Final Results Announcement

Greencoat UK Wind PLC

 

24 March 2014

 

Final Results announcement for the period from 4 December 2012 to 31 December 2013

 

Greencoat UK Wind PLC is the leading renewable infrastructure fund, solely and fully invested in operating UK wind farms. The Company's aim is to provide investors with an annual dividend that increases in line with RPI inflation (6p for 2013, 6.16p for 2014) while preserving the capital value of its investment portfolio in the long term on a real basis through reinvestment of excess cash flow and the prudent use of portfolio leverage.

 

Highlights

·     The Company raised proceeds of £260 million by issuing 260,000,000 ordinary shares in an oversubscribed Initial Public Offering on 27 March 2013 and acquired a seed portfolio of interests in six wind farms (126.5 MW).

·     The Group increased its portfolio to ten wind farms (184.0 MW) in October and November 2013 using its acquisition debt facility.

·     On 18 December 2013, the Company raised proceeds of £83 million by issuing 80,975,610 ordinary shares, repaying acquisition debt.

·     The Group's investments generated 291.5 GWh of electricity in the period, 7.6 per cent. above budget.

·     Net cash generation after fees, costs and expenses, was £21.6 million in the period.

·     The Company paid an interim dividend of 1.5 pence per share for the period 27 March to 30 June2013 and paid a further interim dividend on 21 February 2014 of 3 pence per share in relation to the period 1 July to 31 December 2013.

·     The target dividend for 2014 is 6.16 pence.

 

Key Metrics	As at 31 December 2013
Market capitalisation	£351.5 million
Share price	103.0 pence
Dividends paid with respect to the period	£14.2 million(1)
Dividends paid with respect to the period per share	4.5 pence
GAV	£401.1 million
NAV	£351.1 million
NAV per share	102.9 pence
NAV growth (adjusting for dividends)	1.9 pence
Total return (NAV)	6.5 per cent.
Annualised total return (NAV) (not seasonally adjusted)	8.7 per cent.

⁽¹⁾£10.2 million of which was paid after 31 December 2013

 

 

Defining Characteristics

Greencoat UK Wind PLC was designed for investors from first principles to be simple, transparent and low risk.

 

•      The Group is invested solely in operating UK wind farms.

•      Wind is the most mature and largest scale renewable technology.

•      The UK has a long established and stable regulatory regime, high wind resource and over £40 billion of wind farms in operation in the short to medium term.

•      The Group is structured to be the preferred partner of utilities, who own the significant majority of UK wind assets and who need to recycle capital.

•      The Group is wholly independent and thus avoids conflicts of interests in its investment decisions.

•      The UK-based, independent Board is actively involved in key investment decisions and in monitoring the efficient operation of the assets, and works in conjunction with the most experienced investment management team in the sector.

•      The Group only invests in wind farms that have an appropriate operational track record (or price adjustment mechanism).

•      Low leverage (including no asset level leverage) is important to ensure a high level of cash flow stability and higher tolerance to downside sensitivities.

•      The Group invests in sterling assets and thus does not incur currency risk.

 

 

Tim Ingram, Chairman, Greencoat UK Wind said:

"We are pleased to report the strong performance of our portfolio. We came to the market a year ago with a clear, independent and high quality proposition and since listing we have delivered what was said 'on the tin'. We look forward to the future with confidence."

 

Annual report

A copy of the annual report has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM. The annual report will also shortly be available on the Company's website at www.greencoat-ukwind.com where further information on the Company can also be found.

 

 

Details of the conference call for analysts and investors:

There will be a presentation call at 8.30am today for analysts and investors.  Please contact Kirsty Amos on 020 7353 4200, alternatively by email on [email protected] to register. Presentation materials will be posted on the Company's website, www.greencoat-ukwind.com, from 8.00am.

 

For further information, please contact:

Greencoat UK Wind PLC                               020 7832 9400

Stephen Lilley

Laurence Fumagalli

Tom Rayner

Tulchan                                                                020 7353 4200

Stephen Malthouse

Christian Cowley

 

 

CHAIRMAN'S STATEMENT

I am pleased to present the annual report of Greencoat UK Wind PLC for the period to 31 December 2013⁽¹⁾.

 

The Company listed on 27 March 2013 in an oversubscribed Initial Public Offering and was the first renewable infrastructure fund to list on the London Stock Exchange.

 

Wind is the most mature and cheapest of renewable technologies and electricity production from wind is becoming an increasingly important part of the UK's generation mix. Renewable generation build-out is needed to achieve the UK's low carbon targets but also, as importantly, to bolster security of supply. In February 2014, 11 per cent. of all UK electricity came from the UK's wind farms, exceeding the recently-set record of 10 per cent. in December 2013.

 

The Group's focus is to acquire operating UK wind farms, mainly from utilities, who own the majority of the £40 billion or more of wind farms available for investment in the short to medium term, and who need to recycle capital. We then concentrate on ensuring these assets maximise their net revenue generation.

 

£250.5 million of the £254.8 million of net proceeds raised in the Initial Public Offering were invested immediately in six operating wind farms, thereby ensuring that shareholders' funds were straightaway efficiently employed to produce returns.  During the last quarter, the Group made four additional investments using a three year acquisition debt facility and subsequently raised additional equity to pay down part of that facility and refresh the Group's capacity to make further acquisitions.

 

The total equity raised by the Company in 2013 was £343 million. Shareholder funds have been efficiently invested in income generating assets at all times.

 

I am pleased to report that the portfolio outperformed budgeted generation in the period by 7.6 per cent., producing 291.5 GWh of power.

 

Dividends and Returns

The Company's aim is to provide investors with an attractive dividend that increases in line with the RPI inflation while protecting capital on a real basis.

 

In September 2013, the Company paid its first dividend and in February 2014, it paid its second. Both were in line with expectation and delivered the 6 pence pro rated dividend that was targeted at listing. We generated £21.6 million of cash which effectively financed the £14.2 million of dividends now paid in respect of the period and £6.2 million of reinvestment made.

 

Our annualised 2013 return to investors, including dividends and NAV growth, is 8.7 per cent. (not seasonally adjusted). Given production in December, January and February, I am confident that we will deliver real NAV growth in our first full year of operation.

 

The Company's market capitalisation on 31 December 2013 was £351.5 million and the Gross Asset Value was £401.1 million (statutory gross assets were £402.3 million).

 

The Company has announced a 6.16 pence target dividend for 2014.

 

Leverage

As at 31 December 2013, the Group had £50 million of bank borrowings, which was 12.5 per cent. of the Gross Asset Value. The policy is to have no asset level leverage and to keep fund level borrowings at a prudent level (the absolute maximum is 40 per cent. of Gross Asset Value), to reduce risk and to ensure that the Group is at least fully invested in order to use its capital efficiently. New borrowings provide finance for acquisitions and are repaid both by further capital raisings and by the surplus cash generated by the operations of the wind farms. Over the medium term, we would expect leverage to be between 20 per cent. and 30 per cent.

 

Discount control

The Company's share price has traded at a premium to Net Asset Value since listing on 27 March 2013. The Articles of Association require there to be a continuation vote by shareholders if the share price were to trade at an average discount of 10 per cent. or more over a 12 month period. Notwithstanding this, it is the intention of the Board for the Company to buy back its own shares in the market if the share price is trading at a material discount to Net Asset Value, providing of course that it is in the interests of shareholders to do so.

 

Board

During the year, a number of experienced Directors joined the Board, now totalling five, all based in the UK. The Board's experience and expertise includes finance, accounting, energy markets, policy and wind farm operations.

 

Annual General Meeting

The 2014 AGM will take place on Monday 28 April 2014 at 2.30pm at the offices of Norton Rose. Details of the formal business of the meeting are set out in a separate circular which is being sent to shareholders with the annual report. We look forward to meeting shareholders on that occasion.

 

Outlook

We remain confident that the outlook for investment in UK wind farms is very encouraging. The Company is specifically structured to be the independent partner of choice for utility owners seeking to recycle capital into the development and construction of new wind farms. This is particularly important given that the significant majority of both onshore and offshore wind farms are owned by utilities with no leverage at the asset level.

 

At the same time, there is continuing significant investment in the construction of new wind farms providing a strong pipeline of operating wind farms for us to purchase at attractive yields well into the future.

 

We believe that it is in the interest of our shareholders for us to grow the Group, through further wind farm purchases, inter alia:

•      to provide additional economies of scale at fund level;

•      to increase our market power when purchasing further assets and when negotiating power offtake terms; and

•      to increase liquidity in our shares.

 

We are currently actively evaluating a number of potential opportunities for further acquisitions.

 

Tim Ingram

Chairman

23 March 2014

 

⁽¹⁾This is the first annual report of the Company since it listed on 27 March 2013. The Company formed on 4 December 2012 so the financial statements cover the period from 4 December 2012 to 31 December 2013 but the meaningful activities of the Company span the 27 March to 31 December 2013 period. 

 

 

STRATEGIC REPORT

Introduction

This Strategic Report has been prepared in accordance with the requirements of Section 414 of the Companies Act 2006. Its purpose is to inform shareholders and help them to assess how the Directors have performed their duty to promote the success of the Company.

 

Investment Objective

The Company's aim is to provide investors with an annual dividend that increases in line with RPI inflation while preserving the capital value of its investment portfolio in the long term on a real basis through reinvestment of excess cash flow and the prudent use of portfolio leverage. The target dividend of 6 pence per annum for 2013 will increase in line with the RPI to 6.16 pence for 2014. The target return to investors is an IRR net of fees and expenses of 8 per cent. to 9 per cent.. Progress on the objectives is measured by reference to the KPIs.

 

Investment Policy

The Group will invest mostly in unlevered operating UK wind farms predominantly with a capacity of over 10 MW, which sell the power produced and associated green benefits to utilities under route-to-market power purchase agreements.

 

The Group is structured by design to be a utility friendly buyer and co-investor in utility owned wind farms since utilities are the owners of the significant majority of UK operating wind farms. It is thus likely that most investments will be acquired from utilities. The Group is wholly independent and is not tied to any particular utility or developer.

 

As the Group has no borrowings at the asset level, and only limited borrowing at the Group level, the Group is sufficiently protected against lower power prices. At the same time, it has the ability to benefit from higher power prices as the Group is not required to be locked into long term fixed price contracts.

 

Since listing, the Group has used acquisition debt to make further investments. This has enhanced the Group's attractiveness to sellers since execution risk is greatly diminished, with the Group effectively being a cash buyer. Execution risk is also significantly lower relative to project financed acquisitions. Consequently, the Group has seen an increase in the returns it has been able to achieve from further investments. The Group will continue to use acquisition debt facilities to make further investments.

 

The Group will look to refresh such debt facilities by refinancing them in the equity markets at an appropriate time. While acquisition debt is drawn, the Group benefits from an increase in investor returns because borrowing costs are below the underlying yield on investments.

