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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Vh Global Sustainable Energy Opportunities Plc | LSE:GSEO | London | Ordinary Share | GB00BNKVP754 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 1.80 | 2.66% | 69.40 | 68.00 | 69.40 | 67.80 | 67.80 | 67.80 | 313,378 | 16:35:03 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | 32.95M | 28.2M | 0.0670 | 10.12 | 285.2M |
From Apr 2021 to Apr 2024
TIDMGSEO
RNS Number : 4787L
VH Global Sustainable Energy Oppt.
13 September 2021
VH Global Sustainable Energy Opportunities plc (the "Company")
Interim results for the period ended 30 June 2021
The Board of VH Global Sustainable Energy Opportunities plc (ticker: GSEO) is pleased to report its maiden interim results for the period from incorporation on 30 October 2020 to 30 June 2021.
The interim report will be made available on the Company's website at https://www.vh-gseo.com
A copy of the interim report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The Company's LEI is 213800RFHAOF372UU580.
For further information, please contact:
Edelman Smithfield (PR Adviser)
Ged Brumby / Andrew McLagan
Tel: + 44 (0)7540 412301 / +44 (0)7817 998161
Email: victoryhill@edelmansmithfield.com
Numis Securities Limited (Corporate Broker)
David Benda / Matt Goss / Tod Davis
Tel: +44 (0)20 7260 1000
G10 Capital Limited (AIFM)
Mohammed Rahman / Paul Cowland
Tel: + 44 (0)20 7397 5450
Apex Fund and Corporate Services (UK) Limited (Company Secretary)
Anthony Lee
Tel: +44 7435 829323
Victory Hill Capital Advisors LLP
Navin Chauhan
info@victory-hill.com
About Victory Hill Capital Advisors LLP
Victory Hill Capital Advisors LLP (FRN 938594) is an Appointed Representative of G10 Capital Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 648953).
Victory Hill is based in London and was founded in May 2020 by an experienced team of energy financiers that have spun-out of a large established global project finance banking group. The team have an established track record built over six years while working together in their previous roles and participating in over $37.1bn in sustainable energy project transaction values, generating over 24.2 per cent. equity returns. In addition, the team has also participated in more than $200bn in transaction values across 91 conventional and renewable energy-related transactions in over 30 jurisdictions worldwide, throughout their individual careers. The average experience per individual is 22 years of relevant energy finance experience. Victory Hill Capital Advisors LLP is the investment adviser entity of the Victory Hill group.
The Victory Hill team deploys its experience across different financial disciplines in order to holistically assess investments from multiple points of view. The firm pursues operational stability and well-designed corporate governance to generate sustainable positive returns for investors. It focuses on supporting and accelerating the Energy Transition and the attainment of the UN Sustainable Development Goals.
Victory Hill is a signatory to the United Nations Principles for Responsible Investing (UN PRI) and the United Nations Global Compact (UN GC), and is a formal supporter of the Financial Stability Board's Task-Force on Climate-related Disclosures (TFCD).
Interim Report and Accounts
For the period from incorporation on 30 October 2020 to 30 June 2021
Overview
About the Company
VH Global Sustainable Energy Opportunities plc ('GSEO' or 'the Company') is a closed ended investment company.
The Company's investment objective is to seek to generate stable returns, principally in the form of income distributions, by investing in a diversified portfolio of global sustainable energy infrastructure assets, predominantly in countries that are members of the EU, OECD, OECD Key Partner Countries or OECD Accession Countries .
The Company's investment policy states that it aims to achieve diversification principally by making a range of sustainable energy infrastructure investments across a number of distinct geographies and a mix of proven technologies that align with the UN Sustainable Development Goals ('SDGs') where the investments are a direct contributor to the acceleration of the energy transition towards a net-zero carbon world.
The Company's investment in proven technologies will include exposure to power generation (renewable and conventional), biomass, transmission, distribution, storage and waste-to-energy. These investments will be operational, in construction or 'ready-to-build' but will not include assets that are under development or in pre-consent stage.
No investment will be made in extraction projects involving either fossil fuels or minerals.
Highlights
GBP242.6m
raised through successful IPO
$63m
acquisition of two Texas gulf coast terminal storage sites
GBP50m
committed to acquire a portfolio of solar generation assets in Australia
$63m
committed to fund the construction of 18 remote distribution solar generation projects in Brazil
GBP78m
committed to acquire two Flexible Power plants with carbon capture and re-use systems in the United Kingdom
-- Successful IPO raising GBP242.6m in February 2021 and listing on the premium segment of the London Stock Exchange ('LSE')
-- Awarded the Green Economy Mark by the LSE -- During the reporting period, the Company committed capital to 20 projects:
- The Company reported its commitment of US$63m (GBP46m) to fund the construction of 18 remote distributed solar generation projects across ten Brazilian states with a total capacity of 75MW. Since announcing its commitment in Brazil, to date the Company has successfully completed the acquisition of the first two tranches totalling US$24m (GBP17.5m). Of this, US$20m (GBP15m) was deployed after the reporting date.
- Post period end the Company committed:
- GBP50m to acquire a portfolio of distributed solar generation assets with plans to build battery storage capacity in Australia. The initial deployment tranche of GBP15m involves the acquisition of two operating solar photovoltaic ('PV') sites, totalling 17MW DC, in South Australia and Queensland.
- GBP78m to fund two Flexible Power plants which bring together high-efficiency gas-fired turbine technology with carbon capture systems to provide a clean and flexible electricity solution for the United Kingdom. The combined capacity will be 45MW.
--
-- Approximately 92% of the net proceeds raised at IPO have been committed to date. -- There is currently no leverage at either the Company or underlying project level.
Summary Financial Information
Hot Features
Premium
As at
30 June
2021
------------------------------ ----------
Ordinary share price (p) 99.7
NAV per ordinary share (p) 96.7
Ordinary share price premium
to NAV 3.1%
Net assets (GBPm) 234.5
2 February
2021- 30
June 2021
------------------------------ ----------
Dividends per ordinary share
(p)(1) 0.0
Ongoing charges(2) 1.6%
NAV total return per ordinary
share(3) (1.3%)
Total shareholder return per
ordinary share(4) (0.3%)
1 Dividends paid/payable and declared relating to the period.
2 Calculation based on average NAV over the period and regular recurring annual operating costs of the Company, can be found below.
3 Opening NAV at IPO after launch expenses: GBP0.98 per ordinary share. Calculation includes dividends.
4 Total returns based on ordinary share price plus dividends paid for the period. Opening share price at IPO: GBP1.00.
Details of the above Alternative Performance Measures (APM) have been included below.
INVESTMENT CASE
We Start With Sustainability and Look For Investments
1. Strategy
-- Target direct investments in energy infrastructure assets that support the UN SDGs -- Focus on middle market developers when investing -- Target investments that support a long-term investment strategy and generate stable income -- Investing in EU and OECD jurisdictions(1) whilst being technologically diverse
2. Pathways addressing the UN Sustainable Development Goals
-- Addressing climate change -- Energy access -- Energy efficiency -- Market liberalisation
3. Highly experienced and multi-disciplinary asset management team
-- Average of 22 years dedicated to energy finance and the energy industry -- Team worked together for more than five years -- Established track record of over $37.1bn in transaction values, generating returns of 24.2% 2
4. Targeting income yield and capital growth
-- Premium-listed UK investment trust -- IPO raised in early-February 2021 of GBP243m -- Targeting 1p dividend in year 1, and 5p from year 2 with a progressive dividend policy -- Target return on capital of 10% net (unlevered)3 -- Large pipeline of c. GBP1bn of projects
1 Can include OECD Accession and Key Partner Countries. Should risk and reward be acceptable, the portfolio could include up to 10% of Gross Asset Value ('GAV') tolerance for investments in non-OECD member jurisdictions.
2 The figures stated are the track record of the Victory Hill team but not of the Investment Adviser or any of its affiliates. The transactions reflected are publicly available transactions completed between 2014-2020. The returns are based on public information with actual data being used where available and estimations. Past performance is not necessarily indicative of future results, and there can be no assurance that the Company will achieve comparable results.
3 This is a target and is based on current market conditions as at the date of this report only and not a profit forecast. There can be no assurance that this target will be met or that VH Global Sustainable Energy Opportunities plc ('VH GSEO') will make any distributions at all. This target return should not be taken as an indication of the Fund's expected or actual current or future return.
BOARD OF DIRECTORS
Providing Experienced and Focused Leadership
BERNARD BULKIN, PHD, OBE
CHAIR AND INDEPENT NON-EXECUTIVE DIRECTOR
Over 35 years in the energy industry. Experienced Board Member and Chairman. Currently board director of ATN International, a NASDAQ-listed company, and member of the board of energy group ARQ Ltd. Business and commercial roles including chief scientist of BP, former member of the UK Sustainable Development Commission and Chair of The Office of Renewable Energy of UK Government.
Margaret Stephens
CHAIR OF THE AUDIT AND RISK COMMITTEE AND INDEPENT NON-EXECUTIVE DIRECTOR
28 year career with KPMG, 16 years as a partner focused on infrastructure and international M&A. Currently Chair of Audit of the Nuclear Liabilities Fund, member of advisory committee for The Infrastructure Forum and NED of AVI Japan Opportunity Trust plc. Previously a non-executive board member and Chair of the audit and risk committee at the Department for Exiting the EU.
LOUISE KINGHAM, OBE
INDEPENT NON-EXECUTIVE DIRECTOR
Over 28 years in the energy industry. She is currently BP's UK head of country and senior vice president for Europe. Prior to this, Louise was CEO of the Energy Institute. She is current non-executive board member of the Energy Saving Trust and Chair of its charitable Foundation. She is also an Ambassador for the POWERful Women initiative and chair of BITC's Climate Action leadership team.
RICHARD HORLICK
CHAIR OF THE MANAGEMENT ENGAGEMENT COMMITTEE AND INDEPENT NON-EXECUTIVE DIRECTOR
Over 35 years in the investment management industry. Chair of CCLA Investment Management and Chair of BH Macro plc. Former roles at Newton Investment Management, Fidelity International, including CEO of Fidelity Management Trust Company and board member, global head of investments at Schroders, and co-founder of Spencer House Capital Management.
Management team
Victory Hill Capital Advisors LLP - Investment Adviser
Anthony Catachanas
Chief Executive Officer
17 years in private equity and investment banking. Worked for Mizuho Financial Group, Goldman Sachs, Credit Suisse Securities, ABN Amro Bank, the European Central Bank and the European Parliament.
Michael Egan, CA, CFA
Chief Financial Officer
21 years of principal M&A, investment banking, restructuring and structured finance. Worked for Steinhoff International, Lehman Brothers and KPMG.
Richard Lum
Co-Chief Investment Officer
27 years in natural resource structured finance and banking. Worked at Mizuho Financial Group, Standard Chartered Bank, West LB Markets and Bayern LB.
Eduardo Monteiro
Co-Chief Investment Officer
21 years in M&A and corporate finance advisory. Worked for Mizuho Financial Group, Société Générale, ABN Amro Bank and JP Morgan CIB.
Lawrence Bucknell
General Counsel
26 years as legal counsel in investment banking, structured finance and asset management. Worked for Mizuho Financial Group, Henderson Global, F&C and Fladgate Fielder LLP.
TEAM TRACK RECORDS
Our Energy Transaction Experience
The Victory Hill team members have previously banked and invested in energy transactions across the globe.
Mergers and Acquisitions, Corporate Finance
42
Number of transactions
$88.8bn
Total deal value
In over 12 jurisdictions globally/across industry/buy and sell mandates/various participants
Project Finance
38
Number of transactions
$77.6bn
Total deal value
In over 20 jurisdictions globally/across industry/act as MLA, bookrunner and technical bank/over 80%
of transactions focused on sustainable energy
Capital Markets
11
Number of transactions
$41.4bn
Total deal value
In over seven jurisdictions globally/rights issues, IPOs, bonds and hybrid issuance/originated, executed and placed securities
Distressed and Workout Situations
3
Number of transactions
$3.7bn
Total deal value
Principal in all transactions/disposed of distressed assets/invested assets in stress or distress/acquisitions through creditors in possession
Over $37.1bn in sustainable energy transactions generating investment returns of 24.2%(1)
Track Record Number of Deals Breakdown by Sector
Transmission - 15%
Renewable power generation - 61%
Storage - 8%
Processing - 8%
Transportation - 8%
Track Record Number of Deals Breakdown by Geography
MENA - 7%
North America - 8%
Asia - 8%
Europe - 54%
UK - 23%
1 The figures stated are the track record of the Victory Hill team but not of the Investment Adviser or any of its affiliates. The team operated together, focused on the energy sector as part of Mizuho Financial Group between 2014-2020. The track record above reflects the time the team have spent together at that institution. The transactions reflected are publicly available transactions completed during that time. The returns are based on public information with actual data being used where available and estimations. Past performance is not necessarily indicative of future results, and there can be no assurance that the Company will achieve comparable results.
Strategic Report
Chairman's Statement
I am pleased to be publishing our first interim report for 2021 covering the period to 30 June 2021.
Enabling the Energy Transition
"The global energy infrastructure is huge, built over more than a century. Transforming it from its fossil fuel core requires many things, including behaviour change and efficiency gains, but certainly at the centre are large capital projects aligned to the UN Sustainable Development Goals. These projects span a range of commercially mature technologies, as well as diverse geographies. Improving access to clean and reliable energy is fundamental to the new model of global development."
Initial Public Offering
On 2 February this year, VH Global Sustainable Energy Opportunities successfully raised GBP242.6m and listed on the premium segment of the London Stock Exchange. I am delighted by the support we received from our new shareholders and look forward to delivering them stable returns whilst making an impact around the world as we transition to a net-zero carbon future.
Deployment
Our investment strategy seeks to take advantage of the energy transition by investing in a diverse portfolio of energy assets. Diversification is a key part of the strategy. The Company's ability to invest in OECD countries and OECD partner countries allows us to take advantage of reduced correlation in energy and power prices. Alongside the ability to invest in a range of technologies, this broad geographical scope also diversifies the influence of weather patterns, and prevents reliance on any single regulatory regime. We also aim to minimise concentration risk via investing across a large number of projects.
