TIDMGCP
RNS Number : 4587K
GCP Infrastructure Investments Ltd
14 December 2018
Released : 14/12/2018 07:00
GCP Infrastructure Investments Ltd
14 December 2018
GCP Infrastructure Investments Limited
('GCP Infra' or the 'Company')
LEI 213800W64MNATSIV5Z47
Annual report and financial statements for the year ended 30
September 2018
The Directors of the Company are pleased to announce the
Company's annual results for the year ended 30 September 2018. The
full Annual Report and Accounts can be accessed via the Company's
website https://www.graviscapital.com/funds/gcp-infra/about and
will be posted to shareholders over the course of the next few
weeks.
GCP Infrastructure Investments Limited
HIGHLIGHTS FOR THE YEAR
- Dividends of 7.6 pence per share paid for the year to 30
September 2018 (30 September 2017: 7.6 pence)
- Total shareholder return for the year of 4.8% and total return since IPO in 2010 of 107.3%
- Profit for the year of GBP73.4 million (30 September 2017: GBP46.7 million)
- GBP100 million successfully raised through a significantly oversubscribed share issue
- New credit arrangements of up to GBP150 million, with a
temporary GBP15 million extension agreed post year-end.
- Loans advanced totalling GBP377.3 million secured against UK
renewable energy, social housing and PFI projects
- Third party independent valuation of the Company's partially
inflation-protected investment portfolio of GBP1.1 billion (30
September 2017: GBP899.3 million)
- Company NAV per ordinary share at 30 September 2018 of 112.49
pence (30 September 2017: 110.57 pence)
- Post year end the Company made further investment commitments
of GBP11.3 million and received repayments of GBP71.8 million
1. Share price and market capitalisation at 28 September 2018,
being the last trading day of the financial year.
Ian Reeves CBE, Chairman of GCP Infra, commented:
"Against a market backdrop of uncertainty and volatility, GCP
Infra has continued to deliver an attractive dividend income and
stable NAV per share by investing in a diversified portfolio of UK
infrastructure projects. In the context of an ever-moving
Government infrastructure policy, we are confident that our
strategy, which is geared towards long-term investment, will
continue to deliver attractive risk-adjusted returns for our
shareholders."
INVESTMENT OBJECTIVES AND KPIs
The Company primarily invests in UK infrastructure debt and/or
similar assets to meet the following key objectives:
DIVID INCOME DIVERSIFICATION CAPITAL PRESERVATION
--------------------------- ------------------------------ --------------------------
To provide shareholders To invest in a diversified To preserve the capital
with regular, sustainable, portfolio of debt and/or value of its investments
long-term dividends similar assets secured over the long term
against UK infrastructure
projects
--------------------------- ------------------------------ --------------------------
KEY PERFORMANCE INDICATORS
--------------------------- ------------------------------ --------------------------
The Company paid a dividend The Company had 50 investments The valuation of the
of 7.6 pence for the at 30 September 2018. Company's investments
sixth consecutive year. The investment portfolio exceeds the principal
is exposed to a wide value outstanding. The
variety of assets in Company's ordinary shares
terms of project type have traded at a premium
and source of underlying to their NAV since IPO
cash flow. in 2010.
--------------------------- ------------------------------ --------------------------
7.6p 50 112.49p
Dividends paid 2017/18 Number of investments NAV per share at 30
at 30 September 2018 September 2018
--------------------------- ------------------------------ --------------------------
GBP73.4m 10.5%(1) 124.40p
Profit for the year Size of largest investment Share price of ordinary
ended 30 September 2018 as a percentage of total shares at 28 September
portfolio 2018
--------------------------- ------------------------------ --------------------------
(1) The size of the largest investment (the Cardale PFI loan) is
calculated by reference to the percentage of total assets. The
Cardale PFI loan is secured on a cross-collateralised basis against
14 separate operational PFI projects, with no exposure to any
individual project being in excess of 10% of the total
portfolio.
Further information on Company performance can be found
below.
CHAIRMAN'S STATEMENT
I am pleased to present the annual report of GCP Infrastructure
Investments Limited for the year ended 30 September 2018.
In the year under review, the Company delivered an attractive
dividend of 7.6 pence per share alongside a stable NAV per share
during a period of significant volatility in the wider market.
Against a background of an ever-moving Government infrastructure
policy, the Company's continuing objective of maintaining a
diversified portfolio of infrastructure investments is expected to
remain a key competitive strength that will enable the continued
generation of attractive risk-adjusted returns.
Financial performance
The Company generated a profit of GBP73.4 million for the year.
Earnings per share of 8.6 pence supported total dividend payments
of 7.6 pence per share. Returns on the investment portfolio were
enhanced by the refinancing of a portfolio of rooftop solar loans
and upward revaluations, contributing 1.1 pence per share and 2.8
pence per share respectively. Due to several market and contractual
challenges during the year, downward revaluations were made
equivalent to 2.5 pence per share. The net asset valuation of the
Company increased to GBP985.5 million (112.49 pence per share) from
GBP874.6 million (110.57 pence per share) the previous year. At the
end of the year the Company's share price was 124.40 pence,
representing a 10.6% premium to net asset value.
Investment activity
Investments in the year totalled GBP377.3 million, predominantly
in secondary wind and solar projects, with the balance in social
housing, PFI projects and drawdowns under existing commitments.
Notably, this year saw the Company's first investment in the UK
offshore wind sector, with a c.GBP80 million investment in an
operational offshore wind farm. The UK is the world leader in
installed offshore wind capacity and the Board is pleased that the
Company has made its first investment in a sector that has
attractive asset characteristics, significant growth potential and
current Government support through the contract for difference
('CfD') mechanism. During the year the Company obtained limited
exposure to shareholder interests in certain project companies in
mature asset classes. These positions are expected to deliver
attractive risk-adjusted long-term and predictable cash flows and
introduce the potential for future upside for the Company.
Since the year end, the Company has made further investment
commitments of GBP11.3 million in the social housing and renewable
energy sectors. The Company has also received unscheduled
prepayments of GBP70.4 million in respect of two renewable energy
investments and a further GBP1.4 million in scheduled
repayments.
Financing
During the year the Company received GBP19.1 million in
scheduled principal payments and GBP111.9 million in early
repayments, GBP105.9 million of which was prepaid and reinvested in
the same underlying assets as part of the refinancing of two
existing loans.
The Company raised GBP100 million in January 2018, pursuant to a
significantly oversubscribed placing of new ordinary shares and the
Board would like to thank shareholders for their continued support.
The Company remains supportive of future growth where the Board
believes that the new investment activity associated with such
growth is accretive to the risk-adjusted returns on the investment
portfolio and brings with it the associated benefits of additional
portfolio diversification.
In the year under review, the Company entered into a new
revolving credit facility for an aggregate amount of GBP150
million, replacing its previous facility which expired in March
2018. Post year end, the new facility was temporarily extended by
GBP15 million. The new facility, which was substantially fully
drawn at year end, was provided by RBSI, ING and NIBC. These
arrangements provide the Company with access to flexible debt
finance, enabling it to take advantage of investment opportunities
as they arise and may also be used to manage the Company's working
capital requirements from time to time.
Market outlook
On the tenth anniversary of the Climate Change Act, the UK can
reflect on a decade that has seen significant growth in renewable
energy generation.
The policies that have historically supported the growth in
renewable electricity generation have either expired or are at
levels that do not readily promote new investment. The notable
exception is the CfD regime, which is expected to continue to
encourage developments principally in the offshore wind sector. The
Company, therefore, anticipates relatively limited new
opportunities to finance primary investments in renewable
electricity assets but does expect to remain an active participant
in the secondary market for existing operational assets.
Progress in reducing greenhouse gas emissions from heating and
transport in the UK remains significantly behind expectations. As
such, the Company expects to see attractive investment
opportunities that benefit from continuing Government support (such
as the renewable heat incentive) that may further diversify the
Company's investment portfolio.
The Government budget for supported living remains a
well-protected area of support. An increase in capital targeting
the sector has resulted in a reduction in available investment
yields, meaning that any increase in the Company's exposure is
likely to come primarily through off-market opportunities typically
arising from existing relationships.
The Chancellor announced in his October 2018 Budget that there
would be no new UK infrastructure procured through PFI or PF2.
However, he reaffirmed the Government's backing for existing PFI
projects, which supports the Company's long-held view that existing
PFI assets, whether as part of its existing portfolio or as
potential secondary opportunities, remain attractive investments.
Furthermore, the release in November 2018 of the Infrastructure and
Projects Authority's 'Analysis of the National Infrastructure and
Construction Pipeline' points to over GBP600 billion of planned
investment in UK infrastructure, around half of which is intended
to be sourced from the private sector. The release confirms the
Government's commitment to ensuring that levels of private
investment remain high, including through established tools such as
CfDs, the Regulated Asset Base Model, and the UK Guarantees Scheme.
The Company remains well placed to take advantage of investment
opportunities that may arise across a widely diversified range of
infrastructure sub-sectors in the UK.
At the date of publication, there remains a variety of possible
outcomes for Brexit. The Board feels that, given the Company's
limited exposure to assets with demand risk and no exposure to
assets outside the UK, the Company is well protected from potential
adverse impacts on the UK economy and increased volatility in
foreign exchange movements that may occur as a result of the UK's
withdrawal from the EU. The Board will continue to monitor any
potential impact of Brexit closely as more details become
known.
Risks
The principal risks of the Company include (but are not limited
to) execution risk, portfolio risk, financial risk and other risks.
Full details can be found below.
Ian Reeves CBE
Chairman
13 December 2018
STRATEGIC OVERVIEW
The Company seeks to provide shareholders with long-term
dividends and preserve the capital value of its investments through
exposure to a diversified portfolio of UK infrastructure
projects.
Investment objective
The Company's investment objective is to provide shareholders
with regular, sustained, long-term dividends and to preserve the
capital value of its investment assets over the long term.
Investment policy and strategy
The Company seeks to generate exposure to the debt of UK
infrastructure Project Companies, their owners or their lenders and
related and/or similar assets which provide regular and predictable
long-term cash flows.
Core projects
The Company will invest at least 75% of its total assets,
directly or indirectly, in investments with exposure to
infrastructure projects with the following characteristics (core
projects):
- pre-determined, long-term, public sector backed revenues;
- no construction or property risks; and
- benefit from contracts where revenues are availability based.
In respect of such core projects, the Company focuses
predominantly on taking debt exposure (on a senior or subordinated
basis) and may also obtain limited exposure to shareholder
interests.
Non-core projects
The Company may also invest up to an absolute maximum of 25% of
its total assets (at the time the relevant investment is made) in
non-core projects, taking exposure to projects that have not yet
completed construction, projects in the regulated utilities sector
and projects with revenues that are entirely demand based or
private sector backed (to the extent that the Investment Adviser
considers that there is a reasonable level of certainty in relation
to the likely level of demand and/or the stability of the resulting
revenue).
There is no, and it is not anticipated that there will be any,
outright property exposure to the Company (except potentially as
additional security).
Diversification
The Company will seek to maintain a diversified portfolio of
investments so that not more than 10% in value of its total assets
from time to time consist of securities or loans relating to any
one individual infrastructure asset (having regard to risks
relating to any cross default or cross collateralisation
provisions). This objective is subject to the Company having a
sufficient level of investment capital from time to time, the
ability of the Company to invest its cash in suitable investments
and the investment restrictions in respect of 'outside scope'
projects described above.
It is the intention of the Directors that the assets of the
Company are (as far as is reasonable in the context of a UK
infrastructure portfolio) appropriately diversified by asset type
(e.g. PFI healthcare, PFI education, solar power, social housing,
biomass etc.) and by revenue source (e.g. NHS Trusts, local
authorities, FiT, ROCs etc.)
Non-financial objectives of the Company
The key non-financial objectives of the Company are:
- to maintain strong relationships with all key stakeholders of
the Company, including shareholders and borrowers; and
- to develop and increase the understanding of the investment
strategy of the Company and infrastructure as an investment
class.
Key policies
Distribution
The Company seeks to provide its shareholders with regular,
sustained, long-term dividend income. The Company has previously
offered a scrip dividend alternative and anticipates that it will
continue to do so.
Leverage and gearing
The Company intends to make prudent use of leverage to finance
the acquisition of investments and enhance returns to investors.
Structural gearing of investments is permitted up to a maximum of
20% of the Company's net asset value immediately following drawdown
of the relevant debt.
STRATEGIC OVERVIEW
DELIVERY OF INVESTMENT OBJECTIVES
The Company invests in UK infrastructure debt and/or similar
assets to meet the following key objectives:
INVESTMENT OBJECTIVE: DIVID INCOME
To provide shareholders with regular, sustainable, long-term
dividends
Implementation of investment strategy
Investment in long-term cash flows generated by projects in the
PFI, social housing and renewable energy sectors
Exposure to availability-based cash flows that are not dependent
on the level of use of the underlying infrastructure asset
Investment primarily in debt where there is equity that takes
the first loss position in the event of project
underperformance
Careful attention is paid to the control and management of costs
associated with running the Company
The Company raises capital on a highly conservative basis, with
consideration given to scheduled repayments, and only when it has
an advanced pipeline of investment opportunities
Delivery of investment objectives
The Company has paid a dividend of 7.6 pence for the sixth
consecutive year.
7.6p
Dividends paid 2017/18
8.6p
Earnings per share for the year ended 30 September 2018
Principal risk exposure
- Execution risk
1, 2
- Portfolio risk
4, 5, 6, 7, 8, 9, 10
- Financial risk
11, 13, 14
- Other
15
Refer to principal risks and uncertainties below.
INVESTMENT OBJECTIVE: DIVERSIFICATION
To invest in a diversified portfolio of debt and/or similar
assets secured against UK infrastructure projects
Implementation of investment strategy
Investment strategy with set exposure limits to ensure
appropriate portfolio diversification and mitigation of risk
Exposure to multiple borrowers with extensive due diligence
carried out on Project Company owners
New investments are evaluated to ensure synergy with existing
portfolio to ensure balance and diversification
Key exposures are regularly monitored to ensure any
concentration of risk falls within acceptable parameters
The Company invests in multiple asset classes, e.g. PFI, solar,
social housing, biomass etc, to ensure appropriate spread of
risk
Delivery of investment objectives
During the year, the Company has increased the number of
investments in its portfolio from 46 to 50. The investment
portfolio is exposed to a wide variety of assets in terms of
project type and source of underlying cash flow.
50
Number of investments at 30 September 2018
10.5%(1)
Size of largest investment as a percentage of total
portfolio(1)
(1). The size of the largest investment (the Cardale PFI loan)
is calculated by reference to the percentage of total assets. The
Cardale PFI loan is secured on a cross-collateralised basis against
14 separate operational PFI projects, with no exposure to any
individual project being in excess of 10% of the total
portfolio.
Principal risk exposure
- Execution risk
2
- Portfolio risk
4
INVESTMENT OBJECTIVE: CAPITAL PRESERVATION
To preserve the capital value of its investment assets over the
long term
Implementation of investment strategy
Where possible, the Company invests in projects with partial
inflation protection characteristics to protect the capital value
of the investments
The Company invests in projects that are relatively
straightforward in terms of construction, operation, maintenance
and technology
Extensive due diligence performed by the Investment Adviser and
professional third party advisers providing an independent view of
the key risks of a project
Delivery of investment objectives
The valuation of the Company's investment portfolio is in excess
of the principal value outstanding. The increase in valuation has
resulted in a NAV per share of 112.49 pence.
112.49p
NAV per share at 30 September 2018
124.40p
Share price of ordinary shares at 28 September 2018
Principal risk exposure
- Execution risk
1, 3
- Portfolio risk
4, 5, 6, 7, 8, 9, 10
- Financial risk
11, 12
- Other
16
INVESTMENT ADVISER'S REPORT
The Investment Adviser, Gravis Capital Management Limited, is
responsible for the management of the Company's assets in
accordance with its investment policy.
EVOLUTION OF UK INFRASTRUCTURE SECTOR
Infrastructure as an asset class is characterised by the
financing of highly capital-intensive physical assets, often
designed to provide a public benefit over the long term. Given the
public service that they provide, such infrastructure assets
typically benefit from public sector backing through long-term
revenue support arrangements. As a result, new infrastructure
development is linked to the availability of such support, which in
turn is dependent at any time on prevailing policy.
Since the Company's IPO in 2010, there have been varying levels
of Government support for PFI and renewable energy projects.
Political support for PFI has generally diminished and subsidy
support for renewable energy projects has come and, in many cases,
disappeared entirely.
Conversely, housing benefit for supported living accommodation
remains a highly protected budget.
Investment in infrastructure assets offers private sector
investors exposure to long-dated and relatively predictable cash
flows. Amid a background of historically low interest rates, demand
for exposure to such investments has grown steadily over the last
decade. A dependable yield derived from progressively more mature
and better understood infrastructure sectors has become
increasingly attractive to a wide range of investors, from
individuals to large institutions.
The evolving balance of new infrastructure projects and investor
demand has resulted in significant price movements throughout the
infrastructure sector since the Company's IPO in 2010. Whilst the
Company was originally established with a focus on subordinated
debt investments in PFI projects, it has since invested in sectors,
within the context of its investment policy and return target, that
have offered the most attractive balance of risk and reward. Over
time this has resulted in a diversified portfolio that has varied
in terms of sector exposure, seniority of investment and
construction risk. The Company's ability to diversify has been, and
continues to be, an important competitive strength. With a market
capitalisation of over GBP1 billion, the Company provides investors
with significant portfolio diversification and secondary market
share liquidity.
SECTOR BACKGROUND AND UPDATE
RENEWABLE ENERGY
Projects that transform the way we use energy across
electricity, heat and transport that benefit from long-term
government subsidies.
66%(1)
Percentage of portfolio by value
GBP746.6m(1)
Valuation of sector
(1) Includes asset finance and energy efficiency which comprise
2% of the portfolio.
Background
The Climate Change Act, which is ten years old this year, saw
the UK take on binding obligations to reduce greenhouse gas
emissions. The Government introduced various subsidy regimes to
incentivise the private sector to invest in the development of
renewable energy projects. Policies such as the Renewables
Obligation ('RO'), the Feed-in Tariff ('FIT'), the Renewable Heat
Incentive ('RHI') and Contracts for Difference ('CfDs') offer
owners of renewable energy projects long-term (up to 25 years)
contracted cash flows, inflating at RPI or CPI, based on the amount
of renewable energy generated.
The introduction of renewable subsidies successfully prompted
the development of widespread renewable energy projects throughout
the UK. A total of 29% of the UK's electricity generation in 2017
came from renewable technologies compared with 9% in 2011.
Current position
Policy priorities have shifted under the current Conservative
government to limiting the cost of energy (renewable support
mechanisms have, in part, been financed through consumer energy
bills) and ensuring security of supply.
As the UK has moved closer to achieving its renewable
electricity targets, support mechanisms for new renewable
generation have become more limited. Subsidies for onshore wind and
solar have all but ended, resulting in a significant reduction in
primary development of projects in those sectors.
The key remaining Government support for renewable energy is
under the CfD mechanism and this is expected to encourage
investment principally in new offshore wind projects.
The UK remains well behind in meeting its renewable heat and
renewable transport targets. The Investment Adviser continues to
monitor Government support for these areas, including under the
existing RHI.
SUPPORTED LIVING
Supported living projects create long-dated cash flows supported
by the UK Government through the secured pledge of centrally funded
benefits.
14%
Percentage of portfolio by value
GBP154.4m
Valuation of sector
Background
In England, supported accommodation for people with mental or
physical disabilities is provided by specialist housing
associations, or registered providers of social housing ('RPs').
RPs are independent bodies established to provide low cost social
housing for people in need of housing on a not-for-profit basis and
are regulated in England by the Regulator of Social Housing.
RPs active in the supported accommodation area typically access
suitable properties through ownership within their portfolios or
entry into long-term (typically 20 to 50 year) fully repairing and
insuring leases from private sector landlords. Payments under such
leases are supported by housing benefit received in most cases by
the RP directly from local authorities. The housing benefit
available to the supported living subset of the wider social
housing benefit provision has historically been, and remains, a
highly protected budget.
Current position
Over the last few years a substantial volume of capital has been
raised from investors seeking exposure to the supported living
sector. This has resulted in the rapid growth of some specialist
RPs looking to expand their property portfolios. However, certain
issues have arisen, and in February 2018, the social housing
regulator, Homes England, released a statement to the effect that
First Priority Housing Association ('FPHA'), an RP to which the
Company had an exposure, was no longer compliant with its financial
viability requirements. As a result, the leases in place with FPHA
were transferred by the borrower to Bespoke Supportive Tenancies, a
national RP of social housing for vulnerable adults. This was
achieved with no current material impact to the Company NAV, an
outcome that supported the investment model of financing the
delivery of infrastructure through structures that may be fulfilled
by multiple parties at a similar level of cost and risk
transfer.
PFI
PFI, and its variants, enable the procurement of infrastructure
through access to long-term, public sector backed, availability
based payments.
20%
Percentage of portfolio by value
GBP229.4m
Valuation of sector
Background
PFI (and similar structures) originated in the UK during the
mid-1990s as a public sector procurement model to privately
finance, build and operate social infrastructure projects. Projects
were procured on the basis of a contracted commitment from central
or local government or an NHS Trust to pay for the use of the
assets for 25 to 30 years. Significant development of new assets in
the leisure, healthcare, education, transport, justice and defence
sectors occurred under PFI contracts over a 15-year period, with an
estimated GBP60 billion of projects developed.
Current position
Notwithstanding the significant evolution of the sector, the
value for money of PFI as a Government procurement mechanism has
become increasingly debated over recent years. As a result,
political parties of all leanings have distanced themselves almost
entirely from PFI, leading to the announcement in the 2018 Budget
that the current government would not be supporting any new PFI
schemes, but would continue to support existing schemes.
Further, on several occasions over the last twelve months, the
Shadow Chancellor has proposed the nationalisation of existing UK
PFI projects should Labour win the next general election. We
continue to believe it is difficult to draw useful conclusions as
to the theoretical impact of such a policy on the Company without
any detail as to what such nationalisation would entail from a
legal and commercial perspective.
In January 2018, the compulsory liquidation of Carillion plc
('Carillion') was announced. As one of the then-largest providers
of facilities management and construction services to
infrastructure projects in the UK, the risk of disruption to
continuity of service on those projects serviced by Carillion has
been a key focus of investors in the sector. The Company had a
non-material exposure to investments in companies to whom Carillion
provided services and there has been no impact on the valuation of
these investments as a result of Carillion's liquidation.
However, despite these headwinds, the Investment Adviser has not
seen evidence of any material adverse impact on the valuation of UK
PFI projects and, conversely, noted several large secondary market
transactions and the privatisation of the John Laing Infrastructure
Fund Limited at a valuation representing a significant premium to
prevailing net asset value.
INVESTMENT ACTIVITY
Key investment activity in the year
The Investment Adviser has continued to see attractive
opportunities for investment in UK infrastructure, primarily in
secondary transactions in the mature renewable energy sectors.
Although demand for these assets has remained high, the Investment
Adviser has always sought to identify investment opportunities with
characteristics that might limit the number of competing bidders
and thus deliver more attractive risk-adjusted returns.
In the year, the Company invested GBP192.7 million in wind,
GBP145.8 million in solar and a further GBP38.8 million in other
renewable energy projects and social housing assets. Non-standard
characteristics that have positively affected pricing in these
deals have included a limited timeline to complete a portfolio
containing a mix of sectors, transaction size (both large and
small) and a requirement for flexibility within the capital
structure.
As certain renewable technologies have matured over the last
decade, particularly wind and solar, asset-specific risks of
investments in those sectors have reduced. Subsidy regimes have
become more established, third party contractors have more
experience and are more financially secure, and technological
performance and risks are better understood. In such sectors,
rather than take leveraged subordinated debt positions with limited
downside protection and no upside potential, the Company has, in
certain instances, invested additional capital to benefit from the
economics of ownership and control.
An example of this is the Company's first offshore wind
investment (see case study below) in which the Company has invested
in loan notes that finance a shareholder's interest in the
underlying project. A similar approach has been taken during the
period with certain investments in mature onshore wind and solar
sectors. Any potential increase in risk resulting from the Company
taking an incrementally new position in the capital structure that
has more limited first loss protection is, in the Investment
Adviser's view, offset by reduced risks associated with the
predictability of cash flows arising from the mature asset classes
in which the investments have been made, as well as potential
future value enhancement.
For full details of the Company's investments during the year
and for details of portfolio exposure, see below.
Current opportunities
Since the start of the reporting year, the Company has received
GBP6 million in unscheduled principal prepayments, with a further
GBP70.4 million received since the year end. Whilst some
prepayments were not surprising given the relatively modest
associated financial penalties, prepayment is also occurring on
certain loans with material prepayment fees. Whilst this is mostly
a reflection of the highly competitive secondary market in certain
sectors, it also highlights the importance of maintaining a
pipeline of investment opportunities to redeploy prepaid capital in
order to maintain portfolio diversification and liquidity.
For full details of the Company's repayments during the year see
below.
The Investment Adviser expects to continue to see an active
secondary market for renewable energy assets with short-term
investors and fixed life funds seeking to dispose of investments to
longer-term investors. These opportunities are likely to arise in
various parts of the capital structure. The Investment Adviser does
not expect to see any new primary investment opportunities in PFI
and renewable electricity as Government policy has moved away from
supporting these sectors, although ongoing support continues to
exist in areas such as renewable heat and transport, which may
provide attractive investment opportunities in future. The
Investment Adviser anticipates a continued pipeline of social
housing investments with existing borrowers, but generally observes
an increased volume of capital targeting a limited pool of assets,
impacting yields. The increase in secondary investment
opportunities has reduced the Company's exposure to construction
stage assets, a trend that is expected to continue in the near
term.
Looking further forward, the UK National Infrastructure
Commission published the UK's first National Infrastructure
Assessment in July 2018, highlighting several areas including
broadband, renewable heat, transport, recycling, electric vehicle
infrastructure and building resilience to extreme weather that are
seen as priorities for future infrastructure development. This
indicates a direction of travel for wider UK infrastructure
development and the Company remains well positioned to provide
private sector capital to support this development.
Race Bank
The Company has invested c.GBP80 million in Race Bank, an
operational 573MW offshore wind farm located c.27 km from the coast
of Norfolk, through the subscription of a series of loan notes
issued by an SPV company, GreenCo Alpha Holdings Limited. The 91
turbines are forecast to produce c.2,500 GWh of renewable
electricity annually, enough to power over half a million average
UK homes. The project achieved commercial operations in February
2018 after a three year construction period and benefits from
Government support under the RO. This is the largest individual
project to which the Company has an exposure.
The UK is the world leader in the offshore wind market in terms
of capacity, with 7GW installed at the end of 2017.]
