Interim Results
15 September 2020
Octopus Renewables Infrastructure Trust plc
("ORIT" or the "Company")
Interim Results
Octopus Renewables Infrastructure Trust plc is pleased to announce its maiden unaudited interim results for the period from incorporation on 11 October 2019 to 30 June 2020.
Highlights
|
|
As 30 June 2020 (unaudited) |
|
NAV per Ordinary Share (p) |
97.58p |
|
Ordinary Share price (p) |
112.2p |
|
Ordinary Share price premium to NAV1 |
15.0% |
|
Dividends per Ordinary Share (p)2 |
1.06p |
|
Net assets in (£ million) |
£341.5m |
|
Ongoing charges ratio1 |
1.24% |
· The Company's oversubscribed IPO took place on 10 December 2019, with the Company being awarded the London Stock Exchange's Green Economy Mark on IPO
· Total shareholder return of 12.2% as at 30 June 2020 1
· Two significant investments were made in the period, one operational solar PV portfolio of subsidised sites across the UK and a construction-ready onshore wind farm in south Sweden
· As at 30 June 2020, the portfolio comprised 9 assets across two countries and two technologies, with total capacity of 171MW 3
· At SPV level, revenues of £7.7 million were generated by the portfolio assets over the period 4
· The UK solar PV portfolio has performed well, with output 7.4% ahead of forecast for the six months ending 30 June 2020
· Construction at Ljungbyholm Wind Farm, the onshore wind project in Sweden, is progressing as planned, with the start of full commercial operations on track for H2 2021
· As at 30 June 2020, the Company had committed approximately 59% of net proceeds raised at IPO in December 2019, with total capital committed of £203 million
· The portfolio is forecast to generate 262GWh of renewable electricity, equivalent to powering 59,000 homes with clean energy and avoiding emissions of 49,000 tonnes of carbon dioxide annually
Post Period End
· Post period end, the Company acquired a 119.5MW portfolio of 14 operating, subsidised solar PV assets across France for 58.9m (£53.4m), plus €99m of existing project finance
· The portfolio today comprises:
|
Technology |
Country |
Sites |
Capacity (MW) |
Average asset life remaining (years) |
Key information |
|
Solar PV |
UK |
8 |
123 |
23.0 |
Operational, ROC Qualifying |
|
Wind |
Sweden |
1 |
48 |
30.0 |
Construction, 12 Turbines |
|
Solar PV |
France |
14 |
120 |
27.2 |
Operational, FiT Qualifying |
· The Company has now committed 75% of the net IPO proceeds into a portfolio spanning 3 countries and 23 assets, with a combined capacity of 291MW, and expects to be fully committed by autumn 2020
· The Investment Manager is pursuing further investment opportunities for the Company from its significant identified pipeline, which stands at £3.8 billion, which includes £1.4bn of opportunities in exclusivity or over which the Investment Manager has submitted non-binding offers
Dividend
· Interim dividend of 1.06 pence per ordinary share for the period from IPO to 30 June 2020, paid on 21 August 2020, in line with the Company's stated dividend target at IPO of a 3% annualised yield (by reference to the IPO issue price of £1.00), equating to 3.18 pence per Ordinary Share for FY 2020. Dividends expected to be declared quarterly henceforth 5
Results presentation today
There will be a presentation for sell side analysts at 9.00am today. Please contact Buchanan for details on octopus@buchanan.uk.com .
Phil Austin, Chairman of Octopus Renewables Infrastructure Trust plc, commented:
'I am delighted to announce our first set of results following the oversubscribed IPO in December 2019. I am very pleased to report that solid progress has been made since IPO, deploying 59% of net proceeds as at 30 June 2020 and following the latest acquisition of solar PV assets, the Company has now committed 75% of net IPO proceeds. The Board remains confident that despite the uncertainty caused by the COVID crisis there continue to be many opportunities that are attractive to ORIT and consistent with its Investment Policy. ORIT is currently pursuing a pipeline of c. £3.8 billion and we are confident that the balance of IPO proceeds will be fully committed during the autumn.
As we globally move towards a carbon neutral future, ORIT is well positioned to be a leader in driving this transition. To mark our commitment to this, alongside our interim results we have today published our Impact Strategy, which sets out our core impact goal of accelerating the transition to net zero, alongside the three lenses through which all ORIT's activities are considered from a responsible investment and impact perspective: Performance, Planet and People, and which is available for download from our website.'
Notes:
1: These are alternative performance measures. Definitions of these and other performance measures used by the Company, together with how these measures have been calculated, are set out in the Interim Report.
2: Dividend for the period from IPO to 30 June 2020, declared and paid post period end.
3: Capacity once constructed.
4: The special purpose vehicles ("SPV") did not distribute any amounts to the Company by way of dividends, shareholder loan repayments or interest and as such the cash generated in the portfolio was retained in the SPVs at period end. The loss at the plc level for the period from incorporation to 30 June 2020 was £1.47 million.
5: The dividend and return targets stated in this announcement are targets only and not profit forecasts. There can be no assurance that these targets will be met, or that the Company will make any distributions at all and they should not be taken as an indication of the Company's expected future results. The Company's actual returns will depend upon a number of factors, including but not limited to the Company's net income and level of ongoing charges. Accordingly, potential investors should not place any reliance on these targets and should decide for themselves whether or not the target dividend and target net total shareholder return are reasonable or achievable. Investors should note that references in this announcement to "dividends" and "distributions" are intended to cover both dividend income and income which is designated as an interest distribution for UK tax purposes and therefore subject to the interest streaming regime applicable to investment trusts.
For further information please contact:
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Octopus Investments Limited (Investment Manager) Matt Setchell, Chris Gaydon
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Via Buchanan |
|
Peel Hunt (Broker) Liz Yong, Luke Simpson, Tom Pocock (Corporate Broking) Alex Howe, Chris Bunstead, Ed Welsby (Sales)
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020 7418 8900 |
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PraxisIFM ( Company Secretary ) Brian Smith, Tom Daish
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020 4513 9260 |
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Buchanan (Financial PR) Charles Ryland, Kelsey Traynor, Hannah Ratcliff
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020 7466 5000 |
Notes to editors
About Octopus Renewables Infrastructure Trust
Octopus Renewables Infrastructure Trust plc is a closed end investment company incorporated in England and Wales focused on providing investors with an attractive and sustainable level of income returns, with an element of capital growth, by investing in a diversified portfolio of renewable energy assets in Europe and Australia. Octopus Investments Limited acts as the Investment Manager to the Company.
Further details can be found at www.octopusrenewablesinfrastructure.com
About Octopus Renewables
Octopus Renewables, part of Octopus Investments and the wider Octopus Group, is a specialist clean energy investment manager with a mission to accelerate the transition to a future powered by renewable energy. Since 2010, Octopus Renewables has, on behalf of its clients, invested in a diverse portfolio of assets with a capacity of over 2.6GW and is now the largest commercial solar investor in Europe and a leading UK investor in onshore wind. Octopus Renewables is co-led by Matt Setchell and Alex Brierley and has over 70 employees in the UK and Australia.
Further details can be found at www.octopusrenewables.com
Chairman's Statement
On behalf of the Board I am pleased to present this first interim report for Octopus Renewables Infrastructure Trust plc for the period from incorporation on 11 October 2019 to 30 June 2020 (the "Interim Report").
Initial Public Offering
On 10 December 2019 the Company's ordinary shares were admitted to trading on the premium segment of the main market of the London Stock Exchange in the Company's oversubscribed IPO. The IPO raised gross proceeds of £350 million through which we were delighted to welcome a very broad range of shareholders to the register.
Deployment
Our investment strategy seeks to take advantage of the energy transition by investing in a diverse portfolio of renewable energy assets. Diversification is a key part of the strategy. The Company's ability to invest in the UK, wider Europe and Australia allows us to take advantage of reduced correlation in power prices. Alongside the ability to invest in a range of technologies, principally solar and onshore wind, this broad geographical scope also diversifies the influence of weather patterns, and prevents reliance on any single regulatory regime for renewables. We also aim to minimise concentration risk via investing across a large number of projects.
I am very pleased to report that solid progress has been made deploying the proceeds of the IPO in line with this diversification strategy. During the period, the Company completed two acquisitions, which together account for 59% of the net IPO proceeds. In addition a further post- balance sheet date investment was completed such that, as at the date of publication of this report, the Company has now committed 75% of the net IPO proceeds.
· Our first transaction completed on 10 March 2020 and was the acquisition of the Ljungbyholm Wind Farm in Sweden from OX2, a leading developer and constructor of renewable energy projects in Scandinavia. The total investment in the 48MW construction ready wind farm was €69 million which will be disbursed as the construction progresses.
· We completed our second investment on 20 March 2020, with the acquisition of a portfolio of 8 subsidised, operational solar PV sites in the UK. This portfolio was one of the "Pipeline Assets" described in our IPO prospectus.
· Since the period end, we have also invested in a portfolio of operating solar PV assets across France. These assets benefit from feed-in tariffs and therefore will receive a fixed price for their energy output for the next 12.5 years.
As at 30 June 2020, the Company's portfolio spans 9 assets across 2 countries and includes onshore wind and solar, construction and operational sites, and a blend of government backed subsidies, power purchase agreements and uncontracted sale strategies. By the date of publication of this report our reach has expanded to cover 23 assets across 3 countries.
Results
Over the period since IPO the NAV per ordinary share has reduced from 98 pence to 97.6 pence at 30 June 2020. This small decrease reflects the slightly slower than anticipated deployment of funds such that the return on the Company's investments has been less than the Company's expenses during the period. However, despite the reduction in energy demand and drops in short and medium term power prices due to the COVID-19 pandemic, the beneficial timing of our IPO and recent transactions has enabled the vast majority of the recent energy price falls to be incorporated into the prices paid for investments, shielding the Company from significant valuation falls that have been seen across the market. Total shareholder return has been very strong delivering a 12.2% return over the six and a half months from IPO.
The portfolio assets generated revenues of £7.7 million in the period to 30 June 2020, however the special purpose vehicles ("SPV") did not distribute any amounts to the Company by way of dividends, shareholder loan repayments or interest and as such the cash generated by the portfolio was retained in the SPVs at period end. The loss at the plc level for the period from incorporation to 30 June 2020 was £1.47 million, primarily driven by Company expenses, resulting in earnings per share of -0.54 pence per share. The annualised ongoing charges ratio ("OCR") is 1.24%.
Portfolio Performance
The performance of the operating UK solar PV assets during the period has been strong against budget, with the UK experiencing the 'sunniest' month on record in May 2020 according to the UK Met Office. This overperformance has been offset in part by lower power prices due to the drop in demand as the UK entered lockdown. Meanwhile the construction of the Ljungbyholm Wind Farm in southern Sweden has been largely unaffected by the COVID crisis. The start of operations remains on target and is currently forecast to commence in mid-2021.
Dividend
As outlined in the IPO prospectus the Company is targeting an initial annualised dividend yield of 3% by reference to the IPO price of £1.00 in respect of the financial period from IPO on 10 December 2019 to 31 December 2020 (equating to 3.18 pence per share for FY 2020), rising to a target annualised dividend yield of 5% by reference to the IPO price in respect of the financial year to 31 December 2021. Thereafter, the Company intends to adopt a progressive dividend policy.
The Board was pleased to announce an interim dividend of 1.06 pence per share for the period from IPO to 30 June 2020, which was paid in August. The interim dividend was fully covered by the net cashflows generated at SPV level by the UK solar PV assets in the period from 1 January 2020 to 30 June 2020. The Board intends to declare dividends on a quarterly basis henceforth.
COVID-19
Over the first half of this year the global economy was rocked by the extraordinary events of the coronavirus pandemic. The reduction in economic activity has led to a material fall in power prices whilst 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, whilst the Investment Manager, Administrator and other key service providers have been able to operate effectively with robust systems and staff working from home.
Outlook
Our portfolio today benefits from a high level of fixed, contracted revenues which should offer some downside protection should there be a prolonged period of low power prices. The Board remains confident that despite the uncertainty caused by the COVID crisis, there continue to be many opportunities that are attractive to ORIT and consistent with our Investment Policy. The Investment Manager is currently pursuing a pipeline of c.£3.8 billion and we are confident of committing the balance of the IPO proceeds this autumn. Governments across ORIT's target markets are now regularly talking about green-led recoveries with some either extending or establishing new frameworks for supporting further growth in renewables. Equipment costs continue to fall whilst technology is enabling more and more renewables to be connected to the grid. With its wide and flexible mandate, ORIT is well placed to take advantage of these fast-moving dynamics.
Impact Investing
Investing for a positive impact lies at the heart of ORIT's investment objective, given the inherent benefits of renewable energy assets. This asset class doesn't require a trade-off between returns and responsible investment. It presents investors an attractive investment opportunity whilst helping the planet to decarbonise and move towards net zero. Environmental, Social and Governance ("ESG") principles thread their way through the investment process and ongoing management of the assets alongside specific initiatives to drive greater impact.
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 ORIT is having on communities and the environment. Furthermore, we intend to adopt reporting standards as they are developed and adopted by industry, such as those being developed by the Task Force on Climate-related Financial Disclosures ("TCFD").
I am delighted to be publishing the Company's Impact Strategy alongside this first Interim Report. This sets out our core impact goal of accelerating the transition to net zero alongside the three lenses through which all ORIT's activities are considered from a responsible investment and impact perspective: Performance, Planet and People.
· Performance: ESG need not be a cost to the Company and the Impact Objectives do not conflict with the core investment objective; instead we see ESG as prudent risk management tool that improves the financial performance of the Company while reducing risks
· Planet: investing in renewable energy assets is core to what we do, but we also look to protect the planet by improving flora and fauna habitats in and around our projects and by taking action to monitor and reduce carbon emissions associated with our investment activity
· People: alongside mitigating risks to people and keeping them safe, we aim to support those who neighbour our renewable energy assets and who work in our supply chains
As economies around the world move towards a carbon neutral future, the Company is well positioned to be a leader in driving this transition.
On behalf of the Board I would like to thank shareholders for their support since IPO and we look forward to delivering yield and growth whilst driving a positive impact on the environment and society.
