Interim / Quarterly Report • Sep 15, 2020
Interim / Quarterly Report
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INTERIM REPORT
For the six months ended 30 June 2020
2 © 2020 AQUILA CAPITAL – FOR PROFESSIONAL INVESTORS ONLY
| Investment Objective, Highlights and Financial Information 3 |
|
|---|---|
| Chairman's Statement 4 | |
| Investment Adviser's Report 7 | |
| •Investment Adviser Background 7 | |
| •Investment Portfolio, Financial Performance and Valuation 8 |
|
| •Market Outlook 14 | |
| Environmental, Social and Governance 16 | |
| Interim Mangement Report 18 | |
| Statement of Directors' Responsibilities for the Half-Yearly Report 19 |
|
| Independent Review Report to Aquila European Renewables Income Fund Plc 20 |
|
| FINANCIAL STATEMENTS | |
| Condensed Statement of Comprehensive Income 22 | |
| Condensed Statement of Financial Position 23 | |
| Condensed Statement of Changes in Equity 24 | |
| Condensed Statement of Cash Flows 25 | |
| Notes to the Financial Statements 26 | |
| OTHER INFORMATION | |
| Alternative Performance Measures 34 | |
| Glossary 35 |
Company Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Page
Aquila European Renewables Income Fund Plc (the "Company" or "AERIF") seeks to generate stable returns, principally in the form of income distributions, by investing in a diversified portfolio of renewable energy infrastructure investments.
| As at 30 June 2020 |
As at 31 December 2019 |
||
|---|---|---|---|
| Ordinary Share price (cents) | 100.5 | 107.8 | |
| NAV per Ordinary Share (cents) | 98.6 | 102.7 | |
| Ordinary Share price premium to NAV | 1.9% | 4.9% | |
| Net assets (EUR million) | 190.8 | 158.9 | |
| 05 June 2019 – 30 June 2020 |
01 January 2020 – 30 June 2020 |
05 June 2019 – 31 December 2019 |
|
| Dividends per Ordinary Share (cents)9 | 3.0 | 1.5 | 1.5 |
| Ongoing charges10 | 1.5% | 1.3% | 1.7% |
| NAV total return per Ordinary Share11 | 2.9% | (2.5%) | 5.6% |
| Total shareholder return per Ordinary Share12 | 2.8% | (5.4%) | 8.6% |
1 Represents the Company's share of portfolio generating capacity (including any assets under construction, where applicable).
2 CO2 savings are based on the Company's proportionate share. Calculations follow the methodology of the Greenhouse Gas Protocol. CO2 savings of European assets are based on the European average. Household data represents potential number of households which could be powered by AERIFs share of electricity generated by its portfolio on an annual basis.
3 Proportional share.
7 GAV is the sum of the Company's NAV and proportional share of debt.
8 This disclosure is considered to represent the Company's alternative performance measures ("APM"). Definitions of these APMs and other performance measures used by the Company, together with how these measures have been calculated, can be found on page 34.
9 Dividends paid/payable and declared relating to the period.
12 Total returns based on Ordinary Share price in Euro plus dividends paid for the period. Opening Ordinary Share price at IPO: EUR 1.00.
4 All references to cents are in Euros, unless stated otherwise.
5 Adjusted for dividends paid during the period, calculations can be found on page 34.
6 Represents the Company's proportionate share of total debt at the asset special purpose vehicle ("SPV") level across its existing investments as of 30 June 2020.
10 Calculation based on average NAV over the period and regular recurring annual operating costs of the Company, can be found on page 34.
11 Opening NAV at IPO after launch expenses: EUR 0.98 per Ordinary Share.Calculation includes dividends.
On behalf of the Board, I am pleased to present the interim report of Aquila European Renewables Income Fund Plc for the six months ended 30 June 2020.
Our investment strategy remains unchanged and we remain committed to developing a diversified multi-technology portfolio of wind, hydropower and solar photovoltaic ("PV") assets across Europe (excluding the United Kingdom). We typically target assets which have long operating lives and which are supported by a high degree of contracted revenues in the form of power purchase agreements and/or governmental subsidies, so as to optimise our risk adjusted investment returns.