The Company has continued to convert its global pipeline of investments that were highlighted as 'Enhanced Pipeline' assets in the IPO Prospectus. This pipeline has been complemented by a new Australian generation and battery storage programme. The pipeline has continued to grow based on the strong origination capabilities of the Investment Adviser.
During the five-month period to 30 June 2021, the Company completed two operating storage terminal acquisitions in the United States and committed to the construction of a programme of 18 distributed solar projects across Brazil.
In addition, post reporting period end, the Company committed a further GBP50m to acquire a portfolio of distributed solar generation assets in Australia with plans to build embedded battery storage capacity; and GBP78m to fund two Flexible Power plants which bring together high-efficiency gas-fired turbine technology with carbon capture systems in the United Kingdom with a combined capacity of 45MW.
I am very pleased to report that, as at the date of publication of this report, the Company has committed 92% of the net IPO proceeds.
Dividend
As outlined in the IPO Prospectus the Company is targeting an initial annualised dividend yield of a minimum of 1p by reference to the IPO price of GBP1.00 in respect of the financial period from IPO on 2 February 2021 to 31 December 2021, rising to a target annualised dividend yield of 5% by reference to the IPO price in respect of the financial year to 31 December 2022. Thereafter, the Company intends to adopt a progressive dividend policy.
COVID-19
During the COVID-19 pandemic, we have taken all possible steps to support and protect employees, contractors and all affected project stakeholders. We are privileged in that the nature of our work has allowed those assets that are operating to continue uninterrupted.
During the pandemic, lockdowns have led to large changes in the way businesses function. In spite of this, the Board has been able to meet virtually to consider investments and corporate governance, whilst the Investment Adviser, AIFM, Administrator and other key service providers have been able to operate effectively with staff working from home using secure IT systems.
Shareholder Engagement
The Company aims to communicate through all available mediums and maintain an open dialogue with investors regarding its strategic objectives, both financial and operational, and how they are executed.
During the reporting period since IPO, the Company engaged, via its Investment Adviser, with shareholders through meetings, market announcements and diverse written materials.
The Board plans to engage actively with shareholders going forward and remain at their disposal.
Environmental, Social and Governance
Sustainability is central to all activities undertaken by the Company and the Investment Adviser, and we recognise that investing responsibly is critical to our performance and growth over the longer term.
Our goal is to make a positive impact as we deploy capital into sustainable energy projects around the world, and ensure that environmental, social and governance ('ESG') criteria are incorporated into all of our investment decisions. This is reflected across our investment philosophy and approach, including the selection of our investment adviser, Victory Hill Capital Advisors LLP ('Victory Hill'), who is dedicated to the energy transition and in doing so developed a sustainable development culture at the firm level. As a signatory to the UN Principles for Responsible Investments, Victory Hill has integrated ESG risks as well as opportunity assessments across every single stage of its investment process in sustainable assets around the world, reflecting the sustainable culture of both Victory Hill and the Company.
The Board recognises that impact investing is also becoming increasingly important for investors so we will be aiming to report in a transparent way, making it easier for investors to assess and quantify the positive impact that GSEO is having on communities around the world and the environment more broadly. Furthermore, we intend to adopt reporting standards as they are developed and adopted by the industry, such as those being developed by the Task Force on Climate-related Financial Disclosures ('TCFD') and Sustainable Finance Disclosure Regulation ('SFDR').
Outlook
As economies around the world move towards a net-zero carbon future, the Company is well positioned to be a leader in driving the energy transition and make a positive impact on the environment as well as local communities around the globe.
The Board is pleased with the Company's two acquisitions completed since IPO to the end of the reporting period. Furthermore, the Board looks forward to further opportunities to acquire assets which complement and enhance value to the existing portfolio, whilst still maintaining a disciplined investment approach. The Board believes the Company is on track to deliver for shareholders the returns and yield as set out by the Company Prospectus. The investments made post the reporting period are notable examples of the Investment Adviser's global capabilities and discipline in that regard.
On behalf of the Board, I would like to thank shareholders for their support since the IPO and we look forward to delivering yield and growth whilst driving a high positive impact on the environment and society.
BERNARD BULKIN, PHD, OBE
CHAIRman
10 September 2021
"The VH GSEO team, at Investment Adviser and Board level, has the vision and experience to play a significant role in this transformation. We have an established and growing pipeline of projects to advance these ambitious goals, while being fully committed to delivering economic returns for our investors. Join us on this exciting journey."
Investment ADVISER's Report
Victory Hill is based in London and was founded in May 2020 by an experienced team of energy financiers that have spun out of a large established global project finance banking group. The team have an established track record built over five years while working together within the bank and have participated in over US$37.1bn in sustainable energy project transaction values, generating over 24.2% equity returns. In addition, the team has also participated in more than US$200bn in transactions values across 91 conventional and renewable energy-related transactions in over 30 jurisdictions worldwide, throughout their individual careers. The average experience per individual is 22 years of directly relevant energy finance experience.
Victory Hill supports investors by identifying certain energy market dislocations, structural gaps, arbitrage opportunities and trends. The team deploys its experience across a multitude of financial disciplines to assess investments holistically and from different perspectives. The firm pursues operational stability and corporate governance to generate sustainable positive returns for its investors. It focuses on supporting and accelerating the energy transition and the attainment of the UN SDGs.
Victory Hill is a signatory to the UN Principles for Responsible Investing ('UN PRI') and the UN Global Compact ('UN GC'), and is a formal supporter of the Financial Stability Board's TCFD.
The Victory Hill group's activities are entirely focused on energy and energy-related investments, across infrastructure and private equity investment solutions.
Strategy/Investment Policy
The Company will seek to achieve its investment objective by making sustainable energy infrastructure investments across the EU and OECD group of nations predominantly, including but not limited to OECD Key Partner Countries and OECD Accession Countries. The Company's investments in global sustainable energy infrastructure must be investments in sustainable energy infrastructure that support the attainment and pursuit of the UN SDGs where energy and energy infrastructure investments are a direct contributor to the acceleration of the energy transition towards a net-zero carbon world.
The Company's investment policy can be found in its prospectus published in January 2021.
Sustainable Development Goals
GSEO seeks to deliver investments in the energy sector that support the global sustainability agenda as interpreted by the UN and recognised by the International Energy Agency.
The SDGs are the blueprint for the Company's sustainability-focused investment strategy. The 17 SDGs were adopted by all UN Member States in 2015, and together they address the global challenges we face, including those related to poverty, inequality, climate change, environmental degradation, peace and justice.
According to the International Energy Agency (the 'IEA'), the SDGs that are directly impacted by energy are: the achievement of universal access to energy (SDG 7), the reduction of the severe health impacts of air pollution (part of SDG 3) and tackling climate change (SDG 13).
Three further SDGs have been identified by Victory Hill as having a connection with the impact of capital investment in developing sustainable energy globally. These are related to the promotion of decent working environments and economic growth, industry, innovation and infrastructure as well as partnerships for the goals (SDGs 8, 9, 17).
Together, these goals translate to the need for the global community to invest its attention, talent, and resources to help solve the challenges posed by sustainability. An important way to achieve this is to harness private capital participation with the support of public policy. These are the six 'core' SDGs of the GSEO investment strategy.
The Energy Transition
Victory Hill has distilled these six core SDGs into four investment 'pathways', which constitute its investment themes.
Pathway 1 - Addressing Climate Change
The issue of Addressing Climate Change constitutes just one of the 17 SDGs, albeit it is clearly the challenge of our time. A key part of this challenge is the global community's ability to reduce greenhouse gas ('GHG') emissions in key facets of global economies, and the daily lives of people.
The most obvious objective here is to reduce the impact of GHGs through investing in renewable energy technologies and fuel sources. As such, the Company will invest a large portion of its deployable capital into a pipeline of renewable energy infrastructure involved in power generation, energy storage, and alternative fuel sources.
Pathway 2 - Energy Access
Energy is vital for our quality of life but unfortunately not all people in the global community can afford the costs or even have access to it. According to the UN, 800m people are without electricity or power, and 2.6bn people have no access to clean fuels for cooking.
Ensuring that growth in access to energy, which also adheres to other SDGs such as Climate Change, is a key challenge for governments, investors and businesses alike. There is an acknowledgement that a level of pragmatism is required in meeting SDG policies. Traditional non-renewable energy sources are likely to continue playing a role in the energy mix of world economies.
Pathway 3 - Energy Efficiency
Energy efficiency means using less energy to perform the same task and, by doing so, eliminating energy waste. It therefore results in several significant benefits. Energy efficiency reduces GHGs, and reduces demand for energy imports into domestic markets, thereby lowering the cost of energy to households, businesses and the economy overall.
Energy efficiency may also be achieved at the grid and national levels through investment in some of the following areas, which the Company may consider as part of its investment focus:
(i) Power interconnectors;
(ii) Grid resilience and frequency response; and
(iii) Investment in ageing grid systems which were developed as one-way transmission systems.
Pathway 4 - Market Liberalisation
SDG 7 speaks of ensuring universal access to affordable, reliable and modern energy supply. The liberalisation of energy markets is the first stage in the development and modernisation process of an energy market.
Broadly speaking, energy market liberalisation aims to:
(i) Facilitate the reduction of state-ownership of key energy infrastructure and sources of energy production and supply;
(ii) Allow for competition and choice across the energy value chain;
(iii) Facilitate the participation of private investors and capital;
(iv) Favour consumers as competition helps drive down household energy costs; and
(v) Attract new investment into the energy sector which improves resilience, efficiency and access.
These markets typically also experience high growth from the point of liberalisation, and this usually helps create new domestic energy market participants that have the potential to capture significant market share. Victory Hill believes that market liberalisation may occur in both developed and developing economies.
Leverage
The Company does not make use of structural debt in order to achieve its yield and total return targets. To date the portfolio has been fully equity funded allowing for efficient asset acquisition. Once assets have been acquired and are operational, Victory Hill, through its extensive international network of funding partners, seeks the most efficient debt funding on a non-recourse basis. The leverage is therefore held at asset level only.
Cash Management
It is the intention of the Company to be fully or near fully invested in normal market conditions. Uninvested cash or surplus capital or assets are invested on a temporary basis into money market funds and related short-maturity instruments with at least a single A or higher credit rating.
Victory Hill constantly reviews the options available to the Company in order to maximise yield for investors. In the current low interest rate environment, short-term deposits with banks have provided the highest risk-adjusted yield for cash, while maintaining flexibility to invest as the Company deploys capital.
Portfolio Update
The Company completed its IPO on 2 February 2021. During the period under review, the Company announced two acquisitions of operating assets and entered into a programme of 18 greenfield projects.
On 20 April 2021, the Company made its first investment, acquiring 100% of two terminal storage sites on the Texas gulf coast. The acquisitions were made for a total cash consideration of US$63m (GBP46m).
On 28 May 2021, the Company committed to fund the construction of 18 remote distributed solar generation projects across 10 Brazilian states with a total capacity of 75MW for a total cash consideration of US$63m (GBP46m). At balance sheet date, four investments had been executed with an additional seven investments executed post period end.
New Investments Since Period End
On 2 August 2021, the Company announced a commitment of GBP50m to acquire a portfolio of distributed solar generation assets with plans to build embedded battery storage capacity in Australia. The initial deployment tranche of GBP15m involves the acquisition of two operating solar PV sites, totalling 17MW, in South Australia and Queensland and the expansion of those sites with battery storage.
On 9 September 2021, the Company committed GBP78m to fund two Flexible Power plants in the United Kingdom, which bring together high-efficiency gas-fired turbine technology and carbon capture and re-use systems. The plants are aimed at providing a clean and flexible electricity solution that will help firm the grid as more offshore wind comes online in the coming decade. The combined capacity will be 45MW.
These two additional commitments since period end bring the total commitments of the fund to 92% of net IPO proceeds.
Operational Performance
During the period under review, the majority of the commercial contracts for the two Texas gulf coast terminal storage assets were fully renegotiated on improved terms resulting in the performance of the assets trading ahead of plan.
To date, 11 of the 18 projects have been funded in Brazil for a total deployment of US$24m (GBP17.5m), of which US$4m (GBP3m) was deployed before the end of the reporting period. The projects are expected to be fully commissioned and operational from Q1 2022. The remaining commitment of US$39m (GBP28.5m) is expected to be deployed by the end of Q4 2021 and due to be commissioned and operational by Q2 2022.
Key Risks
The principal risks faced by the Company are set out in the Principal Risks and Risk Management section, including the mitigants identified by the Company, the AIFM and the Investment Adviser. The Company, the AIFM and the Investment Adviser consider these risks on a regular basis and detailed reviews are held to consider the risks and mitigants available to the Company.
Our Portfolio Update
-- Portfolio investments -- Post reporting period investments
Terminal storage assets on the Texas gulf coast
Brazilian solar PV assets
UK Flexible Power with carbon capture and reuse
Australian renewable power generation and battery storage investment
Geographic Split as % of Total Committed Capital
Brazil - 50%
United States - 50%
Technology Split as % of Total Committed Capital
Solar PV - 50%
Liquid Storage - 50%
Revenue Mix as % of Total Committed Capital
Fixed price PPA - 50%
Availability - 50%
Portfolio as dated 30 June 2021
Market Outlook
"It is unequivocal that human influence has warmed the atmosphere, ocean and land. Widespread and rapid changes in the atmosphere, ocean, cryosphere and biosphere have occurred...
... Global surface temperature will continue to increase until at least the mid-century under all emissions scenarios considered. Global warming of 1.5degC and 2degC will be exceeded during the 21st century unless deep reductions in CO2 and other greenhouse gas emissions occur in the coming decades..."
Working Group I contribution to the Sixth Assessment Report of the IPCC.