APPROACH TO RISK
Given that the Company invests across multiple sectors and in
senior and subordinated positions within capital structures,
like-for-like risk and return comparisons are difficult. The
Investment Adviser has thus developed a very structured approach to
analysing and comparing investment opportunities to ensure the
Company can evaluate the different sectors and target those with
the most attractive risk-adjusted returns.
1 Market risks
The revenues generated by most infrastructure assets are to some
degree exposed to changes in market prices. Within the Company's
portfolio, such relevant exposures are primarily to inflation and
electricity pricing.
Current context
Investment cases are based on long-term electricity price
forecasts provided by independent consultants. Electricity price
risks are characterised by short-term movements in price, driven by
factors such as weather, and longer-term trends based on the energy
generation mix, wider energy markets and political factors.
Whilst price volatility causes short-term price fluctuations
above and below the independent forecasts, there has been a trend
of reducing long-term expectations of electricity prices since
2014.
Further analysis of the Company's exposure to market risks is
detailed below.
2 Credit risks
Privately financed infrastructure projects are typically
procured using a project finance model in which a new company is
established to build, own and operate an asset. The asset (and
therefore the value of the asset) is delivered through putting in
place contractual arrangements with third parties to deliver
services that include construction and operation. Critically, the
risks involved in these activities are also passed to the third
parties. The performance of an asset financed through this
structure is therefore reliant on each party being able to provide
the services allocated to them and manage the associated risks that
are transferred.
Current context
The collapse of Carillion and challenges encountered by FPHA
have highlighted the impact of a failure of a counterparty to
perform its obligations. This has re-emphasised the need, as part
of upfront and ongoing investment due diligence, to fully
understand the financial position of a service provider and how
able that party is to manage (financially and technically) any
risks allocated to them. Further, the ability to replace a service
provider under similar terms is a critical piece of analysis that
supports an investment case.
Further analysis of the Company's exposure to third party
counterparties is detailed below.
3 Operational/project risks
Infrastructure projects are physical assets providing a service.
The operation of such assets varies significantly in level of
complexity and inter-dependencies between the asset and third
parties. The more complicated an asset, the harder it becomes to
effectively identify and allocate risks to third parties as part of
a project finance investment model.
Current context
The project delivery model for a number of renewable asset
classes has become well established. Significant deployment of
solar and wind in the UK has resulted in the evolution of a
contractual delivery model that has been extensively due diligenced
and with risk allocations that have been well tested across a
number of competent third parties. Biomass and anaerobic digestion
remain more nascent, with a number of varying approaches seen to
project delivery.
4 Legal/regulatory risks
The value of an infrastructure asset is linked to the legal and
regulatory framework in which that asset is embedded. The Company
invests solely in UK infrastructure and therefore considers this
risk in the context of the UK. A number of such risks are a direct
function of investments being part of a 'UK plc', such as changes
to the corporation tax rate or legislation relating to health and
safety or environmental matters with which projects are obliged to
comply (and may result in additional costs). Other such risks are
specific to an asset class. For example, renewable energy
investments rely on the applicable government subsidy frameworks to
endure over 15 to 25 year time horizons and the UK Government has
remained committed to a grandfathering of such arrangements.
Current context
This risk has come to the fore following the Shadow Chancellor's
stated intention, should Labour win the next election, to 'bring
PFI back in house'. Precisely what this would mean is unclear. Any
nationalisation would potentially have an impact on the Company
given its exposure to PFI, but it is the Investment Adviser's view
that the likelihood of termination of all PFI contracts,
particularly for smaller assets that are efficiently providing
critical public services, would be a costly and time-consuming
exercise that would not represent a good use of limited government
resource.
Further analysis on the impact of the termination of PFI
projects to which the Company is exposed is detailed below.
Further analysis on the position in the capital structure of the
investment portfolio is detailed below.
FINANCIAL REVIEW
The Company raised a total of GBP100 million through a share
issue, secured additional debt facilities of GBP75 million, made 30
investments totalling GBP377.3 million and delivered a total
shareholder return of 4.8%.
Financial performance
The Company has delivered another year of strong results.
Investment income was GBP87.5 million (30 September 2017: GBP56.9
million). Income has increased significantly this year due to the
impact of growth of the portfolio, net revaluations and the impact
of the refinance of the solar portfolio, and the more efficient
deployment of capital compared with the prior year.
Investment income is offset by administration costs for the year
of GBP10.9 million (30 September 2017: GBP9.1 million) which
include the Investment Adviser's fee and other third party service
provider costs. Administration costs have increased year-on-year
predominately reflecting the variable nature of the Investment
Adviser and Administrator fees as a percentage of NAV. Other
administration costs have remained broadly in line, as demonstrated
by the Company's ongoing charges ratio below which has remained
static year-on-year.
Financing costs have increased, reflecting the Facilities being
substantially fully drawn for the second half of the year and
further interest expense in respect of the additional debt secured
through the Company's credit arrangements. The Company remains
modestly geared at the year end with a loan to value (borrowings as
a percentage of net assets) of 14.8%.
Total profit has increased from GBP46.7 million in the prior
year to GBP73.4 million.
Ongoing charges
The Company's ongoing charges ratio, calculated in accordance
with the AIC methodology, was 1.1% for the year ended 30 September
2018 (30 September 2017: 1.1%).
Net assets
The net assets of the Company have grown from GBP874.6 million
at 30 September 2017 to GBP985.5 million at 30 September 2018. The
Company's NAV per share has increased from 110.57 pence at the
prior year end to 112.49 pence at 30 September 2018, due to the
accretive nature of the share issuances issued at a premium to net
asset value and retained profits.
Cash generation
The Company received debt service payments of GBP81.3 million
(30 September 2017: GBP79.8 million) during the year, comprising
GBP55.8 million of interest payments and GBP25.5 million of partial
loan principal repayments (30 September 2017: GBP44.3 million and
GBP35.5 million). The Company paid dividends of GBP64.8 million
during the year (30 September 2017: GBP55.4 million). The Company
aims to manage its cash position effectively by minimising cash
balances, while maintaining the financial flexibility to pursue a
pipeline of investment opportunities. This is achieved through
active monitoring of cash held and income generated from the
portfolio and efficient use of the Company's Facilities.
Capital raised
The Company raised a total of GBP100 million during the year
through a substantially oversubscribed capital raise under the
placing programme, at a placing price per new ordinary share of 122
pence.
Facilities
During the year, the Company entered into new credit
arrangements for an aggregate amount of GBP150 million, replacing
its previous revolving credit facility which had expired. The new
arrangements, which include a GBP50 million fixed three-year term
tranche and a GBP100 million revolving tranche, will expire in
March 2021 and are held with three lenders, RBSI, ING and NIBC. The
facility terms in place at year end are summarised below:
Facility Size Margin Expiry
----------------- ------- ------- ----------
Fixed tranche GBP50m 190 bps March 2021
Revolving tranche GBP100m 190 bps March 2021
----------------- ------- ------- ----------
Post year end, the Company entered into an agreement with Royal
Bank of Scotland International and ING in respect of a temporary
GBP15 million increase to its revolving tranche. The Company also
repaid GBP75 million of the Facilities. At the date of publication,
the Company's revolving credit arrangements, of which GBP90 million
is drawn, are for an aggregate amount of GBP165 million.
Dividends
The Company aims to provide shareholders with regular,
sustainable, long-term dividends. For the year ended 30 September
2018, the Company paid a dividend of 1.9 pence (30 September 2017:
1.9 pence) per ordinary share in respect of each of the four
quarters, in line with prior years.
Share price performance
The Company has delivered a shareholder total return (share
price growth plus dividends reinvested) of 4.8% over the past
twelve months and 107.3% since IPO in 2010. The Company has
continued to trade at a significant premium to NAV, with an average
of 8.6% for the year and 10.6% at the year end. The share price at
28 September 2018 was 124.40 pence per share, being the last
trading day of the financial year.
Further details on share movements are disclosed in note 16.
INVESTMENT PORTFOLIO
The Company is exposed to a portfolio of 50 investments with an
average annualised yield of 8.2% and average life of 15 years.
PORTFOLIO SUMMARY
In the reporting year, the valuation of the portfolio grew by
GBP231 million to a total value of GBP1.1 billion with significant
new secondary investments in the renewable electricity generation
portfolio.
A full list of the Company's portfolio can be found on the
Company's website.
Top ten revenue counterparties % of total assets
--------------------------------------------- -----------------
Ofgem 27.3%
E.ON Energy Limited (Ofgem) 24.1%
Bespoke Supportive Tenancies Limited 6.7%
Power NI (Ofgem) 5.6%
Centrica (Ofgem) 4.6%
Inclusion Housing Community Interest Company 2.4%
Viridian Energy Supply Limited (Ofgem) 2.1%
Smartest Energy Limited (Ofgem) 1.6%
Aberdeen City Council 1.4%
Gloucestershire County Council 1.3%
--------------------------------------------- -----------------
Top ten project service providers % of total assets
---------------------------------------------- -----------------
A Shade Greener Maintenance Limited 9.5%
Solarplicity Asset Limited 9.4%
Orsted A/S 7.8%
Vestas Wind Systems A/S 7.0%
Burmeister & Wain Scandinavian Contractor A/S 6.5%
Agrivert Limited 5.2%
Care Management Group 4.3%
Agrikomp (UK) Limited 3.7%
Grosvenor Facilities Management Limited 2.9%
Siemens plc 2.4%
---------------------------------------------- -----------------
Portfolio overview
During the year, the Company experienced significant growth in
the investment portfolio, principally driven by investment in
secondary renewable energy opportunities. The valuation of the
Company's investments at 30 September 2018 was GBP1.1 billion.
During the year, the Company made 30 investments totalling GBP377.3
million (GBP66.1 million under 19 existing facilities and GBP311.2
million under eleven new facilities) and received seven full
unscheduled repayments of GBP105.9 million, taking the number of
investments from 46 to 50 at the year end. Additionally, the
Company received unscheduled partial repayments of GBP6.0 million
and received GBP19.1 million of scheduled partial repayments during
the year.
Investments made/repaid during the year
New investments Further Scheduled Unscheduled
Sector Status(1) Security(1) advances repayments repayments
------------------- ------------ ------------------- --------------- --------- ----------- -----------
Solar Operational Senior/Subordinated GBP144.8 GBP1.0 GBP1.6 GBP80.8
million million million million
PFI Operational Subordinated GBP0.8 GBP5.9 GBP1.8 GBP0.1
million million million million
Supported living Operational Senior - GBP20.4 - GBP0.2
million million
Anaerobic digestion Construction Senior - GBP3.1 GBP3.1 GBP3.0
million million million
Wind Operational Senior/Subordinated GBP165.6 GBP27.1 GBP9.6 GBP27.8
million million million million
Biomass Operational Senior/Subordinated - GBP8.6 GBP2.3 -
million million
Other Operational Senior - - GBP0.7 -
million
------------------- ------------ ------------------- --------------- --------- ----------- -----------
Total GBP311.2 GBP66.1 GBP19.1 GBP111.9
million million million million
------------------- ------------ ------------------- --------------- --------- ----------- -----------
Advances made post year end
New investments Further Scheduled Unscheduled
Sector Status Security advances repayments repayments
------------------- ------------ ------------------- --------------- --------- ----------- -----------
Renewables Operational Senior/Subordinated - GBP6.2 GBP1.2 GBP70.4
million million million
Supported living Operational Senior/Subordinated - GBP5.1 - -
million
PFI Operational Senior/Subordinated - - GBP0.2 -
million
------------------- ------------ ------------------- --------------- --------- ----------- -----------
Total - GBP11.3 GBP1.4 GBP70.4
million million million
------------------- ------------ ------------------- --------------- --------- ----------- -----------
1. In respect of new investments and further advances.
Capital structure
As part of its portfolio of investments, the Company has
targeted investments across a number of asset classes and different
parts of the capital structure.
Repayment timings
The Company expects a periodic return of capital from underlying
loans through scheduled principal repayments. In addition, on an
ad-hoc basis, the Company may receive a return of capital earlier
than planned as part of early prepayments driven by the refinancing
or change of control of the underlying asset. As the asset classes
in which the Company has historically invested are in certain cases
reaching high levels of maturity, with an associated reduction in
the cost of capital available to those asset classes, there is an
increased risk that early prepayment becomes an attractive
proposition for asset owners.
With any capital that is returned, and as part of any future
growth, the Company will continue to focus on making investments
that balance asset risk with capital structure protection.
To the extent amounts prepaid cannot be reinvested at attractive
rates, there will be an impact on the overall profitability of the
portfolio. At the same time, where reinvestment can be achieved,
prepayment fees have the ability to provide additional profit for
the Company. The investment portfolio is split into:
- investments where there is no ability to prepay loans prior to the scheduled repayments;
- investments with the ability to prepay with a prepayment fee
that is calculated by discounting all future scheduled payments
of
principal and interest at a discount rate referenced to
prevailing gilt rates (a 'spens' payment). Given current gilt rates
have typically fallen since investments were made, this is a
significant fee in most cases; and
- investments where prepayment is permitted with a fixed fee
(typically 5% of the amount being prepaid).
FEATURED ASSETS
GCP ONSHORE WIND 3 LIMITED
A onshore wind farm in Northern Ireland
Valuation: GBP23.3 million
Security: Senior
Project information: The Company is exposed to a senior loan
secured against the Molly Mountain Wind Farm in Enniskillen,
Northern Ireland. The wind farm, which reached commercial
operations in 2014, comprises five Vestas V90 turbines and benefits
from a long-term service and availability contract with Vestas. It
generates c.38 GWh of electricity each year and earns ROC cash
flows under the Renewable Obligations scheme.
GCP ROOFTOP SOLAR FINANCE PLC
A portfolio of rooftop solar assets across the UK
Valuation: GBP41.6 million
Security: Subordinated
Project information: In November 2017, the Company refinanced a
portfolio of its senior solar loans with a long-term institutional
investor. This transaction left the Company with a subordinated
position valued at GBP41.6 million secured against a portfolio of
c.14,000 residential rooftop solar panels. The panels generate
revenue under the FiT scheme.
GCP CARDALE PFI LIMITED
A loan secured against a portfolio of PFI projects
Valuation: GBP119.3 million
Security: Subordinated
Project information: The Company's largest single loan exposure
is to a subordinated loan secured against operational healthcare
and accommodation PFI projects including healthcare facilities,
primary and secondary schools, accommodation for adults with
learning difficulties, leisure centres, policing facilities and a
court building. The projects are in receipt of 25 to 30-year cash
flows (the unitary charge) payable by an NHS Trust or a local
authority under a PFI contract.
GCP PROGRAMME FUNDING 1 LIMITED
A portfolio of operational social housing assets across the
UK
Valuation: GBP91.0 million
Security: Senior
Project information: This senior loan is secured against a
portfolio of 91 properties located across the UK that provide
housing for vulnerable adults. The properties are all rented on
long-term fully repairing and insuring leases to registered
providers of such housing, entities that are all regulated by the
Home and Communities Agency.
PORTFOLIO PERFORMANCE AND VALUATION
The Company's Valuation Agent, Mazars LLP, carries out a fair
market valuation of the Company's investments on behalf of the
Board on a quarterly basis. The valuation principles used by the
Valuation Agent are based on a discounted cash flow methodology. A
fair value of each asset acquired by the Company is calculated by
applying an appropriate discount rate (determined by the Valuation
Agent) to the cash flow expected to arise from each asset.
The weighted average discount rate used across the Company's
investment portfolio at 30 September 2018 was 7.57%, compared to
7.81% at 30 September 2017. The valuation of investments is
sensitive to changes in discount rates and the sensitivity analysis
detailing this is presented in note 18.
From an operational perspective, the investment portfolio is
materially performing in line with expectations. At 30 September
2018, c.11% of the investment portfolio was exposed to construction
stage assets. This is principally a senior loan to a waste PPP
project that remains on time and on budget and is expected to come
out of construction in late 2019, and a portfolio of gas-to--grid
anaerobic digestion projects that are expected to complete
construction in early 2019.
Performance updates
The specific factors that have impacted the valuation in the
reporting period are summarised in the table below.
Portfolio Impact
exposure (pence
Category Factor Description (%) per share)
----------------- ------------------ ------------------------------------------------------- --------- -----------
FPHA was found to be no longer compliant with its
financial viability requirements. As a result,
the leases in place with FPHA were transferred, at
First Priority slightly lower guaranteed rents, to Bespoke
Housing Supportive Tenancies, a national RP of social housing
Credit Association for vulnerable adults. 3.2 (0.5)
----------------- ------------------ ------------------------------------------------------- --------- -----------
Due to a contractual dispute at one of the Company's
biomass investments, the Company's investment
Biomass has been restructured in the period to ensure the
Operational performance long-term sustainability of that project. 2.5 (0.2)
----------------- ------------------ ------------------------------------------------------- --------- -----------
The Company continues to work through the impact of historic issues on a
Northern Ireland
portfolio of anaerobic digestion assets that are now fully connected to
the grid and are operating
Anaerobic well. A further downward revaluation has been made in the period to
digestion reflect higher operating
performance cost forecasts. 3.7 (0.5)
------------------ ------------------------------------------------------------------------- --------- -----------
Failure of a construction contractor to meet its
obligations in relation to a housing refurbishment
scheme against which the Company is a subordinated
lender is likely to lead to a litigation
Construction process. A downward revaluation reflects the expected
Financial claim costs of remedying the relevant works. 0.5 (0.8)
----------------- ------------------ ------------------------------------------------------- --------- -----------
A downward revaluation has been made against an investment in which the
relevant borrower
is in dispute with a county council following non-payment by a related
entity of such council.
Council The Company remains confident of a successful resolution through the
litigation current process. 0.3 (0.2)
------------------ ------------------------------------------------------------------------- --------- -----------
Discount rate movements in the year reflect a change in the market view
of asset risk and/or
Revaluations specific asset factors. 34.3 2.1
------------------ ------------------------------------------------------------------------- --------- -----------
Valuations have been impacted by actual performance and revised forecasts
of, inter alia,
Revised electricity prices and inflation. Sensitivity analysis on the impact of
forecast electricity prices
up on the portfolio is provided below. 1.4 0.7
Revised
forecast
down 1.5 (0.3)
--------------------------------------------------------------------------- ---------------- --------- -----------
TOTAL UNREALISED
MOVEMENTS (0.3)
---------------------------------------------------------------------------------------------- --------- -----------
Solar refinancing Realised gain on refinance of solar portfolio. 3.7 1.1
------------------ ------------------------------------------------------------------------- --------- -----------
TOTAL REALISED
MOVEMENTS 1.1
---------------------------------------------------------------------------------------------- --------- -----------
PORTFOLIO SENSITIVITIES
This section details the sensitivity of the value of the
investment portfolio to a number of the risk factors to which it is
exposed. A summary of the overall investment portfolio risks, and
the Investment Adviser's approach to risk, can be found above.
Electricity prices
A number of the Company's investments rely on market electricity
prices for a component of their revenues. Changes in electricity
prices will therefore impact a borrower's ability to service debt
or, in cases where the Company has stepped into projects and/or has
direct exposure through its investment structure, impact on overall
returns. The table below shows the forecast impact on NAV per share
of a given percentage change in electricity prices over the full
life of the forecast period.
Sensitivity applied to base case electricity price forecast assumption (10%) (5%) 0% 5% 10%
----------------------------------------------------------------------- ------ ------ ---- ----
NAV impact (pence per share) (2.45) (1.20) - 1.13 2.23
----------------------------------------------------------------------- ------ ------ ---- ----
PFI termination
The risk to the Company of the shadow Labour government's policy
to 'bring PFI back in-house' is hard to evaluate given the lack of
specificity of the statements made and potential cost and
complexity of terminating PFI arrangements. Whilst the Company's
view remains that the probability of wide-scale nationalisation of
PFI projects is low, the table below analyses the impact should
such circumstances occur. Project agreements, the arrangements in a
PFI scheme under which a local authority commits to pay for the use
of an asset over its life, typically have termination provisions
that allow the local authority to terminate the contract. These
provisions vary between contracts, summarised below.
Portfolio exposure
Provision type (% ) Impact if exercised
---------------------------- ------------------ ------------------------------
Assets with no right 1.1 No impact - no ability
for the local authority to terminate.
to terminate (primarily
a number of healthcare
investments).
---------------------------- ------------------ ------------------------------
Assets where the termination 10.3 Given that the assets
payment is based on a are held by the Company
market test mechanism at fair value, a termination
to compensate investors. of these arrangements
should not have a material
impact on the valuation.
---------------------------- ------------------ ------------------------------
Assets where the termination 4.7 Given that discount rates
payment is based on a have fallen significantly
fixed IRR target for as the sector has matured,
investors. it is anticipated that
payments under this mechanism
would not fully compensate
the Company as a subordinated
lender. The Company has
assessed the potential
impact upon the termination
of these arrangements
as a reduction in value
of GBP27.2 million or
3.1 pence per share.
---------------------------- ------------------ ------------------------------
Inflation
A number of the Company's investments (making up c.54% of the
investment portfolio by value) have some form of inflation
protection. This is structured as a direct link between the return
and realised inflation (relevant to the social housing portfolio
and certain renewable investments) and a principal indexation
mechanic which increases the principal value of the Company's loans
outstanding by a share of realised inflation over a pre-determined
strike level (typically 2.75 - 3%).
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
The Company aims to operate a fully sustainable business model
with a low carbon footprint for all its wider stakeholders.
ENVIRONMENTAL
Renewables
The Company's activities are beneficial to the environment as
they comprise, in part, renewable energy investments that
positively impact environmental and climate change, regulatory and
UK Government targets.
Since launch in 2010, the Company has facilitated the operation
and/or construction of facilities with a total combined output of
c.2,500 GWh per annum, enough to power c.800,000 average UK homes,
including 28 wind sites, 39,820 solar installations and three
hydro-electric schemes with c.60% of the portfolio by value
comprised of green energy assets (inclusive of the Company's
anaerobic digestion and biomass investments). These assets generate
renewable energy which feeds into the National Grid and contributes
to the Government's target of reducing CO2 emissions under the
Climate Change Act.
The Company's investments in wind and solar provide alternative
energy sources to fossil fuels. Additionally, the biomass and
anaerobic digestion plants use waste of many types to produce
sustainable fertilisers and electricity or gas which is provided to
the National Grid. By investing in renewable energy projects, the
Company has contributed to the reduction of greenhouse gas
emissions into the atmosphere.
Greenhouse gas emissions reporting
The Company funds renewable energy projects which are seeking to
reduce the United Kingdom's greenhouse gas emissions. The Company
has no employees or property, and it does not purchase electricity,
heat, steam or cooling for its own use.
The Company outsources all services on a fee basis and, as such,
it is not practical to attempt to measure or quantify emissions in
respect of any outsourced energy use. Therefore, the Directors
believe the Company has no reportable emissions for the year ended
30 September 2018.
Climate change
Climate change has become an increasingly important issue in the
UK.
Whilst the Board does not consider climate change a principal
risk, the Company is invested in renewable energy projects which
may be impacted by changes in the weather as a direct result of
climate change. A summary of the impact on the Company's renewables
portfolio is included below:
WIND
Forecast climate change impact
Higher incidence of extreme weather events such as storms.
Changing weather patterns.
Asset classes potentially impacted
Wind generation
Portfolio impact
Wind turbines are shut down during high winds. More storms would
therefore be negative for energy production.
Changing weather patterns could be positive or negative for wind
resources at a given location and therefore wind generation.
SUN
Forecast climate change impact
Changing weather patterns.
Asset classes potentially impacted
Solar generation
Portfolio impact
Changes in weather patterns could be positive or negative for
levels of solar irradiation received by the UK and therefore the
solar portfolio.
RAIN
Forecast climate change impact
Higher incidence of extreme weather events such as storms and
associated flooding.
Changing weather patterns.
Asset classes potentially impacted
Hydro generation
Solar generation
Portfolio impact
Hydro-electric plants perform best with consistent levels of
rainfall. Increased levels of storms would have potential negative
impacts and flooding has the potential to damage assets.
Changing weather patterns could be positive or negative for
rainfall and therefore hydro-electric generation.
TEMPERATURE
Forecast climate change impact
Hotter global temperatures.
Potential for strong regional differences in variations (up or
down).
Asset classes potentially impacted
Solar generation
Portfolio impact
Temperature impacts the efficiency of solar panels. Whilst
increased solar irradiation would be broadly positive for solar
generation, higher temperatures may have a negative impact.
SOCIAL
Stakeholders
The Company's primary objective is to provide shareholders with
regular, sustained, long-term dividends and to preserve the value
of its investment assets over the long term by generating exposure
to infrastructure debt assets and/or similar assets.
The stakeholder model below demonstrates how the Company
interacts with stakeholders. These relationships provide the
foundation for the Company's sustainability, which in return
provides benefits to all parties. The Board values the importance
of maintaining a high standard of business conduct and stakeholder
engagement and ensuring a positive impact on the environment in
which the Company operates.
Shareholders
The Company creates earnings that benefit shareholders through
dividend income. Further information on how the Company and the
Board engages with shareholders can be found below.
Borrowers
The Company values its relationships with borrowers, ensuring
time is spent building and maintaining these relationships via the
Investment Adviser. The Company has been able to advance a further
GBP66.1 million to current borrowers in the financial year under
review, or by way of, extensions to existing facilities.
Public sector
Governments and regulators play a central role in shaping the
renewable energy, PFI and social housing sector policy. The Company
engages with local government and regulatory bodies via the
Investment Adviser.
Lenders
Lenders are financial institutions that provide the Company with
debt finance in the form of fixed and revolving credit facilities.
The credit facilities are used in the making of investments in
accordance with the Company's investment policy.
Suppliers
The Company's suppliers include third-party service providers
engaged to provide corporate or administration services, in
addition to the investment advisory services provided by the
Investment Adviser. These services are critical to the ongoing
operational performance of the Company. The Board has a close
working relationship with all its advisers and regularly engages
with all parties. The MEC regularly monitors the performance and
reviews the terms of each service contract. Further information can
be found below.
Society
The Company provides benefits to society through its investing
activities, generating green energy and the reduction of greenhouse
gas emissions into the atmosphere. The Company also provides
funding to numerous areas in the public sector, such as schools,
hospitals and fire services. In addition, the Company has provided
financing to operators of social housing, helping to reduce the
pressure on local housing stock. Further information on green
energy generation can be found above.
GOVERNANCE
Statement on modern slavery
In October 2015, the UK Government introduced the 2015 Modern
Slavery Act (The 'Act'). The Act requires companies operating in
the UK, with a Group turnover of more than GBP36 million per year,
to publish a statement setting out the steps that they have taken
during that financial year to ensure that slavery and human
trafficking are not taking place:
- anywhere in their supply chains; and/or
- in any part of their own business.