 

In contrast to the smaller equity investment in the PFI infrastructure sector, occupied by larger funds, where links to developers may be beneficial in sourcing new acquisitions, independence is of key importance for the Company to continue to make acquisitions at the best possible price. The Investment Manager's and the Board's relationships across the sector are also helpful.

 

At any point in time, the Board is aware of the overall pipeline of potential new investments, and the status of each. The Investment Manager and the Board agree which opportunities to pursue. Throughout any acquisition process, the Board is closely involved. Board approval is required before significant due diligence costs are incurred and before any investment is made.

 

Investment Securities

The Group invests in a range of securities in unquoted SPVs owning the wind farms, usually structured as ordinary shares and shareholder loans. Cash is held primarily in interest bearing bank accounts.

 

Asset Mix

The Group invests in both onshore and offshore wind farms with the amount invested in offshore wind farms being capped at 40 per cent. of the Gross Asset Value at acquisition.

 

The Group believes that there is a significant market in which it can grow over the next few years. The estimated total value of UK wind farm assets in operation, under construction or consented is over £40 billion.

 

Borrowing

Although the Group's total borrowing (anywhere in the business) is limited to 40 per cent. of the Gross Asset Value, the Company expects leverage to vary with its business cycle, as it has during 2013. Average leverage is expected to be between 20 per cent. and 30 per cent. in the medium term.

 

Approach to Risk

The Company will seek to minimise the risks for investors, as far as practical, in particular through:

•      focussing our investments on UK based wind farms, thus reducing currency, cross-border and foreign regulatory risks;

•      investing only in operating wind farms thereby eliminating development risk and minimising the risk from having to rely on modelling rather than proven wind energy yield⁽¹⁾;

•      only borrowing funds to purchase new assets and later repaying such borrowings through equity fund raisings and surplus cash flow and therefore having relatively low average leverage;

•      having no project level debt and thus being able to withstand significant downside sensitivities to power price and wind volume, while benefitting from any upside;

•      having a corporate structure where all the entities are UK based thus reducing the potential tax and the risks associated with foreign locations for holding entities;

•      maintaining an experienced Board that is actively involved in overseeing the actions of the Investment Manager; and

•      avoiding conflicts of interest through independence.

 

⁽¹⁾See Wind Resource section. Up to a maximum of 15 per cent. may be invested in non-operating wind farms but there are no plans for such investment. 

 

The spread of assets within the portfolio both by asset type (onshore and offshore) and by geographical location ensures that the portfolio benefits from a diversified wind resource and spreads the exposure to a number of potential technical risks associated with grid connections and with local distribution and national transmission networks. In addition, the portfolio includes five different turbine manufacturers, which diversifies technology and maintenance risks. Finally, each site contains a number of individual turbines, the performance of which is independent of other turbines.

 

For further detail on risks refer to the Principal Risks and Uncertainties section.

 

Structure

The Company is an externally managed UK registered investment company with a premium listing on the London Stock Exchange. The Group includes the Company, LLP (of which the Company and the Investment Manager are the members) and Holdco, a wholly-owned subsidiary of LLP. Holdco invests in SPVs, which hold the underlying wind farm assets.

 

Management

The Board has adopted a set of reserved powers outlining its particular duties. The Board has overall responsibility for the Company's activities including determining the Company's investment objective and policy, approving the acquisition of investments, strategy, capital raisings, monitoring operations, financial reporting and entering into any material contracts on behalf of the Company.

 

Although non-executive, the Board is entirely UK-based and as a consequence is actively involved with the business and has a high degree of skill and experience in relevant complementary backgrounds. It can draw upon experience in the investment management of listed funds, as well as in the energy sector from a public policy, commercial and operational perspective.

 

The Board has entered into an Investment Management Agreement with the Investment Manager under which the Investment Manager will be responsible for the day-to-day management of the Group's investment portfolio, in accordance with the Group's investment objective and policy, subject to the overall supervision of the Board as detailed in the Corporate Governance report. A summary of the fees paid to the Investment Manager are given in note 3 to the financial statements. The Board has also delegated administration and company secretarial services to the Administrator.

 

The Directors have access to the advice and services of the Administrator and Company Secretary, who are responsible to the Board for ensuring that Board procedures are followed and that it complies with all applicable rules and regulations, including those of the London Stock Exchange. Where necessary, in carrying out their duties, the Directors may seek independent professional advice at the expense of the Company. The Company maintains appropriate Directors' and Officers' liability insurance in respect of legal action against its Directors on an ongoing basis.

 

Review of Business

The portfolio assets have performed in line with management expectations in terms of energy production, operational expenditure and overall cash flow generation. A more detailed discussion of the individual project performance and a review of the business in the period is covered in the Investment Manager's Report.

 

Key Performance Indicators

The Board believes that the following indicators, which are typical for investment funds, will provide shareholders with sufficient information to assess how effectively the Group is meeting its objectives.

 

KPI	As at 31 December 2013
Market capitalisation	£351.5 million
Share price	103.0 pence
Dividends paid with respect to the period	£14.2 million(2)
Dividends paid with respect to the period per share	4.5 pence
GAV	£401.1 million
NAV	£351.1 million
NAV per share	102.9 pence
NAV growth (adjusting for dividends)	1.9 pence
Total return (NAV)	6.5 per cent.
Annualised total return (NAV) (not seasonally adjusted)	8.7 per cent.
TSR	4.5 per cent.
Annualised TSR (not seasonally adjusted)	6.0 per cent.

⁽²⁾ £10.2 million of which was paid after 31 December 2013

 

Ongoing Charges

The ongoing charges ratio of the Company is 1.46 per cent. for the period to 31 December 2013. This is made up as follows and has been calculated using the AIC recommended methodology.

 

	2013
Total management fee and priority profit share	1.20%
Directors' fees	0.07%
On-going expenses	0.19%
Total	1.46%

 

The management fee and priority profit share paid to the Investment Manager are based on the Net Asset Value. If they were stated with reference to the Adjusted Portfolio Value (including acquisition debt, in line with a number of the Company's peers) then the annual management fee and priority profit share would be 0.96 per cent., assuming 20 per cent. medium term gearing (current gearing 12.5 per cent.).

 

The Investment Manager is not paid any performance or acquisition fees.

 

Corporate and Social Responsibility

Environmental

The Group invests in wind farms and the environmental benefits of renewable energy are widely known. The Group has in place an Environmental, Social and Governance policy. The policy outlines the Group's approach to responsible investing, as well as the environmental standards which it aims to meet. Responsible Investing Principles have been applied to each of the investments made.

 

Employees and Officers of the Company

The Company does not have any employees and therefore employee policies are not required. The Directors of the Company are listed in the annual report.

 

Social, Community and Human Rights Issues

The Company's Environmental Social and Governance policy also outlines the Company's aims in relation to social standards, covering the requirement to continue to meet legal standards and good industry practice. The policy requires the Company to make reasonable endeavours to procure the ongoing compliance of its portfolio companies with the policy. The Investment Manager monitors compliance at the investment phase and through their attendance at Board meetings.

 

Gender Diversity

The Board comprises four men and one woman. The Board is aware of the benefits of diversity and considers this when appointing board directors.

 

The Investment Manager operates an equal opportunities policy and its partners and employees comprise fifteen men and eight women.

 

Principal Risks and Uncertainties

Under the Financial Conduct Authority's Disclosure and Transparency Rules, the Directors are required to identify those material risks to which the Group is exposed and take appropriate steps to mitigate those risks.

 

In the normal course of business, each asset has a rigorous risk management framework with a comprehensive risk register that is reviewed and updated regularly and approved by its board. The key risks identified by the Board to the performance of the Group are detailed below.

 

The purpose of the Group's risk management policies and procedures is not to eliminate risks completely, as this is not possible, but to reduce them and to ensure that the Group is adequately prepared to respond and to minimise their impact should they crystallise.

 

Risks affecting the Fund

Investment Manager

The ability of the Group to achieve its investment objective depends heavily on the managerial experience of the management team within the Investment Manager and more generally on the Investment Manager's ability to attract and retain suitable staff. The growth of the Group depends upon the ability of the Investment Manager to identify, select and execute further investments which offer the potential for satisfactory returns.

 

The Investment Management Agreement includes key man provisions which would require the Investment Manager to employ alternative staff with similar experience relating to investment, ownership, financing and management of wind farm projects should for any reason any key man cease to be employed by the Investment Manager. The Investment Management Agreement ensures that no investments are made following the loss of key men until suitable replacements are found and there are provisions for a reduction in the investment management fee during the loss period. It also outlines the process for their replacement with the Board's approval. The key men also have an equity stake in the Company and are incentivised through the management fee which is linked to NAV.

 

Financing risk

The Group will finance further investments either by borrowing or by issuing further shares. The ability of the Group to deliver enhanced returns and consequently realise expected real NAV growth is dependent on access to debt facilities and equity capital markets. There can be no assurance that the Group will be able to borrow or refinance on reasonable terms or that there will be a market for further shares.

 

Investment returns become unattractive

A significantly strengthening economy may lead to higher future interest rates which could make the listed infrastructure asset class relatively less attractive to investors. In such circumstances, it is likely that there will be an increase in inflation (to which the revenues and costs of the investee companies are either indexed or significantly correlated) or an increase in power prices (due to greater consumption of power) or both. Both would increase the investment return and thus would provide a degree of mitigation against higher future interest rates.

 

Health and safety and the environment

The physical location, operation and maintenance of wind farms may, if inappropriately assessed and managed, pose health and safety risks to those involved. Wind farm operation and maintenance may result in bodily injury or industrial accidents, particularly if an individual were to fall from height, fall or be crushed in transit from a vessel to an offshore installation or be electrocuted. If an accident were to occur in relation to one or more of the Group's investments and if the Group were deemed to be at fault, the Group could be liable for damages or compensation to the extent such loss is not covered under insurance policies. In addition, adverse publicity or reputational damage could ensue.

 

Kevin McCullough has been appointed as Health and Safety Director to the Board and Quadriga Health and Safety Limited have been engaged to ensure the ongoing appropriateness of the Group's health and safety policies.

 

Risks affecting investee companies

Regulation

A change in Government policy could lead to new renewable energy policies resulting in a change or abandonment of the Renewables Obligation. If these were applied retrospectively to current operating projects including those in the Group's portfolio, this could adversely impact the market price for renewable energy or the value of the green benefits earned from generating renewable energy. At the same time, such a policy change would be likely to halt further investment in new generating capacity, resulting in legally binding renewable energy targets being missed and adding to the already considerable security of supply concerns.

 

The Government has evolved the regulatory framework for new projects being developed but has consistently stood behind the framework that supports operating projects as it understands the need to ensure investors can trust regulation. This principle of "grandfathering" was confirmed in the recently enacted Energy Act 2013.

 

Electricity prices

Other things being equal, a decline in the market price of electricity would reduce the portfolio companies' revenues. At present, the Group does not hedge its exposure to power prices; power prices have a natural floor whereas upside is uncapped.