The Board is pleased to report that during the first half of 2020 and notwithstanding the turbulent market conditions resulting from the global COVID-19 pandemic, the existing investment portfolio operated strongly, the Company was able to raise additional equity for further asset acquisitions allowing it to broaden its existing investor base and two new assets were successfully acquired.
Renewables remains an asset class which offers investors exposure to highly defensive earnings, with a low correlation to other asset classes. This has become increasingly important during challenging market conditions, as we have recently observed during the COVID-19 pandemic. The Company is well positioned in this regard, given its large proportion of contracted revenues and diversified asset base (both by technology and geography).
The pressing need to combat climate change through a global transition to clean energy is expected to gain even further momentum as a result of the COVID-19 pandemic and as evidenced by the EUR 750 billion stimulus package recently announced by the European Commission, a large portion of which will be dedicated to green and renewable industries. The Company and its Investment Adviser, Aquila Capital, remain committed to the ongoing development of the green economy and are encouraged by such positive developments.
For the period ended 31 December 2019, the Company paid dividends in line with its dividend target of 1.5 cents per Ordinary Share. The Company is targeting a dividend of 4.0 cents per Ordinary Share in relation to the year ending 31 December 2020, subsequently increasing to 5.0 cents per Ordinary Share thereafter, with the aim of increasing the dividend progressively over the medium term.
The dividend target for the year ending 31 December 2020 remains unchanged, despite current market conditions observed as a result of the COVID-19 pandemic, reflecting the defensive nature of our portfolio. During the reporting period, the Company has paid 1.5 cents per Ordinary Share13 and its dividend cover was approximately 1.9 times for the six months ended 30 June 202014. In addition, the Company has declared a further dividend of 0.75 cents per Ordinary Share in relation to the quarterly period ending 30 June 2020.
As of 30 June 2020, the Company's NAV was EUR 190.8 million, representing a marginal decrease of 2.5% per Ordinary Share15 since 31 December 2019. This decrease in NAV was largely attributable to a reduction in short-term forecast power prices, which came under significant pressure in response to the COVID-19 pandemic. The NAV represents the fair market valuation of the Company's portfolio, based on a discounted cash flow analysis over the life of each of the Company's assets. The assumptions which underpin the valuation are provided by the Investment Adviser and the Board has satisfied itself with the calculation methodology and assumptions.
Since the initial public offering ("IPO") in June 2019, the Company has acquired a pan-European portfolio of six assets, across wind and hydropower, with a combined generation capacity of 197 MW (compared to 132 MW as of 31 December 2019). The Company has established a geographically diversified portfolio, with interests in Denmark, Finland, Norway and Portugal. In the period ended 30 June 2020, the portfolio produced 230.1 GWh of electricity, which was 11.0% above budget, largely due to favourable wind conditions in the Nordics observed during the first quarter of 2020.
Our Investment Adviser Aquila Capital Investmentgesellschaft mbH ("Aquila Capital") has an in-house asset management team who diligently monitor the operations and performance of our assets. In early 2020, as the COVID-19 pandemic started to trigger a global economic shutdown, Aquila Capital's asset management team reacted quickly by working with our asset operations and maintenance ("O&M") providers to ensure the safety and well-being of our contractors, but also to preserve the continued operation of our assets. We are grateful for their efforts and are pleased to report that our operations were largely unaffected by the COVID-19 pandemic.
Aquila Capital's asset management team is also responsible for optimising earnings and enhancing the value of our existing asset portfolio. During the reporting period, our assets benefitted from a number of important initiatives as a result of proactive asset management, resulting in cost reductions and improvements in operating efficiency which we expect to yield benefits over time.
The Company has been very active in raising and deploying capital following the successful IPO. On 5 March 2020, the Company announced an intention to raise EUR 25.0 million under its placing programme to fund future acquisition opportunities. On the following day, the Board was pleased to report that, due to strong market demand, the placing was increased to EUR 40.0 million and remained oversubscribed.