The Board is responsible for matters of corporate
responsibility, including the issue of combating modern slavery and
human trafficking. The Board and its committees regularly review
the Company's policies and practices and address any issues which
arise.
The Company will not tolerate human trafficking, slavery or
forced labour of any type and recognises its responsibilities to
society in relation to the Company's supply chain, (being the
projects/companies in which the Company invests) and engages with
those persons and entities within that supply chain to ensure that
they share the Company's values and comply with relevant
legislation. In this regard, the Company is committed to
identifying and eliminating any slavery and human trafficking in
its supply chains. The Board will continue to monitor its supply
chain and investment portfolio in relation to slavery and human
trafficking at regular reviews. Members of the Board and the
Company's service providers and counterparties at Project Companies
are encouraged to report any concerns related to
slavery/trafficking promptly. Looking ahead, the Board will
continue to enhance its procedures to help identify, prevent and
mitigate any risks of modern slavery.
Anti-bribery and tax evasion
With the enactment of the UK Bribery Act 2010, the Company has
developed appropriate anti-bribery policies and procedures. The
Company has a zero-tolerance policy towards bribery and is
committed to carry out its business fairly, honestly and
openly.
The Criminal Finances Act ('CFA') (Commencement No. 1)
Regulations 2017 (SI 2017/739) brought Part 3 of the CFA, the
corporate offences of failure to prevent facilitation of tax
evasion, into force on 30 September 2017. The Company does not
tolerate tax evasion in any of its forms in its business. The
Company complies with the relevant UK law and regulation in
relation to the prevention of facilitation of tax evasion and
supports efforts to eliminate the facilitation of tax evasion
worldwide, and works to make sure its business partners share this
commitment.
Diversity
As noted in the corporate governance statement below, the Board
believes that its composition with respect to the balance of
skills, gender, experience and knowledge, coupled with a mixed
length of service, provides for a sound base from which the
interests of investors will be served to a high standard.
RISK MANAGEMENT
The Board and the AIFM recognise that risk is inherent in the
operation of the Company and are committed to effective risk
management to protect and maximise shareholder value.
Approach to risk management
The Board has the ultimate responsibility for risk management
and internal control within the Company. The Board recognises the
existence of inherent risks within the Company's operation and that
effective risk management is critical to the success of the
organisation. When setting the risk management strategy, the Board
also determines the nature and extent of the principal risks they
are willing to take to achieve the Company's strategic
objectives.
Risk review process
The Board, with the assistance of the Audit and Risk Committee,
undertakes a formal risk review twice a year to assess the
effectiveness of the Company's risk management process and internal
control systems. The review covers the operational, compliance and
financial risks facing the Company. During the course of such
review, the Board has not identified, nor been advised of, any
failings or weaknesses which it has determined to be of a material
nature. The Company's principal risks have not, in the view of the
Board, materially changed year to year.
In addition to the Audit and Risk Committee, the Company's
Investment Committee and Management Engagement Committee have a key
role and contribute to the overall risk management and governance
structure. Consideration is given to the materiality of risks in
designing systems of internal control; however, no system of
control can provide absolute assurance against the incidence of
risk, misstatement or loss.
The following are the key components which the Company has in
place to provide effective internal control:
Execution
- The Board and Investment Committee have agreed clearly defined
investment criteria, which specify investment characteristics,
authority and exposure limits.
- The Board and Audit and Risk Committee receives and reviews
assurance reports on the controls of the Investment Adviser and the
Administrator undertaken by professional service providers.
- The contractual agreements with the Investment Adviser and
other third party service providers, and their adherence to them
and their ongoing performance, is regularly reviewed by the Board
and at least annually by the Management Engagement Committee.
Financial
- The Investment Adviser and Administrator prepare financial
projections and financial information which allow the Board to
assess the Company's activities and review its financial
performance.
- The Company has policies and procedures in place to ensure
compliance with the UK Corporation Tax Act 2010 and which are
monitored by the Board.
Portfolio
- The Investment Adviser prepares quarterly reports which allow
the Board to assess the performance of the Company's portfolio and
more general market conditions.
Other
- The Board monitors the outputs from the Company's and the
Investment Adviser's compliance officers.
Risk appetite
As a closed-ended investment company, the Company seeks to take
investment risk. The Company's investment policy abovesets out the
key components of its risk appetite. The Company and the Board
seeks to manage investment risk within set risk/return parameters.
Information on the Investment Adviser's approach to analysing risk
and comparing investment opportunities is included in the
Investment Adviser's report above.
Role of the AIFM
The Investment Adviser is the appointed AIFM to the Company and
is required to operate an effective and suitable risk management
framework to allow the identification, monitoring and management of
the risks to which the Investment Adviser and the AIFs under its
management are exposed.
The Investment Adviser's permanent risk management function has
a primary role alongside the Board in shaping the risk policy of
the Company, in addition to responsibility for risk monitoring and
risk measuring in order to ensure that the risk level complies on
an ongoing basis with the Company's risk profile.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company include (but are not
limited to) execution risk, portfolio risk, financial risk and
other risks(1) .
1. The principal financial risks, the Company's policies for
managing these risks and the policy and practice with regard to
financial instruments are summarised in note 18.
RISK 1: EXECUTION
RISK
----------------------------- ---------------------------- ---------------------------- ---------------------------
Change in residual
How the risk is risk over the
Risk Impact managed year
----------------------------- ---------------------------- ---------------------------- ---------------------------
1 Sufficiency of If an investment In addition to due Stable
due diligence underperforms, the diligence carried There have been
Investment due diligence interest and principal out by the Investment no new issues identified
may not reveal all received on the Committee of the during the year,
the facts relevant investment may be Board, the Investment with the investment
in connection with lower than envisaged, Adviser, various portfolio materially
an investment and negatively impacting third party financial, performing in line
may not highlight the performance technical, insurance with the Investment
issues that could of the Company. and legal experts Adviser's expectations.
affect that investment's are engaged to advise
performance. on specific project
Link to strategy: risks.
1, 3
----------------------------- ---------------------------- ---------------------------- ---------------------------
2 Availability of If the Company cannot The Investment Adviser Stable
suitable investments invest capital in is constantly in The Company successfully
and reinvestment suitable assets touch with the market raised GBP100 million
risk in a timely and seeking new deals through a significantly
There is no guarantee appropriate manner, and builds a specifically oversubscribed
that the Company the uninvested cash identified investment share issue, the
will be able to balance will have pipeline before proceeds of which
identify suitable a negative impact the Board seeks have been fully
investments with on the Company's to raise additional invested.
risk and return returns. If the finance to ensure
characteristics only available investments that capital is
that fit within with an appropriate deployed in a timely
the investment strategy risk profile yield fashion. Consideration
of the Company, lower rates of return is also given to
or that suitable than have historically any scheduled capital
investments that been achievable, repayments.
can be identified the Company's overall
will be made in returns may be adversely
a timely manner. affected.
This is a risk when
raising capital
and when reinvesting
principal returned
to the Company under
existing loan agreements.
Link to strategy:
1, 2
----------------------------- ---------------------------- ---------------------------- ---------------------------
3 Reliance on the Failure by a third The performance Stable
Investment Adviser party service provider of the Company's The Investment
and third party to carry out its service providers Adviser continues
service providers obligations in accordance is closely monitored to provide adequate
The Company is heavily with the terms of by the Board. In resource and act
reliant on third its appointment, addition, at least with due skill,
party service providers or to exercise due once a year the care and diligence
to carry out its skill and care, Management Engagement in its responsibilities
main functions. could have a material Committee performs as Investment Adviser
In particular, the effect on the Company's a formal review and AIFM to the
Company depends performance. process to consider Company.
on the Investment Any poor performance, the ongoing performance
Adviser to implement misconduct or of the Investment
the Company's strategy misrepresentation Adviser and other
and investment policy by the Investment third party providers.
to deliver its objectives. Adviser or other The Investment Adviser
Should the engagement third party providers has industry and
with the Investment may manifest itself asset knowledge
Adviser be terminated, in direct financial of specific use
there is a potential losses or result and importance to
risk that the Company in damage to reputation the Company. The
may not be able causing longer-term Company has entered
to find an appropriate financial consequences into a contractual
replacement Investment to the performance engagement with
Adviser. of the Company. the Investment Adviser
Link to strategy: on the terms that
1, 3 it considers to
be mutually fair
and reasonable.
The Board maintains
an awareness of
other advisers that
could replace the
Investment Adviser
if required.
----------------------------- ---------------------------- ---------------------------- ---------------------------
RISK 2: PORTFOLIO
RISK
----------------------------- ---------------------------- ---------------------------- ---------------------------
4 Change in laws, Potential adverse Any changes in laws, Increase
regulation and/or effect on the performance regulation and/or There remains considerable
Government policy of the Company's policy are monitored uncertainty over
Any change in the investment portfolio by the Board on the long-term impact
laws, regulations and the returns an ongoing basis. of Brexit.
and/or Government achieved by the Given the UK Government's
policy as a result Company. reliance on private
of Brexit and/or capital for, inter
other factors, in alia, the funding
particular those of new social and
relating to the economic infrastructure
PFI and renewable and renewable energy
energy markets. projects, it is
Link to strategy: the view of the
1, 2, 3 Investment Adviser
and the Board that
the risk of any
future significant
changes in policy
is low and is more
likely to have a
prospective rather
than a retrospective
effect.
----------------------------- ---------------------------- ---------------------------- ---------------------------
5 Performance of, If a key subcontractor The competence and Increase
and reliance on, was to be replaced financial strength There have been
subcontractors due to the insolvency of contractor, as a number of high-profile
The performance of that subcontractor well as the terms contractor failures
of the Company's or for any other and feasibility in the sector during
investments is typically, reason, the replacement of contractors' the year. Currently,
to a considerable subcontractor may engagements, is the Company has
degree, dependent charge a higher a key focus of investment been successful
on the performance price for the relevant due diligence. The in mitigating any
of subcontractors, services than previously Board and the Investment material financial
most notably facilities paid. The resulting Adviser monitor loss in respect
managers and operation increase in costs the Company's exposure of these failures.
and maintenance may result in the to any given subcontractor,
contractors. The Company receiving and ensures that
Company is heavily lower interest and the risk of
reliant on subcontractors principal payments underperformance
to carry out their than envisaged. is mitigated by
obligations in accordance diversification.
with the terms of
their appointment
and to exercise
due skill and care.
Link to strategy:
1, 3
----------------------------- ---------------------------- ---------------------------- ---------------------------
6 Operational or In the event of The Company's construction Increase
construction issues material operational exposure is limited The Company is
The investments or construction to 25% of its total exposed to a housing
the Company holds issues, the interest assets. The Board refurbishment scheme
are exposed to construction and principal payments and the Investment where the construction
and/or operational received by the Adviser monitor contractor has
risks and may not Company may be lower this limit and the failed to meet
perform as expected. than expected. status of any project its obligations,
Link to strategy: in the construction which is likely
1, 3 phase on an ongoing to lead to future
basis. The Investment litigation. Additionally,
Adviser undertakes the Company's biomass
extensive due diligence plants that were
on all projects underperforming
regarding expected continue to undergo
performance. A full remedial capital
package of insurance works.
and manufacturer
guarantees is put
in place to protect
the Company from
any unforeseen events.
The Board ensures
that the Company
has security over
the assets against
which it is lending,
so in an instance
of borrower default
it can enforce security
over the assets.
----------------------------- ---------------------------- ---------------------------- ---------------------------
7 Technology risk Such issues may The Investment Committee Stable
Some of the projects give rise to additional of the Board and The Company's operational
that the Company costs or may otherwise the Investment Adviser investments are
invests in utilise result in the financial ensure that due generally performing
relatively new or performance of the diligence is carried in line with expectations.
developing technologies. relevant investment out by technical
There may be issues being worse than experts to advise
in relation to those anticipated. This on specific project
technologies that may adversely affect risks, including
become apparent the value of, and technology risk.
only in the future. the returns generated
Link to strategy: by, the Company's
1, 3 investments.
----------------------------- ---------------------------- ---------------------------- ---------------------------
8 Lifecycle and In such circumstances Project lifecycle Increase
maintenance costs the cash flow available and maintenance During the period,
From time to time, to service the Company's timings and costs remedial works
components of a debt may be reduced are typically based have been identified
project may need to an extent where on manufacturers' as being required
to be replaced or the interest and data and warranties at some of the
undergo a major principal payments and advice received Company's biomass
refurbishment. Over received by the from specialist plants. This work
the life of a project Company are less consultants. Updated has been agreed
the cost of such than forecast. lifecycle cost projections in relation to
replacements or are received on two plants and
refurbishments may a regular basis discussions are
be higher than projected. and appropriate ongoing relating
Link to strategy: provisions are made to another. Forecast
1, 3 which are monitored budgeted costs
on an ongoing basis have increased
by the Investment in respect of a
Adviser. number of the Company's
anaerobic digestion
investments.
----------------------------- ---------------------------- ---------------------------- ---------------------------
9 Insurance The Company could The Investment Adviser Stable
There is a risk lose all or part requires confirmations The Company's investments
that a project encounters of the value of and evidence from remain adequately
issues resulting its investment if all borrowers that insured.
in a loss that is appropriate insurance the insurance required
uninsured, either is not in place. by the relevant
because it is not loan documentation
covered by the insurance is in place.
that is in place
or because no insurance
is in place. All
the projects that
the Company is exposed
to are required
under the loan documentation
to have appropriate
insurance in place.
Link to strategy:
1, 3
----------------------------- ---------------------------- ---------------------------- ---------------------------
10 Project Company In the event of The Investment Adviser Increase
owner material operational and the Investment In the period,
The owners of the or construction Committee of the the Company has
Project Companies issues, the interest Board ensure that seen evidence of
to which the Company and principal payments equity owners have some third party
lends money are received by the appropriate expertise service providers
responsible for Company may be lower and financial standing failing to support
the underlying asset than expected. to own, construct owners under project
performance. There and operate the agreements, such
is a risk that these underlying projects as Carillion and
equity owners do by carrying out FPHA. The Company
not have the experience, the appropriate is exposed to a
track record, ability due diligence and number of claim
or financial resources have the ability processes in relation
to satisfactorily to take over contracts to non-payment
fulfil their required to address relevant and failure of
role. issues where required. service providers
Link to strategy: to meet contractual
1, 3 obligations.
----------------------------- ---------------------------- ---------------------------- ---------------------------
RISK 3: FINANCIAL
RISK
----------------------------- ---------------------------- ---------------------------- ---------------------------
11 Assumptions There can be no When modelling future Stable
The Company makes assurance that these cash flows and structuring The Company's operational
investments which assumptions will debt profiles, the investments are
rely on detailed turn out to be accurate, Investment Adviser materially performing
financial models and actual data uses assumptions in line with expectations.
based on certain could have an adverse considered to be
assumptions, estimates impact on the performance conservative by
and projections of the Company's third party experts.
of each investment's investments. The Investment Adviser
future cash flow. constantly monitors
Such assumptions the actual performance
include, inter alia, of projects and
inflation, power takes action where
price, feedstock appropriate.
cost, asset productivity,
lifecycle and insurance
cost.
Link to strategy:
1, 3
----------------------------- ---------------------------- ---------------------------- ---------------------------
12 Valuation Such changes may The Company's Increase
The value of the negatively impact infrastructure The Valuation Agent
investments made the value of the investments are has decreased the
by the Company will Company's investment generally low volatility discount rates
change from time portfolio. investments with on certain of the
to time according stable, pre-determined, Company's assets
to a variety of very long--term, during the year
factors, including public sector backed due to increased
movements and expected revenues. Approximately market pricing
movements in energy 60% of the Company's in those sectors.
prices, interest investment portfolio
rates, inflation is exposed to some
and/or general market form of inflation
pricing of similar protection mechanism.
investments. Further The Company's investments
issues arising from are valued with
Brexit may impact reference to
the factors outlined duration-matched
above. interest rates,
Link to strategy: typically between
3 15 and 25 year rates.
The discount rates
currently used to
value the Company's
investments include
a material premium
that offers protection
in the event of
rate rises.
----------------------------- ---------------------------- ---------------------------- ---------------------------
13 Interest rates Any material increase Consideration is Increase
The Company has in interest rates given to interest The Bank of England
a floating rate would increase the rate hedging which increased interest
revolving credit Company's cost of may be carried out rates during the
facility and, as borrowing, impacting by the Company to year by 0.25% with
such, the financial the financial performance seek to provide the expectation
performance of the of the Company. protection against that there may
Company will be increasing interest be further rate
adversely affected rates as and when increases.
in the event that any floating rate
there is a material liabilities are
increase in interest entered into by
rates as a result the Company.
of Brexit and/or
other factors. Further,
changes in interest
rates may also affect
the valuation of
the Company's assets.
Link to strategy:
1
----------------------------- ---------------------------- ---------------------------- ---------------------------
14 Borrowings If the Company was The facilities are Stable
The Company utilises unable to secure in place to fund The facilities
borrowing facilities borrowing facilities potential investments are a short--term
to finance and/or this may adversely in the near term measure and the
part--finance further affect the Company's and to avoid holding loan to value (borrowings
acquisitions in investment returns material amounts as a percentage
accordance with and may have a material of uninvested cash of net assets)
the Company's investment adverse effect on awaiting investment. at year end was
policy. However, the Company's financial Consideration may 14.8%.
there can be no position and results also be given to
guarantee that any of operations. other forms of credit
such facilities as part of the Company's
will be available future funding strategy.
to the Company on
commercially acceptable
terms or at all.
Link to strategy:
1
----------------------------- ---------------------------- ---------------------------- ---------------------------
RISK 4: OTHER RISKS
----------------------------- ---------------------------- ---------------------------- ---------------------------
15 Compliance with Potential material The Board monitors Stable
laws and regulations adverse effect on compliance information The Company's internal
Changes in the laws, the ability of the provided by the compliance monitoring
regulations and/or Company to successfully Administrator, Company processes continue
Government policy pursue its investment Secretary, Investment to operate effectively.
affecting the Company, policy and meet Adviser and legal In the year under
including any change its investment objective counsel and monitors review the Company
in the Company's or provide favourable ongoing compliance has implemented
tax status or in returns to shareholders. developments in a new procedure
taxation legislation the Channel Islands in respect of GDPR.
in the Channel Islands, and Europe along
the UK and/or Europe with regulatory
(including a change developments in
in interpretation the UK as well as
of such legislation). Listing Rules and
Link to strategy: FCA marketing rules.
1 The Company has
a comprehensive
compliance monitoring
programme to ensure
full compliance
with legislation/regulation
relevant to the
Company's operations.
----------------------------- ---------------------------- ---------------------------- ---------------------------
16 Cyber-attack May manifest itself The Company has Stable
risk in financial losses, no dedicated IT The Company's internal
A failure of systems, theft of intellectual systems and it relies compliance monitoring
policies and procedures property or damage on those of its processes continue
in place to prevent to the Company's service providers to operate effectively,
against cyber-attack reputation as a and subcontractors. which includes
at the Investment consequence. The Board monitors monitoring of third
Adviser, other third-party reports and compliance party service providers.
service providers information provided
and/or subcontractors by the Administrator,
causing theft or Company Secretary,
loss of data, or Investment Adviser
damage to control and legal counsel
systems and equipment. and monitors ongoing
Link to strategy: compliance developments
3 in the Channel Islands
and Europe to ensure
the risk is mitigated.
----------------------------- ---------------------------- ---------------------------- ---------------------------
Going concern
The Directors have assessed the financial prospects of the
Company for the next twelve months and made an assessment of the
Company's ability to continue as a going concern. The Directors are
satisfied that the Company has the resources to continue in
business for the foreseeable future and furthermore are not aware
of any material uncertainties that may cast significant doubt upon
the Company's ability to continue as a going concern.
Viability statement
At least twice a year, the Board carries out a robust assessment
of the principal risks facing the Company, including those that
would threaten its business model, future performance, solvency and
liquidity. The Directors have considered each of the Company's
principal risks and uncertainties detailed above and, in
particular, the risk and impact of changes in Government policy
that could materially affect the cash flows of the underlying
projects that support the Company's investments. The Directors also
considered the Company's policy for monitoring, managing and
mitigating its exposure to these risks.
The Directors have assessed the prospects of the Company over a
longer period than the twelve months required by the going concern
provision. The Board has conducted this review for a period
covering the next five years as, over this period, it believes the
risk of changes in Government policy that would result in
retrospective adjustments to such public sectorbacked cash flows is
low.
This assessment involved an evaluation of the potential impact
on the Company of these risks occurring. Where appropriate, the
Company's financial model was subject to a sensitivity analysis
involving flexing a number of key assumptions in the underlying
financial forecasts in order to analyse the effect on the Company's
net cash flows and other key financial ratios. The sensitivity
analysis undertaken considered the impact of a significant
proportion of the portfolio not yielding, which is a plausible
consequence of a number of the principal risks materialising,
either in isolation or in parallel. The sensitivity analysis was
based on a number of assumptions, including that the Company's
credit facility remains in place to provide short-term finance for
further investments and that there will be sufficient liquidity in
the market to raise new capital as and when required.
Given the projects that the Company's investments are secured
against are all UK infrastructure projects that generate
long-dated, public sector backed cash flows, the Board thus
considers the revenue of the Company over that period to be
dependable. This is supported by a diversified portfolio of
investments, reducing exposure to risks affecting a single
sector.
Additionally, the Company primarily invests in long--dated UK
infrastructure debt that earns a fixed rate of interest and is
repaid over time according to a pre-determined amortisation
schedule. As such, assuming that the underlying projects perform as
expected, the Company's cash inflows are also predictable.
Based on this assessment of the principal risks facing the
Company and the stress-testing based assessment of the Company's
prospects, the Directors have a reasonable expectation that the
Company will be able to continue in operation and meet its
liabilities as they fall due over the five-year period of their
assessment.
The strategic report has been approved by the Board and signed
on its behalf.
Ian Reeves CBE
Chairman
13 December 2018
GOVERNANCE: LEADERSHIP
BOARD OF DIRECTORS
The Board of Directors is responsible for the effective
stewardship of the Company's activities in order to ensure the
long-term success of the Company in the interest of
shareholders.
Ian Reeves CBE, CCMI, FCInstCES, FRSA, FINSTD
Chairman
Ian Reeves CBE, a Jersey resident, is an entrepreneur,
international businessman and adviser. He is Chairman of the
Estates and Infrastructure Exchange Limited and of ALT Financial
Group Limited, Senior Independent Director of Triple Point Social
Housing REIT plc, and visiting Professor of Infrastructure
Investment and Construction at Alliance Manchester Business School,
the University of Manchester. He was made a Commander of the Most
Excellent Order of the British Empire (CBE) in 2003 for his
services to business and charity.
Ian has served as a Director since 15 June 2010.
Clive Spears ACIB, MCISI
Senior Independent Director
Clive Spears, a Jersey resident, is a career qualified corporate
banker with 32 years' experience with the Royal Bank of Scotland
Group, of which the last 18 years were spent in Jersey until
retirement in 2003. Relevant experience has spanned corporate
finance, treasury products, global custody and trust & fund
administration. Listed company appointments include Invesco
Perpetual Enhanced Income Fund and AIM listed ESO Limited. Clive
also has wide coverage in the private equity sector across a number
of Nordic Capital and Intermediate Capital Group structures. He is
currently also a non-executive Director of Jersey Finance Limited,
the promotional body for the finance sector in Jersey.
Clive has served as a Director since 7 February 2014.
David Pirouet FCA
Audit and Risk Committee Chairman
David Pirouet, a Jersey resident, is a qualified accountant. He
was an audit and assurance partner for 20 years with PwC CI LLP
until he retired in June 2009. He specialised in the financial
services sector, in particular in the alternative investment
management area. Since retiring from PwC CI LLP, David serves on
the boards of a number of privately held investment entities.
David has served as a Director since 15 June 2010.
Julia Chapman
Non-executive Director
Julia Chapman, a Jersey resident, is a solicitor qualified in
England & Wales and Jersey with over 25 years' experience in
the investment fund and capital markets sector. Having trained with
Simmons & Simmons in London, Julia moved to Jersey to work for
Mourant du Feu & Jeune (now known as Mourant) and became a
partner in 1999. Julia was then appointed general counsel to
Mourant International Finance Administration (the firm's fund
administration division) with responsibility for legal, risk and
compliance oversight of third party administration services to
alternative investment funds. Julia serves on the boards of a
number of other Main Market listed companies, including Henderson
Far East Income Limited, BH Global Limited and Sanne Group PLC.
Julia has served as a Director since 1 October 2015.
Paul De Gruchy
Non-executive Director
Paul De Gruchy, a UK resident, is a qualified Jersey Advocate
with 20 years' experience in financial services law. Paul was
previously the Head of Legal for BNP Paribas Jersey within the UK
offshore area. He has extensive experience in the financial
services sector, in particular in the area of offshore funds. He
has held senior positions at the Jersey Economic Development
Department, where he was the director responsible for finance
industry development, and the Jersey Financial Services Commission
(the regulator of the Company). Paul is a graduate of Queens'
College, Cambridge.
Paul has served as a Director since 7 February 2014.
Michael Gray FCIBS, AMCT, DIP IoD
Non-executive Director
Michael Gray, a Jersey resident, is a qualified corporate banker
and corporate treasurer. Michael was most recently the Regional
Managing Director, Corporate Banking for RBS International, based
in Jersey but with responsibility for The Royal Bank of Scotland's
Corporate Banking Business in the Crown Dependencies and British
Overseas Territories.
In a career spanning 31 years with The Royal Bank of Scotland
Group plc, Michael has undertaken a variety of roles, including
that of an auditor, and has extensive general management and
lending experience across a number of industries. He is also a
non-executive director of Jersey Finance Limited, the promotional
body for the finance sector in Jersey, and a Main Market listed
company, JTC Plc.
Michael has served as a Director since 1 October 2015.
LEADERSHIP
THE INVESTMENT ADVISER
The Board of Directors has appointed Gravis Capital Management
Limited to provide day-to-day investment management services to the
Group.
Stephen Ellis
Director, founder
Stephen Ellis co-founded the Investment Adviser in 2008 and acts
as fund manager for GCP Infrastructure Investments Limited.
After a short service commission in the British Army, Stephen
spent 16 years in investment banking in the City, focused on
securitisation and tax-based financing. On leaving the City, he
became head of structured finance at DTZ Corporate Finance, where
he was primarily involved in the UK infrastructure and student
accommodation sectors.
Stephen has a Masters degree in Modern History from Oxford
University.
Phillip Kent
Director
Phillip Kent is a director of the Investment Adviser and acts as
lead fund manager for GCP Infrastructure Investments Limited.
