Interim Results & Capital Recycling Update
LEI: 213800ZPHCBDDSQH5447
22 November 2023
NextEnergy Solar Fund Limited
("NESF" or the "Company")
Interim Results & Capital Recycling Update
NextEnergy Solar Fund, a leading specialist investor in solar energy and energy storage, announces it has today published its interim results for the period ended 30 September 2023.
Key Highlights
Financial:
· NAV per ordinary share of 108.3p (31 March 2023: 114.3p).
· Ordinary shareholders' NAV of £640m (31 March 2023: £674.4m).
· Earnings per ordinary share of (2.0p)1 (31 March 2023: 8.2p).
· Total gearing (including preference shares) of 46.4% (31 March 2023: 44.6%).
· Financial debt gearing (excluding preference shares) of 29.8% (31 March 2023: 28.4%).
· Weighted average cost of capital of 6.3% (31 March 2023: 5.7%).
· Weighted average discount rate of 8.0% (31 March 2023: 7.3%).
Dividend:
· Dividend of 4.18p per ordinary share for the period ended 30 September 2023 (30 September 2022: 3.76p).
· Target dividend of 8.35p per ordinary share for the year ended 31 March 2024 (a year-on-year increase of 11%).
· Forecasted target dividend cover remains c.1.3x for the financial year ending 31 March 2024.
· Total dividends declared since IPO of £318m or 63.7p per share.
Portfolio:
· Energised Whitecross, a 36MW solar farm located in Lincolnshire.
· 100 operating solar assets (31 March 2023: 99).
· Total installed capacity of 933MW2 (31 March 2023: 889MW1).
· Remaining weighted asset life of 26.4 years (31 March 2023: 26.3 years).
Operational, ESG and Sustainability:
· Portfolio generation in line with budget for the period ended 30 September 2023 although has been impacted by Distribution Network Operators ("DNOs")3 outages which remain elevated due to backlogs (30 September 2022: 6.1%). Without DNO outages, portfolio generation for the period would have been c.3.4% above budget.
· Generated 599GWh of clean electricity during the period, contributing to the avoidance of 252,500 tonnes of CO2e emission (30 September 2022: 639GWh, 266,500 tonnes of CO2e).
· Powered an equivalent 334,200 UK homes for one year (30 September 2022: 354,300).
· The Company released its 2023 standalone ESG and Sustainability report in the period, available here.
Footnotes:
1. Driven by the net change in fair value of investments for the period.
2. Includes share in private equity vehicle (NextPower III). NESF's 6.21% share of NextPower III on a look through equivalent basis has an operational capacity of 33MW (31 March 2023: 24MW).
3. Distribution Network Operators complete rolling programmes of preventative maintenance and upgrade works. This ensures stability of the energy supplied to consumers and expansion of the networks, which contributes to the grids ability to connect more distributed generation and improve the UKs energy security. In order to keep their staff safe, they often need to de-energise power lines to complete these works.
Strategic Highlights
Capital Recycling Programme:
· Post period end, the Company is pleased to announce the completion of the first phase of its Capital Recycling Programme by successfully completing the sale of Hatherden, a 60MW ready to build solar project, for £15.2m, of which £8.7m is consideration for the acquisition and £6.5m is the reimbursement of invested capital (the "Transaction").
· The Transaction:
o The Transaction is NAV accretive to shareholders and will generate an estimated uplift of 1.27p, which will be reflected in the Company's NAV per share as at 31 December 2023. The Transaction represents a 100% premium to its holding value (2.0x Multiple on Invested Capital) and an attractive 57% IRR.
o Hatherden, located in Hampshire, UK, was developed as part of the Company's self-developed project pipeline and consists of a 60MW ready to build solar project and the development rights for a 7MW co-located energy storage project.
o The accretive value of the Transaction demonstrates how the Company maximised value throughout the development of Hatherden, including various initiatives ranging from securing an import connection and associated rights for installation of the 7MW co-located energy storage project, increasing the installed capacity of the project from 50MW to 60MW through technical optimisation, and securing a Contract for Difference ("CfD") contract under Auction Round 4 for 100% of its generation capacity.