The Opportunity Set
The global opportunity set remains vast. In August 2021, the United Nations Intergovernmental Panel on Climate Change (IPCC) released a detailed report about the current trajectory on climate which provided for grim reading for policymakers. More action is required to avoid the catastrophic scenario of accelerated growth in GHG emissions. Strong policies to support private capital investments in sustainable energy, combined with more government spending in energy systems directly and related infrastructure, is going to be the focus of the attention of the global community. Reversal of policies to deal with climate change will become less and less tolerated. More incentives and a broader shift in the energy mix will be crucial and will create even more investment opportunities.
Portfolio Effects of GSEO's Diversification Strategy
With operating assets acquired in the USA and Australia, exposure to AUD and USD as well as to inflation and regulatory policies in these countries will drive portfolio NAV until assets become operational in other countries where the Company's capital has been deployed.
Given the low volatility of GBP:AUD and GBP:USD, currency movements should not have significant impact on the NAV. Inflationary impacts will also be very limited or non-existent given inflation linkage in all revenue contracts on these assets. Finally, with zero reliance on government incentives, these assets are unlikely to suffer the negative impact of any policy changes aimed at reducing subsidy-reliance for renewable power generation. Victory Hill's plan to add storage capacity on the Australian assets is expected to have minimal interruption on income generation during the expansion and construction phases.
Meanwhile construction is under way in Brazil and in the United Kingdom. In Brazil the portfolio of solar PV projects provides some GBP:BRL currency exposure as well as some Brazilian energy regulatory policy risk. The BRL will remain volatile and portfolio returns are designed to provide a cushion against possible negative shocks of currency movements, while the cost under the Engineering, Procurement and Construction ('EPC') contracts have been locked in BRL. The Brazilian regulatory agencies continue to support renewable power projects as a means to enabling economic recovery post COVID-19. Other alternative energy sources are not nearly as attractive as renewable energy, given the energy market conditions favour renewable power generation thanks to a predominance of hydro power as a main baseload power source.
Lastly, the short cycle nature of the construction of these assets and broad distribution across 18 sites in different parts of the country provides investors with good diversification benefits and insulation from any idiosyncratic risks. Key to ensuring construction is met during the agreed timelines, the developer was able to secure very early on in the course of 2020 and early 2021, all component parts from overseas manufacturers which it was able to warehouse in Brazil. This 'early supply order' strategy helped significantly mitigate any potential delays in global supply chains, particularly coming out of Asia.
In the United Kingdom, the currency effect is mitigated by the fact that all feedstock and offtake arrangements are denominated in Sterling. A large part of the portfolio commitment remains exposed to the one of the world's most advanced and indeed diverse energy markets, where structural demand remains strong. Construction timeline for these very relevant Flexible Power assets for the UK market is expected to be 12-18 months. All construction contracts provide single-point full-indemnities with established parties which mitigate construction risks.
Global Energy Markets Outlook
Our view on the Brazilian energy market and its attraction for investment remains positive, particularly within the distributed energy space. The energy system has been subject to a long and well-supported series of privatisations over the last two decades, and a process of unbundling the previously central functions of generation, transmission and supply has been implemented successfully, with significant private sector participation. The continuing need for energy underpins our view of favourable demand-side dynamics in Brazil. Supply of energy is bifurcated between a regulated market undertaken by regional distribution companies that source generation and provide supply to captive end users, as well as an unregulated, energy-only market, with suppliers and buyers of energy setting price on supply/demand factors. Given the historic need for regional distribution companies in the regulated market to pass on the costs of upgrading power generation, transmission and distribution to consumers, we see a high likelihood that the practice of sponsored remote distributed generation will continue to be promoted in the medium term. We see renewable power generation in particular as being uniquely positioned to provide a lasting solution to mitigating higher energy costs for
consumers.
In Australia, the Company's exposure offers the greatest potential to seek revenue optimisation through participation in an energy market that has historically been dominated by coal fired power generation, but is now transitioning towards renewable power. The majority of states comprising the National Electricity Market in Australia, operate under an energy-only supply framework, with each type of generation technology, whether coal, wind, solar or gas receiving different weighted average payments for the energy they produce and to a large extent their ability to provide power supply dependably in order to balance the system. Yet renewable power generation has been systematically curtailed by the deep discounts experienced for solar power supply during the day, when irradiation is at its highest, which contrasts materially with prices paid when consumption peaks in early mornings and evenings when irradiation is at its lowest. When coupled with the dependency issues that intermittent power sources typically experience, this puts significant strain on single solar generators that do not benefit from storage capability. Absent the introduction of grid firming facilities such as battery storage facilities built at scale in the Australian market, we believe these inherent supply/demand factors, and the corresponding duck curve in nodal pricing will continue to be prevalent in the medium term. Our strategy is to combine investment in battery storage technology co-located with renewable power generators to provide the optimum solution in accessing long term offtakes with commercial and industrial enterprises, whilst also participating in energy arbitrage activities to capture market power price upside opportunities.
In Mexico, demand for exporting poor quality fuel oils into the North American market for further refinement remains unabated and will provide a consistent source of capacity revenue potential for our liquid storage terminal investments on the southern border of Texas with Mexico. Under the most recent leadership of President Andres Obrador, increasing legislation and regulations have been introduced to entrench the position of state energy participants, often at the cost of private sector incentivisation. Nevertheless, the underlying fuels value chain in Mexico remains largely unaffected by state investment in the means to produce transition fuels locally. As such, we believe the demand-side dynamic for US border fuels storage capacity remains buoyant in the medium term.
In the United Kingdom, with the advent of government efforts to promote more offshore wind capacity and with the increasing power price volatility associated with adding more intermittent renewable power sources to the grid, balancing solutions are required. In one of the world's most mature and diverse energy markets, firming the grid by providing Flexible Power has never been more important. There are significant technology and storage capacity gaps in the global energy industry today, that are not and cannot be met with battery storage alone. Additional Flexible Power generation involving less pollutive natural gas and biogas sources will become indispensable in the next few years as the country eliminates completely its reliance on coal and other emitting forms of generation. Yet, finding a way to create a net-zero footprint using natural gas power will be the key. Unlike a typical gas peaker, our Flexible Power projects are able to run baseload and at the same time capture ancillary revenues stemming from capacity markets that peakers are able to capture very efficiently. The dispatch profile of these plants is unique, as is the combination of technologies that allow for higher efficiency and, when coupled with carbon capture and re-use, they are also truly efficient in terms of emissions. The Company's portfolio will therefore benefit from strong structural demand for this programme of assets which will not easily be matched or replaced in the next decade.
Case study: Terminal Storage Assets on the Texas Gulf Coast
ESG/Sustainability
- SDG 3: Good health and well-being - SDG 11: Sustainable cities and communities
Transaction
In April 2021, the Company completed its acquisition of 100% of the equity interests in two operating liquid storage terminals with a combined capacity of 525,000 barrels in the Port of Brownsville on the Texas gulf coast for a total purchase price of US$63m.
The Port of Brownsville remains a strategic location in the United States - Mexico energy trade corridor. It is the only self-managed Port Authority in the United States and benefits from a Free Trade Area, significant rail, water and road access. The port itself allows MR class vessels to dock in its deep-water channel.
High Impact Value
The project will reduce the environmental and health threats that high sulfur fuels have on the natural habitat and human health by reducing the availability of high sulfur fuel oil for domestic consumption in Mexico and displacing it with cleaner less pollutive products, reducing PM2.5, SO(2) , CO(2) , and NO(2) emissions.
Sulfur dioxide (SO(2) ) is a scope 3 emission and is a component part of PM2.5 ambient air pollution. According to a study conducted by the European Society of Cardiology ('ESC') published in March 2020, air pollution accounts for more deaths than HIV/AIDS, tobacco and malaria and, according to Bloomberg, accounts for more human deaths than COVID-19. In Mexico, vehicles are burning fuel oil that has a very high sulfur content, resulting in the creation of significant PM2.5 air pollution and causing health problems, particularly in highly populated areas such as Mexico City. The same fuel is also being used in power generation close to large, populated areas where the power is being consumed.
A notable way to help resolve both social and environmental problems is to displace those fuels in power generation and transportation. The Texas liquid storage terminal assets provide an aggregation point and facilitate the transfer of high sulfur fuel oil currently produced at a surplus in the Mexican fuel market. As a result of the terminal's proximity, northbound flows are destined for greater and more efficient refining capacity in the United States. Once refined, the PM2.5 contribution of the fuels is reduced materially to levels experienced in Europe and the United States. The terminals also serve a southbound export of cleaner fuels back into the Mexican fuel market in order to displace usage of highly emitting fuels.
The reduction in pollutants achieved by the asset can be linked to individual SDGs and demonstrate the contributions it makes towards sustainable development, specifically goals 3 and 11.
The asset has a useful life of 35 years (of which 31 years are remaining).
Case study: Brazilian Solar PV Assets
ESG/Sustainability:
- SDG 7: Affordable and clean energy - SDG 9: Industry innovation and infrastructure
Transaction
Brazil is a Key Partner of the OECD and one of the world's fastest growing energy markets since its liberalisation in 1998. In May 2021, the Company committed US$63m to fund the construction of 18 remote distributed solar generation projects across ten Brazilian states for a total capacity of 75MW. The programme of remote distributed power generation projects is one of the fastest growing segments of the Brazilian power market. These projects are not dependent on any government subsidies and benefit from corporate PPA arrangements.
High Impact Value
Since the energy market liberalisation in 1998, each state is generally bound by a single, private utility distribution company that generates and distributes power to consumers across its network. While some of these state grid networks are interconnected, the vast majority are not and are self-contained. The Brazilian government incentivises these private state-level utilities to expand their investment in energy infrastructure, growing the network coverage across the country. The infrastructure build costs are typically passed on to consumers, resulting in high energy prices. Remote distributed power generation schemes in Brazil allow a commercial and industrial ('C&I') consumer or consortium of consumers to commit to offtake the power of a generation asset anywhere on the state grid network. As long as the power is fed into the network and contributes to balancing supply and demand for the utility company that manages it, the utility company allows the consumer to claim back a discount on their usually high energy bills.
At Victory Hill, we recognise the value of the continued expansion of the grid system across Brazil, allowing for more remote locations and consumers to have access to clean sources of energy. At the same time, it supports affordability for the C&I consumer to select the source of energy that it consumes and gain access to discounts, making it more affordable. This approach is in line with one of the Company's themes and, of course, Addressing Climate Change.
The impact of this asset is material from both a sustainability and financial perspective. The aim of this investment is to support and accelerate the growth of a sustainable energy system in Brazil by improving and securing localised access to clean energy and helping to lower Brazilian energy prices. These investments are expected to exceed the Company's target annual dividend yield of 5% and total return of 10% stemming from long-term PPAs with investment grade corporates such as a large multinational telecommunications company (accounting for 50% of the portfolio of 18 projects) as well as other Brazilian conglomerates. On average, these contracts have a maturity exceeding 20 years and are inflation-linked.
The Company has completed two out of the three phases of deployment. The net result of this is that the total funds deployed under this commitment are US$24m across 11 projects totalling 30MW. The remaining US$39m will be deployed by Q4 2021 across Rio de Janeiro, Minas Gerais, Bahia and Sao Paulo to build seven solar projects. The projects are expected to be operational in less than six months from investment.
Whilst the asset contributes towards a number of SDGs, it has a material impact on SDGs 7 and 9.
Sustainability
Environmental, Social AND Governance
At Victory Hill, we believe in high impact value investments that resolve fundamental local needs for societies and the environment by addressing imbalances and structural gaps in energy markets around the world.
At a glance
-- Environmental performance
- Brazilian Solar PV Assets(1)
- 145,452MWh renewable energy generated
- Asset will avoid 30,884 tCO2e per year
- This is equivalent to 39,000 UK homes being powered by renewable energy and 1,470,658 trees planted
- Terminal storage assets on the Texas gulf coast(2)
- Total annual savings (tonnes per annum)(3)
- Nitrogen oxides (NOx): 182t
- NOx is the major precursor to formation of ground level ozone. Inhalation of excess NOx causes and worsens a variety of respiratory conditions, with prolonged exposure potentially leading to irreversible damage to the respiratory system and death.
- Sulphur oxides (SOx): 18,492t
- SOx emissions are harmful to both the environment and human health. Gaseous SOx emissions also harm trees by damaging foliage and decreasing growth. Effects on human health are largely on the respiratory system and can be lethal.
- PM10: 941t
- PM 2.5: 701t
- Particulate matter is emitted as a product of combustion but also formed as a result of atmospheric reactions of chemicals such as NOx and SOx. PM is particularly damaging to the human health as the particles are inhaled deep into the lungs and can enter the bloodstream affecting heart and lung performance, which itself can lead to premature death.
- Carbon monoxide: 192t
- Air with a high concentration of carbon monoxide reduces the amount of oxygen that can be transported around the body to critical organs such as the brain and the heart.
-- Social performance
- Company level impact across US and Brazilian projects:
- Number of jobs added: 77
- Number of employees who received professional training: 24
- Number of incidents reported: 0
-- Governance
- GSEO benefits both from a diverse and independent Board of Directors and AIFM.
We don't aim to tie investments to sustainability, we start with sustainability and look for investments.
1 These are construction assets, therefore, this is forecasted data based on the completion of 18 remote distributed solar generation projects across ten Brazilian states for a total capacity of 75MW.
2 This is for the period 20 April 2021 to 30 June 2021.
3 Total annual savings are forecasted based on operational data for the period 20 April 2021 to 30 June 2021.
With a mission to disrupt the sustainable energy investment market, Victory Hill challenges mainstream thinking, establishing its perspective on the energy mix needed to achieve an orderly transition to a net-zero carbon future.
Today's drive towards electrification and reliance on power markets presents a once-in-a-generation opportunity to provide investors global diversification. VH Global Sustainable Energy Opportunities plc is truly diversified across technologies and jurisdictions, whilst adhering to the UN SDGs.
Energy is present in everyday life and as such plays a central role in the pursuit of the SDGs. GSEO sees the transformations required by the SDGs as a long-lasting investment opportunity for players in the energy markets.
