In addition, a diversified portfolio provides further mitigation.
The table below shows the cash balances of the Group and the Company as well as the credit rating for each counterparty:
As at 31 December 2022 As at 31 December 2021
Company Group Company Group
Rating GBP'000 GBP'000 GBP'000 GBP'000
Goldman Sachs-Liquid reserve fund AAA-S&P Rating 7,752 7,752 25,000 25,000
EFG Deposit account A / F1-Fitch Rating 23,904 23,957 38,055 38,055
Royal Bank of Scotland
International A- S&P Rating 1,058 6,314 17,074 17,074
Bank of New York Mellon AA- Fitch Rating - 8,602 - -
32,714 46,625 80,129 80,129
The table below shows the investment balances of the Group as well as the credit rating for each counterparty:
Group As at 31 December
2022
A 4,138
B 33,521
C 891
D -
38,550
The Group and the Company classified each project using a certain credit risk band. Listed below are the conversion methodology used:
Credit risk Corresponding S&P band rating range A AAA to A- B BBB+ to B C CCC to CC D Default
(v) Liquidity risks
Liquidity risk is the risk that the Company may not be able to meet a demand for cash or fund an obligation when due. The Investment Adviser, AIFM and the Board continuously monitor forecast and actual cashflows from operating, financing and investing activities to consider payment of dividends or further investing activities.
The financial liabilities by maturity of the Group at the year-end are shown below:
31 December 2022 31 December 2021
Less than 1-2 2-5 Less than 1-2 2-5
1 year years years Total 1 year years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Liabilities
Creditors (904) - - (904) (329) - - (329)
Derivative
financial
instruments (856) - - (856) - - - -
(1,760) - - (1,760) (329) - - (329)
The financial liabilities by maturity of the Company at the year-end are shown below:
31 December 2022 31 December 2021
Less Less
than 1 1-2 2-5 than 1 1-2 2-5
year years years Total year years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Liabilities
Creditors (1,050) - - (1,050) (329) - - (329)
(1,050) - - (1,050) (329) - - (329)
As at 31 December 2022, the Group has total commitments of GBP35.45 million t o its investments which are unfunded.
Capital 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 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 by a combination of current cash and equity.
17. RELATED PARTY TRANSACTIONS
Fees payable to the Investment Adviser are shown in the Consolidated Statement of Profit or Loss and Comprehensive Income. As at 31 December 2022, the fee outstanding to the Investment Adviser was GBP463,000 (2021: GBP77,000).
On 1 January 2022, the Company acquired the Net Assets of GBP153,000 of its wholly owned subsidiary AHL. On the same date, the Company also acquired the Net Liabilities of GBP170,000 of its wholly owned entity, Italian SPV. Both AHL and Italian SPV assets and liabilities are consolidated by the Company effective 1 January 2022. All intercompany transactions between the subsidiaries and the Company are eliminated at the consolidation level.
Total Directors' fees paid during the year are as follows:
Fees for Fees from
the year IPO on 7
ended 31 May 2021
December to 31 December
Date of appointment 2022(1) 2021(1)
to the Board (GBP) (GBP)
Miriam Greenwood 19 April 2021 57,585 35,679
Nicholas Bliss 9 April 2021 42,226 24,003
Lisa Arnold(2) 9 April 2021 3,231 27,246
Laura Sandys(2) 9 April 2021 3,231 24,003
David Fletcher 29 April 2022 30,557 n/a
2 November
Janine Freeman 2022 6,642 n/a
Total 143,472 110,931
There are no outstanding Directors' fees at year end.
(1) Including fees in respect of directorships in AHL.
(2) Resigned on 28 January 2022.
Directors' holdings
At 31 December 2022 and at the date of this report the Directors had the following holdings in the Company. There is no requirement for Directors to hold shares in the Company. All holdings were beneficially owned.
As At 31 December 2022 As At 31 December 2021
Shares Connected Total Shares Connected Total
Person Person
Miriam Greenwood 24,000 - 24,000 24,000 - 24,000
David Fletcher 41,785 13,951 55,736* N/A N/A N/A
Nicholas Bliss 20,000 - 20,000 20,000 - 20,000
Janine Freeman - - - N/A N/A N/A
Lisa Arnold N/A N/A N/A 20,100 - 20,100
Laura Sandys N/A N/A N/A 15,000 - 15,000
*Following the year-end, Mr Fletcher' shareholding (directly and indirectly through a connected person) was increased to 56,606, following the dividend re-investment scheme of Mr Fletcher and his wife's respective investment plans.
The following table shows the subsidiaries of the Company. Please refer to note 2; these subsidiaries have been consolidated in the preparation of the financial statements.
Subsidiary entity name and Effective Investment Country
registered address ownership of incorporation
Attika Holdings Limited 100% HoldCo Subsidiary United Kingdom
Leaf B, 20th Floor, Tower entity, owns underlying
42, Old Broad Street, London, investments
England, EC2N 1HQ
SPV Project 2013 S.r.l. 100% of Special purpose Italy
Via Vittorio Betteloni, 2 the notes entity, owns underlying
20131, Milan, Italy of one investments
compartment
Company related party transactions
As at 31 December 2022, the Company has an intercompany receivable
from AHL in the amount of GBP32,966,000 (2021: GBP5,170,000). The
amount is non-interest bearing and payable on demand.