· Use of proceeds:
o The proceeds from the Transaction will be immediately used to reduce the Company's drawn short-term debt via its Revolving Credit Facilities ("RCF").
· The purchaser:
o The purchaser, NextPower UK ESG Fund, is a 10-year closed-ended private fund managed by NextEnergy Capital. It is a private unlevered Fund investing in new-build solar projects in the UK. NextPower UK HoldCo Limited is under the common control of the wider NextEnergy Group along with NextEnergy Capital Limited (Investment Adviser to NESF) and NextEnergy Capital IM Limited (Investment Manager to NESF) and as such is a related party of the Company.
o Due to the sale of Hatherden being classified as a smaller related party transaction under the FCA's Listing Rules, the Board appointed Deloitte to undertake an independent valuation. The Board also obtained a written confirmation from the Company's Sponsor ("Cavendish"), that the Transaction was fair and reasonable as afar as the shareholders are concerned as required under Listing Rule 11.1.10R.
o All related-party disposals are at the Board's discretion and, in the case of any related party transaction, the FCA's Listing Rules must be adhered to. There are no exclusivity arrangements in place between NESF and any member of the NextEnergy Group in relation to the Transaction or future disposals. The Transaction constitutes a smaller related party transaction as set out in Listing Rule 11.1.10R.
· The Company continues to progress a competitive sales process for the remaining phases of the Capital Recycling Programme. Further updates will be made to the market in due course.
Energy Storage:
· The Company's first standalone 50MW energy storage asset in Scotland, known as Camilla, is expected to be energised in 2024. As such, the Company will not consider proposing an amendment to its investment policy in energy storage from 10% of the Company's Gross Asset Value until Camilla is energised and generating revenues.
· The Company regards UK energy storage as a highly complementary asset class to the existing solar portfolio that will provide multiple diversification benefits for shareholders over the medium
term.
· The Company will continue to maintain its disciplined approach to capital allocation to ensure investment activity is accretive and in line with the Company's strategy.
Helen Mahy, Chair of NextEnergy Solar Fund Limited, commented:
"In my first report since taking over as Chair in August, I am pleased to announce another period of steady progress in the face of a series of geopolitical and macroeconomic challenges. In addition, your Board is taking decisive action to help narrow the discount that the shares trade on in relation to the value of its underlying assets, and today we are announcing the first step in that strategy, with the sale of the Hatherden solar project to release funds and reduce borrowings. We believe that this and the successful completion of our overall Capital Recycling Programme will put NESF in an even stronger condition to deliver long-term stable returns to shareholders, whilst making a significant contribution to Britain's decarbonised future."
Michael Bonte-Friedheim, CEO of NextEnergy Group said:
"NextEnergy Solar Fund has built up an excellent portfolio of high value renewable energy assets. We continue to manage this portfolio to deliver optimal returns for shareholders, whilst continuing to look for opportunities to develop it further."
Half Year Report
The Company's Half Year Report is now available on the Reports & Publications section of the Company's website: https://www.nextenergysolarfund.com/reports-and-publications/.
A copy of the Half Year Report has also been submitted to the FCA's National Storage Mechanism.
Interim Results Presentation
The Company will stream its interim results presentation via the London Stock Exchange Spark Live platform, where it is accessible to all investors and analysts.
The presentation will be hosted by:
· Helen Mahy CBE (Chair, NextEnergy Solar Fund)
· Ross Grier (Chief Operating Officer & Head of UK Investments, NextEnergy Capital, Investment Adviser)
· Stephen Rosser (Investment Director & UK Legal Counsel, NextEnergy Capital, Investment Adviser)
Presentation details:
· Time: 11:00am (GMT)
· Date: Wednesday 22 November 2023
· Registration and Webcast link: NextEnergy Solar Fund Interim Results Presentation
A recording of the presentation will be made available on the Company's website shortly after the event.