Phillip joined the Investment Adviser from Foresight Group where
he was responsible for investments in the waste and renewable
sectors, including large waste wood combustion projects and a
pipeline of anaerobic digestion projects across the UK. Phillip has
been involved in the energy sector for over ten years, working
initially as a consultant within PA Consulting's energy practice,
focusing on energy markets and energy asset valuations. In 2008, he
moved to Gazprom Marketing and Trading, working in risk management
across a number of commodities before moving into the clean energy
team.
Phillip graduated with a degree in Geography from Oxford
University.
Rollo Wright
Director, founder
Rollo Wright is a director and co-founder of the Investment
Adviser. He acts as fund manager for GCP Infrastructure Investments
Limited.
Rollo was in the audit and advisory division of Arthur Andersen
and Deloitte, working with a broad range of financial markets
clients. He worked in the capital markets division of Commerzbank
Securities before moving to DTZ Corporate Finance, where he
specialised in structuring tax and accounting driven infrastructure
and property debt transactions.
Rollo graduated with a degree in Mathematics from Oxford
University and qualified as a Chartered Accountant.
Saira Johnston
Chief Financial Officer
Dion Di Miceli
Head of Investment Companies
Chloe Marlow
Head of Fund Financial Control
Ben Perkins
Associate Director
Gabriel Oke
Head of Portfolio Management
William Parry-Jones
Fund Financial Controller
Max Gilbert
Fund Analyst
The Investment Adviser has advised extensively on debt
structures in a wide variety of infrastructure sectors.
Investment Adviser
Gravis Capital Management Limited is the appointed Investment
Adviser and AIFM to the Company. The Investment Adviser was
appointed upon the Company's launch in 2010, at which time the
Investment Advisory Agreement was held with Gravis Capital Partners
LLP. On 20 April 2017, the Company approved the novation of its
Investment Advisory Agreement from Gravis Capital Partners LLP to
Gravis Capital Management Limited, as part of the transfer of the
Investment Adviser's fund management and advisory business from a
limited liability partnership to a newly-incorporated limited
company under substantially the same ownership. The Investment
Adviser was incorporated in England and Wales on 9 November 2016
(registered number 10471852) and is authorised and regulated by the
FCA (registration number 770680).
The Investment Adviser has advised extensively on debt
structures in a wide variety of infrastructure sectors, including a
variety of renewable energy sectors, healthcare, education, court
buildings, specialised offices, registered social landlord
accommodation and transport. The officers and employees of the
Investment Adviser have a long track record of working within the
UK infrastructure market, particularly with regard to debt advisory
work, and have established close relationships with many of the key
participants in the UK infrastructure market, including equity
investors and lenders. The Investment Adviser and its senior
management team have extensive specialist expertise and a
demonstrable track record of originating, structuring and managing
infrastructure debt investments. The personnel primarily
responsible for delivering investment advice to the Company on
behalf of the Investment Adviser are detailed above.
The Investment Adviser had assets under management of
approximately GBP2.6 billion at 30 September 2018. It provides
investment management services in respect of three closed-ended
investment companies admitted to the Premium Listing segment of the
Official List and traded on the London Stock Exchange. These
comprise the Company, GCP Student Living plc and GCP Asset Backed
Income Fund Limited. The Investment Adviser further provides
investment advice in respect of two open ended investment
companies.
Investment Advisory Agreement
The Company is party to an Investment Advisory Agreement dated
28 June 2010, as amended and restated most recently on 13 December
2017, under which the Investment Adviser provides advisory services
relating to the Company's assets on a day--to--day basis in
accordance with the investment objectives and policies agreed by
the Company and under the overall supervision and direction of the
Board of Directors.
Under the terms of the Investment Advisory Agreement, the
Investment Adviser receives an investment advisory fee from the
Company equal to 0.9% per annum of the NAV of the Company (net of
cash holdings). This fee is calculated and payable quarterly in
arrears. The Investment Adviser is also entitled to an arrangement
fee of up to 1% (at the discretion of the Investment Adviser) of
the cost of each asset acquired by the Company.
The Investment Adviser will generally seek to charge the
arrangement fee to borrowers rather than the Company where possible
but, in any event, any such fee payable to the Investment Adviser
will not exceed (and has not to date exceeded) 1%. To the extent
any arrangement fee negotiated by the Investment Adviser with a
borrower exceeds 1%, the benefit of any such excess shall be paid
to the Company. No performance fee is charged.
The Investment Adviser receives a fee of GBP60,000 (subject to
RPI adjustments) per annum for acting as AIFM.
The Investment Advisory Agreement may be terminated by the
Company or the Investment Adviser by giving 24 months' written
notice, with such notice not to be given prior to 29 February
2020.
Provision of advice
The Investment Adviser provides advice which enables the
Directors of the Company to identify potential investments, monitor
the performance of existing assets and the financial and
infrastructure markets generally. The scope of services provided by
the Investment Adviser includes, inter alia:
- making investment recommendations to the Investment Committee
of the Board in line with the Company's investment policy and
strategy;
- identifying potential investments and making recommendations
to the Company in respect of the acquisition, sourcing of
financing, assets management and disposal of assets;
- performing due diligence, including, but not limited to legal,
financial, technical and market projections;
- monitoring and reporting to the Board the performance of the Company and its investments;
- regularly reviewing the Company's investment policy and
strategy and providing recommendations to the Board;
- overseeing and arranging borrowings for the Company within
such limits set out in the prospectus;
- advising the Company in relation to dividends to shareholders; and
- co-operating with third party service providers such as
administrators, valuers, tax/legal advisers etc. and statutory
auditor.
The approval of asset origination and investment decisions are
made by the Investment Committee of the Board on the advice of the
Investment Adviser.
Potential conflicts of interest
Under the Investment Advisory Agreement, the Company's prior
consent is required for the Investment Adviser to act as the
adviser, manager or sponsor of any fund or entity that may invest
in assets within the scope of the Company's investments or engage
in any activity which may compete in the same or a substantially
similar investment area as the Company.
The Company has given its consent for the Investment Adviser to
act as the investment manager to GCP Asset Backed Income Fund
Limited, a closed-ended investment company listed on the London
Stock Exchange's Main Market for listed securities. GCP Asset
Backed Income Fund Limited is focused predominantly on debt
investments secured against physical assets and/ or contracted cash
flows. The Company has given its consent on the basis that where
the Investment Adviser identifies an investment which, in its
opinion acting reasonably and in good faith, falls within the
Company's remit, the Company will have a right of first
refusal.
The Directors believe that the Company's investment objectives,
and the pipeline of opportunities available to it, will not be
adversely affected, and that the right of first refusal agreement
protects the Company's interests in the event of any conflict.
LEADERSHIP
CORPORATE GOVERNANCE STATEMENT
I am pleased to present the Company's corporate governance
statement for the year ended 30 September 2018.
The AIC Code of Corporate Governance
The 'Disclosure Rules' of the UKLA require certain listed
companies to disclose how they have applied the principles, and
complied with the provisions, of the UK Corporate Governance Code
(the 'UK Code') to which the issuer is subject. As a member of the
AIC, the Company has been reporting against the principles and
recommendations of the AIC Code and the accompanying AIC Corporate
Governance Guide for Investment Companies (the 'AIC Guide'). The
AIC Code and the AIC Guide can be found on the AIC website at
www.theaic.co.uk. The UK Code can be found at www.frc.org.uk.
The Board has considered the principles and recommendations of
the AIC Code by reference to the AIC Guide. The AIC Code, as
explained by the AIC Guide, addresses all the principles set out in
the UK Code, as well as setting out additional principles and
recommendations on issues that are of specific relevance to the
Company.
The Board considers that reporting against the principles and
recommendations of the AIC Code, and by reference to the AIC Guide
(which incorporates the UK Code), will provide better information
to shareholders.
The Board recognises the importance of a strong corporate
governance culture that meets the requirements of the Listing Rules
of the UKLA. The Board has put in place a framework for corporate
governance which it believes is appropriate for the Company. All
Directors contribute to Board discussions and debates. The Board
believes in providing as much transparency for shareholders as is
reasonably possible. It should be noted that most of the Company's
day-to-day responsibilities are delegated to third parties, the
Company has no employees and all of the Directors are
non--executive.
During the year the Company has complied with the
recommendations of the AIC Code and the relevant provisions of the
UK Code, except as set out below:
The role of the Chief Executive
For the reasons set out in the AIC Guide, and as explained in
the UK Code, the Board considers that the post of Chief Executive
is not relevant for the Company, being an externally managed
investment company.
The appointment of a Senior Independent Director ('SID')
Following a shareholder vote at the 2018 AGM of the Company, Mr
Clive Spears was appointed as SID of the Company.
Executive Directors' remuneration
As the Board has no executive directors, it is not required to
comply with the principles of the AIC Code in respect of executive
directors' remuneration.
Remuneration Committee
The Company does not have a Remuneration Committee; the Board
fulfils the role of the Remuneration Committee as it was agreed
that the size and nature of the Board does not warrant the
establishment of a separate committee. A full remuneration report
is included on below.
Internal audit function
The Company delegates the majority of its operations to third
parties and has no employees. Some of these third parties have
their own internal audit function and the Board has therefore
determined that there is no need for the Company to have its own
internal audit function, but this is reviewed on an annual basis.
The Directors consider semi-annually the principal risks relating
to the operations of the Company. Such a review includes the
consideration of whether the Company's third parties have adequate
internal controls in place.
The Chairman of the Company
Mr Ian Reeves CBE is also a member of the Audit and Risk
Committee and Chairman of the Nomination Committee. The Board
believes it is appropriate for Mr Reeves CBE to be a member of both
committees as he is considered to be independent and there are no
conflicts of interest.
For the reasons set out in the AIC Code, the Board considers
that the full provisions of the UK Code are not relevant to the
position of the Company, being an externally managed investment
company. In particular, all of the Company's day-to-day management
and administrative functions are outsourced to third parties. As a
result, the Company has no executive directors, employees or
internal operations. The Company has therefore not reported further
in respect of these provisions.
ROLE OF THE BOARD AND ITS COMMITTEES
The Board is responsible for the effective stewardship of the
Company's affairs, including corporate strategy, corporate
governance, risk assessment and overall investment policy.
Board of Directors
Under the leadership of the Chairman, the Board is responsible
for the effective stewardship of the Company's affairs, including
corporate strategy, corporate governance, risk assessment and
overall investment policy.
The Board consists of six Directors, all of whom are
non-executive and are considered to be independent. Biographical
details of the Directors are shown above.
Each of the Directors has signed letters of appointment which
set out the terms and conditions of their appointment. These
letters are available for inspection at the Company's registered
office. No Director has any contract or arrangement in place
between themselves and the Company. Further details as to the terms
of appointment of the Directors are set out in the Directors'
remuneration report below.
Appointments to the Board continue to be based on merit,
regardless of gender, ethnic group or background. The Board
comprises five male Directors and one female Director. The Company
has no other employees. The Company's policy on Diversity is set
out in the Nomination Committee report below.
Board operation
The Board is responsible to shareholders for the overall
management of the Company, and may exercise all the powers of the
Company subject to the relevant statutes, the Company's Articles of
Association and any directions given by special resolution of the
shareholders. The Articles of Association empower the Board to
offer, allot, grant options over or otherwise deal with or dispose
of the Company's shares as the Board may decide. The Companies Law
authorises the Company to make market purchases of its own shares
if the purchase has first been authorised by a resolution of the
Company.
At the AGM on 9 February 2018, the shareholders renewed the
Board's authority to allot ordinary shares and to repurchase
ordinary shares on behalf of the Company subject to certain limits.
Details of the authorities which the Board will be seeking at the
forthcoming 2019 AGM are set out in the 2019 notice of the AGM.
At each quarterly meeting of the Board, the Directors follow a
formal agenda which includes a review of the Company's investments
and associated matters such as gearing, asset allocation, principal
risks, marketing and investor relations, and economic and
industrial issues. The Board is also active in ensuring any
regulatory developments which may affect the operations of the
Company are considered. The Board regularly considers the Company's
investment objectives and strategy. In July 2018, a strategy day
was held and attended by all of the Directors. The discussions
focused on general market conditions and future investment
opportunities for the Company.
In order to enable the Directors to discharge their
responsibilities effectively, they have full and timely access to
all relevant information.
The Board holds formal meetings on a quarterly basis and
additional ad-hoc meetings are held when necessary. Attendance at
the quarterly Board and committee meetings is displayed in the
table below under the heading 'Meetings'.
The principal matters considered by the Board during the year
(in addition to matters formally reserved to the Board)
included:
- the Company's strategic model, related KPIs and performance;
- the annual report and financial statements and half-yearly report;
- the Company's dividend policy;
- organisational capability and succession planning; and
- regular reports from the Board's committees.
Matters reserved for the Board
The Board has approved a formal schedule of matters reserved for
the Board. The schedule is available upon request from the Company
Secretary.
Committees
The structure includes an Audit and Risk Committee, an
Investment Committee, a Management Engagement Committee and a
Nomination Committee. The terms of reference for each of the
committees are available on the Company's website or upon request
from the Company Secretary.
Audit and Risk Committee
The membership and activities of the Audit and Risk Committee
are described in its report below.
Investment Committee
At 30 September 2018, the Investment Committee comprised three
Directors, as set out on above.
The Board has agreed terms of reference for the committee which
includes meeting to consider each new investment proposal received
from the Investment Adviser and advisory reports and
recommendations. The committee met 23 times during the year. The
committee is also responsible for ensuring key conditions precedent
are complied with for each deal and for sign off on the release of
capital advances.
Management Engagement Committee
The Management Engagement Committee comprises all Directors of
the Company in view of the wide remit of the committee. The Board
has agreed terms of reference for the committee, which meets at
least once a year to consider the performance of the Investment
Adviser and other third party service providers; the terms of their
engagement and their continued appointment. The committee formally
met once during the last financial year for an interrogative
workshop and follow-up session. Following the committee's
assessment of the Investment Adviser, and based on the performance
of the Investment Adviser, the continued appointment of the
Investment Adviser is considered to be in the interests of
shareholders as a whole, and it was recommended that Gravis Capital
Management Limited be retained as Investment Adviser. In addition,
the continued engagement of the third party service providers whom
the committee independently evaluates is also recommended.
Nomination Committee
The membership and activities of the Nomination Committee are
described in its report.
Meetings
The number of meetings of the Board and committees held during
the year and the attendance of individual Directors are shown
below:
Management
Quarterly Board Audit and Risk Investment Engagement Nomination
meetings Committee Committee Committee Committee
------------------- ------------------- -------------------- -------------------- --------------------
Number Number Number Number Number Number Number Number Number Number
of attended of attended of attended of attended of attended
meetings meetings meetings meetings meetings
---------- -------- --------- -------- --------- --------- --------- --------- --------- --------- ---------
Ian Reeves 4 4 3 3 - - 1 1 2 2
Clive
Spears 4 4 - - 23 20 1 1 2 2
David
Pirouet 4 4 3 3 - - 1 1 2 2
Paul
De Gruchy 4 4 - - 23 20 1 1 - -
Julia
Chapman 4 4 - - 23 19 1 1 - -
Michael
Gray 4 4 3 3 - - 1 1 - -
---------- -------- --------- -------- --------- --------- --------- --------- --------- --------- ---------
A total of 19 additional Board meetings were held during the
year. These meetings were predominantly in respect of share
issuances, capital raising and investment sector meetings.
At each Board meeting, the Directors follow a formal agenda
which is circulated in advance by the Company Secretary. The
Company Secretary, the Administrator and Investment Adviser
regularly provide the Board with financial information, including
an annual expense budget, together with briefing notes and papers
in relation to changes in the Company's economic environment,
statutory and regulatory changes and corporate governance best
practice. A description of the Company's risk management and
internal control systems are set out above.
Diversity
Diversity is an important consideration in ensuring that the
Board and its committees have the right balance of skills,
experience, independence and knowledge necessary to discharge their
responsibilities. The right blend of perspectives is critical to
ensuring an effective Board and a successful Company.
Market Abuse Regulation
Following the implementation of the EU Market Abuse Regulation
('MAR') on 3 July 2016, the Board formally adopted revised
procedures in relation to the management, identification and
disclosure of inside information and share dealing in accordance
with MAR. The Board is responsible for taking all proper steps to
ensure compliance with MAR by the Directors.
AIFM Directive
The Company is classed as an externally managed AIF under the
Directive. The Board appointed the Investment Adviser as the
authorised AIFM to the Company and Link Corporate Services (Jersey)
Limited as the Company's Depositary under the AIFM Directive on 22
July 2014.
AIFM remuneration
With effect from 20 April 2017, the Company's Investment Adviser
was authorised as an AIFM by the FCA under the AIFMD regulations.
The Company has provided disclosures on its website, incorporating
the requirements of the AIFMD regulations.
The total annual fee paid to the Investment Adviser by the
Company is disclosed in note 19 to the financial statements.
Markets in Financial Instruments Directive
The ordinary shares of the Company are considered as
'non-complex' in accordance with MiFID II.
Non-mainstream pooled investments
The Board notes the rules of the UK FCA on the promotion of
non-mainstream pooled investments.
The Board confirms that it conducts the Company's affairs, and
intends to continue to conduct its affairs, so that the Company's
shares will be 'excluded securities' under the FCA's rules. This is
on the basis that the Company, which is resident outside the EEA,
would qualify for the approval as an investment trust by the
Commissioners for HM Revenue and Customs under Sections 1158 and
1159 of the Corporation Tax Act 2010 if resident and listed in the
United Kingdom. Therefore, the Company's shares will not amount to
non-mainstream pooled investments. Accordingly, promotion of the
Company's shares will not be subject to the FCA's restriction on
the promotion of non-mainstream pooled investments.
Significant voting rights
Details of shareholders with notifiable interests in the voting
rights of the Company can be found in the Directors' report
below.
Share repurchase
Subject to the provisions of the Law and the Company's Articles
of Association, the Company may purchase all or any of its shares
of any class, including any redeemable shares and may hold such
shares as treasury shares or cancel them. Further information can
be found in the Directors' report below.
Amendment to the Company's Articles of Association
Subject to the provisions of the Law and the Company's Articles
of Association, the Company's Articles can be amended by special
shareholder resolution.
EFFECTIVENESS
CORPORATE GOVERNANCE STATEMENT
Performance evaluation
The Directors participated in an external evaluation process in
July 2017 which was conducted by independent external consultants,
Trust Associates. During the year, the Board considered the output
from last year's external evaluation, and has implemented, all but
one of the recommendations put forward by Trust Associates and is
currently working on the remaining matter.
The Board has agreed that external reviews will be carried out
every three years, with the next external review to take place in
2020. Internal evaluations, via questionnaires, will be carried out
in the intervening years.
As the evaluation of the Board was carried out externally during
2017, the Directors undertook an internal performance evaluation
during the year, led by the Chairman and designed to assess the
strengths and independence of the Board and the performance of its
committees, the Chairman and individual Directors.
The Board evaluation questionnaires were also intended to
analyse the focus of Board meetings and assess whether they are
appropriate, or if any additional information may be required to
facilitate Board discussions. The evaluation of the Chairman was
carried out by the other Directors of the Company and led by the
Senior Independent Director. The results of the Board evaluation
process were reviewed and discussed by both the Nomination
Committee and Board, as a whole. Further details of the results of
the Board evaluation process can be found in the Nomination
Committee report below.
Appointment and re-election of Directors
Under the provisions of the Company's Articles, the Directors
retire by rotation, with one-third of the Directors submitting
themselves for election at each AGM; however, the Board recognises
that, as a FTSE 250 company, and in accordance with corporate
governance best practice as set out in the AIC Code, all Directors
should put themselves forward for re-election every year. As such,
each of the Directors is subject to annual re-election by the
shareholders at the AGM.
The Board's policy regarding tenure of service is detailed in
the Nomination Committee report below.
The Board ensures that it has the appropriate balance of skills,
experience, knowledge and independence in order to remain
effective. Biographical details of the Directors are shown
above.
The Board undertakes annual anti-money laundering training and
the Jersey-resident Directors undertake the required hours of
continuing professional development in accordance with their
profession and Jersey regulations, including training on areas
relating to the Company's activities such as specialist renewable
energy sectors.
Board independence, tenure and statement of Directors'
shareholding and share interests
The Board regularly reviews the independence of its members and
considers all of the Directors to be independent. The Board's
policy regarding tenure of service is that any decisions regarding
tenure should balance the need to maintain continuity, knowledge,
experience and independence, against the need to periodically
refresh the Board composition in order to have the appropriate mix
of skills, experience, age and length of service.
Ian Reeves and David Pirouet have served as Directors since 15
June 2010 and, accordingly, will each have served as a Director for
over nine years at the time of the AGM of the Company to be held in
the first quarter of 2020.
The Board is mindful of the principles set out in the AIC Code
and the introduction of the new UK Corporate Governance Code, which
will apply to accounting periods beginning on or after 1 January
2019, and the principles therein as regards the tenure of
non--executive Directors.
The Board considers that the length of service of a Director
should be determined on an individual basis. Further, the Board
recognises that length of service may not necessarily compromise
the independence or contribution of directors of an investment
company, where continuity and experience can add significantly to
the strength of the Board and where the Directors are satisfied as
to maintaining a majority of independent non--executive Directors
on the Board. Therefore, if a Director has served more than nine
years, the Board will consider the issue of independence carefully
on an annual basis as part of the Board's self-evaluation and
succession planning process and will disclose its conclusions in
the Directors' report.
Each of the Directors is subject to annual re--election by
shareholders at the AGM of the Company.
The Chairman of the Company and its broker will be consulting
with the Company's shareholders in the coming months in connection
with the above.
In addition, the Board has reviewed the independence of each
Director in accordance with the guidance set out under principle 2
of the AIC Code and the corresponding AIC Guide. The Board
acknowledges that Paul De Gruchy has an indirect holding of 504,938
ordinary shares in the Company and that Clive Spears has a holding
of 54,423 ordinary shares in the Company, at 30 September 2018. The
Board has discussed the interests in the Company held by Mr De
Gruchy and Mr Spears and it is satisfied that they do not
materially impact their ability to exercise independent judgement
on the Board.
Diversity
The Board regularly reviews its composition and effectiveness
with the objective of ensuring that it has an appropriate balance
of skills and experience required to meet the future opportunities
and challenges facing the Company. As part of this, the Directors
actively consider the diversity, including the gender and
ethnicity, on the Board.
Conflicts of interest
The Directors have declared any conflicts or potential conflicts
of interest to the Board of Directors, which has the authority to
approve such situations. The Company Secretary maintains the
Register of Directors' Conflicts of Interests which is reviewed
quarterly by the Board and whenever changes are notified. The
Directors advise the Company Secretary and Board as soon as they
become aware of any conflicts of interest. Directors who have
conflicts of interest do not take part in discussions which relate
to any of their conflicts.
It is the responsibility of each individual Director to avoid a
conflict arising. In the event that a conflict of interest arises,
the Director(s) must request authorisation from the Board as soon
as they become aware of the possibility of a situational conflict
arising.
The Board is responsible for considering Directors' requests for
authorisation of situational conflicts and for deciding whether or
not the situational conflict should be authorised. The factors to
be considered will include whether the situational conflict could
prevent the Director from properly performing their duties, whether
it has, or could have, any impact on the Company and whether it
could be regarded as likely to affect the judgement and/or actions
of the Director in question. When the Board is deciding whether to
authorise a conflict or potential conflict, only Directors who have
no interest in the matter being considered are able to take the
relevant decision, and in taking the decision the Directors must
act in a way they consider, in good faith, will be most likely to
promote the Company's success. The Directors are able to impose
limits or conditions when giving authorisation if they believe this
is appropriate in the circumstances.
The Directors must also comply with the statutory rules
requiring company directors to declare any interest in an actual or
proposed transaction or arrangement with the Company.
The Company Secretary
The Board has direct access to the services of the Company
Secretary which is responsible for ensuring that the Board and
committee procedures are followed and that applicable regulations
are complied with. The Company Secretary is also responsible to the
Board for ensuring the timely delivery of the information and
reports which the Directors require and that the statutory
obligations are met.
Key service providers other than the Investment Adviser
Details of the key service providers other than the Investment
Adviser can be found in notes 5 to 19 of the financial
statements.
Insurance and indemnity provisions
The Company has Directors' and Officers' liability insurance,
professional indemnity insurance, and crime and property loss cover
for financial institutions to cover legal defence costs. Under the
Company's Articles of Association, the Directors are provided,
subject to the provisions of Jersey legislation, with an indemnity
in respect of liabilities which they may sustain or incur in
connection with their appointment.
Relations with shareholders
Further information regarding the Company's relations with
shareholders is set out below. Further information about the
significant shareholders in the Company is set out below.
Internal control review and risk management process
Details of the Company's internal control review and the risk
management process are outlined in the strategic report above.
Ian Reeves CBE
Chairman
13 December 2018
ACCOUNTABILITY
AUDIT AND RISK COMMITTEE REPORT
I am pleased to present the Company's 2018 Audit and Risk
Committee report.
Summary
The committee operates within clearly defined terms of
reference, a copy of which is available from the Company's website
or on request from the Company Secretary. The terms of reference
require the committee to monitor the Company's financial reporting,
internal controls, risk management and external audit process.
The committee is responsible for making recommendations to the
Board in respect of the appointment, re-appointment and
remuneration of the Auditor and the Auditor's plan for the
year.
Composition
At 30 September 2018, the committee comprised three of the
Company's Directors, including the Chairman, Mr David Pirouet, who
is a Chartered Accountant and a former audit partner, Mr Ian Reeves
CBE and Mr Michael Gray.
The Board considers that the independence, experience and
knowledge of each of the committee members is sufficient for
discharging its responsibilities and in particular taking account
of the financial, audit, banking and infrastructure experience of
the members of the committee. The committee formally met three
times during the year ended 30 September 2018.
The committee has reviewed and evaluated its own performance as
part of the Board's annual evaluation process, explained in the
Nomination Committee report below.
Financial reporting
The committee considered the requirements of the UK Companies
Act 2006 (Strategic Report and Directors' Report) Regulation 2013
with which it is complying voluntarily, in line with best practice
reporting. The committee specifically reviewed the annual report
and financial statements to conclude whether the financial
reporting is fair, balanced, understandable, comprehensive and
consistent with prior year reporting and how the Board assesses the
performance of the Company's business during the financial year, as
required for companies with a Premium Listing under the UK
Corporate Governance Code. As part of this review, the committee
considered if the annual report and financial statements provided
the information necessary to shareholders to assess the Company's
performance, strategy and business model and reviewed the
description of the Company's key performance indicators as well as
updating the governance section of the annual report.
The committee presented its conclusions to the Board and the
Board concluded that it considered the annual report and financial
statements, taken as a whole, to be fair, balanced and
understandable and to provide the information necessary for the
shareholders to assess the Company's performance, business model
and strategy.