 

The Group's dividend policy has been designed to withstand significant short term variability in power prices. A longer period of power price decline would materially affect the revenues of investee companies. In general, independent forecasters expect European energy wholesale prices to continue to rise in real terms (in the short and long term), feeding into UK power prices, together with the ongoing phasing out of coal-fired power stations and the net reduction in nuclear capacity.

 

It was announced in the Budget on 19 March 2014 that the Carbon Price Support level would be capped at £18/tCO₂ until 2019/20. Depending on the market price of carbon allowances, this could lead to a reduction in the total price of carbon and, other things being equal, to a reduction in the wholesale price of electricity. The measures announced in the Budget were anticipated and are reflected in the 31 December2013 Net Asset Value and no amendments to valuations are expected in this regard.

 

Wind resource

The investee companies' revenues are dependent upon wind conditions, which will vary across seasons and years within statistical parameters. The standard deviation of wind speed is 6 per cent. over a 12 month period (2 per cent. over 10 years). Since long term variability is low, there is no significant diversification benefit to be gained from geographical diversification across weather systems.

 

The Group does not have any control over the wind resource but has no asset level leverage and has designed its dividend policy such that it can withstand significant short term variability in production relating to wind. Before purchase, the Group carries out extensive due diligence and relevant historical wind data is available over a substantial period of time. The risk associated with the other driver of wind energy generation, a wind farm's ability to turn wind into energy, is mitigated by only purchasing wind farms with a proven operating track record.

 

When acquiring wind farms which have only recently entered into operation, only limited operational data is available. In these instances, the acquisition agreements with the vendors of these wind farms will include a 'Wind Energy True-up'', which will apply once two years' operational data has become available. Under this true up, the net load factor will be reforecast based on all available data and the purchase price will be adjusted, subject to de minimis thresholds and caps.

 

Asset life

Wind turbines may have shorter life-spans than their expected life-span of 25 years. In the event that the wind turbines do not operate for the period of time assumed by the Group in its business model or require additional maintenance expenditure to do so, it could have a material adverse effect on investment returns.

 

The Group invests in companies that own wind turbines that have an appropriate operational track record. The Group performs regular reviews and ensures that maintenance is performed on all wind turbines across the wind farm portfolio. Regular maintenance ensures the wind turbines are in good working order and that turbines are fit for purpose over their expected life spans.

 

 

THE INVESTMENT MANAGER'S REPORT

The Investment Manager is responsible for the day- to-day management of the Group's investment portfolio in accordance with the Group's investment objective and policy, subject to the overall supervision of the Board.

 

The investment management team's experience covers ownership, financing and operation of wind farm projects, both onshore and offshore, and investment in renewable energy infrastructure. All the skills and experience required to manage the Company's business lie within a single Investment Manager.

 

The team is led by Stephen Lilley and Laurence Fumagalli. Between them they have 35 years of infrastructure investing and financing experience, have sat on the boards of major utilities and have made significant investments in, and loans to, the UK wind industry.

 

Shortly after listing, the Investment Manager completed the build-out of its team including adding senior operational experience. Further detail is shown on the Investment Manager's website (www.greencoat-capital.com/team/uk-wind.aspx).

 

The Investment Manager is authorised and regulated by the Financial Conduct Authority.

 

Investment portfolio

The Group's investment portfolio consists of interests in SPVs which hold the following underlying operating wind farms:

 

Wind farm	Turbines	Operator	PPA	Total MW	Fund Ownership Stake	Net MW
Braes of Doune	Vestas	DNV-GL	Centrica	72.0	50%	36.0
Tappaghan	GE	SSE	SSE	28.5	100%	28.5
Bin Mountain	GE	SSE	SSE	9.0	100%	9.0
Carcant	Siemens	SSE	SSE	6.0	100%	6.0
Little Cheyne Court	Nordex	RWE	RWE	59.8	41%	24.5
Cotton Farm	Repower	BayWa	Sainsbury's	16.4	100%	16.4
Earl's Hall Farm	Repower	BayWa	Sainsbury's	10.3	100%	10.3
Middlemoor	Vestas	RWE	RWE	54.0	49%	26.5
Lindhurst	Vestas	RWE	RWE	9.0	49%	4.4
Total Onshore						161.5
Rhyl Flats	Siemens	RWE	RWE	90.0	24.95%	22.5
Total Offshore						22.5
Total						184.0

 

 

Portfolio performance

The portfolio has performed in line with management expectations. Deviations from budget lie within reasonable statistical parameters. The standard deviation of energy yield over a 12 month period is 10 per cent. (standard deviation of wind speed 6 per cent.).

 

Generation by wind farm, and for the portfolio as a whole, is summarised below.

 

	Ownership		Budget Generation (GWh)	Actual Generation (GWh)
Braes of Doune	Apr	Dec	57.3	65.1
Carcant	Apr	Dec	12.2	14.5
Tappaghan	Apr	Dec	51.7	52.3
Bin Mountain	Apr	Dec	18.4	18.2
Little Cheyne Court	Apr	Dec	41.8	44.0
Rhyl Flats	Apr	Dec	49.2	52.8
Cotton Farm	Oct	Dec	15.3	16.6
Earl's Hall Farm	Oct	Dec	9.5	9.3
Middlemoor	Nov	Dec	13.2	16.5
Lindhurst	Nov	Dec	2.3	2.2
Greencoat UK Wind			271.0	291.5

 

Generation in the period was 7.6 per cent. above budget and there are no material issues that are affecting the performance of the assets.

 

During the period, Tappaghan and Bin Mountain suffered a number of issues arising from the transition to a full-service contract with the turbine manufacturer (the aim of the contract being to manage the wind farms on a low risk basis and to maximise availability). These issues are now resolved.

 

Rhyl Flats continued the programme of grouting repairs and expects to complete the work by the middle of 2014. The permanent repair to an export cable joint failure was also carried out. Both of these costs are recoverable from RWE under an indemnity.

 

Towards the end of 2013, the UK experienced a number of significant storms. Even with wind speeds of over 100mph, no significant damage was incurred by any of the 151 turbines that generate power for the Group. A small amount of damage was incurred at Earl's Hall Farm where some transformer housing roofs were blown off and the resulting water ingress required the site to be de-energised for a number of days.

 

December saw consistently high wind speeds, with portfolio generation of 72GWh (nearly 50 per cent. above budget). Revenue from December generation will be received in January 2014 (power) and April 2014 (ROCs and LECs), which will feed into Net Asset Value in 2014.

 

Following a competitive tender, DNV-GL was selected to replace SSE as provider of operational management services for Braes of Doune from 1 January 2014.

 

Health and safety

There are no major incidents to report in the period to 31 December 2013.

 

The Group has commissioned a safety audit to be conducted across all portfolio investments in early 2014 by an independent consultant, which will focus on the absolute standard of health and safety procedures, consistency of reporting across the portfolio and industry benchmarking.

 

Financial performance

The table below demonstrates strong dividend cover in the period of 1.8x. Net cash generation after fees, costs and expenses was £21.6 million. After dividends, reinvestment and equity issuance, cash balances (Group and wind farms SPVs) increased to £17.1 million at 31 December 2013.

 

	27 March 2013 to 31 December 2013
	£m
Net cash generation (after fees, costs and expenses)	21.6
Dividend	(3.9)
Investment in Cotton Farm and Earl's Hall Farm(1)	(64.7)
Debt drawn down	60.0
Net reinvestment	(4.7)
Investment in Middlemoor and Lindhurst(1)	(71.5)
Debt drawn down	70.0
Net reinvestment	(1.5)
Gross issue proceeds	83.0
Issuance costs	(1.7)
Debt repayment	(80.0)
Net issue proceeds	1.3
Movement in cash (Group and wind farm SPVs)	12.8
Opening cash balance (Group and wind farm SPVs)	4.3
Ending cash balance (Group and wind farm SPVs)	17.1
Net cash generation	21.6
Dividend in respect of period to 31 December 2013	14.2
Dividend cover	1.5x
Dividend cover (IPO shares only)	1.8x

 

⁽¹⁾  includes acquisition and upfront finance costs

 

Investment performance

The NAV at listing on 27 March 2013 was £254.8 million (98.0 pence per share) and increased to £351.1 million (102.9 pence per share) by 31 December 2013.

 

Opening NAV 27 March 2013	£254.8m
Investment in New Assets	+£136.2m
Movement in DCF valuations (1)	-£1.8m
Movement in cash (2)	+£12.8m
Movement in other relevant assets/liabilities	-£0.9m
Movement in aggregate Group Debt	-£50.0m
Closing NAV 31 Dec 2013	£351.1m

 

 

⁽¹⁾ (£1.8m) movement in DCF valuation includes (£0.9m) movement in DCF valuation (note 9) plus (£0.3m) purchase price rebate for Braes of Doune plus (£0.6m) acquisition cost adjustment
⁽²⁾ movement includes cash held by SPVs included in fair value of investments 
 

A dividend of £3.9 million (1.5 pence per share) was paid in September 2013 in respect of the period 27 March to 30 June 2013 and a dividend of £10.2 million (3.0 pence per share) was paid in February 2014 in respect of the period 1 July to 31 December 2013.

 

	NAV	Dividend	Total return	Total return
	(pence per share)	(pence per share)	(pence per share)	(per cent.)
NAV at 27 March 2013	98.0
Dividend paid		1.5
NAV at 31 December 2013	102.9
Dividend declared	(3.0)	3.0
NAV ex dividend	99.9
Movement in NAV	1.9	4.5	6.4(3)	6.5
Annualised (not seasonally adjusted)	2.5	6.0	8.5	8.7

 

⁽³⁾ 6.4 pence total return includes £1.7 million issuance costs in relation to the December 2013 follow-on equity issuance, which are not included in the 6.9 pence EPS in the statutory accounts (issuance costs are applied directly against reserves and do not pass through the Statement of Comprehensive Income). 

 

Since listing, the Company's share price increased from the issue price of 100 pence, reaching a high of 108.0 pence in the period. As at 31 December 2013, the share price was 103.0 pence.

 

Reconciliation of statutory net assets to published NAV

	As at	As at
	27 March 2013	31 December 2013
	£	£
DCF valuation	250,514,628	384,963,210
Cash - wind farm SPVs	1,239,200	9,801,960
Fair value of investments	251,753,828	394,765,170
Cash - PLC, LLP, Holdco	3,046,172	7,257,576
Other relevant liabilities	-	(948,193)
Gross Asset Value	254,800,000	401,074,553
Aggregate Group Debt	-	(50,000,000)
Net Asset Value	254,800,000	351,074,553
Statutory net assets	N/A	351,074,553
Shares in issue	260,000,100	341,243,001
Net Asset Value per share (pence)	98.0	102.9

 

NAV sensitivities

The Net Asset Value is the sum of:

•   discounted cash flow valuations of the Group's investments;

•   cash (at Group and SPV level); and

•   other relevant assets and liabilities of the Group

less Aggregate Group Debt.

 

The DCF valuations of the Group's investments represent the largest component of NAV and the key sensitivities are considered to be the discount rate used in the DCF calculation and long term assumptions in relation to energy yield, power prices and inflation.