Shortly after the equity raising, the Company successfully completed two acquisitions, including Svindbaek II, which is an operational 9.6 MW wind project co-located within our existing Svindbaek wind farm. Svindbaek II benefits from a government subsidy scheme in the form of a feed-in premium for approximately nine years. In
13 Representing 0.75 cents in relation to the period ending 31 December 2019 and a further 0.75 cents in relation to the period ending 31 March 2020.
14 Dividend cover ratio calculation is based on net cash flows generated at the SPVs adjusted for fund level expenses and dividends paid by the Company during the period.
15 Adjusted for dividends paid during the six month period.
16 All figures quoted in this section are presented on a proportional basis.
June 2020, the Company also acquired a 13.7% interest in The Rock, a 400 MW wind farm located in Norway, which is currently under construction and is expected to be completed in the fourth quarter of 2021. The Rock also has power purchase agreements ("PPA") in place for 15 years, covering a large portion of production. The Rock is the Company's largest asset in terms of generation capacity and after completion it is expected to be one of the largest onshore wind farms in Norway.
The Board was pleased to note that Kempen & Co recently initiated coverage on the Company in August 2020. Kempen & Co are the second broker to cover the Company, which is testament to its rapid growth following the IPO, but also recognises our growing significance in the renewables market, and our ambition to broaden our investor base beyond the UK, especially given that our portfolio is being constructed on a European (excluding the UK) basis.
The Company continues to target only a moderate level of leverage across its investment portfolio. As at 30 June 2020, the Company had approximately EUR 81.9 million of non-recourse debt (on a proportional basis) at the asset level, equivalent to approximately 30.0% of the Company's GAV. The Company's debt has a weighted average maturity of 12.6 years and is predominantly hedged and amortising.
The Company's 197 MW portfolio has the potential to power approximately 140,000 households and offset approximately 170,000 tonnes of CO2 emissions annually17. With the objective of providing investors with a truly diversified portfolio of renewable assets, the Company contributes to the following four United Nations Sustainable Development Goals:
Our goal is to be a responsible investor, ensuring that environmental, social and governance criteria are incorporated into our day-to-day investment decisions as well as generating a positive impact for society. We aim to provide our shareholders with long-term and sustainable investment solutions in the area of renewable energy. This is reflected across our investment philosophy and approach, including the selection of our investment adviser, Aquila Capital, who is dedicated to the green energy transition. As a signatory to the United Nations' Principles for Responsible Investments, Aquila Capital has integrated environmental, social and governance ("ESG") risks as well as opportunity assessments across every single stage of its investment process in real assets, reflecting the sustainable strategy of both Aquila Capital and the Company.
17 CO2 savings are based on the Company's proportionate share. Calculations follow the methodology of the Greenhouse Gas Protocol. CO2 savings of European assets are based on the European average. Household data represents potential number of households which could be powered by AERIFs share of electricity generated by its portfolio on an annual basis.
On 8 June 2020, we were pleased to hold our inaugural annual general meeting ("AGM"). Under normal circumstances, we would have encouraged our shareholders to attend the Company's AGM, however in light of the situation regarding the COVID-19 pandemic and to comply with the UK Government's guidance, the AGM was held privately, with shareholder votes conducted by proxy. We are pleased to report that shareholders and their representatives approved all of the resolutions with a significant majority.
The European Union remains at the forefront of global renewable energy deployment and the region is an attractive destination for renewables investors, offering diversification and a broad spectrum of risk profiles. Whilst the COVID-19 pandemic has slowed down global economic activity across most sectors in recent months, we expect that Europe will continue to lead the transition towards a low carbon society, with substantial investments required in renewable energy generation in order to meet the binding targets set by the EU Renewable Energy Directive. The Company has successfully positioned itself to take advantage of this process, given its European investment mandate and established presence in the region, by virtue of our existing asset base, along with our Investment Adviser, who is headquartered in Germany with an expansive footprint throughout Europe.