In addition to the above matters, the committee's work was
focused on the following areas:
- reviewing the effectiveness of the internal control environment of the Company;
- reviewing and recommending to the Board significant accounting
matters and accounting disclosures in the half-yearly and annual
financial statements of the Company including matters of judgement
in relation to the valuation of financial assets at fair value
through profit or loss. This year the areas examined included the
discount rates applied in the valuation process and the performance
of the investments. The committee discussed these matters with the
Valuation Agent, the Investment Adviser and the Auditor, including
the Auditor's valuation specialist;
- overseeing the Company's relations with its Auditor, including
assessing the conduct and effectiveness of the audit process and
the Auditor's independence and objectivity, recommending the
Auditor's re-appointment and approving the Auditor's fees; and
- reviewing the Company's compliance with its regulatory
obligations in Jersey and listing requirements under its Premium
Listing.
The Auditor is invited to attend the committee meetings at which
the annual report and half-yearly reports are considered and at
which they have the opportunity to meet with the committee without
representatives of the Investment Adviser being present. The
committee has direct access to the Auditor and to the key senior
staff of the Investment Adviser and reports its findings and
recommendations to the Board, which retains the ultimate
responsibility for the financial statements of the Company. All
recommendations were accepted by the Board.
Significant issues considered
After discussions with both the Investment Adviser and the
Auditor, the committee determined that the key risks of material
misstatement of the Company's financial statements related to the
valuation of, and performance of, the investments.
Valuation of investments
As outlined in notes 11 and 18, the total carrying value of
financial assets at fair value at 30 September 2018 was GBP1.1
billion (30 September 2017: GBP899.3 million). Market quotations
are not available for these financial assets such that their
valuation is undertaken using a discounted cash flow methodology
where applicable. This requires a series of material judgements to
be made, as further explained in note 18.
The committee discussed the valuation process and methodology
with the Investment Adviser in May, June, August and December 2018
as part of the review of the half-yearly and annual reports. The
Valuation Agent carries out a valuation quarterly and provides a
detailed quarterly valuation report to the Company. The committee,
together with the rest of the Board, discusses with the Valuation
Agent and Investment Adviser their views of the market and relevant
discount rates of individual investments in the portfolio as part
of the quarterly valuation process.
The discount rates adopted to determine the valuation are
selected and recommended by the Valuation Agent. The discount rates
applied to the expected future cash flows for each investment's
financial forecasts are derived by adopting the assumptions
explained above to arrive at a valuation (discounted cash flow
valuation). The resulting valuation is sensitive to the discount
rate selected. The Valuation Agent is experienced and active in the
area of valuing these investments and adopts discount rates they
believe are appropriate using its current and extensive experience
in the market. The discount rate assumptions and the sensitivity of
the valuation of the investments to this discount rate are
disclosed in note 18.
In particular, the committee considered in detail the reductions
of the discount rate applied to certain assets during the year. The
Valuation Agent explained this was principally as a consequence of
increased competition in the secondary market for infrastructure
and renewable assets, which had been seen during bidding and
general market activity. This was corroborated by the Investment
Adviser. The committee also considered in detail the revised
discount rates applied to the loans subject to downward
revaluation.
The committee discussed the material estimates and judgements
and also compared these to feedback from the Investment Adviser.
The committee was satisfied that the range of discount rates were
appropriate for the valuation carried out by the Valuation
Agent.
Performance of investments
The committee, together with the rest of the Board, discussed
with the Investment Adviser the performance of individual
investments within the portfolio as part of the valuation process
each quarter. As explained in the 'investment portfolio' report
there have been investments subject to downward revaluations
equivalent to 2.5 pence per share during the year and the relevant
revaluations have been discussed and agreed with the Investment
Adviser.
External audit
The committee met with the Auditor in August 2018 to review,
challenge and agree their audit plan for the audit of the financial
statements, in particular their approach to the valuation, and also
met with the Auditor in December 2018 to discuss their report,
after the conclusion of their audit.
The Auditor explained the results of their audit and that on the
basis of their audit work, there were no adjustments proposed that
were material in the context of the financial statements as a
whole.
Audit fees for the year amounted to GBP62,000 (30 September
2017: GBP66,000) and non-audit fees amounted to GBP18,000 (30
September 2017: GBP15,000).
KPMG has been the Auditor of the Company since its appointment
at the AGM in February 2016, following an external audit tender
process in October 2015. There are no contractual obligations
restricting the choice of Auditor and the Company will consider
putting the audit services contract out to tender at least every
ten years. The committee reviewed the effectiveness of the audit
process during the year, considering performance, objectivity,
independence and relevant experience of the Auditor. Following this
review, the committee has recommended the re-appointment of KPMG as
the Company's Auditor at the 2019 AGM.
As previously explained, it has been decided that the Auditor
would review the Company's half-year accounts, but the Auditor
would not be requested to perform any other non-audit services.
Risk management
During the year, the Committee:
- reviewed and updated the risk matrix, where appropriate, to
reflect the Company's key risks; and
- considered the presentation of risk-related matters in the
annual report and financial statements.
Other matters
Other matters reviewed by the committee during the year
included:
- discussions with the Investment Adviser and Valuation Agent
regarding the valuation of the shareholder interest elements of the
investments within the portfolio; and
- discussions with the Investment Adviser regarding the scope of
the third party review of the shareholder interest valuation models
undertaken during the period.
Mr David Pirouet FCA
Chairman of the Audit and Risk Committee
13 December 2018
ACCOUNTABILITY
NOMINATION COMMITTEE REPORT
The function of the Nomination Committee is to consider
appointments to the Board and its individual committees.
The Nomination Committee comprises Mr Ian Reeves CBE, Mr Clive
Spears and Mr David Pirouet.
During the year, the Nomination Committee held two meetings.
Attendance of members at those meetings is shown in the table
above. The function of the Nomination Committee is to consider
appointments to the Board and its individual committees in the
context of the requirements of the Company and to make
recommendations to the Board with regard to any changes to maintain
a balanced and effective Board.
Board appointments and diversity
Diversity is an important consideration in ensuring that the
Board and its committees have the right balance of skills,
experience, independence and knowledge necessary to discharge their
responsibilities. The right blend of perspectives is critical to
ensuring an effective Board and a successful Company.
Board diversity, including, but not limited to, gender,
professional and industry specific knowledge and expertise,
understanding of geographic markets and different cultures, is
taken into account when evaluating the skills, knowledge and
experience desirable to fill vacancies on the Board as and when
they arise. Board appointments are made based on merit and calibre,
with the most appropriate candidate, who is the best fit for the
Company, being nominated for appointment.
The committee believes the Directors provide, individually and
collectively, the breadth of skill and experience required to
manage the Company.
Succession planning and tenure of service
The committee is also obliged to consider succession planning
for Directors with particular attention paid to the challenges and
opportunities facing the Company.
The Board's policy regarding tenure of service is that any
decisions regarding tenure should balance the need to maintain
continuity, knowledge, experience and independence, against the
need to periodically refresh the Board composition in order to have
the appropriate mix of skills, experience, age and length of
service. The Board does not consider that the length of service of
a Director should just be determined by time served but should be
considered on an individual basis. Therefore, if a Director has
served more than nine years, the Board will consider their
independence carefully as part of the annual Board self-evaluation
process and balance this against the benefits of maintaining
continuity, knowledge and experience.
Performance evaluation
The Nomination Committee met in October 2018, to review the
results of the internal evaluation of the performance of the Board,
the committees, the Chairman and the Directors' performance during
2017 and 2018. The evaluation covered a range of areas including
processes and effectiveness, overall strategy, corporate
governance, investment management, communications with
shareholders, training requirements, independence and personal
development.
The Senior Independent Director also met with the Chairman to
discuss the Directors' comments on the Chairman's performance
evaluation. The results of the evaluation process were reported to,
and discussed by, the Nomination Committee and subsequently by the
Board on 18 October 2018. The evaluation considered the overall
composition of the Board including plans for succession over time
and the delivery of Directors' performance appraisals. At this
meeting, the committee noted that each of the Directors had
expressed an intention to continue in office for the foreseeable
future.
Board tenure
The Board is mindful of the principles set out in the AIC Code
and the introduction of the new UK Corporate Governance Code, which
will apply to accounting periods beginning on or after 1 January
2019, and the principles therein as regards the tenure of
non-executive Directors.
The Board considers that the length of service of a Director
should be determined on an individual basis. Further, the Board
recognises that length of service may not necessarily compromise
the independence or contribution of Directors of an investment
company, where continuity and experience can add significantly to
the strength of the Board and where the Directors are satisfied as
to maintaining a majority of independent non-executive Directors on
the Board. Therefore, if a Director has served more than nine
years, the Board will consider the issue of independence carefully
on an annual basis as part of the Board's self-evaluation and
succession planning process and will disclose its conclusions in
the Director's report.
Based on the outcome of the Board performance evaluation
process, the Nomination Committee agreed to recommend the
re-appointment of Ian Reeves CBE as Chairman at the 2019 AGM. Mr
Reeves abstained from these deliberations. The committee believes
that Mr Reeves has continued to make valuable contributions to the
Company and has exercised his judgement and expressed his opinions
in an independent manner.
Each of the Directors will also be offering themselves for
re-election at the forthcoming AGM on 14 February 2019.
Ian Reeves CBE
Chairman of the Nomination Committee
13 December 2018
REMUNERATION
DIRECTORS' REMUNERATION REPORT
The Directors are pleased to present their report on
remuneration for the year ended 30 September 2018.
The annual report on remuneration provides details on
remuneration in the year. An ordinary resolution will be put to
shareholders at the forthcoming AGM to receive and approve the
Directors' remuneration report. Although it is not a requirement
under Jersey Company Law to have the annual report on remuneration
approved by shareholders, the Board believes that as a Company
whose shares are traded on the LSE, it is good practice for it to
do so.
This report is not subject to audit.
Voting at Annual General Meeting
The Directors' remuneration report for the year ended 30
September 2017 and the Directors' remuneration policy were approved
by shareholders at the AGM held on 9 February 2018; the votes cast
by proxy were as follows:
Directors' remuneration report Directors' remuneration policy
-------------------------------- --------------------------------
Number
Number of % of votes of votes % of votes
votes cast cast cast cast
------------------------- ---------------- -------------- ---------------- --------------
For 354,450,660 98.54 307,553,227 85.50
Against 5,227,613 1.45 52,131,038 14.49
At Chairman's discretion 12,476 0.01 12,692 0.01
------------------------- ---------------- -------------- ---------------- --------------
Total votes cast 359,690,749 100.00 359,696,957 100.00
------------------------- ---------------- -------------- ---------------- --------------
Number of votes withheld 41,394 - 35,185 -
------------------------- ---------------- -------------- ---------------- --------------
Remuneration
The Company follows the recommendation of the AIC Code, that
non-executive Directors' remuneration should reflect the time
commitment and responsibilities of their role and should be broadly
comparable to those paid by similar companies. It is not considered
appropriate that Directors' remuneration should be linked to
individual performance and none of the Directors are eligible for
bonuses, pension benefits, share options, long-term incentive
schemes or other benefits in respect of their services as
non-executive Directors of the Company. The Board's policy is that
remuneration should reflect the experience of the Board as a whole,
and be determined with reference to comparable organisations and
appointments.
All non-executive Directors, including the Chairman, serve under
letters of appointment and either party can terminate on three
months' written notice provided that any such notice shall not
expire earlier than the first anniversary of the Director's
appointment. Neither the Chairman nor the non--executive Directors
have any right to compensation on the early termination of their
appointment.
The Company engaged independent external consultants, Trust
Associates, in July 2017, to conduct a review of the Directors'
remuneration. Their recommendations, which took into account the
increased time commitment, responsibility and risk, together with
other market comparables, formed the basis of the Directors'
remuneration policy which was put forward and approved at the 2018
AGM.
The current cumulative cap on Directors' base fees is
GBP500,000, as approved at the 2018 AGM. Directors' fees for the
year for certain roles are as follows:
- Chairman: GBP67,500;
- Chairman of Audit and Risk Committee: GBP55,000;
- Chairman of Investment Committee: GBP55,000; and
- Director: GBP45,000.
The changes to the Directors' fees took effect from 1 October
2017, following the approval of the remuneration report at the 2018
AGM.
Directors' remuneration for the year ended 30 September 2018
The following table provides a summary of the key elements of
the remuneration package for non-executive Directors:
Element Purpose Operation
------- ------------------------------------------------------ -----------------------------------------------------
Fees To compensate the Directors for their time commitment Reviewed annually and set to be broadly comparable to
and level of responsibility borne. similar companies, subject to an annual
cap in accordance with the Articles of Association.
------- ------------------------------------------------------ -----------------------------------------------------
The fees paid to the Directors in the year ended 30 September
2018 (and prior year) are set out below:
Directors'
fees Audit and Investment
(base Risk Committee Committee
fee) fees fees Total
2018 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ---------- --------------- ---------- -------
Ian Reeves CBE 68 5 n/a 73
David Pirouet 55 10 n/a 65
Clive Spears 55 n/a 10 65
Paul De Gruchy 45 n/a 10 55
Julia Chapman 45 n/a 10 55
Michael Gray 45 5 n/a 50
---------------- ---------- --------------- ---------- -------
Total 313 20 30 363
---------------- ---------- --------------- ---------- -------
Special
Directors' fee for Audit and Investment
fees placing Risk Committee Committee
(base fee) programme fees fees Total
2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ----------- ---------- --------------- ---------- -------
Ian Reeves CBE 55 5 4 n/a 64
David Pirouet 45 5 10 n/a 60
Clive Spears 45 5 n/a 10 60
Paul De Gruchy 40 5 n/a 10 55
Julia Chapman 40 5 n/a 10 55
Michael Gray 40 5 4 n/a 49
--------------- ----------- ---------- --------------- ---------- -------
Total 265 30 18 30 343
--------------- ----------- ---------- --------------- ---------- -------
Directors' expenses for the year totalled GBP12,000 (30
September 2017: GBP14,000). No other remuneration or compensation
was paid or payable by the Company during the year to any of the
Directors.
Approach to remuneration
The principle adopted by the Board is that fees for future
non-executive Directors should reflect the performance of the
Company, as well as the responsibilities and time commitment
required. The Board seeks to ensure that remuneration packages
offered are designed to promote the long-term success of the
Company. Any new Director would be paid on the same basis as the
existing Directors' remuneration.
Company performance
In setting the Directors' remuneration, consideration is given
to the size and long-term performance of the Company. The tables
below highlight the comparative total shareholder return to
ordinary shareholders since launch compared with the GBP Corporate
Bond Index over the same period. The GBP Corporate Bond Index is
used as a benchmark as the constituents are comparable in asset
type with the Company's investments portfolio (being a portfolio of
debt instruments). For the year ended 30 September 2018, total
shareholder return was 4.8% compared with the GBP Corporate Bond
Index which was 0%.
Cumulative performance to 30 September 2018
Period Three months Six months One year Three years Four years Since launch
--------------------------------------- ------------ ---------- -------- ----------- ---------- ------------
GCP Infrastructure Investments Limited 5.5% 9.0% 4.8% 23.5% 35.5% 107.3%
GBP Corporate Bond Index (0.3%) (0.6%) 0.0% 16.3% 21.2% 66.8%
--------------------------------------- ------------ ---------- -------- ----------- ---------- ------------
Annual performance to 30 September 2018
Year ended Year ended Year ended Year ended
30 September 30 September 30 September 30 September
Period 2018 2017 2016 2015
--------------------------------------- ------------ ------------ ------------ ------------
GCP Infrastructure Investments Limited 4.8% 1.9% 15.6% 9.7%
GBP Corporate Bond Index 0.0% 0.2% 16.1% 4.2%
--------------------------------------- ------------ ------------ ------------ ------------
Source: Bloomberg. Basis: percentage growth, shareholder total
return with net income reinvested.
Relative importance of the spend on pay
The table below sets out, in respect of the financial years
ended 30 September 2018 and 30 September 2017, Directors' fees for
the Company as a relative proportion of the Company's total
expenses for the year:
30 September 30 September
2018 2017
----------------------- ------------ ------------
Percentage of expenses 3.32% 3.43%
----------------------- ------------ ------------
No other remuneration or compensation was paid or is payable by
the Company during the year to any of the Directors.
Directors' share interests
As at 30 September 2018, the interests of the Directors are set
out below:
As at As at
30 September 30 September
2018 2017
Number Number
of shares of shares
--------------- ------------ ------------
Clive Spears 54,423 26,531
Paul De Gruchy 504,938 474,390
--------------- ------------ ------------
REMUNERATION
DIRECTORS' REMUNERATION POLICY
The Directors' remuneration policy is put to a shareholder vote
at least once every three years and in any year if there is to be a
change in the Directors' remuneration policy. A resolution to
approve this remuneration policy was proposed and passed at the
2018 AGM. The remuneration policy provisions set out below will
apply until they are put to shareholders for renewal of that
approval.
Directors' remuneration policy
The Company follows the recommendation of the AIC Code that
non-executive Directors' remuneration should reflect the time
commitment and responsibilities of the role. The Board's policy is
that the remuneration of non-executive Directors should reflect the
experience of the Board as a whole, and be determined with
reference to comparable organisations and appointments.
The fees of the non-executive Directors are determined within
the limits set out in the Company's Articles of Association, and
the Directors are not eligible for bonuses, pension benefits, share
options, long-term incentive schemes or other benefits. There are
no performance conditions attaching to the remuneration of the
Directors as the Board does not consider such arrangements or
benefits necessary or appropriate for non-executive Directors.
Under the Directors' letters of appointment, there is no notice
period and no compensation is payable to a Director on leaving
office.
It is the Board's policy that Directors do not have service
contracts, but Directors are provided with a letter of appointment
as a non-executive Director.
The Company is committed to ongoing shareholder dialogue and any
views expressed by shareholders on the fees being paid to Directors
would be taken into consideration by the Board when reviewing the
Directors' remuneration policy and in the annual review of
Directors' fees.
Directors' fee levels
The Board has set three levels of fees: one for the Chairman, an
additional fee that is paid to each of the Directors who chair the
Audit and Risk Committee, and the Investment Committee and a base
fee for other Directors. The fee for any new Director appointed
will be determined on the same basis.
The basic and additional fees payable to Directors in respect of
the year ended 30 September 2018 are set out above.
Approval
This remuneration report and policy were approved by the Board
on 13 December 2018 and signed on its behalf by:
Ian Reeves CBE
Chairman
13 December 2018
RELATIONS WITH SHAREHOLDERS
Dialogue with shareholders
The Board recognises the importance of maintaining a purposeful
relationship with shareholders. The Company, primarily through its
Investment Adviser and Corporate Broker, engages in ongoing
communication with its shareholders via daily market interactions
and shareholder, analyst and marketing presentations. The Board
invites shareholders to attend and vote at general meetings of the
Company in order that they may discuss governance and strategy and
to understand shareholders' issues and concerns. The Chairman of
the Board and the Chair of each of the committees attend general
meetings of the Company to answer any questions posed by
shareholders.
The Board and Investment Adviser held an investor round table on
2 October 2018. The shareholders were welcomed by the Chairman and
received presentations from the Chairs of the Audit and Risk
Committee and the Investment Committee. The Investment Adviser also
presented on the Company's portfolio and provided shareholders with
a market update.
Further communication with shareholders is achieved through the
annual and half-yearly reports, news releases via the LSE and the
Company's website. The Company's annual and half-yearly reports are
dispatched to shareholders by post and are also available to
download from the Company's website.
This information is supplemented by the quarterly calculation
and publication of the NAV of the Company's shares on the LSE and
the publication of a quarterly factsheet by the Investment
Adviser.
In the annual report, the Directors seek to provide shareholders
with information in sufficient detail to allow them to obtain a
reasonable understanding of recent developments affecting the
business and the prospects for the Company in the year ahead. The
various sections of the strategic report above provide further
information. Communication of up-to-date information is provided
through the Company's website.
Annual General Meeting
The 2018 AGM of the Company was held on 9 February 2018.
Resolutions 1 to 16 related to ordinary business, which are put to
the shareholders annually. Resolutions 17 to 18 related to special
business as passed by the shareholders as follows:
- that the Company be authorised to purchase its own shares; and
- that the Directors be authorised to allot and issue up to
79,132,684 ordinary shares, as if pre-emption rights in the
Company's Articles did not apply.
These shareholder authorities will expire at the 2019 AGM.
The next AGM will be held on 14 February 2019 at the registered
office of the Company; 12 Castle Street, St Helier, Jersey JE2
3RT.
A separate notice convening the AGM will be distributed to
shareholders on or around 8 January 2019, which includes an
explanation of the items of business to be considered at the
meeting. A copy of the notice will be published on the Company's
website.
Extraordinary General Meeting
The Company held an EGM on 9 February 2018, at which
shareholders approved that the Company be generally and
unconditionally authorised to allot and issue an aggregate of up to
79,132,684 ordinary shares and/or C shares for cash.
Statement of voting at general meeting
The Company is committed to ongoing shareholder dialogue and
takes an active interest in voting outcomes. Where there are
substantial votes against any resolution at the AGM, the Company
will consider what, if any, actions it intends to take going
forward.
At the last AGM, 98.54% of shareholders voted for the resolution
to approve the Directors' remuneration report and 85.5% voted for
the resolution to approve the Directors' remuneration policy.
DIRECTORS' REPORT
The corporate governance statement above forms part of this
Directors' report.
The Directors are pleased to present their annual report and the
audited financial statements for the year ended 30 September
2018.
Principal activity and business review
The strategic report has been prepared by the Directors and
should be read in conjunction with the Chairman's statement and
forms part of the annual report to shareholders.
Corporate governance
The corporate governance statement above forms part of this
Directors' report.
Directors
The Directors in office at 30 September 2018 are detailed
above.
Details of the Directors' terms of appointment can be found in
the corporate governance statement and the remuneration report
detailed above.
Share capital
During the year, the Company issued 85,098,275 ordinary shares
of GBP0.01. Details of the movements in share capital during the
year are set out in the statement of changes in equity below and in
note 16.
At 30 September 2018, the Company's issued share capital
comprised 876,065,400 ordinary shares of GBP0.01, none of which
were held in treasury. At general meetings of the Company, every
holder shall have one vote in respect of every ordinary share.
Since July 2017, issuers, including the Company, have been
permitted to issue up to 20% (previously 10%) of the same class of
share without being obliged to publish a prospectus document,
subject to certain restrictions regarding public offerings.
On 9 February 2018, the Company obtained shareholder approval
permitting it to issue up to 79,132,684 ordinary shares for cash on
a non pre-emptive basis, representing 20% of the ordinary shares
then in issue. This shareholder authority will expire at the 2019
AGM.
To date, the Company has benefited from such authorities as the
ability to raise additional equity capital promptly has enabled it
to take advantage of investment opportunities as they arise. The
resultant increase to the Company's market capitalisation has
broadened the Company's investor base and enhanced the secondary
market liquidity in its ordinary shares, whilst spreading its fixed
running costs across a wider asset base.
The Company will seek a renewal of this shareholder approval at
the meetings of the Company in February 2019 in respect of the
disapplication of pre-emption rights over 20% of its ordinary
shares in issue which it may then be able to issue by way of
placings in the ordinary manner. This is expected to achieve cost
savings for the Company in respect of prospectus documentation,
whilst continuing to provide it with the ability to take advantage
of investment opportunities as they arise and further broaden its
investor base over time. Further details will be set out in notices
to be posted to shareholders in January 2019 in which shareholders
will be asked to approve the disapplication of pre-emption rights
for these purposes.
Dividends
On 22 October 2018, the Directors announced a fourth interim
dividend of 1.9 pence per ordinary share, which was paid on 3
December 2018 to ordinary shareholders on the register on 2
November 2018.
The Company offered a scrip dividend alternative under which
shareholders elected to receive new ordinary shares in lieu of the
cash dividend.
The price of a new ordinary share to be issued under the scrip
dividend alternative was calculated by taking the average of the
Company's closing middle market quotations of an ordinary share for
the five consecutive dealing days commencing on the ex-dividend
date.
In order to streamline the scrip dividend process and reduce
costs, the Company publishes a single shareholder circular on an
annual basis in respect of its scrip dividend facility and this is
made available for viewing on the Company's website.
This annual circular will contain all relevant information for
shareholders, including an expected timetable for the quarterly
scrip dividends in respect of the upcoming financial year. The
Company currently expects to publish the scrip dividend circular in
respect of the financial year ending 30 September 2019 on or around
24 January 2019.
Significant voting rights
At 30 September 2018, the Company had been informed of the
following holdings representing more than 3% of the voting rights
of the Company:
% of total
Name Shares held voting rights
------------------------------- ----------- -------------
Insight Investment Management 63,321,383 7.23
Rathbone Investment Management 50,822,593 5.80
Investec Wealth & Investment
(RS) 50,403,263 5.75
Tredje AP Fonden 40,310,562 4.60
Close Asset Management 38,827,081 4.43
West Yorkshire Pension
Fund 38,344,860 4.38
Brewin Dolphin 33,125,681 3.78
BMO Global Asset Management 28,760,095 3.28
Quilter Cheviot Investment
Management 28,045,329 3.20
------------------------------- ----------- -------------
The table of significant shareholders disclosed above forms part
of note 2.2 ('segmental information') in the financial
statements.
The Company has not been informed of any changes to the
interests between 30 September 2018 and the date of this
report.
Share repurchases
No shares have been bought back in the year. The latest
authority to purchase ordinary shares for cancellation was granted
to the Directors on 9 February 2018 and expires on the date of the
next AGM.
The Directors are proposing that their authority to buy back
shares be renewed at the forthcoming 2019 AGM.
Treasury shares
The Law allows companies to hold shares acquired by market
purchase as treasury shares, rather than having to cancel the
shares. Up to 10% of the issued shares may be held in treasury and
may be subsequently cancelled or sold for cash in the market. This
gives the Company the ability to re-issue shares quickly and cost
efficiently, thereby improving liquidity and providing the Company
with additional flexibility in the management of its capital
base.
Political donations
The Company made no donations to political parties or
organisations during the year and no political expenditure was
incurred.
Auditor
The Directors holding office at the date of this annual report
confirm that, so far as they are each aware, there is no relevant
audit information of which the Company's Auditor is unaware. Each
Director has taken all the steps that they ought to have taken as a
Director to make themselves aware of any relevant audit information
and to establish that the Company's Auditor is aware of that
information.
KPMG has expressed its willingness to continue as Auditor of the
Company and resolutions for its re-appointment and to authorise the
Board to determine its remuneration will be proposed at the
forthcoming AGM.
Financial risk management
Information about the Company's financial risk management
objectives and policies is set out in note 18 to the financial
statements.