 

A variance of +/-0.5 per cent. is considered to be a reasonable range of alternative assumptions for discount rate.

 

Base case energy yield assumptions are P50 (50 per cent. probability of exceedance) forecasts produced by expert consultants based on long term wind data and operational history. The P90 (90 per cent. probability of exceedance over a 10 year period) and P10 (10 per cent. probability of exceedance over a 10 year period) sensitivities reflect the future variability of wind and the uncertainty associated with the long term data source being representative of the long term mean. Other uncertainties are uncorrelated across the portfolio.

 

Long term power price forecasts are provided by a leading market consultant, updated quarterly and adjusted by the Investment Manager where more conservative assumptions are considered appropriate.

 

The base case long term RPI assumption is 2.5 per cent. (0.5 per cent. above the long term 2.0 percent. CPI target).

 

The following shows the impact of the key sensitivities on NAV.

 

Impact on NAV
	downside	Reduction		upside	Increase
Discount rate	+0.5%	-£12.7m	-3.7p	-0.5%	£13.5m	3.9p
Energy yield	10 yr P90	-£25.7m	-7.5p	10 year P10	£25.7m	7.5p
Power price	-10%	-£22.5m	-6.6p	+10%	£22.5m	6.6p
Inflation rate	-0.5%	-£11.5m	-3.4p	+0.5%	£12.1m	3.5p

 

Gearing

Currently the Group has £50 million of corporate debt equating to 12.5 per cent. of the Gross Asset Value. The Group has no project level leverage. Acquisition debt will continue to be used at the portfolio level to make new investments.

 

Pipeline

The Investment Manager continues its ongoing process of identifying and executing potential new wind farm acquisitions. The Group's independence enables it to transact across the entire ownership spectrum, although it is focussed on unlevered, utility-owned assets, which constitute the majority of the market.

 

Outlook

The Energy Act 2013, the culmination of the Government's Electricity Market Reform, received Royal Assent on 18 December 2013 and is now an Act of Parliament. The most relevant feature of the Act for the Company is the grandfathering of the current support regime for operational projects. For future projects, the Government intends to implement new forms of contractual arrangements, CFDs, and whilst the structure and level of the CFDs is not directly relevant to the value of the Group's portfolio or to the value of any short to medium term pipeline, this demonstrates the continued governmental support for the renewable energy sector, not least for reasons of security of supply. This latter point was demonstrated in early December when the CFD strike price for new offshore wind farms (a technology that can be deployed at scale) was increased while for onshore it was decreased.

 

The secondary market for operational UK wind generating assets remains significant in size in the short term, increasing to over £40 billion of assets in the medium term, being the combined value of those assets currently in operation, in construction or consented. Of these assets, most are owned by the major utilities and a significant number are looking to sell such assets to recycle capital into assets in development and construction.

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements and have elected to prepare the Company financial statements in accordance with International Financial Reporting Standards as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss for the Group for that period.

 

In preparing these financial statements, the Directors are required to:

•      select suitable accounting policies and then apply them consistently;

•      make judgements and accounting estimates that are reasonable and prudent;

•      state  whether  they  have  been  prepared  in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements;

•      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and

•      prepare a Strategic Report a Report of the Directors and Directors' Remuneration Report which comply with the requirements of the Companies Act 2006.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

 

They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

Website publication

The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

 

Directors' responsibilities pursuant to DTR4

The Directors confirm to the best of their knowledge that:

•      the Group financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group; and

•      the annual report includes a fair review of the development and performance of the business and the financial position of the Group and the parent company, together with a description or the principal risks and uncertainties that they face.

 

On behalf of the Board,

Tim Ingram

Chairman

23 March 2014

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period from 4 December 2012 to 31 December 2013

	Note	For the period 4 December 2012 to  31 December 2013
		£
Return on investments	4	26,779,158
Other income		96,531
Total income and gains		26,875,689
Operating expenses	5	(3,461,711)
Investment acquisition costs		(2,889,441)
Operating profit		20,524,537
Finance costs	13	(2,327,748)
Profit for the period before tax		18,196,789
Taxation	6	-
Profit for the period after tax		18,196,789
Profit and total comprehensive income attributable to:
Equity holders of the Company		18,196,789
Earnings per share
Basic profit from continuing operations in the period (pence)	7	6.89

 

All results are derived from continuing operations.

The accompanying notes form an integral part of the financial statements.

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2013

	Note	As at 31 December 2013
		£
Non-current assets
Investments at fair value through profit or loss	9	394,765,170
		394,765,170
Current assets
Other receivables	11	242,057
Cash and cash equivalents		7,257,576
		7,499,633
Current liabilities
Other payables	12	(1,190,250)
Net current assets		6,309,383
Non-current liabilities
Loans and borrowings	13	(50,000,000)
Net assets		351,074,553
Capital and reserves
Called up share capital	15	3,412,430
Share premium account	15	80,654,271
Other distributable reserves		248,811,063
Retained income		18,196,789
Total Shareholders' funds		351,074,553
Net assets per share (pence)	16	102.9

 

 

Authorised for issue by the Board on 23 March 2014 and signed on its behalf by:

 

Tim Ingram            Shonaid Jemmett-Page

Chairman               Director

 

The accompanying notes form an integral part of the financial statements.

 

 

STATEMENT OF FINANCIAL POSITION - COMPANY

As at 31 December 2013

 

	Note	As at 31 December 2013
		£
Non-current assets
Investments at fair value through profit or loss	9	351,453,781
		351,453,781
Current assets
Other receivables	11	1,003,541
Cash and cash equivalents		1,784
		1,005,325
Current liabilities
Other payables	12	(1,384,553)
Net current assets		(379,228)
Net assets		351,074,553
Capital and reserves
Called up share capital	15	3,412,430
Share premium account	15	80,654,271
Other distributable reserves		248,811,063
Retained income		18,196,789
Total Shareholders' funds		351,074,553
Net assets per share (pence)	16	102.9

 

Authorised for issue by the Board on 23 March 2014 and signed on its behalf by:

 

Tim Ingram            Shonaid Jemmett-Page

Chairman               Director

 

The accompanying notes form an integral part of the financial statements.

 

 

CONSOLIDATED AND COMPANY STATEMENT OF CHANGES IN EQUITY

For the period from 4 December 2012 to 31 December 2013

 

	Note	Share capital	Share premium	Other distributable reserves	Retained income	Total
		£	£	£	£	£
Opening net assets attributable to Shareholders		-	-	-	-	-
Issue of share capital	15	3,412,430	339,853,234	-	-	343,265,664
Share issue costs	15	-	(6,483,889)	-	-	(6,483,889)
Cancellation of share premium account	15	-	(252,715,074)	252,715,074	-	-
Profit and total comprehensive income for the period		-	-	-	18,196,789	18,196,789
Dividends paid in the period	8	-	-	(3,904,011)	-	(3,904,011)
Closing net assets attributable to Shareholders		3,412,430	80,654,271	248,811,063	18,196,789	351,074,553

 

 

On 5 June 2013, the share premium account in relation to the initial capital raise of the Company was cancelled by court order. An amount of £252,715,074 standing to the credit of the share premium account of the Company less any issue expenses set off against the share premium account was cancelled and credited to distributable reserves. This amount shall be capable of being applied in any manner in which the Company's profits available for distribution as determined in accordance with the Companies Act 2006 are able to be applied.

 

After taking account of unrealised gains, the total reserves distributable by way of a dividend as at 31 December 2013 were £242,236,554.

 

The accompanying notes form an integral part of the financial statements.

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the period from 4 December 2012 to 31 December 2013

 

	Note	For the period 4 December 2012 to  31 December 2013
		£
Net cash flow from operating activities	17	5,836,995
Cash flow from investing activities
Acquisition of investments	9	(383,855,029)
Investment acquisition costs		(2,779,265)
Repayment of Shareholder loans		7,149,544
Net cash flow from investing activities		(379,484,750)
Cash flows from financing activities
Issue of share capital		343,000,000
Payment of issue costs		(5,912,644)
Drawdowns on acquisition loan facility	13	130,000,000
Repayment of acquisition loan facility	13	(80,000,000)
Finance costs		(2,278,014)
Dividends paid	8	(3,904,011)
Net cash inflow from financing activities		380,905,331
Net increase in cash and cash equivalents during the period		7,257,576
Cash and cash equivalents at the beginning of the period		-
Cash and cash equivalents at the end of the period		7,257,576

 

The accompanying notes form an integral part of the financial statements.

 

 

STATEMENT OF CASH FLOWS - COMPANY

For the period from 4 December 2012 to 31 December 2013

 

	Note	For the period 4 December 2012 to  31 December 2013
		£
Net cash flow from operating activities	17	2,952,579
Cash flow from investing activities
Loans advanced to Group companies	9	(336,134,140)
Net cash flow from investing activities		(336,134,140)
Cash flows from financing activities
Issue of share capital		343,000,000
Payment of issue costs		(5,912,644)
Dividends paid	8	(3,904,011)
Net cash inflow from financing activities		333,183,345
Net increase in cash and cash equivalents during the period		1,784
Cash and cash equivalents at the beginning of the period		-
Cash and cash equivalents at the end of the period		1,784

 

The accompanying notes form an integral part of the financial statements.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the period from 4 December 2012 to 31 December 2013

 

1.   Significant accounting policies

Basis of accounting

The consolidated annual financial statements have been prepared in accordance with IFRS to the extent that they have been adopted by the EU and with those parts of the Companies Act 2006 applicable to companies under IFRS.

 

The annual financial statements have been prepared on the historical cost basis, as modified for the measurement of certain financial instruments at fair value through profit or loss. The principal accounting policies are set out below.

 

As these financial statements represent the first financial statements of the Company since incorporation, comparative information is not relevant.

 

The Company has taken advantage of the exemption under section 408 of the Companies Act 2006 and accordingly has not presented a Statement of Comprehensive Income for the Company alone. The operating profit of the Company alone for the period was £18,196,789.

 

Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)

The Investment Entities standard is a recently issued standard, and was endorsed by the EU on 20 November 2013, with an effective date of 1 January 2014. As referred to in the Audit Committee Report, the Company has early adopted this standard for the period from incorporation to 31 December 2013. The standard introduced an exception to the principle that all subsidiaries shall be consolidated. The amendments define an investment entity and require a parent entity that is an investment entity to measure its subsidiaries at fair value through profit or loss, in accordance with IAS 39 "Financial Instruments: Recognition and Measurement" instead of consolidating those subsidiaries.

 

The Directors have concluded that the Company satisfies the criteria to be regarded as an investment entity and have early adopted this amendment.

 

The Directors are of the opinion that the Company has all the typical characteristics of an investment entity and the three essential criteria specified in the standard.

 

The three essential criteria are such that the entity must:

1)    Obtain funds from one or more investors for the purpose of providing these investors with professional investment management services;

2)    Commit to its investors that its business purpose is to invest its funds solely for returns from capital appreciation, investment income or both; and

3)    Measure and evaluate the performance of substantially all of its investments on a fair value basis.