Updates to Net Asset Value ("NAV") assumptions
The Company has made the following updates to its valuation assumptions for the 30 September 2023 NAV calculation:
· Updated inflation assumptions to reflect the latest available third-party inflation data from HM Treasury Forecasts and long-term implied rates from the Bank of England for its UK assets. For international assets, IMF forecasts are used.
· Updated power price forecasts capturing the latest available third-party advisor long-term power curves.
The updated NAV assumptions are disclosed in the relevant sections below.
NAV Bridge1
|
|
NAV p/share |
NAV |
|
At 31 March 2023 |
114.3p |
£674.4m |
|
New assets at cost |
2.5p |
£14.6m |
|
RCF drawdown, used to fund investments |
(1.9p) |
(£11.0m) |
|
Cash on hand, used to fund investments |
(0.6p) |
(£3.6m) |
|
Time value |
4.8p |
£28.4m |
|
Project actuals |
(0.2p) |
(£1.0m) |
|
Power price forecasts |
(2.3p) |
(£12.9m) |
|
Changes in short-term inflation |
1.3p |
£7.6m |
|
Revaluation of new assets |
0.3p |
£1.6m |
|
Discount rate changes |
(4.6p) |
(£27.3m) |
|
Cash dividends paid |
(4.7p) |
(£27.7m) |
|
Other movements in residual value2 |
(0.6p) |
(£3.1m) |
|
At 30 September 2023 |
108.3p |
£640.0m |
Footnotes:
1. The movement in the NAV over the six-month period was driven primarily by the following factors:
· The increase in discount rate for unlevered operating UK solar assets. As announced on 17 August 2023, during the period, the Company increased the discount rate for unlevered operating UK solar assets by 0.75% to 7.50% The resulting weighted average discount rate for the Company's portfolio was 8.0% (31 March 2023: 7.3%).
· A decrease in short-term (2023-2027) UK power price forecasts provided by Consultants, being on average 13.2% lower than assumptions at 31 March 2023.
· The upward revision in short-term inflation forecasts (see below).
· Revaluation of new assets in the Company's portfolio.
· The operating results achieved by the Company's solar assets.
· The dividends declared and operating costs incurred during the year.
2. Other movements in residual value includes changes in FX rates, Fund Opex and other non-material movements.
Inflation Linkage and Updates
The Company continues to take a consistent approach to its inflation assumptions, using external third-party, independent inflation data from HM Treasury Forecasts and long-term implied rates from the Bank of England for its UK assets. For international assets, IMF forecasts are used. Long-term assumptions are aligned with market consensus including transition to CPI from 2030.
Inflation Rate (UK RPI) Assumptions
|
Calendar Year |
30 September 2023 |
30 June 2023 |
31 March 2023 |
|
2023/24 |
6.80% |
6.30% |
4.90% |
|
2024/25 |
3.90% |
3.50% |
3.40% |
|
2025/26 |
2.80% |
2.60% |
3.30% |
|
2026/27 |
2.70% |
3.00% |
3.20% |
|
2027/28 |
3.30% |
3.40% |
3.70% |
|
2028/29 - 2029/30 |
unchanged |
unchanged |
3.00% |
|
2030/31 onwards |
unchanged |
unchanged |
2.25% |
Discount Rate Assumptions
The Company has not made any changes to its discount rate assumptions during the latest quarter. The Company's weighted average discount rate at the 30 September 2023 remains 8.0%. The below table reflects the discount rate assumptions breakdown used for the 30 September 2023 NAV calculation:
|
|
30 September 2023 |
30 June 2023 |
31 March 2023 |
|
UK unlevered |
unchanged |
7.50% |
6.75% |
|
UK levered |
unchanged |
8.20 - 8.50% |
7.45 -7.75% |
|
Italy unlevered 1 |
unchanged |
9.00% |
8.25% |
|
Subsidy-free (uncontracted) 2 |
unchanged |
8.50% |
7.75% |
|
Life extensions 3 |
unchanged |
8.50% |
7.75% |
Footnotes:
1. Unlevered discount rate for Italian operating assets implying 1.50% country risk premium.
2. Unlevered discount rate for subsidy-free uncontracted operating assets implying 1.0% risk premium.
3. 1.0% risk premium for cash flows after 30 years where leases have been extended.