The Board is pleased with the performance of the portfolio over the reporting period, underpinned by the Company's strategy of diversification, despite a difficult market backdrop as a result of the COVID-19 pandemic. Whilst there was some downward pressure on electricity prices observed during the reporting period (as a result of the COVID-19 pandemic), market prices have already begun to show signs of a recovery, reflecting the strong underlying fundamentals of long-term demand for electricity. The Company's strategy is to target assets with high levels of support in the form of fixed-price PPAs or government subsidies, which has also provided further insulation against fluctuations in market prices.
Despite the rapid global shutdown in economic activity as a result of the COVID-19 pandemic, the Company's portfolio demonstrated the resilient and defensive nature of renewable assets as an investment class. This was further evidenced by the Board's commitment to its dividend target during 2020, as outlined in the IPO prospectus.
The Board is pleased with the Company's two most recent acquisitions completed during the first half of 2020 and looks forward to further opportunities to acquire assets which complement the portfolio, whilst still maintaining a disciplined investment approach. In addition, the Board along with the Investment Adviser will also continue to explore opportunities for value enhancement across the existing portfolio.
Ian Nolan Chairman 14 September 2020
The Company's Alternative Investment Fund Manager ("AIFM"), International Fund Management Limited, has appointed Aquila Capital as the Investment Adviser to the AIFM in respect of the Company. Its key responsibilities are to originate, analyse and assess suitable renewable energy infrastructure investments, and advise the AIFM accordingly. Additionally, the Investment Adviser performs asset management services in relation to the operational assets in the portfolio or, to the extent asset management is delegated to third parties, oversees and monitors such asset management.
The Aquila Group is an experienced and long-term investor in essential, real asset investments. Founded in 2001 by Dr. Dieter Rentsch and Roman Rosslenbroich, the Aquila Group currently has EUR 11.1 billion in assets under management and administration18 for its clients worldwide. It has transacted an additional EUR 12.4 billion, including investments in up to 8.1 gigawatts of renewable energy capacity, over 2,000,000 square metres of real estate in Europe and manages EUR 2.0 billion in multi-asset infrastructure. KlimaInvest Green Concepts, the leading German climate neutral company, is also part of the Aquila Group. Last year the Aquila Group entered into a strategic partnership with Daiwa Energy & Infrastructure.
Aquila Capital is focused on sustainable performance and creating value for its clients by capitalising on macroeconomic trends, dislocations and tipping points through bottom-up management carried out by highly specialised and passionate investment teams. Aquila Capital pursues operational stability, a distinct alignment of interest philosophy and stringent corporate governance.
The business centres on secular and sustainable trends in renewable energy, social housing, green logistics, infrastructure, timber and agriculture. Within these areas, Aquila Capital offers a range of real asset investment strategies managed by dedicated specialists in their respective fields. Expert investment teams with entrepreneurial mindsets draw on their sector networks and experience to screen, develop, finance, manage and operate investments along the entire value chain.
As this concept requires local management teams and a local presence, Aquila Capital is represented by 14 investment offices in 12 countries with more than 350 employees at group level.
The principal regulated entities within the Aquila Group, based in Germany and Luxembourg, are subject to significant European regulatory standards. Compliance with these standards helps to ensure the highest levels of service and comprehensive security for the Aquila Group's investors and business partners.
Embedded in its activities lies a passion for real assets and living ESG values, better every day.
Current renewables portfolio of Aquila Capital in Europe
* As at 30 June 2020
** Calculations follow the methodology of the Greenhouse Gas Protocol. CO2 savings of European assets are based on the European average. CO2 savings of international assets are based on country-specific values. Calculations include approximations. As at 31 December 2019.
18 EUR 8.75 billion in assets under management and EUR 2.36 billion in assets under administration. Data as at 30 June 2020.