 

In satisfying the second essential criteria, the notion of an investment time frame is critical. An investment entity should not hold its investments indefinitely but should have an exit strategy for their realisation. Although the Company has invested in equity interests in wind farms that have an indefinite life, the underlying wind farm assets that it invests in typically have an expected life of 25 years. The Company intends to hold these wind farms for the remainder of their useful life to preserve the capital value of the portfolio. However, as the wind farms are expected to have no residual value after their 25 year life and provisions will be made for decommissioning costs where appropriate, the Directors consider that this demonstrates a clear exit strategy from these investments.

 

The Company, through its agreement with the Investment Manager, provides management services to wind farm companies. However, these activities are undertaken to maximise the investment return from its investees and are not considered to represent a separate substantial business activity. In practice, the ability of the Company to significantly affect the wind farms' returns is limited as the most significant factors that will influence returns are the strength of the wind and the market price of power.

 

The financial support provided by the Company to its unconsolidated subsidiaries is disclosed in note 10 to the financial statements.

 

Notwithstanding this, the amendments to IFRS 10 require subsidiaries that provide "investment-related services" to be consolidated. Accordingly, the annual financial statements include the consolidated financial statements of Greencoat UK Wind PLC, Greencoat UK Wind 1 LLP and Greencoat UK Wind Holdco Limited. In respect of these entities, intra-Group balances and any unrealised gains arising from intra-Group transactions are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated unless the costs cannot be recovered. The financial statements of subsidiaries that are included in the consolidated financial statements are included from the date that control commences until the dates that control ceases.

 

The Company's investment in the Braes of Doune wind farm was initially held through Braes of Doune Holding Company Limited. Braes of Doune Holding Company Limited was dissolved during the period and consequently, the Company now owns 50 per cent. of the shares in Braes of Doune directly which are treated as an investment at fair value in accordance with the above policy.

 

Accounting for associates and joint ventures

The Company has taken the exemption permitted by IAS 28 "Investments in Associates and Joint Ventures" and IFRS 11 "Joint Arrangements" and upon initial recognition, will measure its investment in Associates and Joint Ventures at fair value, with subsequent changes to fair value recognised in the Income Statement in the period of change.

 

Financial instruments

Financial assets and financial liabilities are recognised in the Group's Consolidated Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are only offset and the net amount reported in the Consolidated Statement of Financial Position when there is a currently enforceable legal right to offset the recognised amounts and the Group intends to settle on a net basis or realise the asset and liability simultaneously.

 

Financial assets

The classification of financial assets at initial recognition depends on the purpose for which the financial asset was acquired and its characteristics.

 

All financial assets are initially recognised at fair value. All purchases of financial assets are recorded at trade date, being the date on which the Group became party to the contractual requirements of the financial asset.

 

The Group has not classified any of its financial assets as Held to Maturity or as Available for Sale.

 

The Group's financial assets comprise of only loans and receivables and investments held at fair value through profit or loss.

 

Loans and Receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They principally comprise trade and other receivables and cash and cash equivalents. They are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method, less provisions for impairment. Transaction costs are recognised in the Consolidated Statement of Comprehensive Income as incurred.

 

A provision for impairment is made where there is objective evidence (including counterparties with financial difficulties or in default on payments) that amounts will not be recovered in accordance with original terms of the agreement. This is established when the carrying value of the receivable exceeds the present value of the future cash flow discounted using the original effective interest rate. If any such indication exists, the asset's recoverable amount, being the higher of the fair value less costs to sell and the value in use of the asset, is estimated. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash-generating unit (i.e. the lowest group of assets in which the asset belongs for which there are separately identifiable cash flows).

 

In respect of other assets, an impairment loss is reversed when there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount and only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 

Investments Held at Fair Value Through Profit or Loss

Investments are designated upon initial recognition as held at Fair Value through Profit or Loss. Financial assets are recognised / derecognised at the trade date of the purchase / disposal. Investments are initially recognised at cost, being the fair value of consideration given. Transaction costs are recognised in the Consolidated Statement of Comprehensive Income as incurred. Thereafter, investments are measured at subsequent reporting dates at fair value in accordance with IFRS.

 

Fair value is defined as the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction. The Board base the fair value of the investments on information received from the Investment Manager.

 

Fair value is calculated on an unlevered, discounted cash flow basis in accordance with IAS 39. Gains or losses resulting from the revaluation of investments are recognised in the Consolidated Statement of Comprehensive Income.

 

Derecognition of financial assets

A financial asset (in whole or in part) is derecognised either:

•     when the Group has transferred substantially all the risks and rewards of ownership; or

•     when it has neither transferred nor retained substantially all the risks and rewards and when it no longer has control over the assets or a portion of the asset; or

•     when the contractual right to receive cash flow has expired.

 

Financial liabilities

Financial liabilities are classified according to the substance of the contractual agreements entered into.

 

All financial liabilities are initially recognised at fair value net of transaction costs incurred. All financial liabilities are recorded on trade date, being the date on which the Group becomes party to the contractual requirements of the financial liability. Unless otherwise indicated the carrying amounts of the Group's financial liabilities approximate to their fair values.

 

All loans and borrowings are initially recognised at cost, being fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost.

 

The Group's other financial liabilities measured at amortised cost include trade and other payables and other short term monetary liabilities which are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method.

 

A financial liability (in whole or in part) is derecognised when the Group has extinguished its contractual obligations, it expires or is cancelled. Any gain or loss on derecognition is taken to the Consolidated Statement of Comprehensive Income.

 

Finance costs

Borrowing costs are recognised in the Consolidated Statement of Comprehensive Income in the period to which they relate on an accruals basis.

 

Capital

Financial instruments issued by the Company are treated as equity if the holder has only a residual interest in the assets of the Company after the deduction of all liabilities. The Company's ordinary shares are classified as equity instruments.

 

The Company considers its capital to comprise ordinary share capital, distributable reserves and retained earnings. The Company is not subject to any externally imposed capital requirements.

 

Incremental  costs  directly  attributable  to  the  issue  of  new  shares  are  shown  in  equity  as  a  deduction from proceeds.

 

Incremental costs include those incurred in connection with the placing and admission which include fees payable under a placing agreement, legal costs and any other applicable expenses.

 

Cash and cash equivalents

Cash and cash equivalents comprise cash balances, deposits held on call with banks and other short-term highly liquid deposits with original maturities of three months or less, that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

 

Foreign currencies

These consolidated financial statements are presented in pounds sterling which is the currency of the primary economic environment in which the Group operates.

 

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Consolidated Statement of Comprehensive Income.

 

Share based payments

The Company issues shares to the Investment Manager in exchange for receiving investment management services. The fair value of the investment management services received in exchange for shares is recognised as an expense at the time at which the investment management fees are earned, with a corresponding increase in equity. The fair value of the investment management services is calculated by reference to the definition of investment management fees in the Investment Management Agreement. Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions regardless of how the equity instruments are obtained by the Group.

 

Dividends

Dividends payable are recognised as distributions in the financial statements when the Company's obligation to make payment has been established.

 

Income recognition

Interest income is accounted for on an accruals basis using the effective interest rate method. Dividend income is recognised when the Group receives payment.

 

Expenses

Expenses are accounted for on an accruals basis. Formation fees are those necessary for the establishment of the Company and are taken to the Statement of Comprehensive Income in the period in which they are incurred. Share issue expenses of the Company directly attributable to the issue and listing of shares are charged to the share premium account.

 

Taxation

Under the current system of taxation in the UK, the Group is liable to taxation on its operations in the UK.

 

Current tax is the expected tax payable on the taxable income for the period, using tax rates that have been enacted or substantively enacted at the date of the Consolidated Statement of Financial Position.

 

Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

 

Deferred tax assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments, except where the Group is able to control the timing of the reversal of the difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the Consolidated Statement of Comprehensive Income except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off tax assets against tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Deferred tax assets and liabilities are not discounted.

 

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors, as a whole. The key measure of performance used by the Board to assess the Group's performance and to allocate resources is the total return on the Group's net assets, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.

 

For management purposes, the Group is organised into one main operating segment, which invests in wind farm assets.

 

All of the Group's income is generated within UK.

 

All of the Group's non-current assets are located in the UK.

 

Adoption of new and revised standards

The Company has early adopted the Investment Entities standard for the period from incorporation to 31 December 2013.

 

Other revised standards and interpretations have become effective during this accounting period but have not had a significant impact on presentation or disclosure in these financial statements.

 

At the date of authorisation of these financial statements, the following standards and interpretations, which have not been applied in these financial statements, were issued but not yet effective (and in some cases had not yet been adopted by the EU) and are relevant to the financial statements of the Group:

•      IFRS 9 "Financial Instruments" - reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. The Company is currently assessing the full impact of this standard and it is not practicable to quantify the effect as at the date of the publication of these Financial Statements. The effective implementation date is not yet determined but is not expected to be earlier than 1 January 2017.

•      IFRS 13 "Fair value measurement" - IFRS 13 aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The Company is yet to assess IFRS 13's full impact and intends to adopt IFRS 13 in the next financial reporting period.

•      IAS 32 "Financial Instruments Presentation" and IFRS 7 "Financial Instruments Disclosure" - Intended to clarify existing application issues relating to the offsetting rules and the disclosures required to reduce the level of diversity in current practice (effective 1 January 2014).

•      IAS 36 "Recoverable amount disclosures for non-financial assets" - IAS 36 amendment aims to reduce the circumstances in which the recoverable amount of assets or cash-generating units is required to be disclosed, clarify the disclosures required, and to introduce an explicit requirement to disclose the discount rate used in determining impairment (or reversals) where recoverable amount (based on fair value less costs of disposal) is determined using a present value technique. The Group is yet to assess the amendment to IAS 36's full impact and intends to adopt the amended IAS 36 no later than the accounting period beginning on 1 January 2014.

 

With the exception of the Investment Entities standard discussed earlier in note 1 to the financial statements, the Company has not adopted early any standards, amendments and interpretations to existing standards that have been published and will be mandatory for the Company's accounting periods beginning on or after 1 January 2014 or later periods, however the impact of these standards is not expected to be material to the reported results and financial position of the Group.

 

 

2.   Critical accounting judgements, estimates and assumptions

The preparation of the financial statements requires the application of estimates and assumptions which may affect the results reported in the financial statements. Estimates, by their nature, are based on judgement and available information.

 

The assumptions used in determining whether the Company satisfies the criteria to be regarded as an investment entity are disclosed in note 1 to the financial statements.

 

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities are those used to determine the fair value of the investments as disclosed in note 9 to the financial statements.

 

The key assumptions that have a significant impact on the carrying value of investments that are valued by reference to the discounted value of future cash flows are the useful life of the assets, the discount factors, the rate of inflation, the price at which the power and associated benefits can be sold and the amount of electricity the assets are expected to produce.