Phil Austin MBE
Chairman
Octopus Renewables Infrastructure Trust plc
Directors
ORIT's Board of Directors, all of whom are non-executive and independent of the Investment Manager, are listed below. Each of them cares passionately about ORIT's impact ambitions alongside delivering on the Company's investment objectives.
Phil Austin MBE
Non-executive Chair
Spent most of career in banking with HSBC in London and, latterly, in Jersey as Deputy CEO of the Bank's Offshore business. Founding CEO of Jersey Finance Ltd, the body that represents and promotes the Island's finance industry, both at home, and internationally.
Non-executive director of portfolio containing both private and publicly owned businesses.
Chairman of Jersey Electricity plc.
Fellow of the Chartered Institute of Bankers and a Fellow of the Chartered Management Institute.
Awarded an honorary doctorate in business from the University of Plymouth (October 2015) and an MBE in the Queen's New Year's honours list (January 2016).
"The opportunity to launch a new public vehicle to accelerate the transition to a clean energy future was a very exciting one, applying sound ESG investment principles, whilst seeking to improve both the social and environmental impacts of those investments."
Audrey McNair
Non-executive Director and Chair of the Audit Committee
Non-executive director of Jupiter Emerging and Frontier Income Trust plc and the British Friendly Society.
Executive career across buy and sell side in City of London, gaining extensive knowledge of regulatory, governance and investment management processes and products.
Worked at Aberdeen Asset Management plc from May 2008 to March 2016, starting as Head of Internal Audit (EMEA) and becoming Global Head of Business Risk and responsible for the group's risk management framework and internal capital adequacy assessment.
"Joining the ORIT board provided me with an exciting opportunity to apply my risk management and governance experience within a sector that takes its societal responsibility and commitment to impact investing seriously. The combination of a dynamic and growing asset class being wrapped in the well established and stable vehicle of an Investment Trust was also an attractive feature of ORIT."
James Cameron
Non-executive Director
An award-winning authority in the global climate change movement and a qualified Barrister with 30+ years' experience, James serves on a number of boards and advisory committees across business, finance, legal, academic and government organisations.
James is an Executive Fellow at Yale University, associated with the Yale Centre of Environmental Law and Policy and holds advisory positions at the University of Oxford's Environmental Change Institute, Oxford Martin School, and the Smith School of Enterprise and the Environment.
James co-founded and chaired investment bank Climate Change Capital in 2003 and is on the board of the Overseas Development Institute (ODI) serving 8 years as Chairman. He is a London Sustainable Development Commissioner and a friend of COP26.
"It's been a tremendous experience joining the ORIT Board, joining a first class team, building a portfolio of renewable energy assets and proving the immense value to investors and society alike from delivering power without greenhouse gas emissions. It has also been an impressive performance to deploy capital and produce returns during the COVID crisis, which in turn points the way for economies to rebuild making for a greener and more resilient future."
Elaina Elzinga
Non-executive Director
Currently a Principal in Investments at the Wellcome Trust, a global charity committed to improving human health and funded from a diverse, unconstrained portfolio of over US$35 billion.
Previously investment banker and investment manager at Goldman Sachs.
Lead of the Absolute Return and Agriculture team, focusing on uncorrelated investments including hedge funds, credit and strategic landholdings. Covers the natural resources sector, with a strong interest in the energy transition. Director of Farmcare, Wellcome's wholly owned UK agriculture company.
CFA Charterholder and read History at the University of Cambridge.
"The world of renewables investing is evolving at a rapid pace, and is one of the major secular tailwinds of our generation. Joining the ORIT board was an unmissable opportunity to contribute further to this monumental energy transition. I believe that attractive, sustainable returns for investors should go hand-in- hand with delivering positive social and environmental change, and Octopus' vision for the investment trust matched this philosophy perfectly."
Investment Policy
The Company will seek to achieve its investment objective through investment in renewable energy assets in Europe and Australia.
These comprise (i) predominantly assets which generate electricity from renewable energy sources, with a particular focus on onshore wind farms and photovoltaic solar ("solar PV") parks, and (ii) non-generation renewable energy related assets, in each case either already operating, in construction or construction ready (together "Renewable Energy Assets").
In construction or construction ready Renewable Energy Assets are assets that have in place the required grid access rights, land consents, planning and regulatory consents.
The Company intends to invest both in a geographically and technologically diversified spread of Renewable Energy Assets and, over the long term, it is expected that: (i) investments located in the UK will represent less than 50% of the gross asset value of the total assets of the Company as determined with the accounting principles adopted by the Company from time to time ("Gross Asset Value"); (ii) investments in any single country other than the UK will represent no more than 40% of Gross Asset Value; (iii) investment in onshore wind farms will not exceed 60% of Gross Asset Value; and (iv) investment in solar PV parks will not exceed 60% of Gross Asset Value.
The Company may acquire a mix of controlling and non-controlling interests in Renewable Energy Assets and may use a range of investment instruments in the pursuit of its investment objective, including but not limited to equity and debt investments. A controlling interest is one where the Company's equity interest in the Renewable Energy Asset is in excess of 50%.
In circumstances where the Company does not hold a controlling interest in the relevant investment, the Company will secure its shareholder rights through contractual and other arrangements, to, inter alia, ensure that the Renewable Energy Asset is operated and managed in a manner that is consistent with the Company's investment policy.
Investment Restrictions
The Company aims to achieve diversification principally through investing in a range of portfolio assets across a number of distinct geographies and a mix of wind, solar and other technologies. Once fully invested and substantially fully geared (meaning for this purpose borrowings by way of long-term structural debt of 35% of
"Gross Asset Value"), the Company will observe the following investment restrictions
when making investments:
· the Company may invest up to 32.5% of Gross Asset Value in one single asset, up to 27.5% of Gross Asset Value in a second single asset, and the Company's investment in any other single asset shall not exceed 20% of Gross Asset Value; and
· the Company's portfolio will comprise no fewer than six Renewable Energy Assets.
The Company will also observe the following investment restrictions when making investments:
· no more than 20% of Gross Asset Value will be invested in Renewable Energy Assets which are not onshore wind farms and solar PV parks;
· no more than 25% of Gross Asset Value will be invested in assets in relation to which the Company does not have a controlling interest;
· no more than 33% by number of the Company's investments in Renewable Energy Assets will be invested in assets in relation to which the Company does not have a controlling interest;
· the Company will not invest in other UK listed closed-ended investment companies;
· neither the Company nor any of its subsidiaries will conduct any trading activity which is significant in the context of the Company and the other companies in its group for the purposes of section 606 of the Corporation Tax Act 2010 ("CTA 2010") (the "Group") as a whole; and
· no investments will be made in fossil fuel assets.
Compliance with the above restrictions will be measured at the time of investment and non-compliance resulting from changes in the price or value of assets following investment will not be considered as a breach of the investment restrictions.
In addition to the above investment restrictions, following the Company becoming fully invested and substantially fully geared (meaning for this purpose borrowings by way of long-term structural debt of 35% of Gross Asset Value) at the time of an investment or entry into an agreement with an Offtaker, the aggregate value of the Company's investments in Renewable Energy Assets under contract to any single Offtaker will not exceed 40% of Gross Asset Value.
The Company will hold its investments through one or more special purpose vehicles owned in whole or in part by the Company or one of its affiliates (being an affiliate of, or person affiliated with, the Company, including a person that directly, or indirectly through one or more intermediate holding companies, controls or is controlled by, or is under common control with, the Company) which is used as the project company for the acquisition and holding of a Renewable Energy Asset ("SPV") and the investment restrictions will be applied on a look-through basis.
Borrowing Policy
The Company may make use of long-term limited recourse debt to facilitate the acquisition or construction of Renewable Energy Assets to provide leverage for those specific investments. The Company may also take on long-term structural debt provided that at the time of drawing down (or acquiring) any new long-term structural debt (including limited recourse debt), total long-term structural debt will not exceed 40% of the prevailing Gross Asset Value at the time of drawing down (or acquiring) such debt. For the avoidance of doubt, in calculating gearing, no account will be taken of any investment in Renewable Energy Assets that are made by the Company by way of a debt investment.
In addition, the Company may make use of short-term debt, such as a revolving credit facility, to assist with the acquisition or construction of suitable opportunities as and when they become available. Such short-term debt will be subject to a separate gearing limit so as not to exceed 25% of the prevailing Gross Asset Value at the time of drawing down (or acquiring) any such short-term debt.
The Company may employ gearing at the level of an SPV, any intermediate subsidiary of the Company or the Company itself, and the limits on total long-term structural debt and short-term debt shall apply on a consolidated basis across the Company, the SPVs and any such intermediate holding entities (but will not count any intra-Group debt).
In circumstances where these aforementioned limits are exceeded as a result of gearing of one or more Renewable Energy Assets in which the Company has a non-controlling interest, the borrowing restrictions will not be deemed to be breached.
However, in such circumstances, the matter will be brought to the attention of the Board who will determine the appropriate course of action.
Currency and Hedging Policy
The Company has the ability to enter into hedging transactions for the purpose of efficient portfolio management. In particular, the Company may engage in currency, inflation, interest rates, electricity prices and commodity prices (including, but not limited to, steel and gas) hedging. Any such hedging transactions will not be undertaken for speculative purposes.
Cash Management
The Company may hold cash on deposit and may invest in cash equivalent investments, which may include short-term investments in money market type funds ("Cash and Cash Equivalents").
There is no restriction on the amount of Cash and Cash Equivalents that the Company may hold and there may be times when it is appropriate for the Company to have a significant Cash and Cash Equivalents position. For the avoidance of doubt, the restrictions set out above in relation to investing in UK listed closed-ended investment companies do not apply to money market type funds.
Changes to and Compliance with the Investment Policy
Any material change to the Company's investment policy set out above will require the approval of shareholders of the Company ("Shareholders") by way of an ordinary resolution at a general meeting and the approval of the FCA.
Our Investment Manager
Octopus Renewables, part of Octopus Investments and the wider Octopus Group, is a specialist clean energy investment manager with a mission to accelerate the transition to a future powered by renewable energy.
Since 2010, Octopus Renewables has, on behalf of its clients, invested in a diverse portfolio of assets with a capacity of over 2.6GW and is now the largest commercial solar investor in Europe and a leading UK investor in onshore wind, with assets under management valued at c.£3.4 billion. Of those investments c.£1.8 billion has been invested in solar and wind assets at construction stage. Octopus Renewables has over 70 employees in the UK and Australia across four teams: Transactions, Energy Markets, Asset Management and Fund Management and Operations.
The Investment Manager has established a robust investment and due diligence process to ensure that each of the investments acquired by ORIT complies with the Company's investment policy and Performance, Planet and People objectives. This includes an assessment against the Company's ESG Policy to ensure consideration is given to the wider stakeholder impacts and risks inherent in the Company's investments and decision making.
Whilst ORIT benefits from the breadth of the Investment Manager's whole team of over 70 professionals and a range of external professional advisors, within the Investment Manager, Matt Setchell and Chris Gaydon are the named Fund Managers for ORIT.
Matt Setchell
Co-head of Octopus Renewables
Matt is co-head of Octopus Renewables, a team that he started ten years ago and has built to over 70 people with over £3.4 billion of energy assets under management.
During this time, Matt led Octopus' investment into Lightsource Renewable Energy (now Lightsource BP) and oversaw the growth of that business from start up to exit. He also led the team's expansion strategy from an initial focus on UK solar PV into onshore wind and other renewable energy assets across Europe and Australia.
Matt is chairman of the Octopus Renewables Investment Committee and a member of the Investment Manager's Executive Committee.
Prior to joining the Octopus Group, Matt was an investment manager at Shore Capital and a manager at PwC. He has an MBA from Cambridge University and an Economics degree from Bristol University.
"We've been humbled by the support for ORIT both at IPO and in the year to date. I am excited and confident about building ORIT into the leading platform for investors to make a positive impact on the planet whilst delivering on our performance targets."
Chris Gaydon
Investment Director
Chris joined Octopus Renewables as an investment director in 2015, is a long-standing member of the Octopus Renewables Investment Committee and a director of several of Octopus Renewables' wind and solar special purpose vehicles.
Chris originated and led one of the largest wind farm portfolio acquisitions in the UK valued at c. £320 million and led the transaction team that delivered over £1 billion of debt and equity transactions. Chris now focuses on the origination of acquisition opportunities and fundraising, as well as strategic investments in related sectors.
Prior to joining Octopus, Chris was a business development director at Falck Renewables where he had a range of roles, including in M&A and leading greenfield development in France and Poland. Chris holds a Bachelor of Commerce (Finance) degree and a Bachelor of Engineering (Chemical) degree from the University of Sydney.
"The world is experiencing a fundamental shift in how we generate and use energy. I look forward to giving investors greater access to the enormous opportunities created by this energy transition."
Investment Manager's Report
For the period ended 30 June 2020
|
2 |
£203m |
59% |
|
Investments made in the period |
Total committed capital |
IPO proceeds committed |
During the period under review, the Company announced two acquisitions. On 10 March 2020, the Company made its first investment, acquiring 100% of Ljungbyholm Wind Farm, a construction-ready onshore wind farm project in south Sweden. The acquisition was made for a total cash consideration, including future construction payments, of €68 million (£59 million).
On 20 March 2020, the Company acquired a 100% interest in a portfolio of solar PV assets located throughout the UK for an initial cash consideration of £144.3 million. The portfolio consists of 8 fully operational solar PV assets, with a capacity of 122.8MW, that qualify under the Renewable Obligation Certificate ("ROC") regime.
As at 30 June 2020, the Company had committed approximately 59% of the net proceeds raised at its IPO in December 2019. Post the period end, the Company announced the acquisition of a portfolio of subsidised solar PV assets in France for a cash consideration of €58.9 million (£53 million) with existing debt of €99 million (£89 million) resulting in 75% of IPO proceeds being committed.