Portfolio as at 30 June 2020
| Project | Type of asset | Country | Capacity19 | Status | COD20 | Asset life from COD20 |
Equipment Manufacturer |
Energy offtaker23 |
Ownership in asset |
Leverage21 Acquisition date | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| PPA with | |||||||||||
| 2013- | N100, N90, | utility/ | |||||||||
| Tesla | Wind energy | Norway | 150 MW | Operational | 2018 | 25y | N117 (Nordex) | Spot | 25.9%23 | 31.2% | Jul 2019 |
| 1951- | FiT24/ | ||||||||||
| Sagres | Hydropower | Portugal | 103 MW | Operational | 2006 | n.a.25 | Various | Spot | 18.0%23 | 44.7% | Jul 2019 |
| V126-3.6 | FiP 26/ | ||||||||||
| Holmen II | Wind energy | Denmark | 18 MW | Operational | 2018 | 25y | (Vestas) | Spot | 100.0% | 43.9% | Jul 2019 |
| V112-3.0, | |||||||||||
| 2013- | V126-3.3 | FiT24/ | |||||||||
| Olhava | Wind energy | Finland | 35 MW | Operational | 2015 | 27.5y | (Vestas) | Spot | 100.0% | 53.6% | Sep 2019 |
| SWT-3.2-101 | FiP 26/ | Dec 2019, | |||||||||
| Svindbaek I + II | Wind energy | Denmark | 32 MW | Operational | 2018 | 25y | (Siemens) | Spot | 99.9% | 20.9% | Mar 2020 |
| Under | PPA/ | ||||||||||
| The Rock | Wind energy | Norway | 400 MW | construction | 2021 | 30y | Nordex | Spot | 13.7%23 | 0.0%27 | Jun 2020 |
19 Installed capacity at 100% ownership.
During the period, the Company successfully completed the following acquisitions:
The Rock
28 AERIF proportional share of CO2 tonnes. 29 AERIF proportional share of CO2 tonnes.
Capital Deployment Profile Since IPO (EUR million)
In accordance with the Company's investment objectives, the current portfolio is geographically diversified, with investments located in Denmark, Finland, Norway and Portugal. The current portfolio compromises four operating onshore wind farms, one onshore wind farm under construction and a portfolio of 21 hydropower plants. As outlined in the IPO prospectus, the Company is targeting a multi-technology portfolio of wind, hydropower and solar PV assets across Europe (excluding the UK).
The Company typically seeks investment opportunities which benefit from a high degree of contracted revenues and stable cash flows. Approximately 70% of the present value of the Company's forecast revenue over the next five years is contracted in the form of government regulated tariffs or fixed price PPA's, underpinned by high credit quality counterparties.
The portfolio power generation relative to the budget for the reporting period ended 30 June 2020 is set out in the table below.
| Technology | Country | Electricity Production (GWh) |
Budget (GWh) | Performance vs. Budget (%) |
|---|---|---|---|---|
| Wind | Denmark, Norway, Finland | 185.9 | 166.2 | 11.9 |
| Hydropower | Portugal | 44.1 | 41.2 | 7.2 |
| Total | 230.1 | 207.4 | 11.0 |
During the reporting period, production accounted for 230.1 GWh, representing approximately 11.0% above budget. The outperformance was largely driven by a strong result in the first quarter of 2020, with higher than expected wind performance in the Nordic regions (11.9% above budget) which accounted for over 80% of the portfolio's production for the first half of 2020. Additionally, the Portuguese hydropower portfolio produced 7.2% more electricity than budget over the reporting period.
30 Based on the fair value of the assets as of 30 June 2020. The total may differ due to rounding differences.
31 Asset revenues are discounted by the weighted average of all discount rates used for the asset valuations as of 30 June 2020.
32 All figures quoted in this section are presented on a proportional basis. Totals may differ due to rounding differences.
Whilst we have observed a price recovery across our key markets, prices during the reporting period remain below pre-COVID-19 pandemic levels, due to high hydro stocks in the Nordics and the impact of lower power demand as a result of the COVID-19 pandemic, as well as lower gas prices in Iberia. Due to the Company's high degree of contracted revenues, movements in market prices only affected the Company's uncontracted revenue.