 

Useful lives are based on the Investment Manager's estimates of the period over which the assets will generate revenue which are periodically reviewed for continued appropriateness. The standard assumption used for the useful life of a wind farm is 25 years, however this assumption may be shorter in some instances as determined by lease or other contractual arrangements. The actual useful life may be a shorter or longer period depending on the actual operating conditions experienced by the asset.

 

The discount factors are subjective and therefore it is feasible that a reasonable alternative assumption may be used resulting in a different value. The discount factors applied to the cash flows are reviewed annually by the Investment Manager to ensure they are at the appropriate level. The Investment Manager will take into consideration  market  transactions,  where  of  similar  nature,  when  considering  changes  to  the  discount factors used.

 

The price at which the output from the generating assets is sold is a factor of both wholesale electricity prices and the revenue received from the Government support regime. Future power prices are estimated using external third party forecasts which take the form of specialist consultancy reports. The future power price assumptions are reviewed as and when these forecasts are updated. There is an inherent uncertainty in future wholesale electricity price projection.

 

Specifically commissioned external reports are used to estimate the expected electrical output from the wind farm assets taking into account the expected average wind speed at each location and generation data from historical operation. The actual electrical output may differ considerably from that estimated in such a report mainly due to the variability of actual wind to that modelled in any one period. Assumptions around electrical output will be reviewed only if there is good reason to suggest there has been a material change in this expectation.

 

 

3.   Investment management fees

Under the terms of the Investment Management Agreement, the Investment Manager is entitled to a combination of a Base Fee and an Equity Element from the Company and a priority profit share from the LLP as set out below.

 

The Base Fee shall be paid quarterly in advance except for the first part quarter which is the period from 27 March to 31 March 2013. The amount of Base Fee shall be equal to £275,000 per quarter. The Base Fee for the first part quarter is the appropriate pro rated amount.

 

The Equity Element due to the Investment Manager is calculated quarterly in advance (except for the first part quarter) and shall have a value as set out below:

•      on that part of the then most recently announced NAV up to and including £500 million, 0.25 x 0.2 per cent.; and

•      on that part of the then most recently announced NAV over £500 million up to and including £1,000 million, 0.25 x 0.1 per cent.

 

The Equity Element for the first part quarter is the appropriate pro rated amount. The ordinary shares issued to the Investment Manager under the equity element are subject to a three year lock up starting from the quarter in which they are due to be paid.

 

The priority profit share payable from the LLP shall be paid quarterly in advance (except for the first part quarter), in each case based upon the NAV as at the start of the quarter in question on the following basis:

•      on that part of the then most recently announced NAV up to and including £500 million, an amount equal to 0.25 per cent. of such part of the NAV;

•      on that part of the then most recently announced NAV over £500 million and up to and including £1,000 million, an amount equal to 0.225 per cent. of such part of the NAV; and

•      on that part of the then most recently announced NAV over £1,000 million, an amount equal to 0.2 per cent. of such part of the NAV,

in each case less an amount equivalent to the quarterly Base Fee.

 

The priority profit share for the first part quarter is the appropriate pro rated amount.

 

Investment management fees and priority profit share paid or accrued in the period were as follows:

 

	Base fee	Value of equity element	Total Management fee paid	Priority profit share	Total amounts paid to the Investment Manager
	£	£	£	£	£
First Part Quarter	15,277	7,078	22,355	20,111	42,466
Quarter to June 2013	275,000	131,188	406,188	380,941	787,129
Quarter to September 2013	275,000	131,921	406,921	384,604	791,525
Quarter to December 2013	275,000	141,056	416,056	430,280	846,336
Total	840,277	411,243	1,251,520	1,215,936	2,467,456

 

The value of the equity element and the priority profit share detailed in the table above includes the true up amount for the period calculated in accordance with the Investment Management Agreement.

 

In order to reduce issuance costs associated with the equity element of the management fee, it has been agreed between the Company and the Investment Manager that such fees are paid on a half-yearly as opposed to a quarterly basis. As a result, the equity element of the investment management fee in relation to the fourth and first quarters of each year will be paid in January and the equity element of the investment management fee in relation to the second and third quarters of each year will be paid in July.

 

130,134 ordinary shares were issued in January 2014 as part payment of the Equity Element of the Investment Management Fee for the quarter to December 2013. The value of these ordinary shares is £131,921 based on the NAV as at 30 September 2013 and this amount is included in other payables.

 

 

4.   Return on investments

	For the period 4 December 2012 to  31 December 2013
	£
Shareholder loan interest received (note 10)	819,324
Dividends received (note 19)	7,900,149
Movement in fair value of investments (note 9)	24,771,298
Realised loss on loan to Braes of Doune dissolved in the period (note 10)	(6,711,613)
	26,779,158

 

5.   Operating expenses

	For the period 4 December 2012 to  31 December 2013
	£
Management fees (note 3)	1,251,520
Priority profit share (note 3)	1,215,936
Formation fees	302,278
Non-executive Directors' fees	150,000
Administration fees	199,020
Fees to the Company's auditor:
for audit of the statutory financial statements	44,400
for audit related services pursuant to legislation	23,928
for tax compliance services	32,350
Other expenses	242,279
	3,461,711

 

Prior to the merger of PKF LLP with BDO LLP, PKF LLP was paid £95,000 in relation to work on the listing of the Company which is included in share issue costs and £30,000 in relation to limited scope due diligence and advice on the acquisition of the seed portfolio wind farms which is included in acquisition costs.

 

BDO LLP was paid £74,794 in relation to work on the second capital raise of the Company which is included in share issue costs and £21,250 in relation to limited scope due diligence and advice on the acquisition of Cotton Farm, Earl's Hall Farm, Lindhurst and Middlemoor which is included in acquisition costs.

 

BDO LLP was also paid a total of £27,900 during the period in relation to the statutory audit of three of the Group's unconsolidated subsidiaries, Tappaghan, Bin Mountain and Carcant.

 

 

6.   Taxation

			For the period 4 December 2012 to 31 December 2013
			£
UK Corporation tax charge			-

 

The tax charge for the period shown in the Statement of Comprehensive Income is lower than the standard rate of corporation tax of 24 per cent. to 31 March 2013 and 23 per cent. from 1 April 2013 (average rate of 23.30 per cent.). The differences are explained below.

 

			For the period 4 December 2012 to 31 December 2013
			£
Profit on ordinary activities before taxation			18,196,789
Profit on ordinary activities multiplied by the standard rate of corporation tax (24 per cent. to 31 March 2013 and 23 per cent. from 1 April 2013.)			4,239,898
Fair value increases (not subject to taxation) (note 4)						(5,771,776)
Realised loss on dissolved loan to Braes of Doune (not subject to taxation) (note 4)						1,563,823
Dividends received (not subject to taxation) (note 4)						(1,840,755)
Intra-group interest received (not subject to taxation) (note 4)						(190,905)
Expenditure not deductible for tax purposes (note 5)						956,563
Tax losses surrendered to Group companies			1,043,152
							-

 

 

7.   Earnings per share

	For the period 4 December 2012 to  31 December 2013
Profit attributable to equity holders of the Company	18,196,789
Weighted average number of ordinary shares in issue	263,978,059
Basic profit from continuing operations in the period (pence)	6.89

 

There was no income earned or shares issued between 4 December 2012 and 27 March 2013, therefore this period has not been included for the purpose of calculating the weighted average number of shares above.

 

Dilution of the earnings per share as a result of the equity element of the Investment Management fee as disclosed in note 3 does not have a significant impact on the basic earnings per share.

 

 

8.   Dividends declared in relation to the period

	Dividend per share	Total dividend
	pence	£
Interim dividend paid during the period	1.5	3,904,011
	1.5	3,904,011

 

	Dividend per share	Total dividend
	pence	£
Interim dividend declared and paid after 31 December 2013 and not accrued in the period	3.0	10,246,496
	3.0	10,246,496

 

The Company aims to provide investors with an annual dividend of 6 pence per share that increases in line with the RPI. Distributions on the ordinary shares are expected to be paid twice a year, normally in respect of the six months to 30 June and 31 December, and are expected to be made by way of interim dividends in February and August.

 

On 23 January 2014, the Company announced a dividend of 3 pence per share, bringing the total dividend declared in respect of the period from 27 March 2013 to 31 December 2013 to 4.5 pence per share. The record date for the dividend was 31 January 2014 and the payment date was 21 February 2014.

 

 

9.   Investments at fair value through profit or loss

 

Group	Loan	Equity Interest	Total
	£	£	£
Opening balance	-	-	-
Additions	94,838,750	289,016,279	383,855,029
Repayment of shareholder loans (note 10)	(7,149,544)	-	(7,149,544)
Realised loss on loan to Braes of Doune dissolved in the period (note 10)	(6,711,613)	-	(6,711,613)
Movement in fair value of investments (note 4)	-	24,771,298	24,771,298
	80,977,593	313,787,577	394,765,170

 

The movement in fair value of investments comprises movement in cash balances of SPVs of £7.4 million, the repayment of shareholder loans of £7.1 million, dissolving the shareholder loan to Braes of Doune of £6.7 million, acquisition and upfront finance costs of £4.5 million and a movement in the DCF valuation of the investments of (£0.9 million).

 

Company	Loan to LLP	LLP Profit Participation Interest	Total
	£	£	£
Opening balance	-	-	-
Additions	336,134,140	-	336,134,140
Movement in the period	-	15,319,641	15,319,641
	336,134,140	15,319,641	351,453,781

 

Fair value measurements

IFRS 7 "Financial Instruments" establishes a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under IFRS 7 are as follows:

•      Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;

•      Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; and

•      Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

 

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

 

The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be market data that is readily available, regularly distributed or updated, reliable and  verifiable, not  proprietary,  and  provided  by  independent  sources  that  are  actively  involved  in  the relevant market.

 

As disclosed in note 2 to the financial statements, the Group's and the Company's investments are valued by reference to the discounted value of future cash flows and the discount factors used are subjective. The Group's and the Company's investments have therefore been classified within level 3. Movements in the Group's investments of £394,765,170 and the Company's investments of £351,453,781 are disclosed in the above table.

 

The Board considers a movement of 0.5 per cent. in the discount factors to be within a reasonable expected range based on their understanding of market transactions. As at 31 December 2013, the impact of a 0.5 per cent increase in the discount factors used to value the Group's investments would be a £12.7 million decrease in the Group's (and the Company's) net assets and profit before tax and the impact of a 0.5 per cent decrease in the discount factors used to value the Group's investments would be a £13.5 million increase in the Group's (and the Company's) net assets and profit before tax. The Investment Manager will review the discount factors annually and will take into consideration market transactions when considering changes to the discount factors used.