As at 31 December 2022, the Company has a total of GBP31,220,000
(2021: GBP12,307,000) notes at fair value through profit or loss
in the Italian SPV.
18. DISTRIBUTABLE RESERVES
The Company's distributable reserves consist of the special reserve and revenue reserve. Capital reserve represents unrealised investments as such is not distributable.
The revenue reserve is distributable. The amount of the revenue reserve that is distributable is not necessarily the full amount of the reserve as disclosed within these financial statements. As at 31 December 2022, the Company has no distributable revenue reserves as the Company is in a loss position of GBP1,866,000 (2021: Loss of GBP573,000).
The Company's special reserve, which is also distributable, was GBP94,750,000 as at 31 December 2022 (2021: GBP97,000,000).
19. SUBSEQUENT EVENTS
On 28 February 2023 at a meeting of shareholders the resolution regarding the continuation of the Company was not approved.
ALTERNATIVE PERFORMANCE MEASURES OF THE GROUP
OTHER INFORMATION (UNAUDITED)
In reporting financial information, the Company presents alternative performance measures, "APMs", which are not defined or specified under the requirements of IFRS. The Company believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional helpful information on the performance of the Company. The APMs presented in this report are shown below:
(Discount)/Premium
The amount, expressed as a percentage, by which the share price is more than the Net Asset Value per Ordinary Share.
As at 31 As at 31
December December
2022 2021
NAV per Ordinary Share (pence) a 95.23 97.38
Share price (pence) b 71.00 95.75
Discount (b÷a)-1 (25.4%) (1.7%)
Ongoing charges
A measure, expressed as a percentage of average net assets, of the regular, recurring annual costs of running an investment company.
Average NAV a 96,561 97,381 Annualised expenses b 2,537(1) 911(1,2) Ongoing charges (b÷a) 2.6% 0.9%
(1) figure includes Investment Advisory fees and Other expenses as disclosed in the Consolidated Statement of Profit or Loss and Comprehensive Income.
(2) pro-rated based on the total number of days per year over the number of days from date of incorporation: GBP664,000 x 365 days/266 days.
Total return
A measure of performance that includes both income and capital returns. This takes into account capital gains and reinvestment of dividends paid out by the Company into the Ordinary Shares of the Company on the ex-dividend date.
Opening at 1 January 2022 (pence) a 95.75 97.38 Dividend adjustment b 2.25 2.25 Closing at 31 December 2022 (pence) c 71.00 95.23 Total return ((c+b)÷a)-1 (23.5%) 0.1% Opening at 2 June 2021 (cents) a 100.00 98.00 Closing at 31 December 2021 (cents) b 95.75 97.38 Total return (b÷a)-1 (4.3%) (0.6%)
n/a = not applicable
FINANCIAL INFORMATION
Year ended 31 December 2022
The figures and financial information for the year ended 31 December 2022 are extracted from the Company's Annual Financial Statements for that period and do not constitute statutory financial statements for that year. The Company's Annual Financial Statements for the year ended 31 December 2022 have been audited but have not yet been delivered to the Registrar of Companies. The Independent Auditor's Report on the 2022 Financial Statements was unqualified, did not include a reference to any matter to which the Auditors drew attention without qualifying the report, and did not contain any statements under sections 498(2) and 498(3) of the Companies Act 2006.
Period ended 31 December 2021
The figures and financial information for the period ended 31 December 2021 are extracted from the Company's Financial Statements for that period and do not constitute statutory financial statements for that period. The Company's Annual Financial Statements for the period ended 31 December 2021 have been audited and delivered to the Registrar of Companies. The Independent Auditor's Report on the 2021 Financial Statements was unqualified, did not include a reference to any matter to which the Auditors drew attention without qualifying the report, and did not contain any statements under sections 498(2) and 498(3) of the Companies Act 2006.
ANNUAL REPORT
The Annual Report for the year ended 31 December 2022 was approved on 30 April 2023. The full Annual Report can be accessed via the Company's website at: https://www.aquila-energy-efficiency-trust.com/ .
The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
This announcement contains regulated information under the Disclosure Guidance and Transparency Rules of the FCA.
ANNUAL GENERAL MEETING ("AGM")
The Company's AGM will be held on 14 June 2023 at 2.00pm at the offices of Apex Listed Companies Services (UK) Limited located at 6th Floor, 125 London Wall, London, England, EC2Y 5AS. Further details can be found at the AGM Notice. Shareholders are encouraged to attend the AGM. Proxy voting figures will be made available shortly after the AGM on the Company's website where Shareholders can also find the Company's AGM Notice, Annual Report, factsheets and other relevant information.
Even if shareholders intend to attend the AGM, all shareholders are encouraged to cast their vote by proxy and to appoint the "Chair of the Meeting" as their proxy. Details of how to vote, either electronically, by proxy form or through CREST, can be found in the Notes to the Notice of AGM in the Annual Report.
Shareholders are invited to send any questions for the Board or the Investment Manager in advance by email to aeetcosecmbx@apexfs.group by close of business on 11 June 2023.
30 April 2023
For further information contact:
Company Secretary and registered office:
Apex Listed Companies Services (UK) Limited
6th Floor, 125 London Wall, London, EC2Y 5AS
END
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