We are pleased to report that there were no major incidents in the reporting period.
Holmen II: production was marginally below budget (0.5%) in the first half of 2020. Strong wind conditions in February balanced weaker production performance in the second quarter of 2020. Revenue was significantly impacted by declining market prices, which fell by approximately 50% (from DKK 0.21/kWh to DKK 0.11/kWh). Despite the reduction in prices, revenue only declined by 36.8% compared to budget, as a result of subsidies and hedging.
Olhava: production as well as revenue was 22.9% above budget in the first half of 2020. Finland recorded above average wind conditions in the first quarter of 2020, supporting production significantly. The strong performance in the first quarter of 2020 balanced the weaker second quarter, which was negatively influenced by lower market prices. In the second quarter of 2020, Aquila Capital's asset management team also successfully renegotiated a total contract manager ("TCM") contract at Olhava, resulting in a 70% reduction in costs on a per wind turbine generator ("WTG") basis.
| As at | As at | |
|---|---|---|
| 30 June | 31 December | |
| EUR million | 2020 | 2019 |
| NAV | 190.8 | 158.9 |
| Debt | 81.9 | 85.0 |
| GAV | 272.6* | 243.9 |
| Debt (% of GAV) | 30.0 | 34.8 |
* Totals may differ due to rounding differences
NAV Bridge (EUR million)
Longer-term price forecasts across AERIF's portfolio declined marginally, reflecting the structural shock of the COVID-19 pandemic and changes in commodity prices
Valuation further declined by EUR 1.5 million due to (expense)/income in relation to financial instruments (EUR -1.6 million) and other expenses, taxation and foreign exchange losses (EUR 0.1 million) which is accounted for in "Other"
| Metric | As at 30 June 2020 | As at 31 December 2019 | |
|---|---|---|---|
| Discount rate | Weighted average | 7.3% | 7.6% |
| Long-term inflation | Weighted average | 2.0% | 2.0% |
| Asset life (from COD) | Wind (weighted average) | 26.336 | 25.7 |
| Hydropower (weighted average) | n.a.37 | n.a. | |
| Power prices38 | Weighted average | 2 year avg. – ~EUR 28/MWh Long-term forecast (refer below) |
2 year avg. – ~EUR 41/MWh Long-term forecast (refer below) |
Portfolio Valuation – Key Assumptions
33 Excludes net interest (expense)/income in relation to financial instruments and other expenses which is accounted for in "Other". Includes movement in valuation from Svindbaek II which was acquired in March 2020.
34 Includes net interest (expense)/income in relation to financial instruments and other expenses.
35 Excludes shares raised as Investment Adviser fees.
36 Including The Rock and Svindbaek II.
37 21 Individual assets; average concession life of 12 years remaining.
38 2 year average forecasts are based on market forward pricing in each of AERIFs relevant markets, weighted based on equity invested. Excludes The Rock.
The chart below shows the Company's share price performance since the IPO against the Company's reported NAV up to 30 June 2020. The decline in the share price observed in March 2020 reflects the general market movements observed in response to the COVID-19 pandemic.
As at 30 June 2020, the Company had approximately EUR 81.9 million of non-recourse debt (on a proportional basis) at the asset level, equivalent to approximately 30.0% of the Company's GAV. Under the Company's investment restrictions, long-term debt cannot exceed 50% of the GAV.
The Company's debt has a weighted average maturity of 12.6 years and is predominantly hedged via interest rate swaps. The majority of the Company's investments have separate, non-recourse project debt, with the exception of Svindbaek II, which was acquired on an unlevered basis. The majority of the Company's debt is fully amortising with minimal cross-currency exposure. The Company currently has no existing fund level debt.