Portfolio Breakdown
|
Site name |
Technology |
Country |
Capacity (MW) |
Phase |
Start of operations |
Remaining asset life |
|
Penhale |
Solar |
UK |
4 |
Operational |
18/03/13 |
22 |
|
Ottringham |
Solar |
UK |
6 |
Operational |
07/08/14 |
24 |
|
Wiggin Hill |
Solar |
UK |
11 |
Operational |
10/03/15 |
20 |
|
Chisbon |
Solar |
UK |
12 |
Operational |
05/03/15 |
20 |
|
Westerfield |
Solar |
UK |
13 |
Operational |
25/03/15 |
25 |
|
Wilburton 2 |
Solar |
UK |
19 |
Operational |
29/03/14 |
23 |
|
Abbots Ripton |
Solar |
UK |
25 |
Operational |
28/03/14 |
24 |
|
Ermine Street |
Solar |
UK |
32 |
Operational |
29/07/14 |
24 |
|
Ljungbyholm |
Wind |
Sweden |
48 |
Construction |
- |
30 |
Portfolio Performance
Operational Performance
Since acquisition the Company's operational solar portfolio in the UK has performed well. In the six months ending 30 June 2020, output was 63,906 MWh, 7.4% ahead of forecast. The main contributor was significantly higher levels of irradiation than expected in January to May. This was offset by inverter underperformance caused predominantly by high temperatures which put additional stress on the equipment alongside unplanned outages due to essential Distribution Network Operator ("DNO") works. As part of its active management of the portfolio, the Investment Manager participated in the National Grid Optional Downward Flexibility Management ("ODFM") initiative which protected revenues from grid turndowns. Further information on performance initiatives driven forward by the Investment Manager that mitigated risks to operational performance can be found in the Performance initiatives within the Impact Report.
Financial Performance
Despite significant headwinds from falling wholesale energy prices, financial performance of the underlying assets in the period has been strong, with generated revenues of £7.7 million, 4.5% ahead of forecast. Total EBITDA for the portfolio of assets was £6.2 million representing a 6.2% improvement on the investment case. Outperformance was principally due to operational performance, offset by market pricing which was down 9% on forecast.
Construction
Despite the impact of COVID-19 on construction projects across Europe, our Swedish wind construction project, Ljungbyholm Wind Farm, is progressing as planned.
Since acquisition, the Investment Manager and third-party construction partners have conducted a thorough foundation design review alongside completing the site preparations and road access construction. With those completed, construction of foundations started in August 2020. The start of full commercial operations remains on track for H2 2021.
Revenues
Figure 1, found on page 20 of the Interim report for the period to 30 June 2020, illustrates the forecast revenues breakdown by type from 2020 through to 2050. Over the next 15 years, the portfolio benefits from substantial levels of fixed-price revenues predominantly arising from government-backed subsidies. The acquisition of the French assets post-period end has further increased the proportion of fixed-price revenues.
Figure 2, also found on page 20 of the Interim report for the period to 30 June 2020, illustrates the share of fixed and variable revenues for the portfolio, including projects in construction, over the next two years. As at 30 June 2020, we forecast 64% of ORIT's revenues over the next two years are fixed. Fixed-price revenues arise from either subsidies, such as Renewable Obligation Certificates ("ROCs") or fixed power prices under Power Purchase Agreements ("PPAs") with offtake counterparties.
Diversification
The portfolio benefits from geographical and technological diversification. Based on historic weather data from 2000-2016, the Investment Manager has analysed monthly production correlation between a typical UK solar asset and a Swedish wind asset (based in the SE4 zonal pricing region where Ljungbyholm Wind Farm is situated). The analysis shown in Figure 3, which can be found on page 21 of the Interim report for the period to 30 June 2020, indicates a moderate negative correlation between UK solar and the Swedish wind asset of c.-0.5. In essence, higher UK solar production months would typically be expected to coincide with lower Swedish wind production and vice versa.
Financing
At the end of the period neither the Company nor its subsidiaries had any external borrowings. Post period end, the Company has acquired a portfolio of French solar PV assets with amortising debt of €99 million which matures in 2033.
Portfolio Valuation
Regular valuations are undertaken for the Company's portfolio of assets. The process follows International Private Equity Valuation Guidelines using a discounted cashflow ("DCF") methodology. DCF is deemed the most appropriate methodology where a detailed projection of likely future cash flows is possible. Due to the asset class and available market data over the forecast horizon, a DCF valuation is typically the basis upon which renewable assets are traded in the market. Key macroeconomic and fiscal assumptions for the valuations are set out in Note 9 to the Interim Financial Statements.
Figure 4, found on page 22 of the Interim report for the period to 30 June 2020, illustrates the total fair value of the Company's investments as at 30 June 2020 was £162.9 million, reflecting acquisitions and capital injections during the period of £161.9 million alongside changes to economic, wholesale energy and asset specific assumptions. Including the Company's and its intermediate Holding Company's other assets of £178.6 million, the total portfolio value as at 30 June 2020 is £341.5 million or 97.6 pence per ordinary share.
|
|
30 June 2020 (£m) |
|
Investment value at 11 October 2019 |
0 |
|
Acquisitions in the period |
161.9 |
|
Changes in economic assumptions |
(1.5) |
|
Changes in power price forecasts |
(1.5) |
|
Balance of portfolio return |
4.0 |
|
Fair value of portfolio of assets at 30 June 2020 |
162.9 |
|
PLC and intermediate holding company net assets |
178.6 |
|
Unaudited net asset value as at 30 June 2020 |
341.5 |
Acquisitions in the period
Acquisitions in the period total £161.9 million. This comprises the acquisition of the UK solar portfolio totalling £144.3 million and the initial acquisition of £13.9 million and ongoing construction payments to date of £3.7 million relating to the Ljungbyholm Wind Farm. This does not include future construction payments due on the Ljungbyholm Wind Farm of £43.4 million.
Economic assumptions
The main economic assumptions used in the portfolio valuation are inflation rates, interest rates, foreign exchange rates and tax rates. Whilst COVID-19 has caused significant economic damage which goes beyond these metrics, the main impact of this for renewable energy assets has been the effect of reduced demand on near-term power prices. In the long-term COVID-19 is not expected to lead to changes in the main economic assumptions listed above, and as such these have remained unchanged since the investments made in Q1 2020. However COVID-19 has caused a reduction in near-term CPI and RPI forecasts, leading to a small downward movement in the value of inflation-linked revenues.
Power prices
The power prices used in the valuations are based on market forward prices in the near- term, followed by an equal blend of up to three independent and widely-used market consultants' technology-specific capture price forecasts for each asset.
The acquisitions ORIT has made to date have captured in the prices paid for investments the majority of the recent falls in near term power price forecasts, shielding the portfolio from the significant valuation adjustments seen across the market. However, since transacting there has been further softening in medium to long-term pricing from ORIT's market forecast providers as these advisors have refined their views on the shape of the post-COVID-19 recovery which has put downward pressure on valuations, particularly in respect of the Ljungbyholm Wind Farm. This has led to a £1.5 million reduction in the value of the portfolio at 30 June 2020. The forecasted prices for the portfolio from 2020 to 2050 are illustrated in Figure 5 contained on share of fixed 24 of the Interim report for the period to 30 June 2020. This shows the forecasted power only generation weighted prices ("Power only GWP") and the generation weighted prices including subsidies and additional benefits ("Total GWP"). The curves are blended across the Great Britain and SE4 (Malmo) region of Sweden weighted by the portfolio generation mix and converted into £/MWh using the FX swap forward curve from 30 June 2020. On average, the graph shows Power only GWP of £34.45/MWh in the period 2020-2024 and £45.38/ MWh in the period 2025-2050.
Balance of portfolio return
This refers to the balance of valuation movements in the period excluding the factors noted above and represents an uplift of £4.0m. This movement mostly reflects the net present value of future cashflows being brought forward from the valuation date used for the acquisitions to 30 June 2020.
Portfolio valuation sensitivities
Figure 6, contained on page 25 of the Interim report for the period to 30 June 2020, shows the impact of changes to the key input assumptions on NAV with the x axis indicating the impact of the sensitivities on the NAV per share. The sensitivities are based on the existing portfolio of assets as at 30 June 2020 and as such may not be representative of the sensitivities once the Company is fully invested. For each of the sensitivities shown, it is assumed that potential changes occur independently with no effect on any other assumption.
Volumes
Our underlying assumption set assumes a "P50" level of electricity output based on reports by technical advisors. The P50 output is the estimated annual amount of electricity generation that has a 50% probability of being exceeded - both in any single year and over the long term - and a 50% probability of being underachieved. The P50 provides an expected level of generation over the long term.
The P90 (90% probability of exceedance over a 10-year period) and P10 (10% probability of exceedance over a 10-year period) sensitivities reflect the future variability of wind speed and solar irradiation and the associated impact on output, along with the uncertainty associated with the long-term data sources used to calculate the P50 forecast. The sensitivities shown assume that the output of each asset in the portfolio is in line with the P10 or P90 output forecast respectively for each year of the asset life.
Foreign Exchange
The Company seeks to manage its exposure to foreign exchange movements to ensure that (i) the Sterling value of known future construction commitments is fixed; (ii) sufficient near-term distributions from non-sterling investments are hedged to maintain healthy dividend cover; (iii) the volatility of the Company's NAV with respect to foreign exchange movements is limited; and (iv) all settlements and potential mark-to-market payments on instruments used to hedge foreign exchange exposure are adequately covered by the Company's cash balances and undrawn credit facilities.
Of the portfolio as at 30 June 2020, 29% (by fully constructed value) is situated in Sweden. Notwithstanding some small Swedish Krona expenses, the majority of the revenues and operational expenses for the Swedish investment are Euro denominated, and Euro hedges are in place for all construction payments as well as forecast cash generation from the investment for just over three years of operations. The sensitivity shown in Figure 6 shows the impact on NAV per share of a +/- 10% movement in the GBP:EUR exchange rate.
Discount Rate
A range of discount rates are applied in calculating the fair value of the investments, considering the location, technology and lifecycle stage of each asset as well as leverage and the split of fixed and variable revenues. The sensitivity shown in Figure 6 shows the impact of a plus or minus 0.5% movement in the weighted average cost of capital applied in the valuation of each asset.
Inflation
The sensitivity assumes a 0.5% increase or decrease in inflation relative to the base case for each year of the asset life.
Power Price Curve
As described above the power price forecasts for each asset are based on a number of inputs. The sensitivity assumes a 10% increase or decrease in power prices relative to the base case for each year of the asset life.
Market Outlook
The period since IPO has been a turbulent one for the renewables sector. Even before the impact of COVID-19 came to be felt directly in Europe, significant falls in power prices had occurred both in spot and near-term forward markets, as well as in longer term advisor forecasts. The near-term movements were substantially driven by commodity prices, particularly gas. High storage levels across Europe due to milder than average weather, high shipments of Liquid Natural Gas ("LNG") to Europe and the oil price 'war' between Russia and Saudi Arabia all contributed to this. Longer-term price forecasts were also heavily influenced by gas price assumptions.
The timing of the Company's acquisitions meant that the vast majority of these falls in power prices were taken account of in the prices paid for the assets, as well as much of the impact of subsequent reductions in power prices due to COVID-19, whereby lockdowns across Europe led to reductions in demand for both power and commodities from the industrial and commercial sectors. Figure 7, which can be found on page 27 of the Interim report for the period to 30 June 2020, depicts the blended forward prices across the Great Britain and SE4 (Malmo) region of Sweden. Since the lows of late March the power forward markets have recovered, particularly over the course of June.
The economic, social and business disruption effects of the COVID-19 pandemic continue to evolve. The medium-term market effects remain hard to predict. However while no asset class is perfectly insulated from COVID-19, renewable generation has shown itself to be less affected than other industries, with output volumes far more resilient to demand reductions than many other infrastructure sub-sectors, and prices in many cases contracted with government-backed or other entities expected to remain financially viable throughout and beyond the immediate crisis. In addition, governments across the Company's target markets, as well as the European Commission and European Council, have been united in their calls for a 'green-led recovery', which should serve to add to the existing momentum behind decarbonisation and 'net-zero', and increase the scale of the investment opportunity.
The UK, Iberia, Nordic region and France continue to provide a steady flow of opportunities, with differing characteristics. The French projects typically benefit from a long term, government backed, fixed price offtake, whereas new projects in Iberia and the Nordics are typically reliant on merchant power market revenues or shorter-term utility or corporate power purchase agreements ("PPA"). Operational UK projects typically have a mixture of government subsidies via the Renewable Obligation Certificate regime ("ROC") and power market revenues whilst onshore wind and solar projects are expected to be able to secure tariffs in forthcoming government auctions.
Beyond these core markets, expanded incentive schemes in Poland are generating interest, as well as strong near-term opportunities in the Netherlands and Germany. In Ireland 1.3GW of new build onshore wind and solar PV projects have been provisionally awarded government-backed support in the recent Renewable Electricity Support Scheme ("RESS") auction, whilst a steady flow of operational sites benefitting from the previous support scheme continues to come to market.
Asset valuations (in absolute terms) over the course of the COVID-19 crisis have remained broadly stable, however this apparent stability masks two opposing trends. As described above, the sector has seen material near term power price falls and some reduction in long-term advisor forecasts. This negative effect has been offset in part by significant increased investor appetite for renewable energy assets as the benefits of being a zero marginal cost generator have become clear to investors. As power prices fall, renewable assets always remain 'in merit' and are not exposed to potential long periods of shut down that may face traditional forms of electricity generation. This increase in demand, particularly for operational assets with fixed revenues, is reflected in the downward trend in discount rates observed in the market.
Notwithstanding the increased investor demand, we see attractive opportunities for the Company to invest in line with its target returns and for its investors to take advantage of the continued growth in momentum behind the transition to renewable energy.
'Levelised costs of electricity' from new-build wind and solar projects continue to fall as equipment costs decline. Depending on location, wind and solar projects are now the most competitive forms of electricity generation. Furthermore, governments across ORIT's target markets are promoting a 'green-led recovery' from the COVID-19 crisis. This is heightening expectations of continued or improved support mechanisms for renewables. Recent announcements have included the approval by the Spanish government of a Royal Decree laying the framework for rolling renewables auctions and freeing up grid connections, while the Polish government has indicated an extension to their subsidy auction mechanism. This is in addition to the announcements earlier in 2020 from the UK government of renewed support for onshore wind and solar PV, and from the French government increasing the capacity to be supported by auctions in the period to 2028.