Requirements of the Listing Rules
Listing Rule 9.8.4 requires the Company to include specified
information in a single identifiable section of the annual report
or a cross reference table indicating where the information is set
out. Interest income capitalised during the year is disclosed in
note 3 to the audited financial statements. The Directors confirm
that there are no other disclosures required in relation to Listing
Rule 9.8.4.
Ian Reeves CBE
Chairman
13 December 2018
FINANCIAL STATEMENTS
STATEMENT OF DIRECTORS' RESPONSIBILITIES
IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS
The Directors are responsible for preparing the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under the Law they have elected
to prepare the financial statements in accordance with
International Financial Reporting Standards as adopted by the EU
and applicable law.
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 Company and of the profit or
loss of the Company 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 estimates that are reasonable and prudent;
- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
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 (Jersey) Law
1991. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from misstatement, whether due to fraud or
error, and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in Jersey governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions where the financial statements
are published on the internet.
Directors' responsibility statement
In accordance with the FCA's Disclosure and Transparency Rules,
each of the Directors confirms that to the best of his or her
knowledge that:
- the financial statements have been prepared in accordance with
IFRS as adopted by the European Union, give a true and fair view of
the assets, liabilities, financial position and profit or loss of
the Company; and
- the strategic report, including the Directors' report,
includes a fair, balanced review of the development and performance
of the business and the position of the Company, together with a
description of the principal risks and uncertainties that the
Company faces.
The annual report and financial statements, taken as a whole,
are considered by the Board to be fair, balanced and understandable
and provide the information necessary for shareholders to assess
the Company's position and performance, business model and
strategy.
On behalf of the Board
Ian Reeves CBE
Chairman
13 December 2018
INDEPENT AUDITOR'S REPORT
TO THE MEMBERS OF GCP INFRASTRUCTURE INVESTMENTS LIMITED
Our opinion is unmodified
We have audited the financial statements of GCP Infrastructure
Investments Limited (the 'Company'), which comprise the statement
of financial position as at 30 September 2018, the statements of
comprehensive income, changes in equity and cash flows for the year
then ended and notes, comprising significant accounting policies
and other explanatory information.
In our opinion, the accompanying financial statements:
- give a true and fair view of the financial position of the
Company as at 30 September 2018, and of its financial performance
and cash flows for the year then ended;
- are prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU; and
- have been properly prepared in accordance with the
requirements of the Companies (Jersey) Law, 1991.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and are independent of the Company in
accordance with, UK ethical requirements including FRC Ethical
Standards as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion.
Key Audit Matters: our assessment of the risks of material
misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In arriving at our
audit opinion above, the key audit matter was as follows (unchanged
from 2017):
Valuation of financial assets at fair value through profit and
loss
GBP1,130,392,000 or 99.8% of total assets; (2017 GBP899,258,000
or 99.2% of total assets)
Refer to the Audit and Risk committee report, note 2.2 -
significant accounting judgements and estimates, note 11 -
financial assets at fair value through profit or loss and note- 18
financial instruments
Basis:
99.8% of the Company's total assets is represented by the fair
value of a portfolio of unquoted infrastructure debt and/or similar
investments domiciled in the United Kingdom (the 'Investments').
The Company's estimation of the fair value of the Investments
involves using a discounted cash flow methodology, where the inputs
and assumptions such as amounts and timings of cash flows, the use
of appropriate discount rates and the selection of appropriate
values surrounding uncertain future events are subjective.
Risk:
There is a risk of error associated with:
- Estimating the timing and amounts of long term forecasted cash flows; and
- The selection and application of appropriate assumptions and other inputs.
Changes to long term forecasted cash flows and/or the selection
and application of different assumptions may result in a materially
different fair value being attributed to the Investments.
Response:
Our audit procedures included:
Internal controls:
We tested the design and implementation of controls adopted by
the Company over the review, challenge and subsequent approval of
the key assumptions made in estimating the fair value of
Investments.
Evaluating the competency of experts engaged by management:
We evaluated the competency of the Company's third party
Valuation Agent in the context of their ability to appropriately
challenge and review the fair value of the Investments prepared by
the Company, by assessing their professional qualifications,
experience and independence from the Company.
Benchmarking valuation discount rates:
We challenged, with the support of our own valuation specialist,
the reasonableness of discount rates applied in the valuation by
benchmarking these to independent market data including discount
rates used by peers, recent market transactions and our valuation
specialist's experience in valuing similar investments.
Assessing observable inputs:
We performed substantive procedures in relation to the Company's
determination of fair value on a risk based selection of
Investments, which included:
- compared the long term forecasted cash flows included in the
discounted cash flow model to the terms of the original loan
agreements such as the repayment profile, repayment premium, loan
term and the coupon; and
- assessed the to-date financial performance by comparing actual
cash flows received to expected cash flows in the context of
determining the accuracy of cash flow forecasts included in the
discounted cash flow model.
Model integrity:
Using a selection of data routines, we tested the discounted
cash flow model for integrity, logic and for material formula
errors.
Assessing disclosures:
We considered the adequacy of the Company's disclosures in note
18.3 in respect of the fair value of Investments, specifically the
estimates and judgements made by the Company in arriving at that
fair value. We also reviewed the disclosure of the degree of
sensitivity of the fair value to a reasonably possible change in
the discount rate.
Our application of materiality and an overview of the scope of
our audit
Materiality for the financial statements as a whole was set at
GBP11,000,000 (2017: GBP8,500,000), determined with reference to a
benchmark of Total Assets of GBP1,100,000,000 (2017:
GBP907,000,000), of which it represents 1% (2017: 1%).
We reported to the Audit and Risk Committee any corrected or
uncorrected identified misstatements exceeding GBP500,000 (2017:
GBP450,000), in addition to other identified misstatements that
warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level
specified above, which has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
We have nothing to report on going concern
We are required to report to you if we have anything material to
add or draw attention to in relation to the directors' statement in
note 2.1 to the Financial Statements on the use of the going
concern basis of accounting with no material uncertainties that may
cast significant doubt over the Company's use of that basis for a
period of at least twelve months from the date of approval of the
financial statements.
We have nothing to report in this respect.
We have nothing to report on the other information in the Annual
Report
The Directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not cover
the other information and we do not express an audit opinion or any
form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit knowledge.
Based solely on that work we have not identified material
misstatements in the other information.
Disclosures of principal risks and longer term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw attention
to in relation to:
- the Directors' confirmation within the viability statement
that they have carried out a robust assessment of the principal
risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity;
- the principal risks disclosures describing these risks and
explaining how they are being managed or mitigated;
- the Directors' explanation in the viability statement as to
how they have assessed the prospects of the Company, over what
period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Corporate governance disclosures
We are required to report to you if:
- we have identified material inconsistencies between the
knowledge we acquired during our financial statements audit and the
Directors' statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy; or
- the section of the annual report describing the work of the
Audit and Risk Committee does not appropriately address matters
communicated by us to the Audit and Risk Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the eleven
provisions of the 2016 UK Corporate Governance Code specified by
the Listing Rules for our review.
We have nothing to report to you in these respects.
Opinions on other matters
We have nothing to report on other matters on which we are
required to report by exception.
We have nothing to report in respect of the following matters
where the Companies (Jersey) Law 1991 requires us to report to you
if, in our opinion:
- adequate accounting records have not been kept by the Company; or
- the financial statements are not in agreement with the accounting records; or
- we have not received all the information and explanations we require for our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out abovethe
Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing the
Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going
concern basis of accounting unless they either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor's report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC's website at www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and restrictions on its use by
persons other than the Company's members as a body
This report is made solely to the Company's members, as a body,
in accordance with Article 113A of the Companies (Jersey) Law 1991
and, in respect of any further matters on which we have agreed to
report, on terms we have agreed with the Company. Our audit work
has been undertaken so that we might state to the Company's members
those matters we are required to state to them in an auditor's
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the Company and the Company's members as a body, for our audit
work, for this report, or for the opinions we have formed.
Steven David Stormonth
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognized Auditors, Jersey
13 December 2018
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 30 SEPTEMBER 2018
Year ended Year ended
30 September 30 September
2018 2017
Notes GBP'000 GBP'000
-------------------------------------------------------------------------- ----- ------------ ------------
Income
Net income/gains on financial assets at fair value through profit or loss 3 86,625 55,361
Other income 861 1,496
-------------------------------------------------------------------------- ----- ------------ ------------
Total income 87,486 56,857
-------------------------------------------------------------------------- ----- ------------ ------------
Expenses
Investment advisory fees 19 (8,420) (6,978)
Operating expenses 5 (2,528) (2,136)
-------------------------------------------------------------------------- ----- ------------ ------------
Total expenses (10,948) (9,114)
-------------------------------------------------------------------------- ----- ------------ ------------
Total operating profit before finance costs 76,538 47,743
-------------------------------------------------------------------------- ----- ------------ ------------
Finance costs
Finance expenses 6 (3,120) (1,093)
-------------------------------------------------------------------------- ----- ------------ ------------
Total profit and comprehensive income for the year 73,418 46,650
-------------------------------------------------------------------------- ----- ------------ ------------
Basic and diluted earnings per share (pence) 10 8.64 6.36
-------------------------------------------------------------------------- ----- ------------ ------------
All of the Company's results are derived from continuing
operations.
The notes are an integral part of the financial statements.
STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2018
As at As at
30 September 30 September
2018 2017
Notes GBP'000 GBP'000
------------------------------------------------------ ------- ------------ ------------
Assets
Cash and cash equivalents 14 2,335 7,631
Other receivables and prepayments 12 265 53
Financial assets at fair value through profit or loss 11 & 18 1,130,392 899,258
------------------------------------------------------ ------- ------------ ------------
Total assets 1,132,992 906,942
------------------------------------------------------ ------- ------------ ------------
Liabilities
Other payables and accrued expenses 13 (2,743) (2,499)
Interest bearing loans and borrowings 15 (144,724) (29,883)
------------------------------------------------------ ------- ------------ ------------
Total liabilities (147,467) (32,382)
------------------------------------------------------ ------- ------------ ------------
Net assets 985,525 874,560
------------------------------------------------------ ------- ------------ ------------
Equity
Share capital 16 8,760 7,909
Share premium 16 941,706 843,036
Capital redemption reserve 17 101 101
Retained earnings 34,958 23,514
------------------------------------------------------ ------- ------------ ------------
Total equity 985,525 874,560
------------------------------------------------------ ------- ------------ ------------
Ordinary shares in issue 16 876,065,400 790,967,125
------------------------------------------------------ ------- ------------ ------------
NAV per ordinary share (pence per share) 112.49 110.57
------------------------------------------------------ ------- ------------ ------------
Signed and authorised for issue on behalf of the Board of
Directors
Ian Reeves CBE
Chairman
David Pirouet FCA
Director
13 December 2018
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 SEPTEMBER 2018
Capital
Share Share redemption Retained
capital premium reserve earnings Total equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------------- ----- -------- -------- ----------- --------- ------------
At 1 October 2016 6,600 694,406 101 22,729 723,836
--------------------------------------------------- ----- -------- -------- ----------- --------- ------------
Total profit and comprehensive income for the year - - - 46,650 46,650
Equity shares issued 16 1,309 160,733 - - 162,042
Share issue costs 16 - (2,534) - - (2,534)
Transfer to retained earnings 16 - (5,752) - 5,752 -
Dividends 9 - (3,817) - (51,617) (55,434)
--------------------------------------------------- ----- -------- -------- ----------- --------- ------------
At 30 September 2017 7,909 843,036 101 23,514 874,560
--------------------------------------------------- ----- -------- -------- ----------- --------- ------------
Total profit and comprehensive income for the year - - - 73,418 73,418
Equity shares issued 16 851 102,939 - - 103,790
Share issue costs 16 - (1,396) - - (1,396)
Dividends 9 - (2,873) - (61,974) (64,847)
--------------------------------------------------- ----- -------- -------- ----------- --------- ------------
At 30 September 2018 8,760 941,706 101 34,958 985,525
--------------------------------------------------- ----- -------- -------- ----------- --------- ------------
STATEMENT OF CASH FLOWS
FOR THE YEARED 30 SEPTEMBER 2018
Year ended Year ended
30 September 30 September
2018 2017
Notes GBP'000 GBP'000
---------------------------------------------------------------------------------- ----- ------------ ------------
Cash flows from operating activities
Total operating profit before finance costs 76,538 47,743
Purchase of financial assets (314,119) (227,093)
Repayment of financial assets 25,482 35,467
Proceeds from sale of financial assets 67,547 -
Net unrealised gains on investments at fair value through profit or loss (812) (7,950)
Realised gains on sale of investments at fair value through profit or loss (9,232) -
Increase in other payables and accrued expenses 350 458
(Increase)/decrease in other receivables and prepayments (197) 250
---------------------------------------------------------------------------------- ----- ------------ ------------
Net cash flow used in operating activities (154,443) (151,125)
---------------------------------------------------------------------------------- ----- ------------ ------------
Cash flows from financing activities
Proceeds from issue of shares 98,604 157,466
Proceeds from interest bearing loans and borrowings 15 192,178 50,000
Repayment of interest bearing loans and borrowings 15 (76,089) (46,500)
Dividends paid 9 (61,057) (53,392)
Finance costs paid (4,489) (875)
---------------------------------------------------------------------------------- ----- ------------ ------------
Net cash flow generated from financing activities 149,147 106,699
---------------------------------------------------------------------------------- ----- ------------ ------------
Decrease in cash and cash equivalents (5,296) (44,426)
Cash and cash equivalents at beginning of the year 7,631 52,057
---------------------------------------------------------------------------------- ----- ------------ ------------
Cash and cash equivalents at end of the year 2,335 7,631
---------------------------------------------------------------------------------- ----- ------------ ------------
Net cash flow used in operating activities includes:
Investment income received 3 55,776 44,274
Deposit interest received 3 18 31
---------------------------------------------------------------------------------- ----- ------------ ------------
Non-cash items
Purchase of financial assets (capitalised loan interest and principal indexation) 3 (20,805) (3,137)
---------------------------------------------------------------------------------- ----- ------------ ------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2018
1. General information
GCP Infrastructure Investments Limited is a public company
incorporated and domiciled in Jersey on 21 May 2010 with
registration number 105775. The Company is governed by the
provisions of the Law and the CIF Law.
The Company is a closed-ended investment company and its
ordinary shares are traded on the Main Market of the London Stock
Exchange.
The Company makes infrastructure investments, typically by
acquiring interests in predominantly debt instruments issued by
infrastructure Project Companies (or by their existing lenders or
holding vehicles) that are contracted by UK public sector bodies to
design, finance, build and operate infrastructure projects and by
investing in other assets with a similar economic effect to such
instruments.
2. Significant accounting policies
2.1 Basis of preparation
These financial statements are prepared in accordance with IFRS
as adopted by the EU. The financial statements have been prepared
under the historical cost convention, as modified by the
revaluation of financial assets held at fair value through profit
or loss.
New standards, amendments and interpretations
The Company has applied the following standards and amendments
for the first time for their annual reporting period commencing 1
October 2017:
- IAS 7 Disclosure Initiative (Amendment to IAS 7) (effective
for annual periods beginning on or after 1 January 2017): The
amendments to IAS 7 require disclosure of changes in liabilities
arising from financing activities, see note 15.
There is no material impact to these financial statements
following this change to IAS 7.
There are a number of new standards and amendments to existing
standards which have been published and are mandatory for the
Company's accounting periods beginning on or after 1 October 2018,
but the Company has taken the decision not to early adopt them. The
following standards are the most relevant to the Company:
- IFRS 9 Financial Instruments (effective for annual periods
beginning on or after 1 January 2018): will replace the existing
guidance in IAS 39, Financial Instruments. IFRS 9 includes the new
impairment requirements that provide users with useful information
about an entity's expected credit losses on financial instruments.
These new requirements incorporate the classification and
measurement requirements, the impairment requirements and the
general hedge accounting requirements.
- Financial assets such as 'financial assets at fair value
through profit or loss' are currently measured at fair value. This
classification is still relevant under the new standard. Therefore
there will be no impact on the accounting for financial assets at
fair value through profit or loss. The interest bearing loans and
borrowings (note 15) and other receivables and prepayments (note
12) are accounted for at amortised cost and meet the criteria for
classification at amortised cost under IFRS 9, hence there will be
no change in the accounting for these assets and liabilities.
- There will be no impact on the Company's accounting for
financial liabilities, as the new requirements only affect the
accounting for financial liabilities that are designated at fair
value through profit or loss and the Company does not have any such
liabilities. The derecognition rules have been transferred from IAS
39 Financial Instruments: Recognition and Measurement and have not
been changed.
- The new impairment model requires the recognition of
impairment provisions based on expected credit losses rather than
only incurred credit losses as is the case under IAS 39. It applies
to financial assets classified at amortised cost, debt instruments
measured at fair value through other comprehensive income, contract
assets under IFRS 15, lease receivables, loan commitments and
certain financial guarantee contracts. As financial assets held by
the Company are classified as fair value through profit or loss
this has no impact to current disclosure.
- As a result of the above the Directors do not expect this
standard to have a material impact on the financial statements of
the Company on adoption.
- IFRS 15 Revenue from Contracts with Customers (effective for
annual periods beginning on or after 1 January 2018): the objective
of IFRS 15 is to establish the principles that an entity shall
apply to report useful information to users of financial statements
about the nature, amount, timing, and uncertainty of revenue and
cash flows arising from a contract with a customer.
- Due to the current application of IAS 39 for the recognition
and measurement of net income/gains on financial assets at fair
value through profit or loss, which comprises interest income
received and changes in the fair value of the investments that do
not fall within the scope of IFRS 15, the Directors do not expect
this standard to have a material impact on the financial statements
of the Company.
Further to the above, there are no new IFRS or IFRIC
interpretations that are issued but not effective that would be
expected to have a material impact on the Company's financial
statements.
Going concern
The Directors have made an assessment of the Company's ability
to continue as a going concern and are satisfied that the Company
has the resources to continue in business for the foreseeable
future and for a period of at least twelve months from the date of
the authorisation of these financial statements. Furthermore, the
Directors are not aware of any material uncertainties that may cast
significant doubt upon the Company's ability to continue as a going
concern. Therefore, the financial statements have been prepared on
a going concern basis. In addition to a going concern assessment,
the Directors have undertaken a longer-term assessment of the
Company, the results of which are in the viability statement.
2.2 Significant accounting judgements and estimates
The preparation of financial statements in accordance with IFRS
requires the Directors of the Company to make judgements, estimates
and assumptions that affect the application of accounting policies
and the reported amounts recognised in the financial statements.
However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the
carrying amount of the asset or liability in the future.
(a) Critical accounting estimates and assumptions
Fair value of instruments not quoted in an active market
The valuation process is dependent on assumptions and estimates
which are significant to the reported amounts recognised in the
financial statements taking into account the structure of the
Company and the extent of its investment activities (refer to note
18).
(b) Critical judgements
Assessment as an investment entity
The Directors have determined that the SPVs through which the
Company invests fall under the control of the Company in accordance
with the control criteria prescribed by IFRS 10 and therefore meet
the definition of subsidiaries. In addition, the Directors continue
to hold the view that the Company meets the definition of an
investment entity and therefore can measure and present the SPVs at
fair value through profit or loss. This process requires a
significant degree of judgement taking into account the complexity
of the structure of the Company and extent of investment activities
(refer to note 11).
Functional and presentation currency
Items included in the financial statements of the Company are
measured in the currency of the primary economic environment in
which the Company operates.
The primary objective of the Company is to generate returns in
Pound Sterling, its capital-raising currency. The Company's
performance is evaluated in Pound Sterling. Therefore, the
Directors consider Pound Sterling as the currency that most
faithfully represents the economic effects of the underlying
transactions, events and conditions and have adopted it as the
Company's presentation currency. All values have been rounded to
the nearest thousand pounds (GBP'000) except where otherwise
indicated.
Segmental information
For management purposes, the Company is organised into one main
operating segment. All of the Company's activities are interrelated
and each activity is dependent on the others. Accordingly, all
significant operating decisions are based upon analysis of the
Company as one segment. The financial results from this segment are
equivalent to the financial statements of the Company as a whole.
The following table analyses the Company's underlying operating
income per geographical location. The basis for attributing the
operating income is the place of incorporation of the underlying
counterparty.
30 September 30 September
2018 2017
GBP'000 GBP'000
---------------- ------------ ------------
Channel Islands 18 31
United Kingdom 87,468 56,826
---------------- ------------ ------------
Total 87,486 56,857
---------------- ------------ ------------
Significant shareholders are disclosed in the Directors' report
above.
3. Operating income
The table below analyses the Company's operating income for the
year per investment type:
30 September 30 September
2018 2017
GBP'000 GBP'000
-------------------------------------------------------------------------- ------------ ------------
Interest on cash and cash equivalents 18 31
Net income/gains on financial assets at fair value through profit or loss 86,625 55,361
Other income 843 1,465
-------------------------------------------------------------------------- ------------ ------------
Total 87,486 56,857
-------------------------------------------------------------------------- ------------ ------------
The table below analyses the net income/gains derived from the
Company's financial assets at fair value through profit or
loss:
30 September 30 September
2018 2017
GBP'000 GBP'000
------------------------------------------------------------------------------- ------------ ------------
Loan interest - cash 55,776 44,274
Loan interest - capitalised 20,242 3,137
Principal indexation 563 -
Unrealised gains on investments at fair value through profit or loss 28,106 21,385
Unrealised losses on investments at fair value through profit or loss (27,294) (13,435)
Realised gain on sale of financial assets at fair value through profit or loss 9,232 -
------------------------------------------------------------------------------- ------------ ------------
Total 86,625 55,361
------------------------------------------------------------------------------- ------------ ------------
The table below analyses the unrealised movements through profit
and loss by the type of movement:
30 September 30 September
2018 2017
GBP'000 GBP'000
----------------------------------------------------------------------------------- ------------ ------------
Unrealised gains on investments at fair value through profit or loss 28,106 21,385
Unrealised losses on investments at fair value through profit or loss (27,294) (13,435)
----------------------------------------------------------------------------------- ------------ ------------
Net unrealised movements on investments at fair value through profit and loss 812 7,950
----------------------------------------------------------------------------------- ------------ ------------
Upward movements in valuation due to reductions in discount rates 23,563 3,991
Downward movements in valuation due to reduced forecast cash flows (21,441) (6,418)
Other unrealised movements on investments at fair value through profit and loss(1) (1,310) 10,377
----------------------------------------------------------------------------------- ------------ ------------
Net unrealised movements on investments at fair value through profit and loss 812 7,950
----------------------------------------------------------------------------------- ------------ ------------
1. Other unrealised movements on investments at fair value
through profit and loss are attributable to the timing of debt
service payments.
Accounting policy
Interest revenue and interest expense other than interest
received on financial assets at fair value through profit or loss
are recognised on an accruals basis in the statement of
comprehensive income. Interest income on financial assets is
included in the net income/gains on financial assets at fair value
through profit or loss.
Other income includes early prepayment fees and is recognised in
the financial statements when the contractual provisions are met
and the amounts become due.
4. Auditor's remuneration
30 September 30 September
2018 2017
GBP'000 GBP'000
--------------- ------------ ------------
Audit fees 62 66
Non-audit fees 18 15
--------------- ------------ ------------
Total 80 81
--------------- ------------ ------------
5. Operating expenses
30 September 30 September
2018 2017
GBP'000 GBP'000
-------------------------------------------------------- ------------ ------------
Corporate administration, Depositary and Registrar fees 1,088 985
Legal and professional fees 228 115
Valuation Agent fees 195 305
Directors' remuneration and expenses(1) 375 327
Advisory fees 64 63
Other 578 341
-------------------------------------------------------- ------------ ------------
Total 2,528 2,136
-------------------------------------------------------- ------------ ------------
1. Refer to note 7.
Key service providers other than the Investment Adviser (refer
to note 19 for disclosures of the transactions with the Investment
Adviser)
Administrator and Company Secretary
The Company has appointed Link Alternative Fund Services
(Jersey) Limited (formerly known as Capita Financial Administrators
(Jersey) Limited) as Administrator and Company Secretary. Fund
accounting, administration services and company secretarial
services are provided to the Company pursuant to an agreement dated
31 January 2014. All Directors have access to the advice and
services of the Company Secretary, who provides guidance to the
Board, through the Chairman, on governance matters. The fee for the
provision of administration and company secretarial services during
the year was GBP728,000 (30 September 2017: GBP654,000) of which
GBP60,000 remains payable at year end (30 September 2017:
GBP55,000).
Depositary
Depositary services are provided to the Company by Link
Corporate Services (Jersey) Limited (formerly known as Capita Trust
Company (Jersey) Limited) pursuant to an agreement dated 21 July
2014. The fee for the provision of these services during the year
was GBP289,000 (30 September 2017: GBP244,000) of which GBP24,000
remains payable at year end (30 September 2017: GBP22,000).
Registrar
Registrar services are provided to the Company by Link Market
Services (Jersey) Limited (formerly known as Capita Registrars
(Jersey) Limited) pursuant to an agreement dated 28 June 2010. The
fee for the provision of these services during the year was
GBP71,000 (30 September 2017: GBP87,000) of which GBP10,000 remains
payable at year end (30 September 2017: GBP15,000).
Accounting policy
All operating expenses are charged to the statement of
comprehensive income and are accounted for on an accruals
basis.
6. Finance expenses
30 September 30 September
2018 2017
GBP'000 GBP'000
----------------- ------------ ------------
Finance expenses 3,120 1,093
----------------- ------------ ------------
Total 3,120 1,093
----------------- ------------ ------------
Accounting policy
Finance expenses in the statement of comprehensive income
comprises loan arrangement and commitment fees which are accounted
for on an accruals basis along with interest accrued on the
facility incurred in connection with the borrowing of funds.
Arrangement fees are amortised over the life of the facility.
7. Directors' remuneration
The Directors of the Company are remunerated on the following
basis:
30 September 30 September
2018 2017
GBP'000 GBP'000
-------------------- ------------ ------------
Ian Reeves CBE 73 59
David Pirouet 65 55
Clive Spears 65 55
Paul De Gruchy 55 50
Julia Chapman 55 50
Michael Gray 50 44
-------------------- ------------ ------------
363 313
-------------------- ------------ ------------
Directors' expenses 12 14
-------------------- ------------ ------------
Total 375 327
-------------------- ------------ ------------
During the prior year, in addition to the amounts disclosed
above, an amount of GBP30,000 in aggregate was paid to the
Directors as a fee for the placing programme. This amount was
charged directly within issue costs to the statement of changes in
equity. No such fees have been incurred during the current
year.
Full details of the Directors' remuneration policy can be found
in the Directors' remuneration report above.
8. Taxation
Profits arising in the Company for the year ended 30 September
2018 are subject to tax at the standard rate of 0% (30 September
2017: 0%) in accordance with the Income Tax (Jersey) Law 1961, as
amended.