For example, as the world pursues the energy transition away from fossil fuels, imbalances are emerging in various energy systems that require intelligent and informed investment in infrastructure led by private capital. The investment opportunities aimed at addressing these imbalances are what the Company will focus on pursuing.
As the realities of climate change dawn on global leaders, initiatives to avert this calamity are proliferating in every geography. One of the most urgent ones, the displacement of coal and other hydrocarbons from the energy mix, requires a completely different energy infrastructure.
Sustainability does not mean addressing climate change alone. Energy can have other harmful impacts on people's lives beyond the effects of global warming. Decades ago, developed countries have made the required investments to reduce sulfur in the air that was being emitted by engines powered by basic petroleum-derived fuels. Some countries, however, have not been able to avert sulfur emissions from their transportation fleets and even power generation. Infrastructure that can help these countries address basic health requirements represent an attractive and sustainable investment opportunity as well.
As the drive to achieve adherence to the SDGs remains relentless, Victory Hill believes the market backdrop in which GSEO will operate will offer plenty of attractive and high impact, sustainable investment opportunities.
London Stock Exchange Green Economy Mark
VH Global Sustainable Energy Opportunities plc was awarded the Green Economy Mark when it listed on the Main Market of the London Stock Exchange.
The LSE's Green Economy classification identifies those companies and funds listed on the Main Market and AIM that generate between 50% and 100% of total annual revenues from products and services that contribute to the global green economy.
The 50%+ threshold for the Green Economy Mark recognises businesses that have a material revenue contribution from the Green Economy. In this way it includes but also looks beyond 'pure-play' green or clean technology companies to highlight those of all sizes, across all industries, driving the transition to a sustainable, low carbon economy.
TCFD
The TCFD was established to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The TCFD recommends that all organisations provide climate related disclosures in their annual report and accounts, providing a framework to help companies assess the risks and opportunities associated with climate change. Victory Hill is a supporter of the TCFD initiative.
EU Taxonomy for Sustainable Finance
The EU Taxonomy is a classification system for sustainable activities designed to help investors identify 'green' environmentally friendly activities. This is aimed at demonstrating investments that make a substantial contribution to climate change mitigation or adaptation, while avoiding significant harm to other environmental objectives and complying with minimum safeguarding standards. Where relevant, the Company will seek to report on its alignment with the EU Taxonomy framework in its annual sustainability report.
SFDR
The Sustainable Finance Disclosure Regulation ('SFDR') came into force in December 2019, with key disclosure requirements applicable from 10 March 2021. The SFDR is a key initiative under the EU's Action Plan for financing sustainable growth that was launched in 2018.
The SFDR imposes new disclosure requirements in relation to sustainability, to enable investors to make more informed investment choices based on environmental, social and governance factors ('ESG factors').
Victory Hill recognises the importance of regular and transparent reporting. Sustainability reporting promotes better risk management, operational efficiency and ensures that we are accountable to the Company's shareholders.
Sustainability Related Disclosures
In alignment with SFDR, Victory Hill makes the following disclosures.
Victory Hill recognises the importance of ESG issues and is:
1. A signatory to the UN PRI
2. A signatory to the UN GC
3. Committed to being an active member of 'GRESB' a global ESG benchmarking framework for real assets, reporting on annual basis as assets become operational; and
4. A supporter of the TCFD.
Sustainability-linked Remuneration
Under Article 5, Integration of sustainability risk in remuneration policies, Victory Hill's staff are fully aligned with its sustainable development culture and will be set sustainability objectives reflective of their roles as part of their annual performance objectives when assessing any variable remuneration to be awarded.
Investment Adviser Statement
1. Through the very nature of the business, ESG considerations are integrated into Victory Hill's investment process as outlined in the Sustainability Policy (available upon request).
2. Victory Hill is committed to upholding best reporting practices on sustainability and promoting transparency on its sustainability performance.
3. We understand both the entity level disclosures that fall within the scope of the regulation, such as the importance of considering adverse impacts of investment decisions on sustainability factors, and financial product disclosures. As the industry requirements under SFDR become clear pending final guidance from the European Commission, Victory Hill will be reviewing these and intends to be fully compliant. This is likely to be from 2022.
4. Victory Hill welcomes this move to greater transparency for investors in sustainable products and helping to identify greenwashing.
Mapping GSEO's Contribution to the UN Sustainable Development Goals and Investment Process
GSEO has appointed an external ESG and sustainability assurance firm which is based in the UK and dedicated to the energy sector, and in particular energy infrastructure. Working with an independent consultant in this way reinforces the firm's commitment to providing the Company's investors with a sustainable energy infrastructure investment portfolio, that does not breach the investment strategy's focus and philosophy.
The Company has developed an SDG and Impact Assessment Framework with the ESG and sustainability assurance group, which is delineated into two scopes - ex-ante and ex-post investment, and which the external firm will assess each investment against. Their assessment is however not limited to just this criterion.
The ex-ante sustainability assessment includes, but is not limited to, assessing each investment opportunity against the EU Green Taxonomy Framework and the asset's compliance against the six specified core SDGs (3, 7, 8, 9, 13, and 17), and a confirmation that they are not materially breaching any of the other 11 SDGs.
The ex-post sustainability impact assessment includes, but is not limited to, the aggregation of reported data required from developers to demonstrate the Company's compliance with SDGs and quantify sustainability impacts the investment has made by reporting a series of selected metrics. The assessment will also include the asset's continuing compliance against the six specified SDGs and confirmation that they are not materially breaching any of the other 11 SDGs.
The UN Sustainable Development Goals themselves set out high level ambitions for governments and organisations to work towards in creating a more sustainable future. Beneath each goal will be specific targets and indicators which set out what individual organisations may be aiming to achieve and how these might be assessed.
SDG SDG Target
--------------------------- ---------------------------------------
SDG 3: Good Health and Health and safety matters are
Well-Being reported to the Board on a quarterly
basis. Developers and operators
and maintenance contractors are
required to have appropriate
health and safety procedures
in place and these are monitored
monthly.
--------------------------- ---------------------------------------
SDG 7: Affordable and GSEO supports increasing the
Clean Energy share of sustainable and renewable
energy in the global energy mix.
The multi-disciplinary and experienced
team have profound localised
insight to be able to execute
globally. Given the Company's
investment philosophy of working
with mid-market developers and
creating partnerships, it allows
these developers to continue
to originate assets and obtain
capital to build out more renewable
projects globally.
--------------------------- ---------------------------------------
SDG 8: Decent Work and Provide full and productive employment
Economic Growth and decent work for all: initiative
to provide jobs to local people,
increase social mobility as well
as training to improve productivity
and skills. Extensive health
and safety measures ensures employees
are not exposed to risk.
--------------------------- ---------------------------------------
SDG 9: Industry, Innovation GSEO is responsible for a quality,
and Infrastructure reliable, sustainable and resilient
portfolio which makes renewable
energy more affordable for all
and supports increased renewable
penetration. Where possible,
GSEO seeks to upgrade its assets
to improve their efficiency and
longevity, and the best, often
innovative, O&M techniques to
enhance asset productivity.
--------------------------- ---------------------------------------
SDG 13: Climate Action GSEO invests in renewable energy
assets which provide clean power
and displace carbon emissions
which would have otherwise been
generated from carbon intense
sources such as fossil fuels.
GSEO also seeks to maintain our
natural environment and promote
environmental and management
procedures which support climate
change mitigation efforts.
--------------------------- ---------------------------------------
SDG 17: Partnerships for Encourage and promote effective
the Goals partnerships, building on the
experience and resourcing strategies
of partnerships: developing community
benefit strategy and knowledge
shared with key counterparties
drawing insights from investors
and marketplace research.
--------------------------- ---------------------------------------
Looking Ahead
We plan to provide investors with a sustainability report on portfolio activities. An update on the various ESG factors that we will report on include the following three categories:
1. Environmental impacts such as biodiversity; climate change; and energy, water and waste consumption;
2. Social impacts including health and safety; diversity and inclusion; and stakeholder engagement; and
3. Governance impacts such as operational resilience; anti-bribery and corruption; and corporate policies.
All the above impact sources will be reflected in the annual sustainability report for each investment that the Company makes within the context of its investment strategy. Each will be linked to specific investments and the relevant UN SDGs that they impact the most.
Victory Hill monitors, on an ongoing basis, that each project remains in compliance with the relevant UN SDGs and the impact that the portfolio investment has made. This includes aggregation of data at Company level in order to understand better the overall portfolio-level impact as well. The data is collected from each portfolio Special Purpose Vehicle ('SPV') and development partners or project stakeholders through monthly reporting templates.
On an annual basis, this information collected by Victory Hill is assessed by Victory Hill, as well as by an independent sustainability assurance and certification consultant, which will produce the Company's SDG impact metrics to publish in its Annual Financial Reports, as well as a separate dedicated annual sustainability report. In instances where the Company has assets or projects that are located in the EU, we plan to specifically assess compliance with the EU Taxonomy framework as well.
Investment Adviser Statement
Victory Hill is committed to responsible investing globally and incorporates best practice approaches at all stages of the investment life cycle. We believe that our responsible investment practices represent an important part of our fiduciary responsibilities and our ability to deliver attractive risk-adjusted returns to the Company's shareholders over the long term.
Victory Hill's asset management activities are focused around both value preservation and sustainable value creation, reflecting investors' long-term investment horizon. Responsible investment practices and comprehensive consideration for ESG factors at all stages of the investment life cycle are a critical aspect of this long-term approach. ESG issues present opportunities as well as risks and are therefore integrated into both value preservation and value creation initiatives.
Victory Hill recognises that the infrastructure investments the Company makes and that are managed on behalf of our investors can have a material impact on the environment and the societies and stakeholders associated with those assets. We are committed to conducting our business in a manner that protects the environment, health and safety of our employees, customers and the global communities in which we operate. We operate on the principle that we can make quality business decisions while conserving and enhancing resources for future generations.
Principal risks and risk management
A Robust Framework is in Place
The Company's Prospectus issued in January 2021 details of the risks faced by the Company.
Whilst it is not possible to eliminate all risks that may be faced by the Company, a robust framework has been put in place which enables the Audit Committee and the Board to identify and assess principal and emerging risks. The Audit Committee regularly reviews a risk register which contains details of key risks together with controls which have been put in place to mitigate those risks and encompasses a scoring methodology to assess the impact of each risk, probability of occurrence and residual risk after taking into consideration the control processes in place to mitigate the risks. The AIFM, the Investment Adviser, the Company and the Administrator provide input on the risk register, as appropriate, and these service providers have control frameworks in place to mitigate risks relevant to the services they are providing.
The following section sets out the principal risks and uncertainties faced by the Company together with the potential impact of the risks and summarises the controls put in place to mitigate those risks. Whilst COVID-19 has not been included as a principal risk in the table below, the Board has assessed the impact of COVID-19 on the Company and is confident that the Company has appropriate procedures in place to mitigate operational risks associated with COVID-19. The Board has the ability to meet virtually and has engaged service providers that are able to perform their roles remotely.
Risk Description of Risk Risk Impact Mitigation
-------------------------- -------------------------- -------------------------- --------------------------
1. Risks relating to the Company
--------------------------------------------------------------------------------------------------------------------
Reliance on Investment The Company relies on the The departure of some key The Investment Adviser
Adviser Investment Adviser for the individuals or all of consists of five managing
achievement of its Victory Hill's investment partners supported by four
investment objective. professionals could investment professionals.
prevent the Company from A collegiate approach is
achieving its investment taken to investment
objective. advisory activities with
There can be no assurance the team having a broad
that the Directors will be range of skills to support
able to find a replacement the pursuit of the
adviser if Company's investment
Victory Hill resigns. objective.
If a successor cannot be The performance of the
found, the Company may not Company's Investment
have the resources it Adviser is closely
considers necessary monitored by the Board.
to manage the Portfolio or In addition, at least once
to make investments a year the management
appropriately and, as engagement committee
result there may be a performs a formal review
material adverse effect on process to consider the
the performance of the ongoing performance of the
Company's NAV, revenues Investment Adviser and
and returns to makes a recommendation
shareholders. on the continuing
appointment of the
Investment Adviser to the
Board.
The initial term of the
investment advisory
agreement is five years.
-------------------------- -------------------------- -------------------------- --------------------------
Reliance on third party The Company has no Service provider control The Board oversees and
service providers employees and the failures may result in keeps under review the
Directors have all been operational and/or provision of services by
appointed on a reputational problems and each of the Company's
non-executive may have an adverse effect service providers on an
basis. Therefore, the on the Company's NAV, ongoing basis.
Company is reliant upon revenues and returns to The management engagement
its third party service shareholders. committee performs a
providers for the formal review process to
performance consider the ongoing
of certain functions. performance of its service
providers.
-------------------------- -------------------------- -------------------------- --------------------------
Currency risk The Company will make When foreign currencies Investments are held for
investments which are are translated into the long term.
based in countries whose Sterling there could be a The Company intends to
local currency may not material adverse effect enter into hedging
be Sterling and the on the Company's arrangements for periods
Company may make and/or profitability, the NAV and up to 12 months to hedge
receive payments that are the price of the shares. against short-term
denominated in currencies currency movements.
other than Sterling. Currency risk is taken
into consideration at time
of investment and is
included in the Investment
Adviser's assessment of
minimum hurdle rate from
investments.
-------------------------- -------------------------- -------------------------- --------------------------
2. Risks relating to the portfolio investment strategy
--------------------------------------------------------------------------------------------------------------------
Illiquidity of investments The Company's investments Shareholder returns could The Company is expected to
in sustainable energy be materially negatively hold most of its
infrastructure investments impacted should the investments on a long-term
are illiquid and Company be required basis.
may be difficult to to realise them in the The Investment Adviser and
realise at a particular near term (requirement for the Board will monitor the
time and/or at the early liquidity). position on a regular
prevailing valuation. basis.