We continue to see new opportunities to acquire both operational portfolios and ready-to-build sites coming to market. Since IPO the pipeline of assets identified by the Investment Manager as potentially suitable for acquisition by the Company has increased and now stands at £3.8 billion, with the value of the pipeline in exclusivity or over which the Investment Manager has submitted non-binding offers reaching £1.4 billion as at the date of publication of this report.
Impact Report
Core Impact Objective:
Accelerate the transition to net zero through our investments, building and operating a diversified portfolio of renewable energy assets.
Highlights
As at 30 June 2020
|
£203m |
262GWh |
59k |
|
Committed into Renewables |
Potential Renewable Electricity |
Equivalent Homes Powered by clean energy1 |
|
49k |
243k |
18k |
|
Estimated tonnes of carbon avoided2 |
Equivalent new trees required to avoid the same carbon3 |
Equivalent cars off the road to avoid the same carbon4 |
*All metrics are calculated based on an estimated annual production of the whole portfolio once fully constructed.
1 Homes Powered is based on latest regional average household consumption in the region of production
2 Carbon avoided is calculated using the International Financial Institution's approach for harmonised GHG accounting
3 Trees equivalent is based on UK Woodland and Peatland carbon statistics
4 Equivalent cars is calculated using a factor for displaced cars derived from the UK government GHG Conversion Factors for Company reporting
Impact Strategy
ORIT classifies itself as an impact fund with a core impact objective of accelerating the transition to net zero through its investments.
ORIT enables individuals and institutions to invest directly into a portfolio of renewable energy assets. This is a powerful tool, which not only enables people to invest in line with their values, but also helps to facilitate the transition to a more sustainable future.
In an ambition to bring Environmental, Social, Governance ("ESG") and Impact to life, ORIT alongside our Investment Manager has developed an Impact Strategy which considers all of ORIT's activities through three lenses: Performance, Planet and People. This strategy defines ESG and Impact as:
· ESG - a vital risk management approach to identify and mitigate a range of potential issues to protect, and hopefully enhance, the long-term value of our investments
· Impact - what an investment does to the environment or society
Our investments are long-term and therefore require a long-term view to be taken both in the initial investment decisions and in the subsequent asset management, adopting long term and sustainable business practices. Beyond the core impact objective of accelerating the transition to net zero, ORIT will seek to generate additional impact through Performance, Planet and People impact initiatives.
This Impact Report outlines key initiatives undertaken in the period.
More details and background information related to the Company's Impact Strategy and can be found in the separately published Impact Strategy.
Performance
Impact Objective:
Achieve target financial returns and ultimate investment success, mitigating the risk of losses through robust governance structures, rigorous due diligence, risk analysis and asset optimisation activities.
Delivering the investment objective
The Board view the Impact Strategy as complementary to the core Investment Objective, and not as a cost to the Company. ESG processes and policies are a prudent risk management tool that improve the financial performance of the Company while reducing risks.
Integration into the investment cycle
Every investment ORIT makes is assessed against our Performance, Planet and People framework through a scoring matrix. This ensures our investments adhere to ORIT's ESG Policy and there is a minimum scoring threshold for investment approval which was met for the transactions in the period.
Task Force on Climate-related Financial Disclosures
The Task Force on Climate-related Financial Disclosures ("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.
"Financing the transition to a low carbon economy is a major opportunity for investors and creditors... climate finance and risk management is moving into the mainstream"
Mark Carney
ORIT has decided to begin making specific disclosures on risks the Company faces relating to climate change in line with the recommendations. The table below outlines the Company's approach to recommendations suggested by TCFD.
|
TCFD Recommendation |
ORIT approach |
|
Governance: |
The ORIT Board meets quarterly and the ORIT Audit and Risk Committee ("ARC") meets at least three times per year to discuss risks, including those relating to climate change. The Board has decided to embed TCFD recommendations within the management of ORIT, identifying climate change as an emerging risk and instructed the AIFM and Investment Manager to integrate this within the existing risk management framework and transaction due diligence.
|
|
Strategy: |
The transition to a lower carbon future is ingrained within ORIT's investment strategy. The speed and efficiency of the transition will have a notable effect on performance.
|
|
Risk Management: |
The AIFM and Investment Manager understand how climate change could impact ORIT's overarching strategy and evaluate climate related risks and opportunities within risk management processes.
|
|
Metrics and Targets |
The Board are in the process of identifying metrics that quantify climate related risks and opportunities and will continuously evaluate and respond as the industry standards evolve. |
Performance initiatives
Delivering investment performance is fundamental to the Impact Strategy supporting the transition to net zero and to being an impact fund. Asset optimisation initiatives alongside robust ESG risk management aim to improve financial performance of the Company.
Projects
Our Investment Manager works with key partners to mitigate production risks and maximise performance of ORIT's assets. Production losses are investigated through a root cause analysis, delivering appropriate actions that improve technical performance. This active management approach has mitigated potential performance risks for ORIT over this period.
· Assisted the National Grid with the strain of high electricity output and low demand post COVID-19- lockdown by participating in the Optional Downward Flexibility Management ("ODFM") service.
· Used deep technical expertise to optimise the commercial position when negotiating a revised service agreement with a key solar farm equipment manufacturer. Under this agreement, the manufacturer will carry out a number of retrofits to the fleet, and will be incentivised to reduce equipment related operational downtime by guaranteeing a level of performance.
In the period detailed due diligence was undertaken on OX2, our construction partner for Ljungbyholm Wind Farm and we are engaging with them as a key stakeholder to deliver our impact objectives.
Outcomes
Early ODFM engagement with the National Grid, site operators and power offtakers resulted in the protection of revenues, and the generation of additional revenues for 50% of the ORIT sites. This generated excess revenues of £40k in May.
Negotiated favourable contracts with equipment supplier, benefiting c. 40% of ORIT's solar farms. These sites realised free inverter upgrades, new warranty periods and dedicated spare parts supply.
Impact tracking
Who
8 operational sites
1 construction site
How Much
£203m capital deployed
£7.7m revenues generated by portfolio of assets
What
Demand/supply response
National Grid Partnership
Improved equipment contracts
Impact Theme
Innovation
Stakeholder Engagement
UN SDG specific contributions
9 Industry, Innovation and Infrastructure
9.2 & 9.4
Promote sustainable industrialization and upgrade/retrofit infrastructure to make them sustainable:
Investment into operational and construction assets have helped support jobs. Working with the National Grid facilitated future growth in sustainable infrastructure resulting in additional revenues by well managing the reduced energy demand for COVID-19 response using the Optional Downward Flexibility Management service.
17 Partnerships for the Goals
17.17
Encourage and promote effective 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.
www.un.org/sustainabledevelopment/
Planet
Impact Objective:
Consider environmental factors to mitigate risks associated with the construction and operation of assets, enhancing environmental potential where possible
Maximise our positive environmental impact
ORIT recognises the fundamental role that renewable energy plays in meeting net zero emissions targets, with an inherently positive impact on the environment.
Investing in renewable energy assets enables investors to generate returns from this transition to a cleaner future and directly support climate change ambitions. On admission to the London Stock Exchange ("LSE"), ORIT was awarded the LSE's Green Economy Mark, recognising the Company as a significant contributor to the transition to a zero-carbon economy.
The Green Economy Mark identifies London-listed companies and funds that generate between 50% and 100% of total annual revenues from products and services that contribute to the global green economy.
Whilst the Company's positive contribution has been recognised, ORIT commits to being transparent, measuring and reporting both positive and negative impacts on the planet. By reflecting on our potential negative impacts rather than ignoring them, the Company can create meaningful targets for improvement and maximise the positive impact of our investments. As part of this approach ORIT will review and adopt relevant industry standards alongside initiatives to reduce our own carbon footprint.
Carbon
Measurement and reporting
Although electricity generated by wind and solar resources prevents harmful emissions from other sources such as coal powered electricity, there are still emissions incurred in the manufacturing and transportation of the solar panels and wind turbines through the supply chain. Initial estimates of the carbon payback periods for the ORIT sites range from 1 - 3 years.
ORIT intends to develop a deeper understanding of both negative and positive impacts by measuring its carbon footprint and reporting this in our Annual Report.
Carbon reduction
As the ORIT portfolio grows, it is our aim to reduce our emissions through stakeholder engagement and proactive management of our assets, especially for sites under construction. This process has already begun by informing all new counterparties of our desire to measure carbon emissions and support carbon emissions reductions.
Carbon offsetting
ORIT intends to offset the key emissions incurred through its direct business activities. The preferred route for offsetting is through tree planting in line with the Woodland Carbon Code. This Code is a UK-specific certification program that ensures each woodland scheme will deliver the promised benefits and represents genuine new planting. This will help the UK meet its ambition of net zero emissions by 2050.
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 to demonstrate 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.
In our first Annual Report, the Company will formally disclose the proportion of underlying investments aligned to the EU taxonomy for Sustainable Finance.
Planet initiatives
Maximising our positive contribution to the environment is core to the Impact Strategy. Planet initiatives contribute to solutions to combat climate change.
Projects
ORIT's investments exhibit multiple environmental benefits beyond providing clean energy to the grid. Our Investment Manager is working on initiatives to maximise and report wider benefits:
· Engaging with third party service providers, landowners, ecologists, beekeepers and local councils to implement and/or review site-tailored land management and biodiversity programmes.
· Working with Ljungbyholm Wind Farm's appointed construction manager, OX2, to maximise benefit on the wind farm under construction. This includes supporting the 1.5°C Science Based Targets initiative to set carbon emission targets for our largest carbon contributing site.
· Voluntarily measuring and reporting key emissions incurred through the construction and operation of the assets.
· Establishing a relationship with the Carbon Trust to understand market movements and develop efficient strategies to measure and offset ORIT's carbon footprint.
Outcomes
Biodiversity expert and Wychwood Biodiversity Founder, Guy Parker, hosted an educational workshop, highlighting the potential for biodiversity innovation on solar farms. He undertook deep dive analyses on four of the eight ORIT solar farms, and suggested measures for future enhancement.
Working with Wychwood and The Good Bee Company, innovative and sustainable biodiversity strategies for the solar sites are being developed. These strategies include the sowing of wildflowers, the installation of bird/bat boxes and beehives and pesticide-free weed management. Additional benefits from good land management and biodiversity strategies on these sites will complement the sustainability objectives of solar power by enhancing carbon storage.
Alternative foundation types at Ljungbyholm Wind Farm have resulted in substantial savings on wind turbine embodied carbon. Eleven of the twelve foundations are able to be 'rock anchored' because the site lies on granite bedrock, with the twelfth foundation being a typical type of foundation. The 'rock anchored' foundation requires one third of the cement used in a typical foundation, resulting in a total of 4,510m3 of carbon intensive concrete being avoided.
The current carbon payback period of ORIT sites is estimated to be 1-3 years. The Impact Strategy sets out ways to decrease this period through additional carbon-reduction measures. Tracking of import electricity type and fuel type of employee vehicles will help identify possible future opportunities.
"I was pleasantly surprised by the site's biodiversity value. Evidently, it was already managed above and beyond its planning requirements."
Guy Parker, Wychwood Biodiversity Ecologist, commenting on Ermine Street site
Impact tracking
Who
1 planet
9 sites
How Much
59k homes powered from annual production once fully constructed
49k tonnes CO2 avoided, equivalent to 243k trees planted
>50% sites with biodiversity enhancement plans
4,510m3 of carbon intensive concrete being avoided
What
Species monitoring
Habitat management
Educational seminars
Carbon reduction
Natural Capital enhancement
Impact Theme
Sustainable momentum
Innovation
Stakeholder Engagement
UN SDG specific contributions
7 Affordable and Clean Energy
SDG 7.2 & 7a
Increase renewable energy in the mix and stimulate investments into the renewable sector:
Provided renewable energy to the grid and provided renewable investment opportunities. Construction underway to add renewable energy capacity.
13 Climate Action
SDG 13.1
Strengthen resilience and adaptive capacity to climate related hazards and natural disasters:
Technical due diligence carried out on all new investments. Biodiversity and habitat management plans proposed for most sites as planning requirement. Physical climate change risks considered and mitigated (e.g. flood risk mitigation strategy) and transition risks forecasted (e.g. low power price scenarios).
15 Life on Land
SDG 15.1 & 15.5
Conserve ecosystems and threatened species and take action to reduce the loss of biodiversity and degradation of habitats:
Threatened and non-threatened species monitored through ecological surveys and biodiversity plans. Additional biodiversity initiatives implemented beyond planning requirement.
www.un.org/sustainabledevelopment/
People
Impact Strategy Objective:
Evaluate social considerations to mitigate risks for local communities, subcontractors, end-customers and employees, keeping people safe and promoting a 'Just Transition' to clean energy
Managing our impact on society
Investing in renewable energy has natural positive impacts on people, particularly for health. In a recent speech, the UN Secretary-General, António Guterres, stated that he believes that transitioning to a world powered by renewable energy is vital to mitigating the negative impacts of climate change on people.
It is also vital the Company mitigates any possible negative impacts and risks to people as the Company invests, constructs and operates our portfolio of renewable assets and ORIT has clear policies and governance structures to achieve this. Some social factors that ORIT and our Investment Manager consider to be most important during due diligence and ongoing monitoring of assets include:
· Health and safety
· Social licence
· Local employment
· Diversity and inclusion
Health and Safety Approach
ORIT recognises its health and safety responsibilities and keeping people safe remains its highest priority. ORIT has put in place arrangements with its Investment Manager to ensure that health and safety risks are managed effectively.
Our Investment Manager employs a dedicated Safety, Health and Environment (SH&E) Director to ensure that health and safety are integrated into our model of investing and managing of assets. This integration is achieved through:
· Technical Compliance Standards
· Diligence and benchmarking of contractors
· Audits and ongoing oversight
· Continuous Improvement
Our Annual Report will present relevant health and safety metrics.
Keeping people safe is ORIT's highest priority.