 

10.   Financial support to unconsolidated subsidiaries, associates and joint ventures

The following table shows subsidiaries of the Group. As the Company has adopted the Investment Entities standard as referred to in note 1 to the financial statements, these subsidiaries have not been consolidated in the preparation of the financial statements:

Wind farm	Place of Business	Ownership Interest
Tappaghan	Northern Ireland	100%
Bin Mountain	Northern Ireland	100%
Carcant	Scotland	100%
Cotton Farm	England	100%
Earl's Hall Farm	England	100%

 

The following table shows associates and joint ventures of the Company which have been recognised at fair value as permitted by IAS 28 "Investments in Associates and Joint Ventures":

Wind farm	Place of Business	Ownership Interest
Braes of Doune	Scotland	50%
Little Cheyne Court	England	41%
Middlemoor	England	49%
Lindhurst	England	49%
Rhyl Flats	Wales	24.95%

 

During the period, Holdco advanced loans which accrued interest at a rate of 8 per cent. per annum and were repayable on demand to the following wind farms to replace the loans of former shareholders. As disclosed in note 21 to the financial statements, on 3 March 2014 these loans were dissolved and reclassified to equity. Accrued interest in relation to these loans amounting to £1,412,875 as at 31 December 2013 was written off, together with accrued interest thereafter.

 

Wind farm	Loan drawn in the period	Loan repaid	Loan drawn at 31 December 2013	Loan Interest received in the period
		in the period
	£	£	£	£
Braes of Doune	9,999,244	(9,999,244)*	-	405,871
Tappaghan	2,745,144	(2,745,144)	-	80,748
Bin Mountain	1,174,348	(935,959)	238,389	38,130
Carcant	13,999,999	(180,810)	13,819,189	294,575
Cotton Farm	2,540,885	-	2,540,885	-
Earl's Hall Farm	4,468,360	-	4,468,360	-
ML Holdco**	59,910,770	-	59,910,770	-
	94,838,750	(13,861,157)	80,977,593	819,324

 

*   During the period Braes of Doune repaid £3,287,631 of its shareholder loan to Holdco. On 8 November 2013, the remaining balance of the loan, amounting to £6,711,613, was dissolved.

** The Group's investments in Middlemoor and Lindhurst are held through ML Holdco, a common SPV to which the Group provided a shareholder loan in the period.

 

During the period, Holdco provided a performance guarantee of £4,291,400 on behalf of Rhyl Flats and a performance guarantee of £164,930 on behalf of Cotton Farm in relation to land agreements. During the period, Holdco also paid a security deposit on behalf of Braes of Doune of £500,000 as collateral in relation to its power purchase agreement. Any underlying liabilities secured or guaranteed are reflected in the DCF valuation of the relevant investment.

 

 

11.   Other receivables

Group	As at 31 December 2013
	£
Prepayments	24,312
Other receivables	217,745
	242,057

 

Company	As at 31 December 2013
	£
Amounts due from Group companies	973,091
Prepayments	24,312
Other receivables	6,138
	1,003,541

 

 

12.   Other payables

Group	As at 31 December 2013
	£
Share issue costs payable	571,245
Management fee payable	145,579
Acquisition costs payable	110,176
Loan facility interest payable (note 13)	49,734
Other payables	313,516
	1,190,250

 

 

Company	As at 31 December 2013
	£
Share issue costs payable	571,245
Amounts due to Group companies	505,238
Management fee payable	145,579
Other payables	162,491
	1,384,553

 

 

13.   Loans and borrowings

	For the period 4 December 2012 to  31 December 2013
	£
Amounts drawn down in the period	130,000,000
Amounts repaid in the period	(80,000,000)
Balance at 31 December 2013	50,000,000
Facility arrangement fees	1,300,000
Loan interest paid	692,106
Professional fees	260,642
Other costs	75,000
Finance costs	2,327,748

 

The loan as at 31 December 2013 has not been revalued to reflect amortised cost, as this amount is not materially different from the outstanding balance.

 

On 27 September 2013, Holdco entered into a loan facility agreement with RBS and RBC, for an initial loan facility of £60 million. This facility was fully drawn down on 27 September 2013 and the proceeds were used to purchase Earl's Hall Farm and Cotton Farm.

 

On 8 November 2013, Holdco, RBS and RBC agreed to increase the loan facility by £70 million on the same terms as the initial facility. This facility was fully drawn down on 8 November 2013 and the proceeds were used to purchase Lindhurst and Middlemoor.

 

The final maturity date of the loan facility is 27 September 2016. The margin is 250 basis points in the first year (325 basis points in year two and 400 basis points in year three, if not refinanced with debt or equity). The loan is secured by a fixed charge over the shares in Holdco and a floating charge over Holdco's bank accounts. Under the terms of the loan facility agreement, the Group is obliged to maintain a maximum leverage of 40 per cent. with an interest coverage ratio of 2.0x (with dividend lock up at 2.5x).

 

On 19 December 2013, the Company repaid £80 million of the loan facility, leaving an outstanding balance of £50 million. Accrued interest on this amount as at 31 December 2013 was £49,734.

 

On 19 March 2014, the Group repaid a further £8 million of the loan facility, leaving an outstanding balance of £42 million.

 

 

14.   Contingencies

Cotton Farm and Earl's Hall Farm both came into operation in March 2013 and Middlemoor came into operation in September 2013. Consequently, in line with the policy detailed in the wind resource section of the Strategic Report, the purchase price for these wind farms may be adjusted (maximum adjustment £12 million across all three assets) so that it is based on a two year operational record, once the operational data has become available.

 

The Directors and the Investment Manager are of the opinion that the estimate of the energy yield utilised at acquisition for all three assets remains the most appropriate unbiased estimate of the yield in two years' time. Any variances of actual energy production from the date of acquisition to the date of signing this report are attributable to weather fluctuations and other short term operational factors rather than more fundamental factors that might influence the long term assessment. Therefore it is not appropriate to recognise a contingent asset or liability in respect of these acquisitions.

 

The purchase price of Middlemoor assumes that Middlemoor is accredited with 1 ROC per MWh as expected. If, contrary to expectation, Middlemoor were accredited with 0.9 ROCs per MWh then the Group would be entitled to a purchase price rebate of £2.8 million.

 

15.   Share capital - ordinary shares of £0.01

Date	Issued and fully paid	Number of shares issued	Share capital	Share premium	Total
			£	£	£
27 March 2013	Subscriber shares - Issued at £0.01	100	1	-	1
27 March 2013	Capital raise - issued at £1.00	260,000,000	2,600,000	257,400,000	260,000,000
11 April 2013	Equity element of Investment Management Fee - Issued at £0.98	137,222	1,372	133,105	134,477
23 July 2013	Equity element of Investment Management Fee - Issued at £1.01	130,069	1,301	129,885	131,186
18 December 2013	Capital raise - issued at £1.025	80,975,610	809,756	82,190,244	83,000,000
		341,243,001	3,412,430	339,853,234	343,265,664
27 March 2013	Less share issue costs	-	-	(4,818,031)	(4,818,031)
5 June 2013	Cancellation of share premium account	-	-	(252,715,074)	(252,715,074)
18 December 2013	Less share issue costs	-	-	(1,665,858)	(1,665,858)
		341,243,001	3,412,430	80,654,271	84,066,701

 

As at 31 December 2013 the Company's issued share capital comprises 341,243,001 ordinary shares.

 

Shareholders are entitled to all dividends paid by the Company and, on a winding up, provided the Company has satisfied all of its liabilities, the Shareholders are entitled to all of the surplus assets of the Company.

 

Pursuant to the terms of the Investment Management Agreement, the Investment Manager receives an Equity Element as part payment of its Investment Management Fee as disclosed in note 3 to the financial statements. The figures given in the table in note 3 include the true up amount of the Investment Management fee for the period calculated in accordance with the Investment Management Agreement and issued subsequent to 31 December 2013.

 

To enable the Company to obtain a certificate to commence business and to exercise its borrowing powers under section 761 CA 2006, on 5 December 2012, 50,000 redeemable preference shares of £1 each were allotted to Greencoat Capital LLP against its irrevocable undertaking to pay 25p in cash for each such share. The redeemable preference shares were redeemed in full on 21 March 2013 out of the proceeds of the issue.

 

 

16.   Net assets per share

 

Group	As at 31 December 2013
Net assets - £	351,074,553
Number of ordinary shares issued	341,243,001
Total net assets - pence	102.9

 

Company	As at 31 December 2013
Net assets - £	351,074,553
Number of ordinary shares issued	341,243,001
Total net assets - pence	102.9

 

 

17.   Reconciliation of operating profit for the period to net cash from operating activities

Group	For the period 4 December 2012 to  31 December 2013
	£
Operating profit for the period	20,524,537
Adjustments for non-cash movements:
Movement in fair value of investments (note 4)	(24,771,298)
Realised loss on loan to Braes of Doune dissolved in the period (note 10)	6,711,613
Investment acquisition costs	2,889,441
Increase in receivables	(242,057)
Increase in payables	313,516
Equity element of Investment Manager's fee (note 3)	411,243
Net cash flow from operating activities	5,836,995

 

 

Company	For the period 4 December 2012 to  31 December 2013
	£
Operating profit for the period	18,196,789
Adjustments for non-cash movements:
Movement in fair value of investments (note 9)	(15,319,641)
Increase in receivables	(1,003,541)
Increase in payables	667,729
Equity element of Investment Manager's fee (note 3)	411,243
Net cash flow from operating activities	2,952,579

 

 

18.   Financial risk management

The Investment Manager and the Administrator report to the Board on a quarterly basis and provide information to the Group which allows it to monitor and manage financial risks relating to its operations. The Group's activities expose it to a variety of financial risks: market risk (including price risk, foreign currency risk and interest rate risk), credit risk and liquidity risk.

 

The Group's market risk is managed by the Investment Manager in accordance with the policies and procedures in place. The Group's overall market positions are monitored on a quarterly basis by the Board of Directors.

 

Price risk

Price risk is defined as the risk that the fair value of a financial instrument held by the Group will fluctuate. Investments are measured at fair value through profit or loss and are valued on an unlevered, discounted cash flow basis. Therefore, the value of these investments will be (amongst other risk factors) a function of the discounted value of their expected cash flows and, as such, will vary with movements in interest rates and competition for such assets. The discount factors are subjective and therefore it is feasible that a reasonable alternative assumption may be used resulting in a different valuation for these investments.

 

Interest rate risk

The Group's interest rate risk on interest bearing financial assets is limited to interest earned on cash. The Group has no exposure to interest rate risk through loan investments as they are all to wholly owned investments.

 

The Group's only exposure to interest rate risk is due to floating interest rates required to service external borrowings. Should the LIBOR rate increase from 0.5 per cent. to 1.5 per cent., the annual interest due on borrowings would increase by £500,000. The Investment Manager regularly monitors interest rates to ensure the Group has adequate provisions in place in the event of significant fluctuations.

Group	Interest Bearing	Non-interest bearing	Total
	£	£	£
Assets
Cash at bank	4,706,861	2,550,715	7,257,576
Other receivables	-	217,745	217,745
Investments - Loans	80,977,593	-	80,977,593
- Equity	-	313,787,577	313,787,577
	85,684,454	316,556,037	402,240,491
Liabilities
Other payables	-	(1,190,250)	(1,190,250)
Loan facility	(50,000,000)	-	(50,000,000)
	(50,000,000)	(1,190,250)	(51,190,250)

 

Shareholder loans amounting to £80,977,593 accrued interest at a rate of 8 per cent. As disclosed in notes 10 and 21 to the financial statements, these loans were dissolved subsequent to the period end and interest accrued was written off with effect from 31 December 2013.