9. Dividends
Dividends paid for the year ended 30 September 2018 were 7.6
pence per share (30 September 2017: 7.6 pence per share) as
follows:
30 September 30 September
2018 2017
Quarter ended Dividend Pence GBP'000 GBP'000
-------------------------------------------- -------------------- ----- ------------ ------------
Current year dividends
2018 fourth interim
30 September 2018 dividend 1.9 - -
2018 third interim
30 June 2018 dividend 1.9 16,620 -
2018 second interim
31 March 2018 dividend 1.9 16,606 -
2018 first interim
31 December 2017 dividend 1.9 16,593 -
-------------------------------------------- -------------------- ----- ------------ ------------
Total 7.6
------------------------------------------------------------------ ----- ------------ ------------
Prior year dividends
2017 fourth interim
30 September 2017 dividend 1.9 15,028 -
2017 third interim
30 June 2017 dividend 1.9 - 15,023
2017 second interim
31 March 2017 dividend 1.9 - 13,941
2017 first interim
31 December 2016 dividend 1.9 - 13,929
-------------------------------------------- -------------------- ----- ------------ ------------
Total 7.6
------------------------------------------------------------------ ----- ------------ ------------
2016 fourth interim
30 September 2016 dividend 1.9 - 12,541
Dividends in statement of changes in equity 64,847 55,434
Dividends settled in shares(1) (3,790) (2,042)
------------------------------------------------------------------ ----- ------------ ------------
Dividends in cash flow statement 61,057 53,392
------------------------------------------------------------------ ----- ------------ ------------
1. The dividends settled in shares are where shareholders have
elected to take the scrip dividend alternative.
On 19 October 2018, the Company declared a fourth interim
dividend of 1.9 pence per ordinary share amounting to GBP16,645,000
which was paid on 3 December 2018 to ordinary shareholders on the
register as at 2 November 2018.
Accounting policy
In accordance with the Company's constitution, in respect of the
ordinary shares, the Company will distribute the income it receives
to the fullest extent that is deemed appropriate by the
Directors.
In declaring a dividend, the Directors consider the payment
based on a number of factors, including accounting profit, fair
value treatment of investments held, future investments, reserves,
cash balances and liquidity. The payment of a dividend is
considered by the Board and is declared on a quarterly basis.
Dividends due to the Company's shareholders are recognised when
they become payable.
In the year ended 30 September 2017, the dividend policy was
amended so that dividends payable on new shares issued in the
respective quarterly period are funded partly from share premium,
to reflect the premium received on the issue of those shares, and
partly from retained earnings to reflect the time over which those
proceeds have been fully invested. The funding of dividends out of
share premium shall not exceed the share premium to NAV of the
relevant share issue. During the prior financial year, an
adjustment relating to the dividends paid from share premium in
previous years (see note 16) was made between share premium and
retained reserves.
10. Earnings per share
Basic and diluted earnings per share are calculated by dividing
profit for the year attributable to ordinary equity holders of the
Company by the weighted average number of ordinary shares in issue
during the year.
Weighted
average
number
Total profit of Pence
ordinary
GBP'000 shares per share
---------------------------------------------- ------------ ----------- ---------
Year ended 30 September 2018
Basic and diluted earnings per ordinary share 73,418 850,004,870 8.64
---------------------------------------------- ------------ ----------- ---------
Year ended 30 September 2017
Basic and diluted earnings per ordinary share 46,650 733,039,703 6.36
---------------------------------------------- ------------ ----------- ---------
11. Financial assets at fair value through profit or loss
30 September 30 September
2018 2017
GBP'000 GBP'000
------------------------------------------------------------------------------- ------------ ------------
Opening balance 899,258 699,682
------------------------------------------------------------------------------- ------------ ------------
Purchases of financial assets 377,360 227,093
Repayments of financial assets (50,231) (35,467)
Proceeds from sale of financial assets (106,039) -
Unrealised gain on investments at fair value through profit or loss 28,106 21,385
Unrealised loss on investments at fair value through profit or loss (27,294) (13,435)
Realised gain on sale of financial assets at fair value through profit or loss 9,232 -
------------------------------------------------------------------------------- ------------ ------------
Closing balance 1,130,392 899,258
------------------------------------------------------------------------------- ------------ ------------
The Facilities are secured against the portfolio of assets held
by the Company (refer to note 15).
The 'purchases of financial assets', 'repayments of financial
assets' and 'proceeds from sale of financial assets' during the
year include non-cash transactions of GBP63,241,000, GBP24,749,000
and GBP38,492,000 respectively.
Accounting for subsidiaries
The Company's investments are made through a number of SPVs
(refer to note 24) which are domiciled in the UK. The Company does
not hold equity interests in these SPVs; the Investment Adviser
holds a nominal equity position in each SPV and operates the SPVs
on a day-to-day basis. The Company owns 100% of the loan notes
issued by the SPVs with the exception of GCP Rooftop Solar 6
Limited (40.8%) and FHW Dalmore (Salford Pendleton Housing) plc
(13.3%).
The Directors have made an assessment in regard to whether the
Company controls the SPVs and whether the SPVs meet the definition
of subsidiary companies in accordance with the definition of IFRS
10. The Directors have made an assessment on whether the Company as
an investor controls the SPVs under each of the criteria within
IFRS 10. For a schedule of SPVs held at year end, please refer to
note 24.
The Directors are of the opinion that the Company demonstrates
all three of the criteria for all SPVs which therefore determines
these SPVs to be considered subsidiary companies within the
definition of IFRS 10, with the exception of GCP Rooftop Solar 6
Limited and FHW Dalmore (Salford Pendleton Housing) plc, which are
considered to be associates as the Company has significant
influence over the relevant activities of the SPV through similar
arrangements.
Assessment as an investment entity
Entities that meet the definition of an investment entity within
IFRS 10 are required to measure their subsidiaries at fair value
through profit or loss rather than consolidate the entities. The
criteria which define an investment entity are as follows:
- an entity that obtains funds from one or more investors for
the purpose of providing those investors with investment
services;
- an entity that commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income or both; and
- an entity that measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Directors have concluded that the Company continues to meet
the characteristics of an investment entity, in that it has more
than one investor and its investors are not related parties; it
holds a portfolio of investments, predominantly in the form of loan
securities, which generates returns through interest income and
capital appreciation; the Company reports to its investors via
quarterly investor information and to its management, via internal
management reports, on a fair value basis. All investments are
reported at fair value to the extent allowed by IFRS in the
Company's annual reports.
Accounting policy
Holdings of the loan notes held by the Company are shown as
financial assets at fair value through profit or loss in the
statement of financial position, which in the opinion of the
Directors represent the fair value of the SPVs as any other net
assets held in the SPVs at year end are immaterial.
The Company recognises a financial asset or a financial
liability when, and only when, it becomes a party to the
contractual provisions of the instrument. Purchases or sales of
financial assets that require delivery of assets within the time
frame generally established by regulation or convention in the
marketplace are recognised on the trade date, i.e. the date that
the Company commits to purchase or sell the asset. A financial
asset (or, where applicable, a part of a financial asset or part of
a group of similar financial assets) is derecognised where:
- the rights to receive cash flows from the asset have expired;
- the Company has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a
pass-through arrangement; and
- either (a) the Company has transferred substantially all the
risks and rewards of the asset, or (b) the Company has neither
transferred nor retained substantially all the risks and rewards of
the asset but has transferred control of the asset.
When the Company transfers its rights to receive cash flows from
an asset or has entered into a pass-through arrangement and has
neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the
asset is recognised to the extent of the Company's continuing
involvement in the asset. The Company derecognises a financial
liability when the obligation under the liability is discharged,
cancelled or expired.
Financial assets and financial liabilities at fair value through
profit or loss are recorded in the statement of financial position
at fair value. All transaction costs for such instruments are
recognised directly in the statement of comprehensive income.
After initial measurement, the Company measures financial
instruments which are classified as fair value through profit or
loss at fair value. Subsequent changes in the fair value of those
financial instruments are recorded in profit or loss in the
statement of comprehensive income.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. For all other
financial instruments not traded in an active market, the fair
value is determined by using appropriate valuation techniques.
Valuation techniques include using recent arm's length market
transactions, referenced to appropriate current market data, and
discounted cash flow analysis, at all times making as much use of
available and supportable market data as possible.
An analysis of fair values of financial instruments and further
details as to how they are measured are provided in note 18.
12. Other receivables and prepayments
30 September 30 September
2018 2017
GBP'000 GBP'000
---------------------------------- ------------ ------------
Other receivables and prepayments 265 53
---------------------------------- ------------ ------------
Total 265 53
---------------------------------- ------------ ------------
Accounting policy
Receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less any provision for impairment. A provision for
impairment is established when there is objective evidence that the
Company will not be able to collect all amounts according to the
original terms of the contract.
13. Other payables and accrued expenses
30 September 30 September
2018 2017
GBP'000 GBP'000
------------------------------------ ------------ ------------
Investment advisory fees 2,258 1,883
Other payables and accrued expenses 485 616
------------------------------------ ------------ ------------
Total 2,743 2,499
------------------------------------ ------------ ------------
Accounting policy
Payables are recognised initially at fair value including
transaction costs and subsequently measured at amortised cost using
the effective interest method.
14. Cash and cash equivalents
30 September 30 September
2018 2017
GBP'000 GBP'000
-------------------------- ------------ ------------
Cash and cash equivalents 2,335 7,631
-------------------------- ------------ ------------
Total 2,335 7,631
-------------------------- ------------ ------------
Cash is held at a number of financial institutions to spread
credit risk and cash awaiting investment is held on behalf of the
Company at banks carrying a minimum rating of A-1, P-1 or F1 from
Standard & Poor's, Moody's or Fitch respectively, or in one or
more similarly rated money market or short-dated gilt funds. RBSI
are currently rated F2 by Fitch. The Directors, together with the
Depositary, closely monitor this aspect and take comfort from the
fact that cash is generally held on a short-term basis, pending
subsequent investment. Furthermore, the amount of working capital
that may be held at RBSI is limited to GBP3.5 million, with any
excess uninvested/surplus cash to be transferred to other financial
institutions with the minimum credit ratings described above. It is
also recognised that the arrival of ring-fenced banking had an
impact on the availability of A-rated banks. Cash held by
institutions at year end is shown in the table below:
30 September 30 September
2018 2017
GBP'000 GBP'000
---------------------------------- ------------ ------------
RBSI Cash Management Account 1,441 1,568
Lloyds Money Market Call Account 884 2,670
RBSI Capital and Interest Account 10 3,393
---------------------------------- ------------ ------------
Total 2,335 7,631
---------------------------------- ------------ ------------
Accounting policy
Cash and cash equivalents in the statement of financial position
and statement of cash flows comprise cash on hand, demand deposits,
short-term deposits in banks with original maturities of three
months or less and short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject
to an insignificant risk of changes in value.
15. Interest bearing loans and borrowings
30 September 30 September
2018 2017
GBP'000 GBP'000
----------------------------- ------------ ------------
Loan facilities 146,089 30,000
Unamortised arrangement fees (1,365) (117)
----------------------------- ------------ ------------
Total 144,724 29,883
----------------------------- ------------ ------------
The table below analyses the movement for the year:
30 September 30 September
2018 2017
GBP'000 GBP'000
---------------------------------------------------- ------------ ------------
Opening balance 30,000 26,500
Proceeds from interest bearing loans and borrowings 192,178 50,000
Payments of interest bearing loans and borrowings (76,089) (46,500)
---------------------------------------------------- ------------ ------------
Total 146,089 30,000
---------------------------------------------------- ------------ ------------
On 17 January 2018, the Company drew down a further GBP25
million from its existing revolving Facilities with RBSI resulting
in a total amount drawn down of GBP55 million. This amount was
fully repaid on 27 March 2018 when the facility expired.
During the year ended 30 September 2018, the Company entered
into three new credit facilities (the 'Facilities'), which are
detailed below.
On 27 March 2018, the Company entered into a three-year GBP75
million Facilities arrangement with RBSI and ING ('Facility A'), a
three-year GBP50 million fixed-term facility with RBSI and ING
('Facility B') and a one-year GBP25 million revolving facility with
RBSI ('Facility C'). The initial cost of the Facilities of
GBP1,460,000 (including the arrangement and co-ordination fee of
GBP1,425,000) were offset against the amount drawn down. On 27
March 2018, Facility A and Facility B were fully drawn and Facility
C had GBP16,535,000 drawn down. An additional arrangement fee of
0.20% (GBP50,000) became payable on Facility C and was paid on 12
July 2018, as this facility was not repaid within the first three
months.
On 27 July 2018 and 31 August 2018 the Company completed further
drawdowns of GBP1,150,000 and GBP3,404,000 respectively from
Facility C.
On 27 September 2018, the Company made an amendment to Facility
A with RBSI and ING to include a third lender, NIBC, and an
arrangement fee of GBP225,000 was paid. As part of the amendment,
Facility A was increased by GBP25 million to GBP100 million. On the
same day, the amount drawn on Facility C of GBP21,089,000 was
repaid and cancelled. The repayment of Facility C was offset
against a drawdown from Facility A for the same amount.
As at 30 September 2018, Facility A had GBP96,089,000 drawn down
and Facility B was fully drawn.
All amounts drawn under the Facilities are to be used in or
towards the making of investments in accordance with the Company's
investment policy.
Interest on amounts drawn under Facility A and Facility B is
charged at LIBOR plus 1.9% per annum. Interest on amounts drawn
under Facility C was charged at LIBOR plus 1.6% per annum. A
commitment fee is payable on undrawn amounts of 0.67% on Facility A
and a fee of 0.56% was payable on undrawn amounts on Facility C
before cancellation. No commitment fee is payable on Facility B as
this is fixed to be fully drawn for the life of the loan.
The Facilities with RBSI, ING and NIBC are secured against the
portfolio of assets held by the Company. Facility A and Facility B
are repayable in March 2021.
The Facilities include loan-to-value and interest cover
covenants that are measured at Company level. The Company has
maintained significant headroom against all measures throughout the
financial period and is in full compliance with all loan covenants
at 30 September 2018.
Leverage
For the purposes of the AIFMD, leverage is any method which
increases the Company's exposure, including the borrowing of cash
and the use of derivatives. It is expressed as a ratio between the
Company's exposure and its net asset value and is calculated under
the gross and commitment methods, in accordance with the AIFMD.
The Company is required to state its maximum and actual leverage
levels, calculated as prescribed by the AIFMD as at 30 September
2018; the figures are as follows:
Maximum Actual
Leverage exposure limit exposure
------------------ ------- ---------
Gross method 1.20 1.15
Commitment method 1.20 1.15
------------------ ------- ---------
The leverage figures disclosed above represent leverage
calculated under the AIFMD methodology as follows:
Gross Commitment
GBP'000 GBP'000
------------------------------------------------- --------- ----------
Investments at fair value through profit or loss 1,130,392 1,130,392
Cash and cash equivalents - 2,335
-------------------------------------------------- --------- ----------
Total exposure under AIFMD 1,130,392 1,132,727
-------------------------------------------------- --------- ----------
Total shareholders' funds 985,525 985,525
-------------------------------------------------- --------- ----------
Leverage (ratio) 1.15 1.15
-------------------------------------------------- --------- ----------
The Company's leverage limit under the AIFMD is 1.20, which
equates to a gearing limit of 20%. The Company has maintained
sufficient headroom against the limit throughout the year.
Accounting policy
Borrowings are recognised initially at fair value, less
attributable costs. Borrowings are subsequently stated at amortised
cost. Any difference between the proceeds (net of transaction
costs) and the redemption value is recognised in the statement of
comprehensive income over the period of the borrowings using the
effective interest method. Transaction costs are spread over the
term of the facility.
16. Authorised and issued share capital
30 September 2018 30 September 2017
-------------------- --------------------
Share capital Number Number
of shares GBP'000 of shares GBP'000
-------------------------------------- ----------- ------- ----------- -------
Ordinary shares issued and fully paid
At 1 October 2017/2016 790,967,125 7,909 660,025,921 6,600
Equity shares issued through:
Dividends settled in shares(1) 3,131,061 31 1,615,097 16
Placing programme 81,967,214 820 129,326,107 1,293
-------------------------------------- ----------- ------- ----------- -------
Total 876,065,400 8,760 790,967,125 7,909
-------------------------------------- ----------- ------- ----------- -------
1. The dividends settled in shares are where shareholders have
elected to take the scrip dividend alternative.
Share capital represents the nominal amount of the Company's
ordinary shares in issue.
The Company is authorised to issue 1.5 billion ordinary shares,
300 million C shares and 300 million deferred shares, each having a
par value of one pence per share.
30 September 30 September
2018 2017
Share premium GBP'000 GBP'000
------------------------------------------------- ------------ ------------
Premium on ordinary shares issued and fully paid
Opening balance 843,036 694,406
Premium on equity shares issued through:
Dividends settled in shares(1) 3,759 2,026
Placing programme 99,180 158,707
Share issue costs charged to premium (1,396) (2,534)
Dividends paid (2,873) (3,817)
Transfer to retained earnings - (5,752)
------------------------------------------------- ------------ ------------
Total 941,706 843,036
------------------------------------------------- ------------ ------------
1. The dividends settled in shares are where shareholders have
elected to take the scrip dividend alternative.
Share premium represents amounts subscribed for share capital in
excess of nominal value less associated issue costs of the
subscription.
Dividends payable on new shares issued in the respective
quarterly period are funded partly from share premium, to reflect
the premium received on the issue of those shares, and partly from
retained earnings to reflect the time over which those proceeds
have been fully invested. The funding for dividends out of share
premium shall not exceed the share premium to NAV of the relevant
share issue. In the prior year an adjustment relating to the
dividends paid from share premium in previous years was made
between share premium and retained reserves.
The Company's share capital is represented by one class of
ordinary shares. Quantitative information about the Company's share
capital is provided in the statement of changes in equity. The
scrip reference price is calculated as the average of the Company's
closing middle market price, as derived from the Daily Official
List of the London Stock Exchange, for the five consecutive
business days commencing on the ex-dividend date.
Number Issued
of
Date shares share price Description Period
issued
----------------- ---------- ----------- ----------------------- -------------
Ordinary shares
issued in respect 1 July
of the offer of 2017 to
a scrip dividend 30 September
1 December 2017 359,717 122.52p alternative 2017
Ordinary shares
issued by way of
GBP100 million
raised under the
16 January 2018 81,967,214 122.00p 2017 placing programme n/a
Ordinary shares
issued in respect 1 October
of the offer of 2017 to
a scrip dividend 31 December
23 February 2018 722,427 119.16p alternative 2017
Ordinary shares
issued in respect 1 January
of the offer of 2018 to
a scrip dividend 31 March
5 June 2018 688,615 119.12p alternative 2018
Ordinary shares
issued in respect 1 April
of the offer of 2018 to
a scrip dividend 30 June
24 August 2018 1,360,302 122.60p alternative 2018
----------------- ---------- ----------- ----------------------- -------------
Total 85,098,275
----------------- ---------- ----------- ----------------------- -------------
At 30 September 2018, the Company's issued share capital
comprised 876,065,400 ordinary shares, none of which were held in
treasury.
The ordinary shares carry the right to dividends out of the
profits available for distribution attributable to each share
class, if any, as determined by the Directors. Each holder of an
ordinary share is entitled to attend meetings of shareholders and,
on a poll, to one vote for each share held.
Accounting policy
The Directors of the Company continually assess the
classification of the ordinary shares. If the ordinary shares cease
to have all the features or meet all the conditions set out to be
classified as equity, they will be reclassified as financial
liabilities and measured at fair value at the date of
reclassification, with any differences from the previous carrying
amount recognised in equity. Transaction costs incurred by the
Company in issuing, acquiring or reselling its own equity
instruments are accounted for as a deduction from equity to the
extent that they are incremental costs directly attributable to the
equity transaction that otherwise would have been avoided. No gain
or loss is recognised in the statement of comprehensive income on
the purchase, sale, issuance or cancellation of the Company's own
equity instruments.
17. Capital redemption reserve
30 September 30 September
2018 2017
GBP'000 GBP'000
---------------- ------------ ------------
At 1 October 101 101
At 30 September 101 101
---------------- ------------ ------------
The Company is required by the Law to establish and maintain
this reserve on the redemption or repurchase of its own shares.
18. Financial instruments
The table below sets out the classifications of the carrying
amounts of the Company's financial assets and financial liabilities
into categories of financial instruments under IAS 39.
30 September 30 September
2018 2017
GBP'000 GBP'000
----------------------------------------------------------- ------------ ------------
Financial assets
Cash and cash equivalents 2,335 7,631
Other receivables and prepayments 265 53
----------------------------------------------------------- ------------ ------------
Financial assets at amortised cost 2,600 7,684
Financial assets held at fair value through profit or loss 1,130,392 899,258
----------------------------------------------------------- ------------ ------------
Total 1,132,992 906,942
----------------------------------------------------------- ------------ ------------
Financial liabilities
Other payables and accrued expenses (2,743) (2,499)
Interest bearing loans and borrowings (144,724) (29,883)
----------------------------------------------------------- ------------ ------------
Financial liabilities measured at amortised cost (147,467) (32,382)
----------------------------------------------------------- ------------ ------------
Refer to notes 11, 12, 13, 14 and 15 for accounting policies in
respect of the financial instruments above.
18.1 Capital management
The Company is funded from equity balances, comprising issued
ordinary share capital (as detailed in note 16) and retained
earnings, as well as credit facilities, as detailed in note 15.
The Company may seek to raise additional capital from time to
time to the extent that the Directors and the Investment Adviser
believe the Company will be able to make suitable investments, with
consideration given to any quantum of loan repayments due.
The Company raises capital on a highly conservative basis only
when it has a clear view of a robust pipeline of highly advanced
investment opportunities. Additional capital was raised during the
year as disclosed in note 16. The Company may borrow up to 20% of
its NAV as at such time any such borrowings are drawn down. At the
year end, borrowings amounted to 14.8% of NAV (30 September 2017:
3.4%).
18.2 Financial risk management objectives
The Company has an investment policy and strategy, as summarised
in its prospectus dated 28 March 2017, that sets out its overall
investment strategy and its general risk management philosophy and
has established processes to monitor and control these in a timely
and accurate manner. These guidelines are the subject of regular
operational reviews undertaken by the Investment Adviser to ensure
that the Company's policies are adhered to as it is the Investment
Adviser's duty to identify and assist in the control of risk. The
Investment Adviser reports regularly to the Directors, who have
ultimate responsibility for the overall risk management
approach.
The Investment Adviser and the Directors ensure that all
investment activity is performed in accordance with the investment
guidelines. The Company's investment activities expose it to
various types of risks that are associated with the financial
instruments and markets in which it invests. Risk is inherent in
the Company's activities and it is managed through a process of
ongoing identification, measurement and monitoring. The financial
risks to which the Company is exposed include market risk, which
includes other price risk and interest rate risk, credit risk and
liquidity risk.
18.3 Market risk
There is a risk that market movements in interest rates, credit
markets and observable yields may decrease or increase the fair
value of the Company's financial assets without regard to the
assets' underlying performance. The fair value of the Company's
financial assets is measured and monitored on a quarterly basis by
the Investment Adviser with the assistance of the Valuation
Agent.
The valuation principles used are based on a discounted cash
flow methodology, where applicable. A fair value for each asset
acquired by the Company is calculated by applying a relevant market
discount rate to the contractual cash flows expected to arise from
each asset. At year end, the fair value of three assets was
determined on the basis of the Directors' estimate of recoverable
value due to operational performance issues of the underlying
assets.
The Valuation Agent determines the discount rates that it
believes the market would reasonably apply to each investment
taking into account, inter alia, the following significant
inputs:
- Pound Sterling interest rates;
- movements of comparable credit markets; and
- observable yields on other comparable instruments.
In addition, the following are also considered as part of the
overall valuation process:
- general infrastructure market activity and investor sentiment; and
- changes to the economic, legal, taxation or regulatory environment.
The Valuation Agent exercises its judgement in assessing the
expected future cash flows from each investment. Given that the
investments of the Company are generally fixed-income debt
instruments (in some cases with elements of inflation protection)
or other investments with a similar economic effect, the focus of
the Valuation Agent is on assessing the likelihood of any
interruptions to the debt service payments, in light of the
operational performance of the underlying asset. Where appropriate,
the Valuation Agent will also consider long-term assumptions that
have a direct impact on valuation, such as power prices, inflation
and availability.
The valuations are reviewed by the Investment Adviser and the
Directors. The subsequent NAV is also reviewed and approved by the
Directors on a quarterly basis.
The table below shows how changes in discount rates affect the
changes in the valuation of financial assets at fair value. The
range of discount rates used reflects the Investment Adviser's view
of a reasonable expectation of valuation movements across the
portfolio in a twelve-month period.
30 September 2018
Change in discount rates 0.50% 0.25% 0.00% (0.25%) (0.50%)
------------------------------------------------------------ --------- --------- --------- --------- ---------
Value of financial assets at fair value (GBP'000) 1,088,240 1,108,959 1,130,392 1,152,573 1,175,539
Change in value of financial assets at fair value (GBP'000) (42,152) (21,433) - 22,181 45,147
------------------------------------------------------------ --------- --------- --------- --------- ---------
At 30 September 2018, the discount rates used in the valuation
of financial assets ranged from 5.50% to 10.38%.
30 September 2017
Change in discount rates 0.50% 0.25% 0.00% (0.25%) (0.50%)
------------------------------------------------------------ -------- -------- ------- ------- -------
Value of financial assets at fair value (GBP'000) 866,216 882,460 899,258 916,638 934,626
Change in value of financial assets at fair value (GBP'000) (33,042) (16,798) - 17,380 35,368
------------------------------------------------------------ -------- -------- ------- ------- -------
At 30 September 2017, the discount rates used in the valuation
of financial assets ranged from 6.50% to 10.38%.
18.4 Interest rate risk
Interest rate risk has the following effect:
Fair value of financial assets
Interest rates are one of the factors which the Valuation Agent
takes into account when valuing the financial assets.
Future cash flows
The Company primarily invests in senior and subordinated debt
instruments of infrastructure Project Companies. The financial
assets have fixed interest rate coupons, albeit with some inflation
protection and, as such, movements in interest rates will not
directly affect the future cash flows payable to the Company.
Interest rate hedging may be carried out to seek to provide
protection against falling interest rates in relation to assets
that do not have a minimum fixed rate of return acceptable to the
Company in line with its investment policy and strategy.
Where the debt instrument is subordinated, the Company is
indirectly exposed to the gearing of the infrastructure Project
Companies. The Investment Adviser ensures as part of its due
diligence that the Project Company debt ranking senior to the
Company's investment has been, where appropriate, hedged against
movement in interest rates where appropriate, through the use of
interest rate swaps.