Promoting a "Just Transition"
Just Transition refers to the movement that encourages wider and fairer distribution of benefits as a result of the switch to clean energy. ORIT's partners and subcontractors commit to standards promoting equal opportunities, ensuring workplace best practice standards are upheld, encouraging diversity and inclusion for all. The Investment Manager engages key counterparties to understand what schemes they already have in place, and also encourages the use of local labour (roughly within 30km radii of sites) on construction sites. By engaging counterparties and local stakeholders early-on, ORIT is ensuring that social licence is generated for our investments.
ORIT has committed to every investment sub-portfolio demonstrating a tangible benefit to the local communities. This may be through sharing profits via community benefit schemes or energy subsidies or by creating educational opportunities that teach local schools on site visits or through workshops informing communities how to apply for fuel poverty support during winter months. The applicability of community initiatives will be determined on a portfolio by portfolio basis.
Diversity and Inclusion
Equality and wellbeing are fundamental to ORIT's impact ambitions. This is reflected in our Company policies and in the way that the fund operates externally, through understanding third party providers approach to diversity and inclusion, suggesting ways to improve this where possible.
ORIT's board is made up of a complementary mixture of backgrounds with a gender composition of an equal 50/50 split between men and women in line with the view that gender diversity delivers better company performance than if the Board was dominated by one gender.
The Investment Manager shares ORIT's values and places diversity and inclusion at the heart of its values and this is demonstrated through the initiatives implemented.
Further detail can be found in the Impact Strategy.
The Investment Manager encourages use of local labour.
People initiatives
Alongside keeping people safe, ORIT considers our potential impact on people. People initiatives contribute to solutions to engage communities and promote a "Just Transition" to clean energy.
Projects
ORIT exhibits a variety of social considerations across its assets, utilising the experience and approach developed by our Investment Manager to maximise benefits.
· Working with Ljungbyholm Wind Farm's appointed construction manager, OX2, to maximise benefit on the wind farm under construction. This includes promoting local employment and social mobility initiatives.
· ORIT is exploring adding beehives to specific suitable solar sites and has engaged The Good Bee Company to look at related people initiatives. Examples being reviewed include educational beekeeper visits to local schools, enterprise programmes for children to learn about entrepreneurship by selling honey made on ORIT sites and partnerships with Help for Heroes to train local ex-service personnel as beekeepers, giving them a route into the civilian workforce.
· In support of a Just Transition, Octopus Renewables is developing a community benefit funding strategy that will seek to ensure benefits to communities surrounding renewable assets are maximised. This strategy will be based on years of past experiences as well as recent insights from conversations with community COVID-19 response groups, developing deep understanding of community needs and the opportunities to provide educational support to local volunteers.
· Octopus Renewables took part in a Government consultation addressing UK renewables community benefit funding, sharing findings of best practice.
Outcomes
68 individuals work on site at ORIT's construction wind farm, Ljungbyholm Wind Farm, 37% of which are considered local (i.e. commute daily). This site has appropriate Health and Safety measures in place and
results from a recent audit on site yielded good results.
Ljungbyholm Wind Farm also promotes social mobility in the area by employing cleaning staff from Ungdomsstäd, a company that hires and trains young, previously unemployed individuals.
ORIT plans to develop specific "People" targets to promote future improvement and has started working with contractors to measure associated health and safety training and other employee benefits.
"Good organisation of the project and on-site routines regarding the working environment. Good atmosphere and a high level of working environment knowledge regarding hazards and actions."
A comment from a recent HSE audit on ORIT site, Ljungbyholm Wind Farm
Department for Business, Energy & Industrial Strategy
The participation in the Government consultation and other stakeholder engagement will help to shape new guidelines for social impact initiatives surrounding renewable energy sites in the UK. This will help shape ORIT's community benefit funding strategy.
Impact tracking
Who
68 individuals working on site at Ljungbyholm
UK Government BEIS
How Much
1 previously unemployed individual employed on Ljungbyholm Wind Farm site through Ungdomsstäd partnership
25 local people on site (37% of total number of people on site)
88.5 hours of Health & Safety site induction training
What
Local job creation Social mobility Health & Safety
Community benefit strategy Government consultation
Impact Theme
Equality & Wellbeing
Innovation
Stakeholder Engagement
UN SDG Specific contribution
8 Decent Work and Economic Growth
8.5
Provide full and productive employment and decent work for all:
Initiative to provide jobs to local people and increase of social mobility by employment of young cleaners. Extensive Health and Safety measures ensures employees are not exposed to risk.
17 Partnership for the Goals
17.17
Encourage and promote effective 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.
Interim Financial Statements
For the period from incorporation to 30 June 2020
INTERIM MANAGEMENT REPORT
The Directors are required to provide an Interim Management Report in accordance with the Financial Conduct Authority ("FCA") Disclosure Guidance and Transparency Rules ("DTR").
The Chairman's Statement and the Investment Manager's Report in this Interim Report provide details of the important events which have occurred during the period and their impact on the financial statements. The following statements on principal risks and uncertainties, related party transactions, going concern and the Directors' Responsibility Statement below, together constitute the Interim Management Report for the Company for the period from incorporation to 30 June 2020. The outlook for the Company for the remaining six months of the year ending 31 December 2020 is discussed in the Chairman's Statement and the Investment Manager's Report.
The Company has appointed Octopus AIF Management Limited to be the Alternative Investment Fund Manager of the Company (the "AIFM") for the purposes of Directive 2011/61/EU of the European Parliament and of the Council on Alternative Investment Fund Managers. Accordingly, the AIFM is responsible for the portfolio management of the Company and for exercising the risk management function in respect of the Company. Portfolio Management has been delegated to the Investment Manager, Octopus Renewables, part of Octopus Investments Ltd. The AIFM will also carry out ongoing oversight functions and supervision in respect of the Company and its portfolio of assets and will comply with those provisions of the AIFM Rules. The AIFM is legally and operationally independent of the Company.
Principal risks and uncertainties
The principal risks and uncertainties facing the Company have been identified as follows:
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Economic, political and climate risks - income and value of the Company's investments may be affected by future changes in the economic and political environment, alongside risks associated with climate change. |
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Risk |
Potential Impact |
Mitigation |
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Inflation and interest rates |
The revenue and expenditure of the Company's investments are frequently partially index-linked and therefore any discrepancy with the Company's inflation expectations could impact positively or negatively on the Company's cashflows.
Changes in interest rates may affect the valuation of the investment portfolio by impacting the valuation discount rate and could also impact returns on cash deposits. |
Inflation and interest rate assumptions are reviewed and monitored regularly by the AIFM and the Investment Manager in the valuation process.
Most analysts suggest that any interest rate increases will be slow and therefore become more manageable to the portfolio.
It is expected that a natural hedge may occur where higher interest rates are also accompanied by higher inflation rates due to subsidies being inflation linked. The Company can utilise interest rate swaps or fixed rate financing to mitigate interest rate risks. |
|
Foreign currency |
The Company's functional currency is Sterling, but some of the Group's investments are based in countries whose local currency is not Sterling. Therefore, changes in foreign currency exchange rates may affect the value of the investments due to adverse changes in currencies. |
The principal mitigation is through the Company's hedging policy which seeks to minimise the volatility of cash flows in non-GBP currencies. The Investment Manager monitors foreign exchange exposures using short and long-term cash flow forecasts.
The Company's portfolio concentrations and currency holdings are monitored regularly by the Board, the AIFM and the Investment Manager. |
|
Government policy changes |
The Company's investments in renewable energy assets are remunerated by both government support schemes and private PPAs - the terms of these may be impacted by government changes or policy or even terminated in certain circumstances. This would adversely impact the value of the Company's investments. |
The Company aims to hold a diversified portfolio of renewable energy assets and so it is unlikely that all assets will be impacted equally by a change in legislation. There is also currently strong public demand for support of the renewables market to hit "net zero" carbon emission targets. |
|
UK/European Trade Deal |
The relationship between the UK and EU post the current Brexit transition period to 31 December 2020 remains unclear. As a result, there is likely to be a prolonged period of market uncertainty as the exact details are negotiated between the parties, which could result in adverse conditions for the Company, in particular volatility in macroeconomic indicators such as inflation and interest rates, foreign exchange and changes in regulations. If a suitable trade deal fails to be negotiated, other impacts could materialise for example, supply chain disruption. |
The mitigation measures for the principal macroeconomic risks are those described above in relation to: · Inflation and interest rates · Foreign currency · Government policy changes The Investment Manager works with suppliers to mitigate supply chain risks including ensuring a level of spares is maintained from diversified manufacturers. |
|
Risks associated with climate change |
Climate related risks relate to transition risks and physical risks.
The prominent transition risk relates to over supply of renewables over time, which may cause downward pressure on long term power price forecasts setting lower capture prices, including the risks associated with periods of negative power prices and power price volatility. This could ultimately lead to a shortfall in anticipated revenues to the Company.
The prominent physical risks relate to long-term changes to weather patterns, which could cause a material adverse change to an asset's energy yield from that expected at the time of investment.
Physical risks associated with acute and chronic temperature change could lead to flooding, storms, and high winds. This could damage equipment and force operational downtime resulting in reduced revenue capability and profitability of the portfolio of assets. |
The Investment Manager is actively engaging with third party advisors on how climate related risks are being modelled in long term power price forecasts.
There are likely to be opportunities associated with the transition to a low carbon future including growth in the market, government interventions and technology advancements that could counterbalance the transition risks of climate change on the Company.
The Board and the Investment Manager periodically assess the Company's portfolio of assets for potential transition risks within the jurisdictions that it currently operates.
The Investment Manager works with third party asset managers to ensure an appropriate level of equipment spares to minimise downtime associated with damaged equipment.
There is growing demand for consistent, comparable, reliable, and clear climate related financial disclosure from many participants in financial markets. The Board, AIFM and Investment Manager have included TCFD as part of the Company's Impact Strategy. |
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Company - operational risks - risk that target returns and Company objectives are not met over the longer term. |
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Risk |
Potential Impact |
Mitigation |
|
Deployment |
A deterioration of the investment pipeline may impact the ability to commit and deploy capital into suitable opportunities in the expected time frame. Competition in the infrastructure market remains strong which could limit the ability of the Company to acquire assets in line with target returns or incur abort costs where transactions are unsuccessful. Both deployment risks could ultimately impact shareholder returns. |
The Company has an experienced Investment Manager with good presence and strong relationships in the renewables market.
The investment mandate is diversified giving a broad landscape of opportunities.
The Board and Investment Manager oversee the investment pipeline and abort exposure and frequently monitor its progress in relation to Company targets. |
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Reliance on third party service providers |
The Board has contractually delegated to third party service providers day to day management of the Company.
A deterioration in the performance of any of the key service providers including the Investment Manager, AIFM and Administrator could have an impact on the Company's performance and there is a risk that the Company may not be able to find an appropriate replacement should the engagement with the service providers be terminated. |
Each contract was entered into after full and proper consideration of the quality and cost of services offered, including the financial control systems in operation in so far as they relate to the affairs of the Company.
All of the above services are subject to ongoing oversight by the Board and AIFM and the performance of the key service providers is reviewed on a regular basis. The Board, through the Management Engagement Committee monitors key personnel risks as part of its oversight of the Investment Manager and the Company's key service providers report periodically to the Board on their control procedures. |
|
Valuations |
Valuation of the portfolio of assets is based on financial projections and estimations of future results. Actual results may vary significantly from the projections, which may reduce the profitability of the Company leading to reduced returns to Shareholders. |
The Investment Manager has significant experience in valuation of renewable assets and conducts a quarterly valuations process. The AIFM has a valuations committee separate to the Investment Manager to provide valuations consistency on macro assumptions and to provide oversight and challenge to the valuations. The Board and AIFM review the valuations provided quarterly and they are audited annually. |
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ESG policy |
Material ESG risk arises such as unfair advantage, bribery, corruption and environmental damage. If the Company fails to adhere to its public commitments as stated in its ESG Policy and Impact Strategy, this could result in shareholder dissatisfaction and adversely affect the reputation of the Company. |
ESG is embedded in the investment cycle with a formal ESG matrix including a minimum ESG score required for approval of any new investments. Ongoing operational and construction ESG risk management is reviewed periodically by the Investment Manager, who are working closely with service providers on ESG and impact standards reporting. |
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Conflicts of interest |
The appointment of the AIFM is on a non-exclusive basis and each of the AIFM and Investment Manager manages other accounts, vehicles and funds pursuing similar investment strategies to that of the Company. This has the potential to give rise to conflicts of interest. |
The AIFM and Investment Manager have clear conflicts of interest and allocation policies in place.
Transactions where there may be potential conflicts of interest are overseen by the Investment Manager's conflicts committee, an independent fairness opinion on valuation is commissioned, and as with all transactions, the Board has the right of veto.
The Board, AIFM and Investment Manager are responsible for establishing and regularly reviewing procedures to identify, manage, monitor and disclose conflicts of interests relating to the activities of the Company.
These procedures are more fully described in the Company's prospectus dated 19 November 2019. |
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Cyber security |
Attempts may be made to access the IT systems and data used by the Investment Manager, Administrator and other service providers through a cyber attack or malicious breaches of confidentiality that could impact the Company reputation or result in financial loss. |
Cyber security policies and procedures implemented by key service providers are reported to the Board and AIFM periodically to ensure conformity. The Investment Manager has a robust 3 lines of defence model in place to implement, check and audit technology controls. Thorough third party due diligence is carried out on all suppliers engaged to service the fund. All providers have processes in place to identify cyber security risks and apply and monitor appropriate risk plans. |
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Portfolio of assets - operational risks - risk that the portfolio underperforms and, as a result, the target returns and Company objectives are not met over the longer term. |
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Risk |
Potential Impact |
Mitigation |
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Power prices |
The income and value of the Company's investments may be adversely impacted by changes in the prevailing market prices of electricity and prices achievable for off-taker contracts. There is a risk that the actual prices received vary significantly from the model assumptions, leading to a shortfall in anticipated revenues to the Company. |
The Investment Manager has a specific Energy Markets Team that monitors energy price forecasts and puts in place mitigating strategies. This could be through the use of short term PPA contracts to fix the electricity prices where possible, or to hedge the exposure of fluctuating electricity prices through derivative instruments. Model assumptions are based on quarterly reports from a number of independent established market consultants to inform on the electricity prices over the longer term. |
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Construction |
Construction project risks associated with the risk of inaccurate assessment of a construction opportunity, delays or disruptions which are outside the Company's control, changes in market conditions, and the inability of contractors to perform their contractual commitments could impact Company performance. |
The Investment Manager monitors construction carefully and reports frequently to the Board and AIFM. The Investment Manager undertakes extensive due diligence on construction opportunities and has in place clear approval processes for any material construction cost overruns and contingency spend. |
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Asset-specific risks |
Circumstances may arise that adversely affect the performance of the relevant renewable energy asset. These include health and safety, grid connection, material damage or degradation, equipment failures and environmental risks. |
The Company's experienced Investment Manager oversees and manages asset and site level issues. Third party O&M contractors are engaged to carry out regular preventative maintenance and a level of spares is maintained from diversified manufacturers.