Power Curve Assumptions
30 September 2023:
For the UK portfolio, the Company uses multiple sources for UK power price forecasts. Where power has been sold at a fixed price under a Power Purchase Agreement (a hedge), these known prices are used. For periods where no PPA hedge is in place, short-term market forward prices are used. After two years, the Company integrates a rolling blended average of three leading independent energy market consultants' long-term central case projections. This approach allows mitigation of any delay in response from the three independent market forecasters ("Consultants") used by the Company in publishing quarterly or ad hoc updates following any significant market development.
For the Italian portfolio, Power Purchase Agreements (hedges) are used in the forecast where these have been secured. In the absence of hedges, a leading independent energy market consultant's long-term projections are used to derive the power curve adopted in the valuation.
The power price forecasts used also include a 'solar capture' discount which reflects the difference between the prices available in the market in the daylight hours of operation of a solar asset versus the baseload prices included in the power price estimates. This solar capture discount is provided by the Consultants on the basis of a typical load profile of a solar asset and is reviewed as frequently as the baseload power price forecasts. The application of such a discount is prudent as it results in a lower long-term price being assumed for the energy generated by NESF's portfolio.
Power Sales
NESF continues to lock in power price hedges over a rolling 36-month period. This proactive risk mitigation helps secure and underpin both dividend commitments and dividend cover, whilst reducing volatility and increasing visibility of cash flows.
To manage the sale of power into the electricity market, the Company utilises its investment adviser's in-house power sales desk. This team actively manages the Company's power price contracting strategy and activities. In the current environment, the power sales desk has enabled the Company to mitigate market price volatility whilst incrementally growing weighted average prices through forward hedging above forecast prices. Aggregating the amount of revenue derived from subsidies and the power hedges, the Company has a high degree of comfort around forward revenue projections.
In addition to NESF's budgeted revenues from ROCs and FITs (c.50%), the Company's UK hedging covers 80% of the total portfolio (716MW) as at 6 November 2023.
|
UK hedging summary |
FY2023/24 |
FY2024/25 |
FY2025/26 |
|
Generation hedged |
94% |
44% |
13% |
|
Power price hedged |
£79.2 |
£91.4 |
£147.2 |
Available Capital
Out of the total £205m immediate Revolving Credit Facilities available to the Company, c.£27.7m remains undrawn and available for deployment as at 30 September 2023. The £15.2m cash proceeds from the Hatherden transaction will be used to reduce the Group's £177m of short-term debt levels. The Company also has c.£4.8m immediate cash balance available at Fund level as at 30 September 2023 (this is separate from the cash currently held at Holdco/SPV level).
Capital Structure
The financial debt, together with the preference shares, represented a total gearing level of 46.4%
(31 March 2023: 44.6%), which is below the maximum limit of 50% in the Company's Investment Policy.
% Fixed vs Floating Debt:
NESF Debt Structure Chart:
Total Gearing:
Footnotes:
1. NESF has 326MW under long-term debt financing, 326MW under short-term debt financing and 250MW without debt financing (excludes NPIII look through debt).
2. Loan to Value defined as 'Debt outstanding / GAV'.
3. Long-term debt is fully amortised over the period secured assets receive subsidies (ROCs and others).
4. Applicable rate represents the swap rate.
5. Represents the "real" outstanding debt balance. The "nominal" outstanding debt balances are included in the debt balances provided in Note 23b to the interim results financial statements.