-------------------------- -------------------------- -------------------------- --------------------------
3. Risks relating to making investments
--------------------------------------------------------------------------------------------------------------------
Construction risk Construction project risks Failure to complete The Investment Adviser
associated with the risk projects in accordance monitors construction
of inaccurate assessment with expectations could carefully and reports
of a construction adversely impact the frequently to the Board
opportunity, delays or Company's and AIFM.
disruptions which are performance and The Investment Adviser
outside the Company's shareholder returns. undertakes extensive due
control, changes in market diligence on construction
conditions, and the opportunities and
inability of contractors seeks to have appropriate
to perform their insurances in place to
contractual commitments. mitigate any costs
relating to delays. In
addition, the Investment
Adviser seeks to utilise
EPC contractors that can
provide single
point, lump sum turnkey
arrangements wherever
possible.
-------------------------- -------------------------- -------------------------- --------------------------
Due diligence Due diligence may not Failure to identify risks The senior management team
identify all risks and and liabilities may impact at the Investment Adviser
liabilities in respect of the profitability or have extensive experience
an investment. valuation of the in executing
investment. strategies similar to that
of the Company.
Where appropriate, due
diligence conducted by the
Investment Adviser may be
supplemented,
for example, by
independent legal, tax and
technical advisers.
-------------------------- -------------------------- -------------------------- --------------------------
Demand, usage and Residual demand, usage and The actual return to The Investment Adviser
throughput risks throughput risk can affect shareholders may be performs extensive due
the performance of materially lower than the diligence on the project
infrastructure target total return. economics vs. alternative
investments. energy options before
entering into a project.
Furthermore, project
revenues are largely
contracted
for the medium to long
term.
The Investment Adviser
constantly reviews
assumptions made regarding
the demand, usage and
throughput vs. actual
results.
-------------------------- -------------------------- -------------------------- --------------------------
Meteorology risks Dependency on meteorology, The actual return to The Investment Adviser
meteorology forecasts and shareholders may be performs extensive due
other feedstocks may have materially lower than the diligence on meteorology
a negative target total return. and other feedstocks
impact on the performance before entering into a
of the Company's project.
investments. The Investment Adviser
regularly reviews
meteorology and feedstock
factors and will action
any potential remedies.
-------------------------- -------------------------- -------------------------- --------------------------
Counterparty risks Counterparties defaulting The failure by a Due diligence on
on their contractual counterparty to make counterparty risk is
obligations or suffering contractual payments or performed before entering
an insolvency event. perform other contractual into projects and
obligations counterparty
or the early termination risk is monitored on a
of the relevant contract regular basis.
due to the insolvency of a
counterparty
may have an adverse effect
on the Company's NAV,
revenues and returns to
shareholders.
-------------------------- -------------------------- -------------------------- --------------------------
Uninsured loss and damage The risk that an The actual return to An independent insurance
investment may be shareholders may be adviser is appointed for
destroyed or suffer materially lower than the each project to review
material damage, and the target total returns. project risks in
existing insurances conjunction with the
may not be sufficient to Investment Adviser and to
cover all the losses and ensure that appropriate
damages. insurance arrangements
are in place.
Insurance requirements are
reviewed on an ongoing
basis.
-------------------------- -------------------------- -------------------------- --------------------------
Curtailment risk Investments may be subject In such cases, affected Extensive due diligence is
to the risk of investments may not performed on each project
interruption in grid receive any compensation before investment.
connection or or only limited
irregularities compensation. The Investment Adviser
in overall power supply. constantly reviews
curtailment risks.
-------------------------- -------------------------- -------------------------- --------------------------
Commodity price risk The operation and cash The actual return to The Company intends to
flows of certain shareholders mitigate these risks by
investments may depend may be materially lower entering into (i) hedging
upon prevailing market than the arrangements; (ii)
prices target total return. extendable short, medium
for electricity and fuel, and long-term contracts;
and particularly natural and (iii) fixed price or
gas. availability based
asset-level commercial
contracts.
-------------------------- -------------------------- -------------------------- --------------------------
4. Risks relating to the Company's shares
--------------------------------------------------------------------------------------------------------------------
Discount to NAV The share price may not Lack of liquidity in the The Board, Broker and
reflect the underlying Company's shares could Investment Adviser monitor
NAV. negatively impact on the discount or premium to
Discount management shareholder returns. NAV at which the
provisions being unable to shares trade.
be satisfied may result in
a significant share
price discount to NAV.
-------------------------- -------------------------- -------------------------- --------------------------
5. Risks relating to regulation
--------------------------------------------------------------------------------------------------------------------
Regulation The Company is exposed to The actual return to The Company aims to hold a
the risk that the shareholders may be lower diversified portfolio of
competent authorities may than the target total sustainable energy
pass legislation that return. infrastructure investments
might hinder or invalidate and so it is unlikely that
rights under existing all assets will be
contracts as well as impacted equally by a
hinder or impair the single change in
obtaining of the necessary legislation.
permits or licences The Investment Adviser
necessary for sustainable ensures that contracts are
energy infrastructure not exposed to government
investments in the subsidies, thus
construction phase. mitigating exposure to
policy risks linked to
contract pricing.
There is also strong
public demand for support
of the renewables market
to hit 'net-zero'
carbon emission targets.
The Investment Adviser
monitors the position and
provides regular reports
to the Board on
the wider macro
environment.
-------------------------- -------------------------- -------------------------- --------------------------
6. Operational risks
----------------------------------------------------------------------------------------------------------------------
Operation and management Poor management or The actual return from Operating partners operate
risks of the portfolio operational performance of single portfolio assets to an annual budget and a
assets an asset by the Company's may be lower than the series of key performance
operating partners target total return for indicators.
and selected operations the asset. The Investment Adviser
and maintenance providers. monitors the position and
provides regular reports
to the Board on
asset-level performance.
-------------------------- -------------------------- -------------------------- --------------------------
Valuation risk Valuation of the portfolio Actual results may vary The Company has adopted a
of assets is based on significantly from the valuation policy which was
financial projections and projections, which may disclosed in the Company's
estimations of reduce the profitability prospectus.
future results. of the Company leading to
reduced returns to Fair value for each
Shareholders and a fall in investment is calculated
the Company's NAV. by the Investment Adviser.
However, if considered
necessary and appropriate,
the Board may appoint an
independent valuer.
The Investment Adviser has
significant experience in
the valuation of energy
assets..
The Investment Adviser has
an independent valuation
committee to perform and
challenge valuations.
In addition, the
Investment Adviser
partnership committee
reviews and challenges
valuations.
The Board and AIFM review
the valuations provided
quarterly by the
Investment Adviser.
As part of the annual
audit, the Auditor reviews
the valuations.
-------------------------- -------------------------- -------------------------- --------------------------
Governance
Directors' responsibility statement
The Directors confirm that to the best of their knowledge:
- the condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union; and
- the interim management report, comprising the Chairman's Statement, the Investment Adviser's Report, the Statement of Principal Risks and Risk Management together with the condensed financial statements include a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 of the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority namely:
- an indication of important events that have occurred during the period and their impact on the condensed financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial period; and
- disclosure of any material related party transactions in the period, which are included in note 16 to the financial statements.
For and on behalf of the Board
BERNARD BULKIN
CHAIRMAN
10 September 2021
Financial Statements
INDEPENT REVIEW REPORT
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the period from 30 October 2020 to 30 June 2021 which comprises the Condensed Statement of Comprehensive Income, Condensed Statement of Financial Position, Condensed Statement of Changes in Shareholder's Equity, Condensed Statement of Cash Flows and the related Notes to the Financial Statements. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' Responsibilities
The interim financial report is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in Note 2, the annual financial statements of the Company will be prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The condensed set of financial statements included in this interim financial report has been prepared in accordance with the International Accounting Standard 34, "Interim Financial Reporting" as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the period ended 30 June 2021 is not prepared, in all material respects, in accordance with the International Accounting Standard 34, as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Use of Our Report
Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect of interim financial reporting in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
UK
10 September 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Condensed statement of comprehensive income (unaudited)
Revenue Capital Total
Note GBP'000 GBP'000 GBP'000
------------------------------------------------- ---- -------- -------- --------
Income
Gains/(losses) on investments 6 - (1,910) (1,910)
Investment income 60 - 60
------------------------------------------------- ---- -------- -------- --------
Total income 60 (1,910) (1,850)
Investment advisory fees 4 (973) - (973)
Other expenses 4 (572) - (572)
------------------------------------------------- ---- -------- -------- --------
Total expenses (1,545) - (1,545)
Losses for the period before tax (1,485) (1,910) (3,395)
Taxation - - -
------------------------------------------------- ---- -------- -------- --------
Total comprehensive income/(loss) for the period 5 (1,485) (1,910) (3,395)
------------------------------------------------- ---- -------- -------- --------
Earnings/(loss) per share - basic and diluted
(pence per share)(1) 18 (1.00) (1.29) (2.29)
------------------------------------------------- ---- -------- -------- --------
1 Based on the weighted average number of ordinary shares in issue since the Company's incorporation on 30 October 2020 to 30 June 2021.
The total column of the Statement of Comprehensive Income is the profit and loss account of the Company. The supplementary revenue return and capital columns have been prepared in accordance with the Association of Investment Companies Statement of Recommended Practice ('AIC SORP').
All revenue and capital items in the above statement derive from continuing operations.
The above Statement of Comprehensive Income includes all recognised gains and losses.
The notes form part of these financial statements.
Condensed statement of financial position (unaudited)
As at
30 June
2021
Note GBP'000
---------------------------------------------------------- ---- --------
Non-current assets
Investments at fair value through profit or loss 6 50,198
---------------------------------------------------------- ---- --------
Total non-current assets 50,198
---------------------------------------------------------- ---- --------
Current assets
Prepayments and other receivables 8 514
Cash and cash equivalents 9 184,388
---------------------------------------------------------- ---- --------
Total current assets 184,902
---------------------------------------------------------- ---- --------
Total assets 235,100
---------------------------------------------------------- ---- --------
Current liabilities
Accounts payable and accrued expenses 10 (569)
---------------------------------------------------------- ---- --------
Total current liabilities (569)
---------------------------------------------------------- ---- --------
Total liabilities (569) ---------------------------------------------------------- ---- -------- Net assets 19 234,531 ---------------------------------------------------------- ---- -------- Capital and reserves Share capital 2,426 Special distributable reserve 235,500 Capital reserve (1,910) Revenue reserve (1,485) ---------------------------------------------------------- ---- -------- Total capital and reserves attributable to equity holders of the Company 234,531 ---------------------------------------------------------- ---- --------
The financial statements were approved and authorised for issue by the Board of Directors on 10 September 2021 and signed on their behalf by:
BERNARD BULKIN
CHAIRMAN
Company Registration Number 12986255
The notes form part of these financial statements.
Condensed statement of changes in shareholders' equity (unaudited)
Share Special
Share premium distributable Capital Revenue
capital account reserve reserve reserve Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ----- -------- --------- -------------- -------- -------- --------
Comprehensive income for the
period
Total comprehensive income/(loss)
for the period - - - (1,910) (1,485) (3,395)
---------------------------------- ----- -------- --------- -------------- -------- -------- --------
Total comprehensive income
for the period - - - (1,910) (1,485) (3,395)
---------------------------------- ----- -------- --------- -------------- -------- -------- --------
Transaction with owners
---------------------------------- ----- -------- --------- -------------- -------- -------- --------
Shares issued 12,13 2,426 240,198 - - - 242,624
Share issue costs 13 - (4,698) - - - (4,698)
Transfer to special distributable
reserve 13,14 - (235,500) 235,500 - - -
---------------------------------- ----- -------- --------- -------------- -------- -------- --------
Total transactions with owners 2,426 - 235,500 - - 237,926
---------------------------------- ----- -------- --------- -------------- -------- -------- --------
Balance at 30 June 2021 2,426 - 235,500 (1,910) (1,485) 234,531
---------------------------------- ----- -------- --------- -------------- -------- -------- --------
242,624,281 ordinary shares were issued in the period under review.
The notes form part of these financial statements.
Condensed statement of cash flows (unaudited)
For the
period
30 October
2020 to
30 June
2021
Note GBP'000
--------------------------------------------------------------- ---- -----------
Cash flows from operating activities
Loss before tax (3,395)
Less: Change in fair value of investments and foreign exchange
movement 6 (736)
--------------------------------------------------------------- ---- -----------
Operating result before working capital changes (4,131)
--------------------------------------------------------------- ---- -----------
Increase in prepayments and other receivables (498)
Increase in interest receivables (16)
Increase in accounts payable and accrued expenses 569
--------------------------------------------------------------- ---- -----------
Net cash flow used in operating activities (4,076)
Cash flows from investing activities
Purchase of investments (49,462)
--------------------------------------------------------------- ---- -----------
Net cash used in investing activities (49,462)
Cash flows from financing activities
Proceeds from issue of shares 242,624
Share issue costs (4,698)
--------------------------------------------------------------- ---- -----------
Net cash generated from financing activities 237,926
--------------------------------------------------------------- ---- -----------
Net increase in cash and cash equivalents 184,388
Cash and cash equivalents at beginning of the period -
--------------------------------------------------------------- ---- -----------
Cash and cash equivalents at end of the period 9 184,388
--------------------------------------------------------------- ---- -----------
The notes form part of these financial statements.
Notes to the financial statements
1. General Information
VH Global Sustainable Energy Opportunities plc ('GSEO' or the 'Company') is a closed-ended investment company, incorporated in England and Wales on 30 October 2020 and registered as a public company limited under the Companies Act 2006 with registered number 12986255. The Company commenced operations on 2 February 2021 when its shares commenced trading on the London Stock Exchange.
The Company has registered, and intends to carry on business, as an investment trust with an investment objective to seek to generate stable returns, principally in the form of income distributions, by investing in a diversified portfolio of global sustainable energy infrastructure assets, predominantly in countries that are members of the EU, OECD, OECD Key Partner Countries or OECD Accession Countries.