The Investment Manager uses established relationships with relevant DNO's and works closely with them to maintain grid connection. A SH&E Director is employed by the Investment Manager to oversee & advise on the HSE system for renewable assets. The Company has in place insurance to cover certain losses and damage. |
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Compliance and regulatory risks - failure to comply with relevant regulatory changes, tax rules and obligations may result in reputational damage to the Company or have a negative financial impact |
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Risk |
Potential Impact |
Mitigation |
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Non-compliance with FCA, Listing Rules, AIFMD, MAR and investment trust eligibility conditions |
Failure to comply with any relevant regulatory rules including Section 1158 of the Corporation Tax Act, the rules of the FCA, including the Listing Rules and the Prospectus Rules, Companies Act 2006, MAR, AIFMD, Accounting Standards, GDPR, and any other relevant regulations could result in financial penalties, loss of investment trust status, legal proceedings against the Company and/or its Directors or reputational damage. |
The Company has contracted out relevant services to appropriately qualified professional and all parties ensure that they keep informed with any developments or updates to the legislation. The Investment Manager and the Company Secretary report on regulatory matters to the Board on a quarterly basis. The assessment of regulatory risks forms part of the Board's risk management framework. |
Further financial risks are detailed in Note 15 of the interim financial statements.
The Board are of the opinion that these remain the principal risks, but mindful of their obligations under the changes made to the AIC Code of Corporate Governance issued in February 2019, the Board has also reviewed emerging risks which may impact the forthcoming six-month period. These emerging risks are listed below.
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Emerging risks |
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Risk |
Potential Impact |
Mitigation |
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COVID-19 pandemic |
The continuing COVID-19 pandemic could impact the Company as follows:
· Extended lock downs may lead to a significant reduction in energy demand and drops in short and medium term power prices.
· Disruption of supply chains could adversely impact the Company's construction projects and ability to source spares for operational assets. · Restrictions on travel may limit the ability to conduct DD site visits for transaction targets thus impacting the Company's deployment targets. |
The Board have continued to meet virtually and the Investment Manager, Administrator and other key service providers have been able to operate effectively with robust systems and staff working from home.
The Investment Manager continues to work with third party service providers to put in place mitigation plans to minimise the impacts of COVID-19 to the Company.
The Board and the Investment Manager will continue to monitor the situation as it develops and respond to Government advice as necessary.
Mitigations for power prices are described above. |
Related party transactions
The Company's AIFM is considered a related party under the Listing Rules. Under the Management Agreement, the AIFM receives from the Company a management fee of 0.95% per annum of Net Asset Value up to and including £500 million and 0.85% per annum of Net Asset Value in excess of £500 million, payable quarterly in arrears. No performance fee or asset level fees are payable to the AIFM or the Investment Manager under the Management Agreement.
Details of the amounts paid to the Company's AIFM and the Directors during the period are included in Note 16 of the interim financial statements.
Going concern
The Directors have adopted the going concern basis in preparing the interim financial statements. The following is a summary of the Directors' assessment of the going concern status of the Company.
The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least twelve months from the date of this Interim Report. In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income and expense flows. The Company's net assets at 30 June 2020 were £341.5 million. As at 30 June 2020, the Company held £180.2 million in cash. The total expenses for the period ended 30 June was £2.2 million. At the date of approval of this document, based on the aggregate of investments and cash held, the Company has substantial operating expenses cover.
In light of the COVID-19 pandemic the Directors have fully considered each of the Company's investments. The Directors do not foresee any immediate material risk to the Company's portfolio of assets and income from underlying SPVs. A prolonged and deep market decline could lead to falling values to the underlying business or interruptions to cashflow, however the Company currently has more than sufficient liquidity available to meet any future obligations.
The market and operational risks and financial impact as a result of the COVID-19 pandemic, and measures introduced to combat its spread, were discussed by the Board, with updates on operational resilience received from the Investment Manager, Administrator and other key service providers. The Board was satisfied that the key service providers have the ability to continue to operate.
Responsibility Statement of The Directors
The Directors acknowledge responsibility for the interim results and approve this Interim Report. The Directors confirm that to the best of their knowledge:
a) the condensed financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" and give a true and fair view of the assets, liabilities and financial position and the profit of the Company as required by the FCA's Disclosure Guidance and Transparency Rules DTR 4.2.4R; and
b) the interim management report, including the Chairman's Statement and Investment Manager's Report, includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.
This responsibility statement has been approved by the Board.
Phil Austin MBE
Chairman
14 September 2020
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
For the period from incorporation on 11 October 2019 to 30 June 2020
|
|
|
Revenue |
Capital |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
|
Investment income |
4 |
2,261 |
(1,984) |
277 |
|
Other interest income |
|
454 |
- |
454 |
|
Total income |
|
2,715 |
(1,984) |
731 |
|
Investment management fees |
5 |
(1,356) |
(452) |
(1,808) |
|
Other operating expenses |
5 |
(372) |
(16) |
(388) |
|
Profit/(loss) before tax |
|
987 |
(2,452) |
(1,465) |
|
Taxation |
6 |
(89) |
89 |
- |
|
Profit/(loss) for the period |
|
898 |
(2,363) |
(1,465) |
|
Earnings per Ordinary share (pence) - basic and diluted |
8 |
0.33p |
(0.87p) |
(0.54p) |
The total column of the condensed statement of comprehensive income is the profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing operations.
There are no items of other comprehensive income in the current period, other than the loss for the period, and therefore no separate income statement has been presented.
The accompanying notes are an integral part of these interim financial statements.
CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
|
|
|
As at 30 June 2020 |
|
|
Notes |
£'000 |
|
Non-current assets |
|
|
|
Investments at fair value through profit or loss |
9 |
163,019 |
|
|
|
|
|
Current assets |
|
|
|
Trade and other receivables |
10 |
95 |
|
Cash and cash equivalents |
|
180,220 |
|
|
|
180,315 |
|
Current liabilities: amounts falling due within one year |
|
|
|
Trade and other payables |
|
(1,799) |
|
|
|
|
|
Net assets |
|
341,535 |
|
Capital and reserves: equity |
|
|
|
Share capital |
11 |
3,500 |
|
Special distributable reserve |
12 |
339,500 |
|
Capital reserve |
|
(2,363) |
|
Revenue reserve |
|
898 |
|
Shareholders' funds |
|
341,535 |
|
|
|
|
|
Net asset value per Ordinary share (pence) |
13 |
97.58p |
The unaudited interim financial statements were approved by the Board of Directors and authorised for issue on 14 September 2020 and were signed on its behalf by:
Phil Austin MBE
Chairman
The accompanying notes are an integral part of these interim financial statements.
CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
For the period from incorporation on 11 October 2019 to 30 June 2020
|
|
|
Share capital |
Share premium account |
Special distributable reserve |
Capital reserve |
Revenue reserve |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Opening equity as at 11 October 2019 |
|
- |
- |
- |
- |
- |
- |
|
Shares issued in the period |
11 |
3,500 |
346,500 |
- |
- |
- |
350,000 |
|
Share issue costs |
|
- |
(7,000) |
- |
- |
- |
(7,000) |
|
Transfer to special distributable reserve |
12 |
- |
(339,500) |
339,500 |
- |
- |
- |
|
Profit/ (loss) for the period |
|
- |
- |
- |
(2,363) |
898 |
(1,465) |
|
Closing equity as at 30 June 2020 |
|
3,500 |
- |
339,500 |
(2,363) |
898 |
341,535 |
The Company's distributable reserve consists of the special distributable reserve, capital reserve attributable to realised gains and revenue reserve.
The accompanying notes are an integral part of these interim financial statements.
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
For the period from incorporation on 11 October 2019 to 30 June 2020
|
|
|
|
|
|
Note |
£'000 |
|
Cash flows from operating activities |
|
|
|
Loss before tax |
|
(1,465) |
|
Adjustments for: |
|
|
|
Loss on investments |
9 |
1,984 |
|
Interest income |
|
(2,715) |
|
Operating cash flow before movements in working capital |
|
(2,196) |
|
|
|
|
|
Changes in working capital: |
|
|
|
Increase in other receivables |
10 |
(67) |
|
Increase in payables |
|
1,799 |
|
Net cash flow from operating activities |
|
(464) |
|
|
|
|
|
Cash flows from investing activities |
|
|
|
Purchase of investments |
|
(162,742) |
|
Interest received |
|
426 |
|
Net cash flow from investing activities |
|
(162,316) |
|
|
|
|
|
Cash flows from financing activities |
|
|
|
Proceeds from issue of share capital during period |
11 |
350,000 |
|
Costs in relation to issue of shares |
|
(7,000) |
|
Net cash flow from financing activities |
|
343,000 |
|
Net increase in cash and cash equivalents |
|
180,220 |
|
Cash and cash equivalents at start of period |
|
- |
|
Cash and cash equivalents at end of period |
|
180,220 |
The accompanying notes are an integral part of these interim financial statements.
NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS
For the period from incorporation on 11 October 2019 to 30 June 2020
1. GENERAL INFORMATION
Octopus Renewables Infrastructure Trust plc ("ORIT" or the "Company") is a public company limited by shares incorporated in England and Wales on 11 October 2019 with registered number 12257608. The Company is a closed-ended investment company with an indefinite life. The Company commenced its operations on 10 December 2019 when the Company's Ordinary Shares were admitted to the Official List of the FCA and to trading on the premium segment of the London Stock Exchange's main market for listed securities. The Directors intend, at all times, to conduct the affairs of the Company as to enable it to qualify as an investment trust for the purposes of section 1158 of the Corporation Tax Act 2010, as amended.
The registered office and principal place of business of the Company is 1st Floor, Senator House, 85 Queen Victoria Street, London, EC4V 4AB.
The Company's investment objective is to provide investors with an attractive and sustainable level of income returns, with an element of capital growth, by investing in a diversified portfolio of Renewable Energy Assets in Europe and Australia.
The interim condensed unaudited financial statements of the Company (the "interim financial statements") are for the period from incorporation on 11 October 2019 to 30 June 2020 and comprise only the results of the Company, as all of its subsidiaries are measured at fair value through profit or loss following the amendment to IFRS 10 as explained below in Note 2.
The interim financial statements have not been audited or formally reviewed by the Company's Auditor in accordance with the International Standards on Auditing (ISAs) (UK) or International Standards on Review Engagements (ISREs).
2. BASIS OF PREPARATION
The interim financial statements included in this report have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities at fair value through profit or loss.
The interim financial statements have also been prepared as far as is 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").
The interim financial statements are presented in Sterling, which is the Company's functional currency and are rounded to the nearest thousand, unless otherwise stated. They have been prepared on the basis of the accounting policies, significant judgements, key assumptions and estimates as set out in Note 3.
There are no comparatives as this is the Company's first accounting period.
Going Concern
The Directors, in their consideration of going concern, have reviewed comprehensive cash flow forecasts prepared by the Company's Investment Manager which are based on prudent market data and believe that it is appropriate to prepare the financial statements of the Company on the going concern basis.
Critical accounting judgements, estimates and assumptions
The preparation of the interim financial statement requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed regularly on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Significant estimates, judgements or assumptions for the period are set out below:
Fair value estimation for investments at fair value
The Company's investments at fair value are not traded in active markets.
Fair value is calculated by discounting at an appropriate discount rate future cash flows expected to be received by the Company's intermediate holdings, from investments in both equity (dividends) and shareholder loans (interest and repayments).
The discount rates used in the valuation exercise represent the Investment Manager's and the Board's assessment of the rate of return in the market for assets with similar characteristics and risk profile. The discount rates are reviewed quarterly and updated, where appropriate, to reflect changes in the market and in the project risk characteristics. The weighted average costs of capital that have been applied to the financial assets at 30 June 2020 were in the range from 5.0% to 8.0%. Refer to Note 9 for details of the areas of estimation in the calculation of the fair value.
Basis of non-consolidation
The Company has adopted the amendments to IFRS 10 which states that investment entities should measure all of their subsidiaries that are themselves investment entities at fair value (in accordance with IFRS 9 Financial Instruments: Recognition and Measurement, and IFRS 13 Fair Value Measurement). Being investment entities, ORIT and its wholly owned direct subsidiaries, ORIT Holdings Limited and ORIT Holdings II Limited are measured at fair value as opposed to being consolidated on a line-by-line basis, meaning their cash, debt and working capital balances are included in the fair value of investments rather than the Group's current assets.
New and amended standards and interpretations applied
At the date of authorisation of these initial accounts, IFRS 16 "Leases" was issued effective from periods beginning on or after 1 January 2019. As the Company's investments are held at fair value through profit or loss and the leases are held at SPV level, the introduction of IFRS 16 is not expected to have an impact on the reported results as Company does not have leases. Other accounting standards and interpretations issued are not expected to be material to the reported results and financial position of the Company.
3. SIGNIFICANT ACCOUNTING POLICIES
a) Financial instruments
Financial assets and financial liabilities are recognised on the Company's Statement of Financial Position when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to the cash flows from the instrument expire or the asset is transferred, and the transfer qualifies for derecognition in accordance with IAS 39 Financial Instruments: Recognition and Measurement.