Borrowings
During the year, the Company made use of its Facility with RBSI
and its new Facilities with RBSI, ING and NIBC, which were used to
finance investments made by the Company. Details of the Facilities
are given in note 15.
Any potential financial impact of movements in interest rates on
the cost of borrowings to the Company is mitigated by the
short-term nature of such borrowings.
18.5 Credit risk
Credit risk refers to the risk that the counterparty to a
financial instrument will fail to discharge an obligation or
commitment that it has entered into with the Company. The assets
classified at fair value through profit or loss do not have a
published credit rating; however, the Investment Adviser monitors
the financial position and performance of the Project Companies on
a regular basis to ensure that credit risk is appropriately
managed.
The Company is exposed to differing levels of credit risk on all
its assets. Per the statement of financial position, the Company's
total exposure to credit risk is GBP1,133 million (30 September
2017: GBP907 million) being the balance of total assets less
prepayments. As a matter of general policy, cash is held at a
number of financial institutions to spread credit risk, with cash
awaiting investment being held on behalf of the Company at banks
which carry a minimum rating of A-1, P-1 or F1 from Standard &
Poor's, Moody's or Fitch respectively or in one or more similarly
rated money market or short-dated gilt funds. RBSI is currently
rated F2 by Fitch, but the Directors, together with the Depositary,
closely monitor this aspect and take comfort from the fact that
cash is generally held on a short-term basis, pending subsequent
investment. Furthermore, the amount of working capital that may be
held at RBSI is limited to GBP3.5 million, with any excess
uninvested/surplus cash to be transferred to other financial
institutions with the minimum credit ratings described above. It is
also recognised that the arrival of ring-fenced banking had an
impact on the availability of A-rated banks.
Before an investment decision is made, the Investment Adviser
performs extensive due diligence complemented by professional third
party advisers, including technical advisers, financial and legal
advisers, and valuation and insurance experts. After an investment
is made the Investment Adviser uses detailed cash flow forecasts to
assess the continued creditworthiness of Project Companies and
their ability to pay all costs as they fall due. The forecasts are
regularly updated with information provided by the Project
Companies in order to monitor ongoing financial performance.
The Project Companies receive a significant portion of revenue
from government departments and public sector or local authority
clients.
The Project Companies are also reliant on their subcontractors,
particularly facilities managers, continuing to perform their
service delivery obligations such that revenues are not disrupted.
The credit standing of each significant subcontractor is monitored
by the Investment Adviser on an ongoing basis and significant
exposures are reported to the Directors quarterly.
The concentration of credit risk to any individual project did
not exceed 10% of the Company's portfolio at the year end. The
Investment Adviser also monitors the concentration of risk based
upon the nature of each underlying project.
The concentration of credit risk associated with counterparties
is deemed to be low due to asset and sector diversification. The
underlying counterparties are typically public sector entities
which pay pre-determined, long-term, public sector backed revenues
in the form of subsidy payments (FiT and ROCs payments) for
renewables transactions, unitary charge payments for PFI
transactions or lease payments for social housing projects. In the
view of the Investment Adviser and the Board, the public sector
generally has both the ability and willingness to support the
obligations to these entities.
The credit risk associated with each Project Company is further
mitigated because the cash flows receivable are secured over the
assets of the Project Company, which in turn has security over the
assets of the underlying projects. The debt instruments held by the
Company are held at fair value, and the credit risk associated with
these investments is one of the factors which the Valuation Agent
takes into account when valuing the financial assets.
The Investment Adviser regularly monitors the concentration of
risk based upon the nature of each underlying project to ensure
appropriate diversification and risk remains within acceptable
parameters.
Changes in credit risk affect the discount rates. The
sensitivity of the fair value of the financial assets at fair value
through profit or loss is disclosed above. The Directors have
assessed the credit quality of the portfolio at the year end and
based on the parameters set out above are satisfied that the credit
quality remains within an acceptable range for long-dated debt.
18.6 Liquidity risk
Liquidity risk is defined as the risk that the Company will
encounter difficulty in meeting obligations associated with
financial liabilities that are settled by delivering cash or
another financial asset. Exposure to liquidity risk arises because
of the possibility that the Company could be required to pay its
liabilities earlier than expected. The Company's objective is to
maintain a balance between continuity of funding and flexibility
through the use of bank deposits and interest bearing loans and
borrowings.
The following table analyses all of the Company's assets and
liabilities into relevant maturity groupings based on the remaining
period from 30 September 2018 to the contractual maturity date. The
Directors have elected to present both assets and liabilities in
the liquidity disclosure below to illustrate the net liquidity
exposure of the Company.
All cash flows in the table below are on an undiscounted
basis.
Less than One to Three to Greater
one three twelve than twelve
month months months months Total
30 September 2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------ --------- ------- -------- ------------ ---------
Financial assets
Cash and cash equivalents 2,335 - - - 2,335
Other receivables and prepayments - - 265 - 265
Financial assets at fair value through profit or loss 12,900 24,997 66,982 2,308,693 2,413,572
------------------------------------------------------ --------- ------- -------- ------------ ---------
Total financial assets 15,235 24,997 67,247 2,308,693 2,416,172
------------------------------------------------------ --------- ------- -------- ------------ ---------
Financial liabilities
Other payables and accrued expenses - (2,743) - - (2,743)
Interest bearing loans and borrowings - - - (155,724) (155,724)
------------------------------------------------------ --------- ------- -------- ------------ ---------
Total financial liabilities - (2,743) - (155,724) (158,467)
------------------------------------------------------ --------- ------- -------- ------------ ---------
Net exposure 15,235 22,254 67,247 2,152,969 2,257,705
------------------------------------------------------ --------- ------- -------- ------------ ---------
Less than One to Three to Greater Total
one month three months twelve than twelve
months months
30 September 2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------ ---------- ------------- -------- ------------ ---------
Financial assets
Cash and cash equivalents 7,631 - - - 7,631
Other receivables and prepayments - - 53 - 53
Financial assets at fair value through profit or loss 26,766 13,952 61,164 1,817,891 1,919,773
------------------------------------------------------ ---------- ------------- -------- ------------ ---------
Total financial assets 34,397 13,952 61,217 1,817,891 1,927,457
------------------------------------------------------ ---------- ------------- -------- ------------ ---------
Financial liabilities
Other payables and accrued expenses - (2,499) - - (2,499)
Interest bearing loans and borrowings - - (30,403) - (30,403)
------------------------------------------------------ ---------- ------------- -------- ------------ ---------
Total financial liabilities - (2,499) (30,403) - (32,902)
------------------------------------------------------ ---------- ------------- -------- ------------ ---------
Net exposure 34,397 11,453 30,814 1,817,891 1,894,555
------------------------------------------------------ ---------- ------------- -------- ------------ ---------
18.7 Fair values of financial assets
Basis of determining fair value
The Valuation Agent carries out quarterly valuations of the
financial assets of the Company. These valuations are reviewed by
the Investment Adviser and the Directors. The subsequent NAV
produced is reviewed and approved by the Directors on a quarterly
basis.
Fair value measurements
Investments measured and reported at fair value are classified
and disclosed in one of the following fair value hierarchy levels
depending on whether their fair value is based on:
- Level 1: quoted prices in active markets for identical assets or liabilities;
- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices); and
- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The basis for the Valuation Agent's valuations, including inputs
used, is described in note 18.3.
An investment is always categorised as Level 1, 2 or 3 in its
entirety. In certain cases, the fair value measurement for an
investment may use a number of different inputs that fall into
different levels of the fair value hierarchy. In such cases, an
investment level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value
measurement. The assessment of the significance of a particular
input to the fair value measurement requires judgement and is
specific to the investment.
The Company recognises transfers between levels of the fair
value hierarchy at the end of the reporting year during which the
change has occurred.
The table below analyses all investments held by the Company by
the level in the fair value hierarchy into which the fair value
measurement is categorised:
30 September 30 September
Fair value 2018 2017
hierarchy GBP'000 GBP'000
------------------------------------------------------ ----------- ------------ ------------
Financial assets at fair value through profit or loss
Loan notes Level 2 895,468 659,966
Loan notes Level 3 234,924 239,292
------------------------------------------------------ ----------- ------------ ------------
The Directors have classified the financial instruments as Level
2 or Level 3 depending on whether or not there is a consistent data
set of comparable and observable market transactions. Due to the
limited number of comparable and observable market transactions,
the Directors have classified the Company's investments in biomass
projects as Level 3 (30 September 2017: Level 3). At the year end,
the fair value of the two further assets have been determined on
the basis of the Directors' estimate of recoverable value, due to
operational performance issues of the underlying assets. Therefore,
these assets, with a carrying value of GBP9.5 million, were
transferred into Level 3 from Level 2 of the fair value hierarchy.
Discount rates between 7.0% and 10.3% (30 September 2017: 7.2% and
10.3%) were applied to the investments categorised as Level 3.
The following table shows a reconciliation of all movements in
the fair value of financial instruments categorised within Level 3
between the beginning and end of the year:
30 September 30 September
2018 2017
GBP'000 GBP'000
-------------------------------------------------------------------- ------------ ------------
Opening balance 239,292 179,386
-------------------------------------------------------------------- ------------ ------------
Purchases 13,253 63,633
Repayments (18,828) (6,370)
Unrealised gain on investments at fair value through profit or loss 578 7,498
Unrealised loss on investments at fair value through profit or loss (8,871) (4,855)
Transfers from Level 2 9,500 -
-------------------------------------------------------------------- ------------ ------------
Closing balance 234,924 239,292
-------------------------------------------------------------------- ------------ ------------
For the Company's financial instruments categorised as Level 3,
changing the discount rates used to value the underlying
instruments alters the fair value. A change in the discount rates
used to value the Level 3 investments would have the following
effect on profit:
30 September 2018
Level 3 0.50% 0.25% 0.00% (0.25%) (0.50%)
--------------------------------------------------------------- ------- ------- ------- ------- -------
Valuation of financial assets at fair value (GBP'000) 228,846 231,850 234,924 238,069 241,288
Change in valuation of financial assets at fair value(GBP'000) (6,078) (3,074) - 3,145 6,364
--------------------------------------------------------------- ------- ------- ------- ------- -------
30 September 2017
Level 3 0.50% 0.25% 0.00% (0.25%) (0.50%)
---------------------------------------------------------------- ------- ------- ------- ------- -------
Valuation of financial assets at fair value (GBP'000) 232,036 235,618 239,292 243,062 246,930
Change in valuation of financial assets at fair value (GBP'000) (7,256) (3,674) - 3,770 7,638
---------------------------------------------------------------- ------- ------- ------- ------- -------
The Directors consider the inputs used in the valuation of
investments and the appropriateness of their classification in the
fair value hierarchy. In particular, the Directors are satisfied
that significant inputs into the discount rates, other than in
respect of biomass investments as noted above, are market
observable. Should the valuation approach change, causing an
investment to meet the characteristics of a different level of the
fair value hierarchy, it will be reclassified accordingly.
Other than for the investments noted above, no additional
transfers between the fair value hierarchy levels have occurred
during the year, therefore no further disclosure is deemed
necessary by the Directors.
19. Related party disclosures
As defined by IAS 24 Related Party Disclosures, parties are
considered to be related if one party has the ability to control
the other party or exercise significant influence over the other
party in making financial or operational decisions.
Directors
The non-executive Directors of the Company are considered to be
the key management personnel of the Company. Directors'
remuneration including expenses for the year totalled GBP375,000
(30 September 2017: GBP357,000, inclusive of GBP30,000 attributable
to special fees for the placing programme, that was charged to
equity as a share issue cost). At 30 September 2018, liabilities in
respect of these services amounted to GBP94,000 (30 September 2017:
GBP79,000).
At 30 September 2018, Mr De Gruchy, together with his family
members, held 504,938 ordinary shares in the Company (30 September
2017: 474,390 ordinary shares).
At 30 September 2018, Mr Spears held 54,423 ordinary shares (30
September 2017: 26,531 ordinary shares).
Investment Adviser
The Company is party to an Investment Advisory Agreement with
the Investment Adviser, which was most recently amended and
restated on 13 December 2017, pursuant to which the Company has
appointed the Investment Adviser to provide advisory services
relating to the assets on a day-to-day basis in accordance with its
investment objectives and policies, subject to the overall
supervision and direction of the Board of Directors. As a result of
the responsibilities delegated under this agreement, the Company
considers it to be a related party by virtue of being 'key
management personnel'. Under the terms of the Investment Advisory
Agreement, the notice period of the termination of the Investment
Adviser by the Company is 24 months. The remuneration of the
Investment Adviser is set out below.
For its services to the Company, the Investment Adviser receives
an annual fee at the rate of 0.9% (or such lesser amount as may be
demanded by the Investment Adviser at its own absolute discretion)
multiplied by the sum of:
- the NAV of the Company; less
- the value of the cash holdings of the Company pro rata to the
period for which such cash holdings have been held.
The Investment Adviser is also entitled to claim for expenses
arising in relation to the performance of certain duties and, at
its discretion, 1% of the value of any transactions entered into by
the Company (where possible, the Investment Adviser seeks to charge
this fee to the borrower).
The Investment Adviser receives a fee of 0.25% of the aggregate
gross proceeds from any issue of new shares in consideration for
the provision of marketing and investor introduction services. The
Investment Adviser has appointed Highland Capital Partners Limited
('Highland Capital') to assist it with the provision of such
services and pays all fees due to Highland Capital out of the fees
it receives from the Company.
The Company's Investment Adviser is authorised as an AIFM by the
FCA under the AIFMD regulations. The Company has provided
disclosures on its website, incorporating the requirements of the
AIFMD regulations.
During the year, the Company expensed GBP8,670,000 (30 September
2017: GBP7,428,000) in respect of investment advisory fees and
expenses, marketing fees and transaction management and
documentation services, GBP8,420,000 (30 September 2017:
GBP6,978,000) of which is included within expenses in the statement
of comprehensive income and GBP250,000 (30 September 2017:
GBP450,000) included within the share issue costs relating to share
issues during the year in the statement of changes in equity. As at
30 September 2018, liabilities in respect of these services
amounted to GBP2,258,000 (30 September 2017: GBP1,883,000).
The directors of the Investment Adviser also sit on the boards
of, and control, several SPVs through which the Company invests.
The Company has delegated the day-to-day operations of these SPVs
to the Investment Adviser through the Investment Advisory
Agreement.
The voting directors of the Investment Adviser hold directly or
indirectly, and together with their family members, 2,521,955
ordinary shares in the Company (30 September 2017: 2,908,799
ordinary shares).
The non-voting directors of the Investment Adviser hold directly
or indirectly, and together with their family members, 6,543,676
ordinary shares in the Company (30 September 2017: 6,139,516
ordinary shares).
20. Reconciliation of NAV
This note reconciles the NAV reported in the financial
statements to the NAV published via RNS on 17 October 2018, as
calculated in accordance with the terms of the prospectus.
Total Per share
GBP'000 pence
--------------------------------------------------------- ------- ---------
NAV at 28 September 2018 as published on 17 October 2018 984,467 112.37
Adjustment for expense accrual (72) (0.01)
Adjustment for valuation movements 1,130 0.13
--------------------------------------------------------- ------- ---------
NAV at 30 September 2018 as per the financial statements 985,525 112.49
--------------------------------------------------------- ------- ---------
Total Per share
GBP'000 pence
--------------------------------------------------------- ------- ---------
NAV at 29 September 2017 as published on 11 October 2017 874,449 110.55
Adjustment for expense accrual (75) (0.01)
Adjustment for valuation movements 186 0.03
--------------------------------------------------------- ------- ---------
NAV at 30 September 2017 as per the financial statements 874,560 110.57
--------------------------------------------------------- ------- ---------
21. Contingent liabilities
At 30 September 2018, there were no contingent liabilities (30
September 2017: GBPnil).
22. Subsequent events after the report date
The Company declared, on 19 October 2018, a fourth interim
dividend of 1.9 pence per ordinary share amounting to
GBP16,645,000, which was paid on 3 December 2018 to ordinary
shareholders on the register at 2 November 2018.
On 26 November 2018, the Company entered into an agreement in
respect of a GBP15 million temporary increase to its
Facilities.
A further eight advances totalling GBP11.3 million have been
made to Project Companies under existing facilities since the year
end. The Company also received prepayments totalling GBP70.4
million in respect of two renewable energy investments and a
further GBP1.4 million in respect of scheduled repayments.
At 13 December 2018, Mr Paul De Gruchy, together with his
family, held an indirect interest of 512,570 ordinary shares in the
Company following a scrip issue allotment of 7,632 shares.
At 13 December 2018, Mr Clive Spears held 55,255 ordinary shares
in the Company following a dividend reinvestment of 832 shares.
At 13 December 2018, the voting directors of the Investment
Adviser held directly or indirectly, and together with their family
members, 2,368,928 ordinary shares in the Company following a scrip
issue allotment of shares.
At 13 December 2018, the non-voting directors of the Investment
Adviser held directly or indirectly, and together with their family
members, 6,644,904 ordinary shares in the Company following a scrip
issue allotment of shares.
23. Ultimate controlling party
It is the view of the Directors that there is no ultimate
controlling party.
24. Non-consolidated SPVs
The following SPVs have not been consolidated in these financial
statements due to the Company meeting the criteria of an investment
entity and therefore applying the exemption to consolidation under
IFRS 10, and has measured its financial interests in these SPVs at
fair value through profit or loss.
All of the below non-consolidated SPVs are incorporated and
domiciled in the United Kingdom.
Ownership interest
SPV company name in loan notes
------------------------------------------------------ ------------------
GCP Cardale PFI Limited 100%
FHW Dalmore (Salford Pendleton Housing) plc(1) 13.3%
GCP Asset Finance 1 Limited 100%
GCP Biomass 1 Limited 100%
GCP Biomass 2 Limited 100%
GCP Biomass 3 Limited 100%
GCP Biomass 4 Limited 100%
GCP Biomass 5 Limited 100%
GCP Bridge Holdings Ltd 100%
GCP Commercial Solar 1 Limited 100%
GCP Education 1 Limited 100%
GCP Green Energy 1 Limited 100%
GCP Healthcare 1 Limited 100%
GCP Hydro 1 Limited 100%
GCP Onshore Wind 1 Limited 100%
GCP Onshore Wind 2 Limited (dissolved on 23 May 2017) 100%
GCP Onshore Wind 3 Limited 100%
GCP Programme Funding 1 Limited 100%
GCP RHI Boiler 1 Limited 100%
GCP Rooftop Solar 1 Limited 100%
GCP Rooftop Solar 2 Limited 100%
GCP Rooftop Solar 3 Limited 100%
GCP Rooftop Solar 4 Limited 100%
GCP Rooftop Solar 5 Limited 100%
GCP Rooftop Solar 6 plc(1) 40.8%
GCP Social Housing 1 Limited 100%
Gravis Asset Holdings Limited 100%
Gravis Solar 1 Limited 100%
Gravis Solar 2 Limited 100%
GreenCo Alpha Holdings Limited 100%
------------------------------------------------------ ------------------
1. The Company owns the entirety of the subordinated loan note class issued by the SPV.
GLOSSARY OF KEY TERMS
AGM The Annual General Meeting of the
Company
AIC Association of Investment Companies
AIC Code AIC Code of Corporate Governance
AIC Guide Corporate Governance Guide for Investment
Companies
AIF Alternative Investment Fund
AIFM Alternative Investment Fund Manager
AIFMD Alternative Investment Fund Managers
Directive
Annualised The effective annual rate of return
yield taking into account the effect of
compounding interest
Average The weighted average of the length
life of time until a loan is fully repaid
BEPS Base Erosion Profit Shifting
Borrower The entity which issues loan notes
to GCP Infrastructure Investments
Limited, usually a special purpose
vehicle
CBE Commander of the Most Excellent
Order of the British Empire
CfDs Contracts for difference
CIF Law Collective Investment Funds (Jersey)
Law 1988
The Company GCP Infrastructure Investments Limited
C shares A share class issued by the Company
from time to time. Conversion shares
are used to raise new funds without
penalising existing shareholders.
The funds raised are ring-fenced
from the rest of the Company until
they are substantially invested
Disclosure Listing Rules and the Disclosure
Rules and Transparency Rules
EEA European Economic Area
EGM Extraordinary General Meeting of
the Company
EU European Union
Facilities Revolving credit facilities with
RBSI, ING and NIBC
FCA Financial Conduct Authority
FiT Feed-in tariff
FRC Financial Reporting Council
GIB Green Investment Bank
GWh Gigawatt hours
IFRS International Financial Reporting
Standards
ING ING Bank N.V.
IPO Initial public offering
IRR Internal rate of return
KPIs Key performance indicators
KPMG KPMG Channel Islands Limited
The Law The Companies (Jersey) Law 1991,
(as amended)
LIFT Local Improvement Finance Trust
LSE London Stock Exchange
MAR Market Abuse Regulation
MW Megawatt
NAV Net asset value
NIBC NIBC Financing N.V.
NPD Non-profit distributing procurement
model
O&M Operation and maintenance
Ongoing Annual percentage reduction in shareholder
charges return as a result of recurring
ratio operational expenses
Ordinary The ordinary share capital of GCP
shares Infrastructure Investments Limited
PFI Private Finance Initiative
PF2 Private Finance 2
PIE Public Infrastructure Exemption
PPA Power purchase agreement
PPI Private Participation in Infrastructure
PPP Public-private partnership
Project A special purpose company which
Company owns and operates an asset
Public All revenues arising from UK central
sector Government or local authorities
backed or from entities themselves substantially
RO funded by UK central Government
or local authorities, obligations
of NHS Trusts, UK registered social
landlords and universities and revenues
arising from other Government-sponsored
or administered initiatives for
encouraging the usage of renewable
or clean energy in the UK
Renewables obligation
RBSI Royal Bank of Scotland International
Limited
RHI Renewable heat incentive
RNS Regulatory News Service
ROCs Renewable obligation certificates
Senior Security that gives a loan priority
ranking over other debt owed by the issuer
security in terms of control and repayment
in the event of default or issuer
bankruptcy
Shareholder Share price growth with dividends
total return deemed to be reinvested on the dividend
date
SID Senior Independent Director
SPV Special Purpose Vehicle
SL Supported living
UK Code UK Corporate Governance Code
UK FCA The UK's Financial Conduct Authority
UKLA United Kingdom Listing Authority
Weight The yield on the investment portfolio
adjusted calculated with reference to the
average relative size of each investment,
annualised expressed as an annual percentage
yield
Weighted A rate of return used in valuation
average to convert a series of future anticipated
discount cash flows to present value under
rate a discounted cash flow approach.
The discount rate is calculated
with reference to the relative size
of each investment
------------- ------------------------------------------
CORPORATE INFORMATION
The Company
GCP Infrastructure Investments Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Contact: jerseyinfracosec@linkgroup.co.uk
Corporate website: www.gcpinfra.com
Directors
Ian Reeves CBE (Chairman)
Clive Spears (Senior Independent Director)
David Pirouet
Paul De Gruchy
Michael Gray
Julia Chapman
Administrator, Secretary and Registered Office of the
Company
Link Alternative Fund Services (Jersey) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Tel: 01534 847000
Adviser on English law
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Adviser on Jersey law
Carey Olsen
47 Esplanade
St Helier
Jersey JE1 0BD
Depositary
Link Corporate Services (Jersey) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Financial adviser and broker
Stifel Nicolaus Europe Limited
150 Cheapside
London EC2V 6ET
Tel: 020 7710 7600
Financial PR
Quill PR (Buchanan Communications)
107 Cheapside
London EC2V 6DN
Independent Auditor
KPMG Channel Islands Limited
37 Esplanade
St Helier
Jersey JE4 8WQ
Investment Adviser and AIFM
Gravis Capital Management Limited
24 Savile Row
London W1S 2ES
Tel: 020 3405 8500
Operational bankers
Lloyds Bank International Limited
9 Broad Street
St Helier
Jersey JE4 8NG
Royal Bank of Scotland International Limited
71 Bath Street
St Helier
Jersey JE4 8PJ
Registrar
Link Market Services (Jersey) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Valuation Agent
Mazars LLP
Tower Bridge House
St Katharine's Way
London E1W 1DD
SHAREHOLDER INFORMATION
Key dates for 2019
February
Annual General Meeting
March
Company's half-year end
Payment of first interim dividend
May
Half-yearly results announced
June
Payment of second interim dividend
August
Payment of third interim dividend
September
Company's year end
November
Payment of fourth interim dividend
December
Annual results announced
Frequency of NAV publication
The Company's NAV is released to the LSE via RNS on a quarterly
basis and is published on the Company's website.
Sources of further information
Copies of the Company's annual and half-yearly reports, stock
exchange announcements, investor reports and further information on
the Company can be obtained from the Company's website.
Warning to shareholders
This report is intended solely for the information of the person
to whom it is provided by the Company, the Investment Adviser or
the Administrator. This report is not intended as an offer or
solicitation for the purchase of shares in the Company and should
not be relied on by any person for the purpose of accounting, legal
or tax advice or for making an investment decision. The payment of
dividends and the repayment of capital are not guaranteed by the
Company. Any forecast, projection or target is indicative only and
not guaranteed in any way, and any opinions expressed in this
report are not statements of fact and are subject to change, and
neither the Company nor the Investment Adviser is under any
obligation to update such opinions.
Past performance is not a reliable indicator of future
performance, and investors may not get back the original amount
invested. Unless otherwise stated, the sources for all information
contained in this report are the Investment Adviser and the
Administrator. Information contained in this report is believed to
be accurate at the date of publication, but none of the Company,
the Investment Adviser and the Administrator gives any
representation or warranty as to the report's accuracy or
completeness. This report does not contain and is not to be taken
as containing any financial product advice or financial product
recommendation. None of the Company, the Investment Adviser and the
Administrator accepts any liability whatsoever for any loss
(whether direct or indirect) arising from any use of this report or
its contents.
Contact details:
Gravis Capital Management Limited +44 (0)20 3405 8500
Stephen Ellis
Rollo Wright
Philip Kent
Dion Di Miceli
Stifel Nicolaus Europe Limited +44 (0)20 7710 7600
Mark Bloomfield
Neil Winward
Gaudi Le Roux
Quill/Buchanan +44 (0)20 7466 5000
Helen Tarbet
Sam EmeryNick Croysdill
Notes to Editors
About GCP Infra
GCP Infrais a closed-ended investment company and FTSE-250
constituent whose shares are traded on the main market of the
London Stock Exchange. Its main objective is to provide
shareholders with regular, sustained, long term distributions and
preserve capital over the long term, public sector backed,
availability-based revenues. Where possible, investments are
structured to benefit from partial inflation-protection. GCP Infra
is advised by Gravis Capital Management Limited.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR BCBDDXDBBGIX
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