2. Basis of Preparation of Financial Statements
The interim financial statements included in this report have been prepared in accordance with IAS 34 Interim Financial Reporting. The financial statements have been prepared on the historical cost basis, as modified for the measurement of certain financial instruments at fair value through profit or loss. The principal accounting policies are set out in note 3.
These interim financial statements are unaudited.
These financial statements are presented in Pounds Sterling and are rounded to the nearest thousand, unless otherwise stated.
As this is the Company's first accounting period, annual statutory financial statements have not yet been filed with the Registrar of Companies. The Company will prepare its first statutory financial statements in accordance with the requirements of the Companies Act 2006 and with International Financial Reporting Standards ('IFRS') adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
The financial statements have also been prepared, as far as is consistent with IFRS and relevant and applicable to the Company in accordance with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts ('SORP') issued in October 2019 by the Association of Investment Companies ('AIC').
Comparative information is not required as this is the first period of operations.
2.1 Investment entity and basis of non-consolidation of subsidiaries
The Directors have concluded that the Company has all the elements of control as prescribed by IFRS 10 'Consolidated Financial Statements' in relation to all its subsidiaries and that the Company satisfies the three essential criteria to be regarded as an investment entity as defined in IFRS 10.
Under IFRS 10, investment entities are required to hold subsidiaries at fair value rather than consolidate them on a line-by-line basis. There are three key conditions to be met by the Company for it to meet the definition of an investment entity. The three essential criteria are that the entity must:
1. Obtain funds from one or more investors for the purpose of providing these investors with professional investment management services;
2. Commit to its investors that its business purpose is to invest its funds solely for returns from capital appreciation, investment income or both; and
3. Measure and evaluate the performance of substantially all of its investments on a fair value basis.
In satisfying the second criteria, the Company intends to hold each investment until the end of its life. However, the Company may choose to sell its interest in an investment before the end of its project life if an attractive offer is received from a potential purchaser.
Further detail on the significant judgements in valuing the Company's investments is disclosed in note 2.3.
2.2 Going concern
The Directors have reviewed the financial position of the Company and its future cash flow requirements, taking into consideration current and potential funding sources, investment into existing and near term projects and the Company's working capital requirements.
Based on its assessment, the Directors have a reasonable expectation that the Company has sufficient resources to continue in operation for at least 12 months from the date of the approval of these financial statements. The Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern. Therefore, the financial statements have been prepared on the going concern basis.
The Board has considered the impact of COVID-19 and Brexit on the Company's operations and does not consider that either has a material impact on the Company's ability to continue as a going concern.
2.3 Significant accounting judgements and estimates
The preparation of financial statements requires the Directors of the Company to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The estimates and associated assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are outlined below:
Investment entity
As detailed above, the Directors have concluded that the Company meets the definition of an investment entity as defined in IFRS 10. This assessment involves an element of judgement as to whether the Company continues to meet the criteria outlined in the accounting standards.
Investments held at fair value through profit or loss
Fair value for each investment is calculated by the Investment Adviser. Fair value for operational sustainable energy infrastructure investments will typically be derived from a discounted cash flow ('DCF') methodology and the results will be benchmarked against appropriate multiples and key performance indicators, where available for the relevant sector/industry. For sustainable energy infrastructure investments that are not yet operational at the time of valuation, the price of recent investment may be used as an appropriate estimate of fair value initially, but it is likely that a DCF will provide a better estimate of fair value as the asset moves closer to operation.
In a DCF analysis the fair value is derived from the present value of the investment's expected future cash flows to the Company, using reasonable assumptions and forecasts for revenues, operating costs, macro-level factors, project specific factors and an appropriate discount rate. The AIFM and the Investment Adviser exercise their judgement in assessing the discount rate for each investment. This is based on knowledge of the market, taking into account market intelligence gained from publicly available information, bidding activities, discussions with financial advisers, consultants, accountants and lawyers.
2.4 Changes to accounting standards and interpretations
At the date of authorisation of the financial statements, there were a number of standards and interpretations which were in issue but not yet effective. The Company has assessed the impact of these amendments and has determined that the application of these amendments and interpretations in current and future periods will not have a significant impact on its financial statements.
Effective
Description Date
----------------------------------------------------------------- ---------
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest 1 January
Rate Benchmark Reform - Phase 2 2021
----------------------------------------------------------------- ---------
Amendments to IFRS 3 Business Combinations; IAS 16 Property,
Plant and Equipment; IAS 37 Provisions, Contingent Liabilities 1 January
and Contingent Assets 2022
----------------------------------------------------------------- ---------
Annual Improvements to IFRS (2018-2020 Cycle) - IFRS 1, IFRS 1 January
9, Illustrative Examples accompanying IFRS 16, IAS 41 2022
----------------------------------------------------------------- ---------
Amendments to IAS 1: Classification of Liabilities as Current 1 January
or Non-current 2023
----------------------------------------------------------------- ---------
3. Summary of Significant Accounting Policies
The principal accounting policies applied in the presentation of these financial statements are set out below.
3.1 Presentation and functional currency
The primary objective of the Company is to generate returns in Sterling. The Company's performance is measured in Sterling terms and its ordinary shares are issued in Sterling. Therefore, the Company has adopted Sterling as the presentation and functional currency for its financial statements.
3.2 Financial instruments
Financial assets and financial liabilities are recognised in the Company's statement of financial position when the Company becomes a party to the contractual provisions of the instrument.
3.3 Financial assets
The classification of financial assets at initial recognition depends on the purpose for which the financial asset was acquired and its characteristics.
All financial assets are initially recognised at fair value. All purchases of financial assets are recorded at the date on which the Company became party to the contractual requirements of the financial asset.
The Company's financial assets principally comprise of investments held at fair value through profit or loss and at amortised cost.
3.4 Investments held at fair value through profit or loss
Investments are designated upon initial recognition as held at fair value through profit or loss. Gains or losses resulting from the movement in fair value are recognised in the profit or loss at each valuation point. As shareholder loan investments form part of a managed portfolio of assets whose performance is evaluated on a fair value basis, loan investments are designated at fair value in line with equity investments.
Gains or losses resulting from the movement in fair value are recognised in profit or loss at each valuation point and are allocated to the capital column of the profit or loss.
Financial assets are recognised/derecognised at the date of the purchase/disposal. Investments are initially recognised at cost, being the fair value of consideration given.
Transaction costs are recognised as incurred and allocated to the capital column of the profit or loss.
Fair value is defined as the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction.
A financial asset (in whole or in part) is derecognised either:
- when the Company has transferred substantially all the risks and rewards of ownership; or
- when it has neither transferred or retained substantially all the risks and rewards and when it no longer has control over the assets or a portion of the asset; or
- when the contractual right to receive cash flow has expired.
3.5 Financial assets at amortised cost
Impairment provisions for financial assets at amortised cost are recognised based on a forward-looking expected credit loss model. All financial assets assessed under this model are immaterial to the financial statements.
3.6 Financial liabilities
Financial liabilities are classified according to the substance of the contractual agreements entered into and are recorded on the date on which the Company becomes party to the contractual requirements of the financial liability.
All loans and borrowings are initially recognised at cost, being fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Loan balances as at the year end have not been discounted to reflect amortised cost, as the amounts are not materially different from the outstanding balances.
The Company's other financial liabilities measured at amortised cost include trade and other payables and other short-term monetary liabilities which are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method.
A financial liability (in whole or in part) is derecognised when the Company has extinguished its contractual obligations, it expires or is cancelled. Any gain or loss on derecognition is taken to the profit or loss.
3.7 Fair value hierarchy
In accordance with IFRS 13, the Company recognises sustainable energy infrastructure investments at fair value through profit or loss at each balance sheet date in accordance with IFRS 13 which recognises a variety of fair value inputs depending upon the nature of the investment. Specifically:
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period.
3.8 Finance expenses
Borrowing costs are recognised in the profit or loss in the period to which they relate on an accruals basis and are allocated to the revenue column of the profit or loss.
3.9 Cash and cash equivalents
Cash and cash equivalents comprise cash balances, deposits held on call with banks and other short-term highly liquid deposits with original maturities of three months or less, that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
3.10 Foreign currencies
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss.
3.11 Dividends
Dividends payable are recognised as distributions in the financial statements when the Company's obligation to make payment has been established.
3.12 Income recognition
Dividend income and interest income on shareholder loan investments are recognised when the Company's entitlement to receive payment is established. Other income is accounted for on an accruals basis using the effective interest rate method.
Gains or losses resulting from the movement in fair value of the Company's investments held at fair value through profit or loss are allocated to the capital column of the Company's profit or loss.
3.13 Expenses
Expenses are accounted for on an accruals basis. All expenses other than those directly attributable to investments and share issue expenses are allocated to the revenue column of the profit or loss.
Share issue expenses of the Company directly attributable to the issue and listing of shares are charged to the share premium account.
3.14 Share capital
Financial instruments issued by the Company are treated as equity if the holder has only a residual interest in the assets of the Company after the deduction of all liabilities. The Company's ordinary shares are classified as equity instruments. Costs attributable to the issue of new shares are shown in share premium as a deduction from proceeds.
3.15 Taxation
Current tax is the expected tax payable on the taxable income for the period, using tax rates that have been enacted or substantively enacted at the date of the statement of financial position.
Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Deferred tax assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit or the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments, except where the Company is able to control the timing of the reversal of the difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the profit or loss except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off tax assets against tax liabilitie s and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. Deferred tax assets and liabilities are not discounted.
3.16 Segmental reporting
The Board of Directors, being the Chief Operating Decision Maker, is of the opinion that the Company is engaged in a single segment of business, being investment in global sustainable energy opportunities. The financial information used by the Board to manage the Company presents the business as a single segment.
4. Other Expenses
30 October
2020 to
30 June
2021 GBP'000
------------------------ -------------
Auditor's fee 78
Tax advisory fees 84
AIFM fees 36
Investment Adviser fees 973
Director's fee 91
Other expenses 283
------------------------ -------------
Total other expenses 1,545
------------------------ -------------
Fees payable to the auditor of the Company consist of initial accounts audit fees of GBP60,000 (excluding VAT) and fees for the review of the Interim Report of GBP5,000 (excluding VAT), together with GBP13,000 of applicable VAT.
5. Taxation
(a) Analysis of charge in the period
For the period from
30 October 2020 to
30 June 2021
----------------------------
Revenue Capital Total
GBP'000 GBP'000 GBP'000
--------------- -------- -------- --------
Corporation tax - - -
Taxation - - -
--------------- -------- -------- --------
(b) Factors affecting total tax charge for the period
The effective UK corporation tax rate applicable to the Company for the period is 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 period from
30 October 2020 to
30 June 2021
----------------------------
Revenue Capital Total
GBP'000 GBP'000 GBP'000
------------------------------------------------------ -------- -------- --------
Losses on ordinary activities before taxation (1,485) (1,910) (3,395)
------------------------------------------------------ -------- -------- --------
Corporation tax at 19% (282) (363) (645)
Effect of:
Losses on investments held at fair value not taxable - 290 290
Movement in management expenses not utilised/deferred
tax not recognised 282 - 282
Foreign exchange losses - 73 73
------------------------------------------------------ -------- -------- --------
Total tax charge for the period - - -
------------------------------------------------------ -------- -------- --------
Investment companies which have been approved by HM Revenue & Customs under section 1158 of the Corporation Tax Act 2010 are exempt from tax on capital gains. The Directors are of the opinion that the Company has complied with the requirements for maintaining investment trust status for the purposes of section 1158 of the Corporation Tax Act 2010. The Company has not provided for deferred tax on any capital gains or losses arising on the revaluation of investments.
(c) Deferred taxation
The Company has unutilised excess management expenses of GBP1,485,000. No deferred tax asset has been recognised in respect of these expenses. The March 2021 Budget announced a further increase to the main rate of corporation tax to 25% from 1 April 2023. This rate has been substantively enacted at the balance sheet date. The unrecognised deferred tax asset at 30 June 2021 of GBP282,150 has been calculated using the current corporation tax rate of 19%.
6. Investments
The Company classifies all assets measured at fair value as below:
Fair value hierarchy
Quoted
prices
in active Significant Significant
markets observable unobservable
(Level inputs (Level inputs (Level
As at 30 June 2021 Total 1) 2) 3)
Assets measured at fair value: GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- -------- ---------- -------------- --------------
Non-current assets
Investments held at fair value through
profit or loss 50,198 - - 50,198
--------------------------------------- -------- ---------- -------------- --------------
All of the Company's investments have been classified as Level 3 and there have been no transfers between levels during the period ended 30 June 2021.
The movement on the Level 3 unquoted investment during the period is shown below:
As at
30 June
2021
GBP'000
--------------------------------------- --------
Opening balance -
Additions during the period at cost 49,462
Transaction costs 2,646
--------------------------------------- --------
52,108
Gains/(losses) on investments:
Transaction costs (2,646)
Change in fair value of investments(1) 1,121
Foreign exchange movement (385)
--------------------------------------- --------
Per Statement of Comprehensive Income (1,910)
--------------------------------------- --------
Closing balance 50,198
--------------------------------------- --------
1 Includes interest on loan receivable by the Company amounting to GBP419,000.
Further information on the basis of valuation is detailed in note 2.3 to the financial statements.
Valuation methodology
The Company owns 100% of its subsidiary VH GSEO UK Holdings Limited ('VH GSEO UK'). The Company meets the definition of an investment entity as described by IFRS 10, as such the Company's investment in the VH GSEO UK is valued at fair value.
The Company acquired underlying investments in special purpose vehicles ('SPVs') through its investment in VH GSEO UK. The Investment Adviser has carried out fair market valuations of the SPV investments as at 30 June 2021, reviewed by the AIFM, and the Directors have satisfied themselves as to the methodology used, the discount rates and key assumptions applied, and the valuation. All SPV investments are at fair value through profit or loss and are valued using the IFRS 13 framework for fair value measurement. The following economic assumptions were used in the valuation of the SPVs.