Investments at fair value through profit or loss ("FVTPL")
As an investment entity, the Company is required to measure its investments in its wholly owned direct subsidiaries at fair value through profit or loss. The Company's policy is to fair value both the equity and debt investment in its subsidiary together. Subsequent to initial recognition, the Company measures its investments on a combined basis at fair value in accordance with IAS 39 Financial Instruments: Recognition and Measurement and IFRS 13 Fair Value Measurement.
Loans and receivables
Trade receivables, loans and other receivables that are non derivative financial assets and that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and other receivables'. Loans and other receivables are measured at amortised cost using the effective interest method, less any impairment. They are included in current assets, except where maturities are greater than 12 months after the period end date in which case they are classified as non current assets. The Company's loans and receivables comprise 'trade and other receivables' and 'cash and cash equivalents' in the Statement of Financial Position.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
Ordinary shares are classified as equity. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs. Direct issue costs are charged against the value of ordinary share premium.
Recognition, derecognition and measurement of financial instruments
Regular purchases and sales of investments are recognised on the trade date - the date on which the Company commits to purchase or sell the investment. Financial assets at fair value through profit or loss are initially recognised at fair value. Transaction costs are expensed as incurred within the Statement of Comprehensive Income. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.
Subsequent to initial recognition, all financial assets and financial liabilities at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are presented in the Statement of Comprehensive Income within investment income in the period in which they arise.
Income from financial assets at fair value through profit or loss is recognised in the Statement of Comprehensive Income within investment income when the Company's right to receive payments is established.
Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled or they expire.
b) Taxation
Investment trusts which have approval under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains. The Company has successfully applied and has been granted approval as an Investment Trust by HMRC.
Irrecoverable withholding tax is recognised on any overseas income on an accrual basis using the applicable rate of taxation for the country of origin.
The underlying intermediate holding companies and project companies in which the Company invests provide for and pay taxation at the appropriate rates in the countries in which they operate. This is taken into account when assessing the value of the subsidiaries.
c) Segmental reporting
The Board is of the opinion that the Company is engaged in a single segment of business, being investment in renewable energy infrastructure assets to generate investment returns whilst preserving capital. The financial information used by the Board to manage the Company presents the business as a single segment.
d) Income
Income includes investment income from financial assets at fair value through profit or loss and other interest income.
Investment income comprises interest income, dividend income and gains/(losses) on investments, which comprise the change in fair value of the Company's direct subsidiaries. Interest income is recognised in the Statement of Comprehensive Income using the effective interest method. Dividend income is recognised when the Company's entitlement to receive payment is established.
Other interest income comprises interest earned on cash held on deposit and is recognised on an accrual basis.
e) Expenses
All expenses are accounted for on an accrual basis. In respect of the analysis between revenue and capital items presented within the Statement of Comprehensive Income, all expenses are presented as revenue items except as follows:
Investment management fees
As per the Company's investment objective, it is expected that income returns will make up the majority of ORIT's long term return. Therefore, based on the estimated split of future returns (which cannot be guaranteed), 25% of the investment management fee is charged as a capital item within the Statement of Comprehensive Income.
Abort costs
Costs incurred on aborted transactions are charged as a capital items within the Statement of Comprehensive Income.
f) Foreign currency
Transactions denominated in foreign currencies are translated into Sterling at actual exchange rates as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the period end are reported at the rates of exchange prevailing at the period end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss to capital or revenue in the Statement of Comprehensive Income as appropriate. Foreign exchange movements on investments are included in the Capital account of the Statement of Comprehensive Income.
g) Cash and cash equivalents
Cash and cash equivalents includes deposits held with banks and other short-term deposits with original maturities of three months or less.
h) Dividends payable
Dividends and distributions payable to shareholders are recognised as a liability once declared.
4. Investment Income
|
|
For the period ended 30 June 2020 |
|
|
£'000 |
|
Interest income from investments |
2,261 |
|
Movement in fair value of investments |
(1,984) |
|
Total investment income |
277 |
5. OPERATING EXPENSES
|
|
For the period ended 30 June 2020 |
||
|
|
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
Investment management fees |
1,356 |
452 |
1,808 |
|
Fees payable to the Company's auditor in respect of audit services |
28 |
- |
28 |
|
Directors fees |
90 |
- |
90 |
|
Other operating expenses |
254 |
16 |
270 |
|
Total operating expenses |
1,728 |
468 |
2,196 |
The Company has no employees. Full detail on Directors' fees is provided in Note 16. Employer's national insurance upon the fees is included as appropriate in other operating expenses. There were no other emoluments.
The auditor's fees include £10,000 paid in respect of audit work on the Company's Initial Accounts as at 29 February 2020.
6. Taxation
|
(a) Analysis of charge in the period |
|
|
|
|
For the period ended 30 June 2020 |
|||
|
|
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
Corporation tax |
89 |
(89) |
- |
|
Tax charge/ (credit) for the period |
89 |
(89) |
- |
|
|
|
|
|
|
(b) Factors affecting total tax charge for the period: |
|||
|
|
|
|
|
|
The UK corporation tax rate applicable to the Company for the period is 19%. The tax charge is higher than the charge resulting from applying the standard rate of UK corporation tax. |
|||
|
|
|
|
|
|
The differences are explained below: |
|
|
|
|
|
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
Profit / (loss) before taxation |
987 |
(2,452) |
(1,465) |
|
Corporation tax at 19% |
188 |
(466) |
(278) |
|
Effects of: |
|
|
|
|
Non-deductible capital losses |
- |
377 |
377 |
|
Dividends designated as interest distributions |
(245) |
- |
(245) |
|
Unutilised losses carried forward |
146 |
- |
146 |
|
Total tax charge/(credit) for the period |
89 |
(89) |
- |
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. This allows certain capital profits of the Company to be exempt from UK tax. Additionally, the Company may designate dividends wholly or partly as interest distributions for UK tax purposes. Interest distributions are treated as tax deductions against taxable income of the Company so that investors do not suffer double taxation on their returns.
The financial statements do not include directly the tax charges for any of the Company's intermediate holding companies or subsidiaries as these are held at fair value. Each of these companies are subject to taxes in the countries in which they operate.
7. DIVIDENds
On 3 August 2020, the Company declared an interim dividend of 1.06 pence per Ordinary Share for the period ended 30 June 2020. The dividend, which was paid on 21 August 2020 was £3,711,000 based on a record date of 14 August 2020 and ex-dividend date of 13 August 2020 and the number of Ordinary Shares in issue being 350,000,000. The dividend has not been included as a liability at 30 June 2020.
8. EARNINGs per ORDINARY share
Earnings per Ordinary Share is calculated by dividing the profit attributable to equity shareholders of the Company by the weighted average number of Ordinary Shares in issue in the period from incorporation on 11 October 2019 to 30 June 2020 as follows.
|
|
As at 30 June 2020 |
||
|
|
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
Profit/(loss) attributable to equity holders of the Company |
898 |
(2,363) |
(1,465) |
|
Weighted average number of Ordinary Shares in issue |
270,152 |
270,152 |
270,152 |
|
Earnings per Ordinary Share - basic and diluted |
0.33p |
(0.87p) |
(0.54p) |
9. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
As set out in Note 2, the Company accounts for its interest in its wholly owned direct subsidiaries as an investment at fair value through profit or loss.
|
|
£'000 |
|
Opening balance on incorporation |
- |
|
Costs incurred acquiring the Company's investments |
162,742 |
|
Interest income |
2,261 |
|
Movement in fair value |
(1,984) |
|
As at 30 June 2020 |
163,019 |
The costs incurred acquiring the Company's investments include acquisition costs of £775,000 that have been expensed in the intermediate holding companies.
Reconciliation of movement in fair value of the Company's investments
The table below shows the movement in the fair value of the Company's investments. These assets are held through intermediate holding companies.
|
|
|
|
|
£'000 |
|
Opening balance on incorporation |
- |
|
Portfolio of assets acquired |
161,883 |
|
Movement in accrued interest |
2,261 |
|
Movement in fair value |
(1,209) |
|
Fair value of portfolio of assets as at 30 June 2020 |
162,935 |
|
Cash held in intermediate holding companies |
- |
|
Fair value of other net assets in intermediate holding companies |
84 |
|
Fair value of Company's investments as at 30 June 2020 |
163,019 |
Fair value of portfolio of assets
The Investment Manager has carried out fair market valuations of the investments as at 30 June 2020.
The Directors have satisfied themselves as to the methodology used, the discount rates applied and the valuation. All investments are in renewable energy assets and are valued using a discounted cash flow methodology. The Company's holding of an investment represents its interest in both the equity and debt instruments of the investment. The equity and debt instruments are valued as a whole using a blended discount rate and the value attributed to the equity instruments represents the fair value of future dividends and equity redemptions in addition to any value enhancements arising from the timing of loan principal and interest receipts from the debt instruments, while the value attributed to the debt instruments represents the principal outstanding and interest due on the loan at the valuation date.
The weighted average costs of capital applied to the portfolio of assets ranges from 5.0% to 8.0%.
The following assumptions were used in the discounted cash flow valuations:
|
|
30 June 2020 |
|
UK - inflation rate |
2.75% |
|
UK - corporation tax rate |
19.00% |
|
Sweden - inflation rate |
2.00% |
|
Sweden - corporation tax rate |
21.40% |
|
Euro/Sterling exchange rate |
1.138 |
|
Energy yield assumptions |
P50 case |
Other key assumptions include:
Power Price Forecasts
The power price forecasts used in the valuations are based on market forward prices in the near-term, followed by an equal blend of up to three independent and widely-used market expert consultants' relevant technology-specific capture price forecasts for each asset.
Asset Lives
The length of the period of operations assumed in the valuation is determined on an asset-by-asset basis taking into account the lease agreements, permits or planning permissions in place as well as any extension rights, renewal regimes or wider policy considerations, together with the technical characteristics of the asset.
Fair value of intermediate holding companies
The assets in the intermediate holding companies substantially comprise working capital balances, therefore the Directors consider the fair value to be equal to the book values.
10. TRADE AND OTHER RECEIVABLES
|
|
As at 30 June 2020 |
|
|
£'000 |
|
Accrued interest receivable |
28 |
|
Other receivables |
67 |
|
Total |
95 |
11. Share capital
|
|
|
Nominal value of shares |
|
Allotted, issued and fully paid: |
No. of shares |
£ |
|
Opening balance as at 11 October 2019 |
- |
- |
|
Allotted upon incorporation |
|
|
|
Ordinary Shares of 1p each ('Ordinary Shares') |
1 |
- |
|
Management Shares paid up to one quarter of their nominal value ('Management Shares') |
50,000 |
12,500 |
|
|
|
|
|
Allotted/redeemed following admission to LSE |
|
|
|
Ordinary Shares issued |
349,999,999 |
3,500,000 |
|
Management Shares redeemed |
(50,000) |
(12,500) |
|
|
|
|
|
Closing balance as at 30 June 2020 |
350,000,000 |
3,500,000 |
12. Special Distributable reserve
As indicated in the Company's prospectus dated 19 November 2019, following admission of the Company's Ordinary Shares to trading on the London Stock Exchange, the Directors applied to the Court and obtained a judgement on 18 February 2020 to cancel the amount standing to the credit of the share premium account of the Company. The amount of the share premium account cancelled and credited to the Company's special distributable reserve is £339,500,000, which can be utilised to fund distributions to the Company's Shareholders.
13. Net asset value per ordinary share
|
|
As at 30 June 2020 |
|
|
£'000 |
|
Shareholders' equity |
341,535 |
|
Number of Ordinary Shares |
350,000 |
|
Net asset value per Ordinary Share |
97.58p |
14. FINANCIAL INSTRUMENTS BY CATEGORY
The Company held the following financial instruments at fair value at 30 June 2020. There have been no transfers of financial instruments between levels of the fair value hierarchy. There are no non ‑ recurring fair value measurements.
|
|
As at 30 June 2020 |
||||
|
|
Cash and bank balances |
Loans and receivables |
Financial assets at fair value through profit or loss |
Financial liabilities at amortised cost |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
Non-current assets |
|
|
|
|
|
|
Investments at fair value through profit or loss (level 3) |
- |
- |
163,019 |
- |
163,019 |
|
Current assets |
|
|
|
|
|
|
Trade and other receivables |
- |
95 |
- |
- |
95 |
|
Cash and cash equivalents |
180,220 |
- |
- |
- |
180,220 |
|
Total financial assets |
180,220 |
95 |
163,019 |
- |
343,334 |
|
Current liabilities |
|
|
|
|
|
|
Trade and other payables |
- |
- |
- |
(1,799) |
(1,799) |
|
Total financial liabilities |
- |
- |
- |
(1,799) |
(1,799) |
|
Net financial instruments |
180,220 |
95 |
163,019 |
(1,799) |
341,535 |
The above table provides an analysis of financial instruments that are measured subsequent to their initial recognition at fair value as follows:
· Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
· Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
· Level 3: fair value measurements are those derived from valuation techniques that include inputs to the asset or liability that are not based on observable market data (unobservable inputs).
There were no Level 1 or Level 2 assets or liabilities during the period. There were no transfers between Level 1 and 2, Level 1 and 3 or Level 2 and 3 during the period.
In the table above, financial instruments are held at carrying value as an approximation to fair value unless stated otherwise.
Reconciliation of Level 3 fair value measurement of financial assets and liabilities
An analysis of the movement between opening to closing balances of the investments at fair value through profit or loss is given in Note 9.
The fair value of the investments at fair value through profit or loss includes the use of Level 3 inputs. Refer to Note 9 for details on the valuation methodology.
Valuation Sensitivities
Discount rate
The discount rate is considered the most significant unobservable input through which an increase or decrease would have a material impact on the fair value of the investments at fair value through profit or loss.
An increase of 0.5% in the discount rate would cause a decrease in total portfolio value of 2.3p per Ordinary Share and a decrease of 0.5% in the discount rate would cause an increase in total portfolio value of 2.4p per Ordinary Share.
Inflation rate
The sensitivity of the investments to movement in inflation rates is as follows:
A decrease of 0.5% in inflation rates would cause a decrease in total portfolio value of 1.0p per Ordinary Share and an increase of 0.5% in inflation rates would cause an increase in total portfolio value of 1.1p per Ordinary Share.