39 FY19 prices adjusted for inflation to enable a comparison with 1H20 forecasts.
During the first half year of 2020, a combination of supply and demand shocks led to a sharp decrease in commodity and electricity prices. In the oil market, the price war between Russia and Saudi Arabia, along with the resumption of gas transit between Russia and Ukraine led to an expansion of supply, while high oil stocks were still available due to unfavourable weather conditions. The windy, wet and mild winter led to high wind energy feed-in, a muted power demand and a substantial hydro balance in the Nordics, Pyrenees and Alps regions, resulting in lower demand for fuel. Due to the COVID-19 pandemic energy demand across industries and countries, such as China, one of the largest importers of gas, coal, and oil globally, decreased significantly. Subsequent lockdowns caused demand for commodities and electricity in Europe to fall sharply. Some European electricity markets experienced price reductions of 37-90% in March 2020.
Despite these interim shocks, futures across European markets generally indicate a pricing recovery is already underway from the low levels observed in March. The degree of pricing recovery is influenced by a combination of macroeconomic factors (including monetary policy and other governmental measures), as well as the voracity of the COVID-19 pandemic infections and the development of a vaccine. Notwithstanding the impacts of the COVID-19 pandemic, the Company is confident in its position, underpinned by its diversified operating portfolio and low merchant risk exposure, with approximately 70% of its revenue contracted (in the form of fixed price PPAs or government regulated tariffs) over the next five years40, providing strong earnings visibility. The Company will continue to target new investment opportunities which are long-life assets, supported by PPA and/or government regulated tariffs in order to optimise risk adjusted returns and provide earnings visibility for shareholders. In this regard, the Company is also buoyed by the favourable outlook for renewables in Europe.
Another trend we expect to continue is investor interest in long term fixed-price PPAs to mitigate market power price risk. Whilst utilities have traditionally dominated the market, corporate offtakers are becoming increasingly prevalent. Commensurate with increasing demand and popularity, PPA structures have evolved over time to become increasingly complicated and highly structured in response.
A growing number of off-takers are seeking highly nuanced structures which not only provide a hedging solution, but also deliver on their green ambitions. In response to these trends, Aquila Capital has established a strategic, in-house Merchant Market Desk ("MMD") to satisfy the growing and increasingly complex demands of the PPA market, with bespoke in-house expertise. The MMD team comprises nine experienced professionals throughout Europe, with local origination capabilities in various target markets. The MMD team offers services throughout the lifetime of a project and represents a strategic hub for all hedging activities across the group, as described below. The Company views the implementation of PPAs and broader energy risk management as an important part of its overall strategy.
Risk analysis and portfolio optimization of different Aquila funds
MMD's FX and interest rate specialist works across all asset classes to advise our investment teams on how to hedge risk in all transactions and portfolios
40 Asset revenues are discounted by the weighted average of all discount rates used for the asset valuations as of 30 June 2020.
The European Union has been at the forefront of global renewable energy deployment for over two decades and this trend is expected to continue. European leaders continue to support the transition to a low carbon society through an increase of their country's renewable energy share ("RES"), which is targeting 32% RES of final energy consumption by 2030. By 2030, it is expected that more than half of Europe's electricity will be supplied by wind and solar. This will require a substantial investment in renewable generation capacity throughout the region. Favourable economic trends are expected to continue to facilitate future investment in renewables, where the price for solar PV modules has declined by 85% since 2010, whilst wind turbine prices have also decreased by 51% over the same time period41. We have also observed similar trends in the costs of O&M services, which have also benefitted from increased competition and scale.
Climate change and the pressing need for a global energy transition are expected to gain even further momentum as a result of the COVID-19 pandemic. Whilst the COVID-19 pandemic has slowed down global economic activity, governments now have the chance to tailor their economic recovery programs to accelerate the phasing out of polluting industrial processes and further embrace the green transition. The environmental impact of shutdown measures to counter the COVID-19 pandemic have been seen as a full-scale illustration of what drastic action can produce in a short amount of time curtailing greenhouse gas emissions.
The Company is uniquely positioned to benefit from the energy transition, given its European focus and established portfolio of assets which contribute towards the green economy. The Board will continue to work with the Investment Adviser to selectively target investment opportunities which meet the Company's investment objectives.