6. The total combined short and long-term debt in relation to NESF's commitment into NPIII (on a look through equivalent basis).
At 30 September 2023, the Company's subsidiaries (including NPIII) had financial debt outstanding of £356m (31 March 2023: £345m), on a look-through basis. No covenant breaches have occurred during the period.
Future Pipeline
The Company has exclusivity over, or owns the project rights for, the majority of its pipeline of c.£500m domestic and international solar and energy storage assets.
|
For further information:
NextEnergy Capital Michael Bonte-Friedheim |
020 3746 0700 ir@nextenergysolarfund.com |
|
Ross Grier |
|
|
Stephen Rosser |
|
|
Peter Hamid (Investor Relations)
|
|
|
RBC Capital Markets |
020 7653 4000 |
|
Matthew Coakes |
|
|
Elizabeth Evans Kathryn Deegan
|
|
|
Cavendish |
020 7397 1909 |
|
James King |
|
|
William Talkington
|
|
|
H/Advisors Maitland |
020 7379 5151 |
|
Neil Bennett |
|
|
Finlay Donaldson |
|
|
|
|
|
Ocorian Administration (Guernsey) Limited |
01481 74 2642 |
|
Kevin Smith |
|
Notes to Editors1:
About NextEnergy Solar Fund
NextEnergy Solar Fund is a specialist solar energy and energy storage investment company that is listed on the premium segment of the London Stock Exchange and is a FTSE 250 constituent.
NextEnergy Solar Fund's investment objective is to provide ordinary shareholders with attractive risk-adjusted returns, principally in the form of regular dividends, by investing in a diversified portfolio of utility-scale solar energy and energy storage infrastructure assets. The majority of NESF's long-term cash flows are inflation-linked via UK government subsidies.
The NextEnergy Solar Fund portfolio has a combined installed power capacity of 933MW (including NextPower III MW on an equivalent look-through basis) generating enough renewable energy to power the equivalent of 334,197 average UK home electricity needs for an entire year. The Fund may invest up to 30% of its gross asset value in non-UK OECD countries, 15% in solar-focused private infrastructure funds, and 10% in energy storage assets. As at 30 September 2023, the Company had an unaudited gross asset value of £1,194m. For further information please visit www.nextenergysolarfund.com
Article 9 Fund
NextEnergy Solar Fund is classified under Article 9 of the EU Sustainable Finance Disclosure Regulation and EU Taxonomy Regulation. NextEnergy Solar Fund's sustainability-related disclosures in the financial services sector are in accordance with Regulation (EU) 2019/2088 and can be accessed on the ESG section of both the NextEnergy Solar Fund and NextEnergy Capital website.
About NextEnergy Group
NextEnergy Solar Fund is managed by NextEnergy Capital, part of the NextEnergy Group. NextEnergy Group was founded in 2007 to become a leading market participant in the international solar sector. Since its inception, it has been active in the development, construction, and ownership of solar assets across multiple jurisdictions. NextEnergy Group operates via its three business units: NextEnergy Capital (Investment Management), WiseEnergy (Operating Asset Management), and Starlight (Asset Development).
· NextEnergy Capital: Has over 16 years specialist solar expertise having invested in over 375 individual solar plants across the world. NextEnergy Capital currently manages four institutional funds with a total capacity in excess of 2.4GW+ and funds under management of $3.9bn. www.nextenergycapital.com
· WiseEnergy®: Provides solar asset management, monitoring and technical due diligence services to over 1,300 utility-scale solar power plants with an installed capacity in excess of 1.6GW. WiseEnergy clients comprise leading banks and equity financiers in the energy and infrastructure sector. www.wise-energy.com
· Starlight: Has developed over 100 utility-scale projects internationally and continues to progress a large pipeline of c.10GW of both green and brownfield project developments across global geographies.
Notes:
1: All financial data is unaudited at 30 September 2023, being the latest date in respect of which NextEnergy Solar Fund has published financial information
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