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 will be based on power price forecasts from
leading market consultants. During the period under review,
there were no operating power generation assets.
------------------- -------------------------------------------------------------------
Energy yield Estimated based on energy yield assessments from leading
technical consultants as well as operational performance
data (where applicable). During the period under review
there were no operating power generation assets.
------------------- -------------------------------------------------------------------
Inflation rates Long-term inflation is based on central bank targets for
the respective jurisdiction.
------------------- -------------------------------------------------------------------
Asset life In general, an operating life of 35 years for terminal storage
assets and 25 years for solar PV is assumed. In individual
cases a longer operating life may be assumed where the contractual
set-up supports such assumption.
------------------- -------------------------------------------------------------------
Operating expenses The operating expenses are primarily based on the respective
contracts and budgets. Operating expenses are primarily
fixed expenses.
------------------- -------------------------------------------------------------------
Taxation rates The underlying country-specific tax rates are derived from
leading tax consulting firms.
------------------- -------------------------------------------------------------------
Capital expenditure Based on the contractual arrangements (e.g., EPC agreement),
where applicable.
------------------- -------------------------------------------------------------------
Key assumptions
30 June 2021
--------------------- ----------------- ------------
Discount rate Weighted average 7%
--------------------- ----------------- ------------
Long-term inflation United States 2%
--------------------- ----------------- ------------
Remaining asset life Terminal storage 30 years
--------------------- ----------------- ------------
Solar PV 25 years
--------------------- ----------------- ------------
Exchange rates GBP:USD 1.387
--------------------- ----------------- ------------
GBP:BRL 6.95
--------------------------------------- ------------
Valuation sensitivity
The key sensitivities in the DCF valuation are considered to be the discount rate used in the DCF valuation and long-term assumptions in relation to inflation, operating expenses, asset life and where relevant power prices and energy yield.
The blended discount rate as at 30 June 2021 is 7%, which is considered to be an appropriate base case for sensitivity analysis. A variance of +/- 0.5% is considered to be a reasonable range of alternative assumptions for discount rate.
The base case long-term inflation rate assumption is 2% for the United States assets. A variance of +/- 0.5% is considered to be a reasonable range of alternative assumptions for inflation.
The Texas Gulf Coast terminal storage assets were acquired in April 2021. Given the short period between acquisition date and period end, the acquisition price was taken into consideration for the fair value of these assets.
The base case asset life for the terminal storage assets is 30 years. The sensitivity below assumes that asset life may be one year shorter or longer than the base case.
The Brazilian solar assets are in construction as at 30 June 2021. Therefore until commencement of operations, the cost basis is considered to be the most appropriate measure of valuation. There are no indications at 30 June 2021 that the cost basis should be impaired. Therefore only BRL:GBP sensitivity is shown in the table below for these assets.
Change in Change in
Change fair value NAV per
in of investments share
Base case input (GBP'000) cent
------------------- --------- ------- --------------- ---------
Discount rate 7% -0.50% 2,850 0.01
------------------- --------- ------- --------------- ---------
0.50% (2,616) (0.01)
------------------- --------- ------- --------------- ---------
Inflation 2% -0.50% (2,320) (0.01)
------------------- --------- ------- --------------- ---------
0.50% 2,517 0.01
------------------- --------- ------- --------------- ---------
Asset life 30 years -1 year (642) 0.00
------------------- --------- ------- --------------- ---------
+1 year 600 0.00
------------------- --------- ------- --------------- ---------
Operating expenses -5% 2,135 0.01
------------------- --------- ------- --------------- ---------
5% (2,126) (0.01)
------------------- --------- ------- --------------- ---------
FX (GBP:USD) 1.387 -10% 5,681 0.02
------------------- --------- ------- --------------- ---------
10% (4,648) (0.02)
------------------- --------- ------- --------------- ---------
FX (GBP:BRL) 6.95 -10% 356 0.00
------------------- --------- ------- --------------- ---------
10% (291) 0.00
------------------- --------- ------- --------------- ---------
7. Unconsolidated Subsidiaries
Ownership
interests
as at 30
Investment Place of business June 2021
------------------------------------------------- ------------------ ----------
VH GSEO UK Holdings Limited United Kingdom 100%
Victory Hill Distributed Energy Investments
Limited United Kingdom 100%
Victory Hill USA Holdings LLC United States 100%
Victory Hill Midstream Investments LLC United States 100%
Victory Hill Midstream Energy LLC United States 100%
Motus T1 LLC United States 100%
Motus T2 LLC United States 100%
Victory Hill Holdings Brasil S.A. Brazil 100% Energea Itaguaí I Aluguel De Equipamentos E Manutençao LTDA Brazil 100% Energea Itaguaí II Aluguel De Equipamentos E Manutençao LTDA Brazil 100% Energea Itaguaí III Aluguel De Equipamentos E Manutençao LTDA Brazil 100% Energea Nova Friburgo LTDA Brazil 100% Victory Hill Australia Investments Pty Ltd Australia 100% Victory Hill Distributed Power Pty Ltd Australia 100% ------------------------------------------------- ------------------ ----------
The above includes ordinary share interests in unconsolidated subsidiaries held either directly by the Company or indirectly via its holding in VH GSEO UK Holdings Limited.
8. Prepayments and Other Receivables
As at
30 June
2021
GBP'000
---------------------------------- --------
Other receivables 498
Prepayments 16
---------------------------------- --------
Prepayments and other receivables 514
---------------------------------- --------
The Directors have analysed the expected credit loss in respect of receivables and concluded there was no material exposure for the period ended 30 June 2021.
9. Cash Reserves
As at
30 June
2021
GBP'000
------------------- --------
Cash at bank 52,672
Cash on deposit 131,716
------------------- --------
Total cash at bank 184,388
------------------- --------
Cash on deposit consists of funds held in a 32 day notice deposit account with Barclays Bank plc.
10. Accounts Payable and Accrued Expenses
As at
30 June
2021
GBP'000
-------------------------------------- --------
Accrued expenses 345
Other payables 224
-------------------------------------- --------
Accounts payable and accrued expenses 569
-------------------------------------- --------
The Directors consider that the carrying amount of trade and other payables matches their fair value.
11. Financial Risk Management
The Company's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.
The AIFM and the Investment Adviser have risk management procedures and processes in place which enable them to monitor the risks of the Company. The objective in managing risk is the creation and protection of shareholder income and value. Risk is inherent in the Company's activities, but it is managed through a process of ongoing identification, impact assessment, and monitoring and subject to risk limits and other controls.
The principal financial risks facing the Company in the management of its portfolio are as follows:
Currency risk
The Company make investments which are based in countries whose local currency may not be Sterling and the Company and its investments may make and/or receive payments that are denominated in currencies other than Sterling. Therefore, when foreign currencies are translated into Sterling there could be a material adverse effect on the Company's profitability and its net asset value.
The Company's investments are held for the long term and the Company intends to enter into hedging arrangements for periods less than 12 months to hedge against short-term currency movements. Currency risk is taken into consideration at time of investment and included in the Investment Adviser's assessment of minimum hurdle rate from investments. Hedging policies of the Company will be reviewed on a regular basis to ensure that the risks associated with the Company's investments are being appropriately managed.
Note 6 details sensitivity analysis on the impact of changes to the inputs on the fair value of the Company's investments.
Interest rate risk
The Company's interest rate risk on its financial assets is limited to interest earned on cash or cash equivalents and any loan investments, which yield interest at fixed rates.
The Company may use borrowings for multiple purposes, including for investment purposes. At the period end the Company held no borrowings. Interest rate risk will be taken into consideration when taking out any such borrowings.
The Company's interest and non-interest bearing assets and liabilities as at 30 June 2021 are summarised as below:
Interest Non-interest
bearing bearing Total
Assets GBP'000 GBP'000 GBP'000
------------------------------------------------- -------- ------------ ---------
Cash and cash equivalents 184,388 - 184,388
Prepayments and other receivables - 498 498
Interest receivable 16 - 16
Investments at fair value through profit or loss - 50,198 50,198
------------------------------------------------- -------- ------------ ---------
Total assets 184,404 50,696 235,100
------------------------------------------------- -------- ------------ ---------
Liabilities
Accounts payable and accrued expenses - (569) (569)
------------------------------------------------- -------- ------------ ---------
Total liabilities - (569) (569)
------------------------------------------------- -------- ------------ ---------
Price risk
The operation and cash flows of certain investments will depend, in substantial part, upon prevailing market prices for electricity and fuel, and particularly natural gas. The Company intends to mitigate these risks by entering into (i) hedging arrangements; (ii) extendable short, medium and long-term contracts; and (iii) fixed price or availability based asset-level commercial contracts, and ensuring that market risk is combined with non-market risk exposures.
Note 6 details sensitivity analysis on the impact of changes to the inputs on the fair value of the Company's investments.
Credit risk
Credit risk is the risk that a counterparty will cause financial loss to the Company by failing to meet a commitment it has entered into with the Company.
It is the Company's policy to enter into banking arrangements with reputable financial institutions. The Investment Adviser monitors the credit ratings of banks used by the Company on a regular basis.
The table below shows the Company's exposure to credit risk:
As at
30 June 2021
GBP'000
-------------------------- -------------
Cash and cash equivalents 184,388
-------------------------- -------------
184,388
-------------------------- -------------
The substantial majority of cash held at the period end was held with Barclays Bank plc which has a current Standard and Poor's short-term credit rating of A-1.
Liquidity risk
The Company manages its liquidity and funding risks by considering cash flow forecasts and ensuring sufficient cash balances are held within the Company to meet future needs. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of financing through appropriate and adequate credit lines, and the ability of counterparties to settle obligations. The Company ensures, through forecasting of capital requirements, that adequate cash is available.
The following table details the Company's liquidity analysis in respect of its financial liabilities on contractual undiscounted payments:
< 3 months 3-12 months 1-5 years > 5 years Total
As at 30 June 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ---------- ----------- --------- --------- --------
Accounts payable and accrued expenses 569 - - - 569
-------------------------------------- ---------- ----------- --------- --------- --------
569 - - - 569
-------------------------------------- ---------- ----------- --------- --------- --------
The Board of Directors monitors key risks faced by the Company and has agreed policies for managing the above risks with the AIFM and/or the Investment Adviser.
Capital management
The Company considers its capital to comprise ordinary share capital, distributable reserves and retained earnings.
The Company's primary capital management objectives are to ensure the sustainability of its capital to support continuing operations, meet its financial obligations and allow for growth opportunities. Generally, acquisitions are anticipated to be funded with a combination of cash, debt and equity.
12. Share Capital
Special As at
Share Share distributable 30 June
Number capital premium reserve 2021
Date Issued and fully paid of shares GBP'000 GBP'000 GBP'000 GBP'000
-------------- ---------------------------------- ----------- -------- --------- -------------- --------
30 October
2020 Ordinary shares 1 - - - -
2 February
2021 Ordinary shares 242,624,280 2,426 240,198 - 242,624
2 February
2021 Share issue costs - - (4,698) - (4,698)
Transfer to special distributable
13 April 2021 reserve - - (235,500) 235,500 -
-------------- ---------------------------------- ----------- -------- --------- -------------- --------
30 June 2021 242,624,281 2,426 - 235,500 237,926
-------------------------------------------------- ----------- -------- --------- -------------- --------
The Company was incorporated on 30 October 2020 when the issued share capital of the Company was GBP0.01 represented by one ordinary share and GBP50,000 represented by 50,000 management shares of nominal value of GBP1.00 each, which were subscribed for by VHCA. On 2 February 2021, the Company issued a further 242,624,280 ordinary shares and on that date 242,624,281 ordinary shares were admitted to trading on the London Stock Exchange. The management shares were redeemed at par on 2 February 2021.
The ordinary shares are denominated in Sterling. The ordinary shares were offered under the initial issue at the price of 100p per ordinary share.
The holders of the ordinary shares shall be entitled to receive, and to participate in, any dividends which the Company has declared from time to time proportionate to the amounts paid or credited as paid in relation to the ordinary shares that they hold.
The ordinary shares carry the right to receive notice of, attend and vote at General Meetings and on a poll, with one vote for each ordinary share held.
On a winding-up, provided the Company has satisfied all its liabilities and subject to the rights conferred on any other class of shares in issue at that time to participate in the winding-up, the holders of ordinary shares shall be entitled to all the surplus assets of the Company.
There are no restrictions on the free transferability of the ordinary shares, subject to compliance with applicable securities laws.
13. Share Premium Account
As at
30 June 2021
GBP'000
---------------------------------------------------- -------------
Share premium arising on ordinary shares issued 240,198
Share issue costs (4,698)
Transfer to special distributable reserve (note 13) (235,500)
---------------------------------------------------- -------------
Balance at end of period -
---------------------------------------------------- -------------
In order to increase distributable reserves available for the payment of future dividends, the Company resolved on 5 January 2021 that, conditional upon admission and the approval of the Court, the amount standing to the credit of the share premium account of the Company immediately following completion of the issue be cancelled and transferred to a special distributable reserve. Subsequently, following approval by the Court and registration of the cancellation with the Registrar of Companies, an amount of GBP235,499,532 was transferred to a special distributable reserve with effect from 13 April 2021.
14. Special Distributable Reserve
As at
30 June 2021
GBP'000
---------------------------------------------- -------------
Balance at beginning of period -
Transfer from share premium account (note 12) 235,500
---------------------------------------------- -------------
Balance at end of period 235,500
---------------------------------------------- -------------
15. Dividends
The Directors have not declared or paid any dividends at the date of approval of these financial statements.
16. Related Party Transactions
AIFM
On 5 January 2021, the Company entered into the AIFM Agreement with G10 Capital Limited (the 'AIFM') under which the AIFM has been appointed to act as the Company's alternative investment fund manager with overall responsibility for the risk management and portfolio management of the Company, providing alternative investment fund manager services and ensuring compliance with the requirements of the AIFM Rules, subject to the overall supervision of the Directors in accordance with the policies laid down by the Directors from time to time and the investment restrictions referred to in the AIFM Agreement.