Power price and Generation
Wind and solar assets are subject to power price and power generation risks. The sensitivities of the investments to movement in level of power output and power price are as follows:
The fair value of the investments is based on a "P50" level of power output being the expected level of generation over the long term. An assumed "P90" level of power output (i.e. a level of generation that is below the "P50", with a 90% probability of being exceeded) would cause a decrease in the total portfolio value of 3.3p per Ordinary Share and an assumed "P10" level of power output (i.e. a level of generation that is above the "P50", with a 10% probability of being achieved) would cause an increase in the total portfolio value of 4.2p per Ordinary Share.
A decrease of 10% in power price would cause a decrease in the total portfolio value of 3.3p per Ordinary Share and an increase of 10% in power price would cause an increase in the total portfolio value of 3.2p per Ordinary Share.
15. FINANCIAL RISK MANAGEMENT
The Company's activities expose it to a variety of financial risks; including foreign currency risk, interest rate risk, power price risk, credit risk and liquidity risk. The Board of Directors has overall responsibility for overseeing the management of financial risks, however the review and management of financial risks are delegated to the AIFM. Each risk and its management are summarised below.
(i) Currency risk
Foreign currency risk is defined as the risk that the fair values of future cashflows will fluctuate because of changes in foreign exchange rates. The Company seeks to minimise the volatility of cash flows in non-GBP currencies over the short to medium term through its foreign exchange hedging policy; which requires a minimum of 50% of all forecasted distributions denominated in foreign currencies to be hedged over 5 years in order to give the Company some certainty over the future cashflows and reduce its exposure to foreign exchange risk. The Company also has the ability to hedge a portion of value thereafter so as to limit volatility of the Company's NAV to foreign exchange risk.
(ii) Interest rate risk
The Company's interest rate risk on interest bearing financial assets is limited to interest earned on cash and loan investments into project companies, which yield interest at a fixed rate. The portfolio's cashflows are continually monitored and reforecast, both over the near future and the long-term, to analyse the cash flow returns from investments.
The Company's interest and non-interest bearing assets and liabilities as at 30 June 2020 are summarised below:
|
|
Interest bearing |
Non-interest |
Total |
|
Assets |
£'000 |
£'000 |
£'000 |
|
Cash and cash equivalents |
179,362 |
858 |
180,220 |
|
Trade and other receivables |
- |
95 |
95 |
|
Investments at fair value through profit or loss |
160,758 |
2,261 |
163,019 |
|
Total assets |
340,120 |
3,214 |
343,334 |
|
Liabilities |
|
|
|
|
Accrued expenses |
- |
(1,799) |
(1,799) |
|
Total liabilities |
- |
(1,799) |
(1,799) |
(iii) Power price risk
The wholesale market price of electricity and gas is volatile and is affected by a variety of factors, including market demand for electricity and gas, the generation mix of power plants, government support for various forms of power generation, as well as fluctuations in the market prices of commodities and foreign exchange. Whilst some of the Company's renewable energy projects benefit from fixed prices, others have revenue which is in part based on wholesale electricity and gas prices. The Investment Manager continually monitors energy price forecast and aims to put in place mitigating strategies, such as hedging arrangements or fixed PPA contracts to reduce the exposure of the Company to this risk.
(iv) Credit risk
Credit risk is the risk of loss due to the failure of a borrower or counterparty to fulfil its contractual obligations. The Company's primary direct counterparties are its wholly owned subsidiaries in which it makes investments, which are reviewed and monitored through short to medium term cash flow forecasts. Underlying the cash flow forecasts are project company cash flow models which are regularly updated for the purposes of demonstrating the projects' ability to pay interest and dividends based on a set of detailed assumptions.
The Company is also subject to credit risk on its trade and other receivables and cash and cash equivalents. The Company's cash and cash equivalents are held with well-known, investment grade banks.
(v) Liquidity risk
Liquidity risk is the risk that the Company may not be able to meet its financial obligations as they fall due. The AIFM and the Board continuously monitor forecast and actual cashflows from operating, financing and investing activities to consider payment of dividends, repayment of the Company's payables or funding further investing activities.
Financial assets and liabilities by maturity at the period end are shown below:
|
|
Less than 1 year |
1-2 years |
2-5 years |
More than 5 years |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Assets |
|
|
|
|
|
|
Investments at fair value through profit or loss |
2,261 |
- |
- |
160,758 |
163,019 |
|
Cash and cash equivalents |
180,220 |
- |
- |
- |
180,220 |
|
Trade and other receivables |
95 |
- |
- |
- |
95 |
|
Liabilities |
|
|
|
|
|
|
Trade payables |
(1,799) |
- |
- |
- |
(1,799) |
|
Net assets |
180,777 |
- |
- |
160,758 |
341,535 |
Capital management
The Company has implemented an efficient financing structure that enables it to manage its capital effectively. The Company's capital structure comprises equity only (refer to the condensed statement of changes in equity). As at 30 June 2020 the Company had no recourse debt.
16. Related party and key advisor transactions
During the period, interest totalling £2,261,000 was earned, in respect of the long-term interest-bearing loan between the Company and its subsidiaries. At the period end, the full amount was outstanding.
AIFM and Investment Manager
The Company has appointed Octopus AIF Management Limited to be the Alternative Investment Fund Manager of the Company (the "AIFM") for the purposes of Directive 2011/61/EU of the European Parliament and of the Council on Alternative Investment Fund Managers. Accordingly, the AIFM is responsible for the portfolio management of the Company and for exercising the risk management function in respect of the Company. The AIFM has delegated portfolio management services to Octopus Investments Limited, the Company's Investment Manager.
The aggregate management fee payable to the AIFM is 0.95% per annum of Net Asset Value up to and including £500 million and 0.85% per annum of Net Asset Value in excess of £500 million, payable quarterly in arrears. There are no performance fee or asset level fees payable to the AIFM.
During the period, the management fee charged to the Company by the AIFM was £1,808,000, of which £1,620,000 remained payable at the period end date.
Directors
The Company is governed by a Board of Directors (the "Board"), all of whom are independent and non-executive. During the period, they received fees for their services of £90,000 and were paid £2,000 in expenses.
Each of the Directors, save for Elaina Elzinga (who is a U.S. Person), has agreed that any fees payable to them shall, save where the Company and the Directors agree otherwise, be satisfied in Ordinary Shares transferred at market value. Any Ordinary Shares transferred to the Directors pursuant to these arrangements shall be subject to the terms of the Lock-in Deed, which prohibits them to sell, grant options over or otherwise dispose of any interest in any Ordinary Shares transferred to them in satisfaction of their entitlement to directors' fees (save in certain circumstances, including: (i) in acceptance of a general offer made for the entire issued share capital of the Company; or (ii) pursuant to an intervening court order; or (iii) following termination of their appointment as a non-executive Director of the Company) prior to the date which is 12 months after the date of transfer of the relevant Ordinary Shares.
The Directors had the following shareholdings in the Company, all of which were beneficially owned.
|
|
Ordinary Shares |
|
Director |
At 30 June 2020 |
|
Phil Austin MBE |
23,236 |
|
James Cameron |
15,977 |
|
Elaina Elzinga |
- |
|
Audrey McNair |
15,802 |
17. SUBSIDIARIES
As a result of applying Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27), no subsidiaries have been consolidated in these financial statements. The Company's subsidiaries are listed below:
|
Name |
Category |
Place of business |
Ownership interest |
|
ORIT Holdings Limited |
Intermediate Holdings |
UK |
100% |
|
ORIT Holdings II Limited |
Intermediate Holdings |
UK |
100% |
|
ORIT UK Acquisitions Limited |
Intermediate Holdings |
UK |
100% |
|
Abbots Ripton Solar Energy Limited |
Project company |
UK |
100% |
|
Jura Solar Limited |
Project company |
UK |
100% |
|
Mingay Farm Limited |
Project company |
UK |
100% |
|
NGE Limited |
Project company |
UK |
100% |
|
Sun Green Energy Limited |
Project company |
UK |
100% |
|
Westerfield Solar Limited |
Project company |
UK |
100% |
|
Wincelle Solar Limited |
Project company |
UK |
100% |
|
Chisbon Solar Farm Limited |
Project company |
UK |
100% |
|
Heather Wind AB |
Project company |
Sweden |
100% |
18. Guarantees and other COMMITments
As at 30 June 2020 the Company has £43.4 million of future investment obligations relating to its Swedish wind farm. The Company also guarantees the foreign exchange hedges entered into by its intermediate holding companies to enable it to minimise its exposure to changes in underlying foreign exchange rates.
19. Post PERIOD END events
On 31 July 2020, the Company announced that it had entered into a share purchase agreement to acquire a 100% interest in a portfolio of operational solar PV assets located across France for a cash consideration of €58.9 million (£53.4m). The portfolio, which has €99 million of existing project finance from Hamburg Commercial Bank, consists of 14 fully operational solar PV assets with a total installed capacity of 119.5MW which all benefit from feed-in-tariffs ("FiT") under the French 2011 Tariff Order and 2011 Call for Tenders regimes for 100% of their output. The assets began operating between 2013 and 2015 and, at the time of acquisition, had an average of 12.7 years remaining under the FiT contracts and an average remaining life of 27.3 years. The transaction completed on 31 July 2020.
There are no other post period end events other than as disclosed in this report.
20. Status of this report
These unaudited interim financial statements are not the Company's statutory accounts for the purposes of section 434 of the Companies Act 2006. The report will be available in electronic format on the Company's website, https://octopusrenewablesinfrastructure.com/ .
The interim financial report was approved by the Board of Directors on 14 September 2020.
ALTERNATIVE PERFORMANCE MEASURES
In reporting financial information, the Company presents alternative performance measures, "APMs", which are not defined or specified under the requirements of IFRS. The Company believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional helpful information on the performance of the Company.
The APMs presented in this Interim Report are shown below:
Total share price return
A measure of share price performance over the reporting period
|
As at 30 June 2020 |
|
|
|
Issue price at First Issue (10 December 2019) |
a |
100.0 |
|
Closing share price at 30 June 2020 |
b |
112.2 |
|
Total return |
(b/a) - 1 |
12.2% |
Premium to NAV
The amount, expressed as a percentage, by which the share price is more than the NAV per Ordinary Share.
|
As at 30 June 2020 |
|
|
|
NAV per Ordinary Share (pence) |
a |
97.58 |
|
Share price (pence) |
b |
112.2 |
|
Premium |
(b/a) - 1 |
15.0% |
Ongoing Charges Ratio
A measure, expressed as a percentage of average net assets, of the regular, recurring annual costs of running the Company.
|
As at 30 June 2020 |
|
|
|
Average NAV (£'000) |
a |
342,375 |
|
Annualised expenses (£'000) |
b |
4,261 |
|
Ongoing charges |
(b/a) |
1.24% |
COMPANY INFORMATION
|
Directors (all non-executive) Phil Austin MBE (Chairman) James Cameron Elaina Elzinga Audrey McNair
|
Alternative Investment Fund Manager ("AIFM") Octopus AIF Management Limited 6th Floor 33 Holborn London EC1N 2HT
|
|
Administrator and Company Secretary PraxisIFM Fund Services (UK) Limited 1st Floor Senator House 85 Queen Victoria Street London EC4V 4AB |
Investment Manager Octopus Investments Limited 6th Floor 33 Holborn London EC1N 2HT |
|
Broker Peel Hunt LLP Moor House 120 London Wall London EC2Y 5ET
|
Registrar Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS13 8AE
|
|
Solicitors to the Company Gowling WLG (UK) LLP 4 More London Riverside London SE1 2AU |
Depositary BNP Paribas Securities Services, London Branch 10 Harewood Avenue London NW1 6AA
|
|
Registered Office* 1st Floor Senator House 85 Queen Victoria Street London EC4V 4AB
|
Auditor PricewaterhouseCoopers LLP Central Square South Orchard Street Newcastle upon Tyne NE1 3AZ |
*Registered in England and Wales - No. 12257608
GLOSSARY
|
AIC |
Association of Investment Companies |
|
AIFM Directive |
the EU Alternative Investment Fund Managers Directive (No. 2011/61/EU) |
|
AIFM |
Alternative Investment Fund Manager; Octopus AIF Management Limited |
|
APM |
Alternative Performance Measures |
|
ARC |
Audit and Risk Committee |
|
Company or ORIT |
Octopus Renewables Infrastructure Trust plc |
|
DCF |
Discounted Cash Flow |
|
DNO |
Distribution Network Operator |
|
DTG |
Disclosure Guidance and Transparency Rules |
|
Group |
the Company and all of its subsidiaries (as disclosed in note 17) |
|
ESG |
Environmental, Social and Governance |
|
EU |
European Union |
|
FCA |
Financial Conduct Authority |
|
First Issue |
Shares issued at IPO on 10 December 2019 |
|
FiT |
Feed-in-Tariff |
|
GAV |
Gross Asset Value |
|
GWh |
Gigawatt hour |
|
IPO |
Initial Public Offering |
|
Investment Manager |
Octopus Renewables, part of Octopus Investments Limited |
|
LNG |
Liquid Natural Gas |
|
LSE |
London Stock Exchange |
|
Management Agreement |
the Alternative Investment Fund Management Agreement between the Company and the AIFM |
|
MW |
Megawatt |
|
MWh |
Megawatt hour |
|
NAV |
Net Asset Value |
|
OCR |
Ongoing Charges Ratio |
|
ODFM |
Optional Downward Flexibility Management |
|
O&M |
Operations and Maintenance |
|
Portfolio of assets |
The 9 renewable energy assets in which the Company had an investment as at 30 June 2020 |
|
PPA |
Power Purchase Agreement |
|
PV |
Photovoltaic |
|
RESS |
Renewable Electricity Support Scheme |
|
ROC |
Renewable Obligation Certificates |
|
SDG |
Sustainable Development Goals |
|
SH&E |
Safety, Health and Environment |
|
SORP |
Statement of Recommended Practice |
|
SPV |
Special Purpose Vehicle |
|
TCFD |
Task Force on Climate-Related Financial Disclosures |
|
WACC |
Weighted Average Cost of Capital |
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