 

Company	Interest Bearing	Non-interest bearing	Total
	£	£	£
Assets
Cash at bank	845	939	1,784
Other receivables	-	6,138	406,138
Amounts due from Group companies	-	973,091	573,091
Investments - Loans	-	351,453,781	351,453,781
	845	352,433,949	352,434,794
Liabilities
Other payables	-	(1,384,553)	(1,384,553)
	-	(1,384,553)	(1,384,553)

 

Foreign currency risk

Foreign currency risk is defined as the risk that the fair values of future cash flows will fluctuate because of changes in foreign exchange rates. The Group's financial assets and liabilities are denominated in GBP and substantially all of its revenues and expenses are in GBP. The Group is not considered to be materially exposed to foreign currency risk.

 

Credit risk

Credit risk is the risk of loss due to the failure of a borrower or counterparty to fulfil its contractual obligations. The Group is exposed to credit risk in respect of other receivables and cash at bank. The Company is also exposed to credit risk in respect of the loans advanced to Group companies. The Group minimises its credit risk exposure by dealing with financial institutions with high credit ratings.

 

The table below details the Group's and the Company's maximum exposure to credit risk:

	Group - As at 31 December 2013	Company - As at 31 December 2013
	£	£
Other receivables	217,745	6,138
Investments - Loans	80,977,593	351,453,781
Cash at bank	7,257,576	1,784
	88,452,914	351,461,703

 

The table below shows the cash balances at 31 December 2013 and the Standard & Poor's credit rating for each counterparty:

	Rating	Group carrying amount	Company carrying amount
		£	£
Royal Bank of Scotland PLC	A-	6,749,576	1,784
Barclays Bank PLC	A	508,000	-
		7,257,576	1,784

 

Liquidity risk

Liquidity risk is the risk that the Group and the Company may not be able to meet a demand for cash or fund an obligation when due. The Investment Manager and the Board continuously monitor forecast and actual cash flows from operating, financing and investing activities to consider repayment of the Company's outstanding debt.

 

The following tables detail the Group's and the Company's expected maturity for its financials assets and liabilities:

Group	Less than 1 year	1 - 5 years	5+ years	Total
	£	£	£	£
Assets
Other Receivables	217,745	-	-	217,745
Cash at bank	7,257,576	-	-	7,257,576
Investments - Loans	80,977,593	-	-	80,977,593
Liabilities
Other Payables	(1,190,250)	-	-	(1,190,250)
Loan facility	-	(50,000,000)		(50,000,000)
	87,262,664	(50,000,000)	-	37,262,664

 

 

Company	Less than 1 year	1 - 5 years	5+ years	Total
	£	£	£	£
Assets
Other Receivables	406,138	-	-	406,138
Cash at bank	1,784	-	-	1,784
Investments - loans	-	-	351,453,781	351,453,781
Liabilities
Other Payables	(1,384,553)	-	-	(1,384,553)
	(976,631)	-	351,453,781	350,477,150

 

Capital Risk Management

The Group's and the Company's primary capital management objectives are to ensure the sustainability of its capital to support continuing operations, meet its financial obligations and allow for growth opportunities. Generally, acquisitions are anticipated to be funded with a combination of current cash, debt and equity.

 

 

19.   Related party transactions

The Company is a member of LLP and during the period, the Company advanced an interest free loan investment to LLP of £336,134,140. The LLP has entered into intra-Group loan agreements with Holdco amounting to £336,134,140, whereby LLP will provide a senior loan facility at an interest rate of 7 per cent. per annum and a junior loan facility at an interest rate of 10 per cent. per annum, both repayable on demand. Holdco used these loan facilities to invest in the wind farms and meet acquisition costs and other operating expenses.

 

The Company has a Management Services Agreement with Holdco and receives £800,000 per annum in relation to management and administration services.

 

Holdco has Management Services Agreements with Braes of Doune, Tappaghan, Bin Mountain, Carcant, Cotton Farm and Earl's Hall Farm. Holdco receives £30,000 per annum from each of these entities in relation to administration services, of which £5,000 is paid to the Investment Manager and £20,000 is paid to the Administrator. The other receivables amount referred to in note 11 to the financial statements includes an amount of £57,500 due to Holdco and the other payables amount referred to in note 12 to the financial statements includes an amount of £14,584 due to the Investment Manager, both in respect of these fees.

 

Other payables include amounts of £24,500 due to the Investment Manager for out of pocket expenses incurred during the period and £131,921 due to the Investment Manager as payment of the Equity Element of the investment management fee for the quarter to 31 December 2013. This was settled by the issuance of 130,134 shares in January 2014 as disclosed in note 3 to the financial statements.

 

Holdco advanced shareholder loans to certain wind farms to settle intra group loans due to former group companies of the vendors. As disclosed in notes 10 and 21 to the financial statements, these loans have been reclassified to equity with any accrued interest being written off as at 31 December 2013.

 

Dividends were received in the period from the following wind farms:

	For the period 4 December 2012 to  31 December 2013
	£
Tappaghan	238,343
Little Cheyne Court	3,182,684
Rhyl Flats	4,479,122
	7,900,149

 

 

20.   Ultimate controlling party

In the opinion of the Directors, on the basis of the shareholdings advised to them, the Company has no ultimate controlling party.

 

21.   Subsequent events

On 23 January 2014, the Company announced a dividend of £10,246,496, equivalent to 3 pence per share. The record date for the dividend was 31 January 2014 and the payment date was 21 February 2014.

 

On 24 January 2014, 306,866 additional shares were issued and allotted to the Investment Manager. This consisted of 130,134 shares as payment of the equity element of the Investment Management fee for the quarter to 31 December 2013 as disclosed in note 3 to the financial statements, 170,622 shares as payment of the equity element of the Investment Management fee for the quarter to 31 March 2014 and an additional 6,110 shares in respect of the true up amount of the Investment Management fee for the period to 31 December 2013 calculated in accordance with the Investment Management Agreement.

 

On 30 January 2014, the Company announced that it issued 2,000,000 ordinary shares, at an issue price of 102.5 pence per share to meet investor demand.

 

On 3 March 2014 as disclosed in note 10, the Group dissolved shareholder loans provided to wind farms amounting to £80,977,593 and reclassified these to equity. Accrued interest in relation to these loans amounting to £1,412,875 as at 31 December 2013 was written off, together with accrued interest thereafter.

 

On 19 March 2014, the Group repaid a further £8,000,000 of the loan facility, leaving an outstanding balance of £42,000,000.

 

 

DEFINED TERMS

Adjusted Portfolio Value means Gross Asset Value

AGM means Annual General Meeting of the Company

AIC means the Association of Investment Companies

AIC Code means the AIC's Code of Corporate Governance by way of reference to the AIC Guide

AIC Guide means the AIC's Corporate Governance Guide for Investment Companies

AIFM means an Alternative Investment Fund Manager

AIFMD means the Alternative Investment Fund Managers' Directive

Base Fee means the cash fee that the Investment Manager is entitled to under the Investment Management Agreement

BDO LLP means the Company's auditor as at the reporting date

Bin Mountain means Bin Mountain Wind Farm (NI) Limited

BIS means the Secretary of State for Business, Innovation and Skills of the UK Government

Board means the Directors of the Company

Braes of Doune means Braes of Doune Wind Farm (Scotland) Limited

Carcant means Carcant Wind Farm (Scotland) Limited

CFD means contract for differences

Company means Greencoat UK Wind PLC

Cotton Farm means Cotton Farm Wind Farm Limited

DCF means Discounted Cash Flow

Earl's Hall Farm means Earl's Hall Farm Wind Farm Limited

Equity Element means the ordinary shares issued to the Investment Manager under the Investment Management Agreement

EU means the European Union

FRC means the Financial Reporting Council

Fund means Greencoat UK Wind PLC

GAV means Gross Asset Value as defined in the prospectus

Group means Greencoat UK Wind PLC, Greencoat UK Wind 1 LLP and Greencoat UK Wind Holdco

Holdco means Greencoat UK Wind Holdco Limited

IAS means International Accounting Standard

IASB means the International Accounting Standards Board

Investment Manager means Greencoat Capital LLP

IFRS means International Financial Reporting Standards

IRR means Internal Rate of Return

KPI means Key Performance Indicator

Lindhurst means Lindhurst Wind Farm

Little Cheyne Court means Little Cheyne Court Wind Farm Limited

LLP means Greencoat UK Wind 1 LLP, a limited liability partnership of which the Company and the Investment Manager are the members

Middlemoor means Middlemoor Wind Farm

ML Holdco means the holding company which owns a 49 per cent. stake in ML Wind LLP, which wholly owns Lindhurst and Middlemoor

NAV means Net Asset Value as defined in the prospectus

NAV per Share means the Net Asset Value per Ordinary Share

PFI means Private Finance Initiative

PKF LLP means PKF (UK) LLP, the Company's former auditor prior to its merger with BDO LLP

PPAs means Power Purchase Agreements entered into by the Company's wind farms

RBC means the Royal Bank of Canada

RBS means the Royal Bank of Scotland PLC

Review Section means the front end review section of this report (including but not limited to the Strategic Report, Chairman's Statement, Investment Manager's Report and Report of the Directors)

Rhyl Flats means Rhyl Flats Wind Farm Limited

SPVs means the Special Purpose Vehicles which hold the Company's investment portfolio of underlying operating wind farms

Tappaghan means Tappaghan Wind Farm (NI) Limited

TSR means Total Shareholder Return

UK means the United Kingdom of Great Britain and Northern Ireland

UK Code means the UK Corporate Governance Code issued by the FRC

 

 

CAUTIONARY STATEMENT

The Review Section of this report has been prepared solely to provide additional information to shareholders to assess the Company's strategies and the potential for those strategies to succeed. These should not be relied on by any other party or for any other purpose.

 

The Review Section may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology.

 

These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include statements regarding the intentions, beliefs or current expectations of the Directors and the Investment Manager concerning, amongst other things, the investment objectives and Investment Policy, financing strategies, investment performance, results of operations, financial condition, liquidity, prospects, and distribution policy of the Company and the markets in which it invests.

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Company's actual investment performance, results of operations, financial condition, liquidity, distribution policy and the development of its financing strategies may differ materially from the impression created by the forward-looking statements contained in this document.

 

Subject to their legal and regulatory obligations, the Directors and the Investment Manager expressly disclaim any obligations to update or revise any forward-looking statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

 

In addition, the Review Section may include target figures for future financial periods. Any such figures are targets only and are not forecasts.

 

This Annual Report has been prepared for the Company as a whole and therefore gives greater emphasis to those matters which are significant in respect of Greencoat UK Wind PLC and its subsidiary undertakings when viewed as a whole.