The AIFM Agreement provides that the Company will pay to the AIFM a fixed monthly fee of GBP5,000, exclusive of VAT. The Company will also reimburse the AIFM for reasonable expenses properly incurred by the AIFM in the performance of its obligations under the AIFM Agreement.
The AIFM Agreement may be terminated by the Company or the AIFM giving not less than six months' written notice. The AIFM Agreement may be terminated with immediate effect on the occurrence of certain events, including insolvency or in the event of a material and continuing breach.
The AIFM fees for the period amounted to GBP35,784 and no amount was outstanding at the period end.
Investment Adviser
On 5 January 2021, the Company and the AIFM entered into an Investment Advisory Agreement with VHCA. Under the Investment Advisory Agreement, the AIFM and the Company have appointed Victory Hill as Investment Adviser to the Company and the AIFM.
Under the terms of the Investment Advisory Agreement, the Investment Adviser will: (i) seek out and evaluate investment opportunities; (ii) recommend the manner in which investments should be made, retained and realised; (iii) advise the Company and the AIFM in relation to acquisitions and disposals of assets; (iv) provide asset valuations to assist the Administrator in the calculation of the quarterly NAV; and (v) provide operational, monitoring and asset management services.
The Investment Adviser is entitled to receive from the Company an annual fee to be calculated as percentages of the Company's net assets 1% on the first GBP250m of NAV, 0.9% on NAV in excess of GBP250m and up to and including GBP500m and 0.8% on NAV in excess of GBP500m exclusive of VAT.
The Investment Advisory Agreement may be terminated on 12 months' written notice, provided that such notice may not be served before 2 February 2025. The Investment Advisory Agreement may be terminated with immediate effect on the occurrence of certain events, including insolvency or in the event of a material and continuing breach.
The investment advisory fees for the period amounted to GBP972,849 of which GBP198,236 was outstanding and included in accounts payable and accrued expenses at the end of the period.
Directors
With effect from the admission of the Company's shares to trading on the London Stock Exchange on 2 February 2021, the Directors have been entitled to aggregate annual remuneration (excluding expenses) payable and benefits in kind granted as follows:
Fees
GBP'000
------------------- --------
Bernard Bulkin OBE 70
Margaret Stephens 50
Richard Horlick 50
Louise Kingham OBE 50
------------------- --------
220
------------------- --------
The Directors are not eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits. There is no amount set aside or accrued by the Company in respect of contingent or deferred compensation payments or any benefits in kind payable to the Directors. During the period ended 30 June 2021, Directors fees of GBP91,201 were paid, of which none were payable at the period end.
As detailed in the Prospectus, the Directors subscribed for the below ordinary shares at 100p per share during the Company's IPO and have therefore held (and continue to hold) beneficial interests in these shares since admission.
Number of % of ordinary
ordinary shares
shares held in issue
------------------- ------------ -------------
Bernard Bulkin OBE 10,000 0.0041
Margaret Stephens 10,000 0.0041
Richard Horlick 10,000 0.0041
Louise Kingham OBE 5,000 0.0021
------------------- ------------ -------------
The above Directors were appointed on 30 October 2020 and 6 November 2020. Bernard Bulkin, Richard Horlick and Louise Kingham were appointed as Directors on incorporation of the Company, and Margaret Stephens appointed as Director on 6 November 2020.
Other balances with related parties
As disclosed in note 10 an amount of GBP224,000 was payable to a related party at the period end, being an amount payable to Victory Hill Midstream Energy LLC.
17. Contingent Liabilities and Commitments
At 30 June 2021 the Company had no contingent liabilities.
On 28 May 2021, the Company announced a US$63m commitment to fund the construction of 18 remote distributed solar generation projects across ten Brazilian states.
18. Earnings Per Share
Earnings per share ('EPS') is calculated by dividing profit for the period attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in issue since the Company's incorporation on 30 October 2020 to 30 June 2021. Amounts shown below are both basic and diluted measures as there were no dilutive instruments in issue throughout the current period.
Revenue Capital Total
------------------------------------------- ----------- ----------- -----------
Earnings (GBP'000) (1,485) (1,910) (3,395)
Weighted average number of ordinary shares 147,771,167 147,771,167 147,771,167
------------------------------------------- ----------- ----------- -----------
EPS (p) (1.00) (1.29) (2.29)
------------------------------------------- ----------- ----------- -----------
In addition to the above, the Board considers it appropriate to disclose an additional EPS figure calculated by dividing profit for the period attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in issue since the Company commenced its operations on 2 February 2021 to 30 June 2021. The Board believes this provides a more relevant measure of the Company's performance.
Revenue Capital Total
------------------------------------------- ----------- ----------- -----------
Earnings (GBP'000) (1,485) (1,910) (3,395)
Weighted average number of ordinary shares 242,624,281 242,624,281 242,624,281
------------------------------------------- ----------- ----------- -----------
EPS (p) (0.61) (0.79) (1.40)
------------------------------------------- ----------- ----------- -----------
19. Net Asset Value Per Share
Net asset value per share is calculated by dividing the net assets attributable to ordinary equity holders of the Company by the number of ordinary shares outstanding at the reporting date. Amounts shown below are both basic and diluted measures as there were no dilutive instruments in issue throughout the current or comparative periods.
Period ended
30 June 2021
-------------------------- -------------
NAV (GBP'000) 234,531
Number of ordinary shares 242,624,281
NAV per share (p) 0.967
-------------------------- -------------
20. Post Balance Sheet Events
Since the period end the following significant events have taken place.
On 13 July 2021, the Company acquired its second US$20m project development tranche in Brazil. The capital investment will be used to fund seven distributed solar generation projects, which will provide over 26MW of energy to a multinational telecommunications company. This tranche forms part of a larger US$63m commitment by GSEO, initially announced on 28 May 2021 to fund the construction of 18 remote distributed generation projects across ten Brazilian states, aiming to generate a total capacity of 75MW.
On 2 August 2021, the Company announced a commitment of GBP50m to acquire a portfolio of distributed solar generation assets with plans to build embedded battery storage capacity. The commitment will be split into two deployment tranches the first of which will be for GBP15m. The first tranche involves the acquisition of two operating solar PV sites, totalling 17MW DC, in South Australia and Queensland, where there are opportunities to support the energy transition utilising energy storage.
On 9 September 2021, the Company committed to GBP78m to fund two Flexible Power plants in the United Kingdom, which bring together high-efficiency gas-fired turbine technology and carbon capture and reuse systems. The plants are aimed at providing a clean and flexible electricity solution that will help firm the grid as more offshore wind comes online in the coming decade. The combined capacity will be 45MW.
21. Controlling Parties
There is no ultimate controlling party of the Company.
Alternative Performance Measures
Alternative Performance Measures ('APMs') are often used to describe the performance of investment companies although they are not specifically defined under IFRS. Calculations for APMs used by the Company are shown below.
Ongoing Charges
A measure expressed as a percentage of average net assets, of the regular, recurring annual costs of running an investment company, calculated in accordance with the AIC methodology.
Period ended 30 June 2021 GBP'000 ---------------------------------------------------------- ---- ------- Average NAV a 236,577 ---------------------------------------------------------- ----- ------- Recurring costs in period from commencement of operations on 2 February 2021 to 30 June 2021 1,545 ----------------------------------------------------------------- ------- Recurring costs (annualised) b 3,810 ---------------------------------------------------------- ----- ------- Ongoing charges b/a 1.6% ---------------------------------------------------------- ----- -------
Premium
The amount, expressed as a percentage, by which the share price is more than the NAV per share.
As at 30 June 2021 ----------------------- -------- ----- NAV per ordinary share a 96.7p ----------------------- --------- ----- Ordinary share price b 99.7p ----------------------- --------- ----- Premium (b-a)/a 3.1% ----------------------- --------- -----
Total Return
A measure of performance that includes both income and capital returns. This takes into account capital gains and reinvestment of any dividends paid out by the Company, with reinvestment on ex-dividend date.
Share
Period ended 30 June 2021 NAV price
---------------------------------------------- -------- ------ ------
Opening as at commencement of operations on 2
February 2021 a 100.0p 100.0p
---------------------------------------------- --------- ------ ------
Closing as at 30 June 2021 b 96.7p 99.7p
---------------------------------------------- --------- ------ ------
Dividend adjustment factor c 1 1
---------------------------------------------- --------- ------ ------
Adjusted closing (d = b x c) d 96.7p 99.7p
---------------------------------------------- --------- ------ ------
Total return (d-a)/a -3.3% -0.3%
---------------------------------------------- --------- ------ ------
n/a = not applicable
Glossary
AIC Association of Investment Companies
--------------------------- --------------------------------------------------------
AIFM Alternative Investment Fund Manager, G10 Capital
Limited
--------------------------- --------------------------------------------------------
Annual General Meeting A meeting held once a year which shareholders can
or AGM attend and where they can vote on resolutions to
be put forward at the meeting and ask directors
questions about the company in which they are invested
--------------------------- --------------------------------------------------------
Company VH Global Sustainable Energy Opportunities plc
--------------------------- --------------------------------------------------------
Decentralised energy Energy which is produced close to where it will
be used, rather than at a large centralised plant
elsewhere, delivered through a centralised grid
infrastructure
--------------------------- --------------------------------------------------------
Discount The amount, expressed as a percentage, by which
the share price is less than the net asset value
per share
--------------------------- --------------------------------------------------------
Dividend Income receivable from an investment in shares
--------------------------- --------------------------------------------------------
EPC Engineering, procurement and construction
--------------------------- --------------------------------------------------------
ESG Environmental, social and governance
--------------------------- --------------------------------------------------------
EU European Union
--------------------------- --------------------------------------------------------
Ex-dividend date The date from which you are not entitled to receive
a dividend which has been declared and is due to
be paid to shareholders
--------------------------- --------------------------------------------------------
Financial Conduct Authority The independent body that regulates the financial
or FCA services industry in the UK
--------------------------- --------------------------------------------------------
FiT Feed-in Tariff
--------------------------- --------------------------------------------------------
GAV Gross Asset Value
--------------------------- --------------------------------------------------------
Gearing A way to magnify income and capital returns, but
which can also magnify losses
--------------------------- --------------------------------------------------------
GHG Green House Gases
--------------------------- --------------------------------------------------------
Investment Adviser / Victory Hill Capital Advisors LLP
Victory Hill
--------------------------- --------------------------------------------------------
Investment Company A company formed to invest in a diversified portfolio
of assets
--------------------------- --------------------------------------------------------
Investment Trust An investment company which is based in the UK and
which meets certain tax conditions which enables
it to be exempt from UK corporation tax on its capital
gains. The Company is an investment trust
--------------------------- --------------------------------------------------------
IPO Initial Public Offering
--------------------------- --------------------------------------------------------
MW Megawatt
--------------------------- --------------------------------------------------------
MWh Megawatt Hour
--------------------------- --------------------------------------------------------
NAV per ordinary share NAV divided by the number of ordinary shares in
issue (excluding any shares held in treasury)
--------------------------- --------------------------------------------------------
Net asset value or NAV An investment company's assets less its liabilities
--------------------------- --------------------------------------------------------
OECD Organisation for Economic Co-operation and Development
--------------------------- --------------------------------------------------------
Ongoing charge The 'ongoing charges' ratio is an indicator of the
costs incurred in the day-to-day management of the
Company, expressed as a percentage of average net
assets. This ratio calculation is based on Association
of Investment Companies ('AIC') recommended methodology
--------------------------- --------------------------------------------------------
Ordinary shares The Company's ordinary shares in issue
--------------------------- --------------------------------------------------------
O&M Operation and Maintenance
--------------------------- --------------------------------------------------------
PPA Power Purchase Agreement
--------------------------- --------------------------------------------------------
Premium The amount, expressed as a percentage, by which
the share price is more than the net asset value
per share
--------------------------- --------------------------------------------------------
PV Photovoltaic
--------------------------- --------------------------------------------------------
ROC Renewable Obligation Certificates
--------------------------- --------------------------------------------------------
SDG Sustainable Development Goals
--------------------------- --------------------------------------------------------
SFDR Sustainable Finance Disclosure Regulation
--------------------------- --------------------------------------------------------
Share price The price of a share as determined by a relevant
stock market
--------------------------- --------------------------------------------------------
SPV Special Purpose Vehicle
--------------------------- --------------------------------------------------------
TCFD Task Force on Climate-Related Financial Disclosures
--------------------------- --------------------------------------------------------
Total return Total return statistics enable the investor to make
performance comparisons between investment trusts
with different dividend policies. The total return
measures the combined effect of any dividends paid,
together with the rise or fall in the share price
or NAV. This is calculated by the movement in the
share price or NAV plus the dividends paid by the
Company assuming these are reinvested in the Company
at the prevailing NAV/share price
--------------------------- --------------------------------------------------------
WACC Weighted Average Cost of Capital
--------------------------- --------------------------------------------------------
Key Company Information
The Board of Directors Bernard Bulkin OBE (Non-Executive Chairman)
Louise Kingham OBE (Non-Executive Director)
Margaret Stephens (Non-Executive Director)
Richard Horlick (Non-Executive Director)
Registered Office 6th Floor
Bastion House
140 London Wall
London
EC2Y 5DN
AIFM G10 Capital Limited
4th Floor
3 More London Riverside
London
SE1 2AQ
Investment Adviser Victory Hill Capital Advisors LLP
Park House
116 Park Street
London
W1K 6SS
Corporate Broker Numis Securities Limited
45 Gresham Street
London
EC2V 7BF
Eversheds Sutherland (International)
Legal Adviser to the Company LLP
One Wood Street
London
EC2V 7WS
Apex Fund and Corporate Services (UK)
Administrator and Company Secretary Limited
6th Floor
Bastion House
140 London Wall
London
EC2Y 5DN
Depositary Apex Depositary (UK) Limited
6th Floor
Bastion House
140 London Wall
London
EC2Y 5DN
Auditor BDO LLP
55 Baker Street
London
W1U 7EU
END
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