Aquila Capital Investmentgesellschaft mbH 14 September 2020
41 2010 to 2018.
The Company strives to provide investors with a truly diversified portfolio of renewable assets, by investing in renewable energy infrastructure investments such as hydropower plants, wind and solar PV across continental Europe and Ireland. The Company is committed to focusing on the green economy, and as such has chosen Aquila Capital as its Investment Adviser. Aquila Capital has three overarching goals in the pursuit of creating sustainable value:
| Goal | Overview | UN Sustainable Development Goals |
|---|---|---|
| Ensuring Europe reaches its energy transition 2030 goals |
" Increase installed capacity from 4 GW to 30 by 2030 " Transition towards a low-carbon world with EUR 8 billion investments in energy transition projects in 2030 alone " Increase renewable energy efficiency and mitigate intermittency issues through improving consistency of clean energy supply through stored hydro and battery storage " Improve electricity usage by strengthening productivity and reducing the cost of electricity |
|
| Improving the environment to create a sustainable future |
" Curb biodiversity loss through the restoration of wild bees to create a sustainable food supply " Increase sustainable agricultural practices and contribute to food security and nutrition " Responsible management of forests to ensure optimum tree growth and the protection of endangered plants and animal species " Support WWF in its mission to stop the destruction of nature and the environment |
|
| Empowering people to live a sustainable, healthy lifestyle |
" Providing communities with sustainable housing and the option to voluntarily offset real estate's carbon footprint " Increasing the availability of affordable housing for low-income communities " Promoting healthy eating and increased physical activity for a better lifestyle for our employees " Reducing inequality in the workplace and provide fair employment opportunities for everyone |
As a signatory of the United Nations' Principles for Responsible Investments, Aquila Capital has integrated environmental, social and governance across every single stage of its investment process for real assets. This process is undertaken as part of the Company's evaluation of any new investment opportunity and is supported by ESG due diligence conducted by third party consultants.
AERIF and its Investment Advisor operate with a structured screening, due diligence and investment process. This process is designed to ensure that investments are reviewed and compared on a consistent basis. Typically, due diligence for new investment opportunities is led by Aquila Capital's in-house functions (including investment management, structuring & tax, risk management, leal, valuation and compliance), combined with external advisers.
AERIF benefits from both an independent Board of Directors, as well as AIFM. The Board of Directors supervise the AIFM, who is responsible for making recommendations in relation to any proposals put forward by the Investment Advisor. The Investment Advisor is fully regulated and supervised by the The Federal Financial Supervisory Authority ("BaFin").
Environmental, social and governance aspects are taken into account during the entire process (including the whole lifetime of the asset), including:
| Board of Directors | ||
|---|---|---|
| Investment Proposal | Investment Decision | |
| AIFM: International Fund Management Limited | ||
| Investment Advice | Confirmation | |
| Investment Advisor: Aquila Capital Investmentgesellschaft mbH | ||
| Status updates/advice and recommendations |
Investment Committee (IC), comprising Board of the AIFM and Aquila Capital |
|
| Screening & Internal due Pre-due diligence diligence |
External DD & structuring |
Investment Investment Divestment review & advice monitoring |
| Led by Aquila Capital in-house functions, in |
conjunction with external advisers
The Directors are required to provide an Interim Management Report in accordance with the Financial Conduct Authority ("FCA") Disclosure Guidance and Transparency Rules ("DTR"). The Chairman's Statement and the Investment Adviser's Report in this interim report provide details of the important events which have occurred during the period and their impact on the financial statements. The following statements on related party transactions, going concern, the Directors' Responsibility Statement, the Chairman's Statement and Investment Adviser's Review, together constitute the Interim Management Report for the Company for the six months ended 30 June 2020. The outlook for the Company for the remaining six months of the year ending 31 December 2020 is discussed in the Chairman's Statement and the Investment Adviser's Report.
The principal risks and uncertainties facing the Company are detailed in the Company's most recent Annual Report for the year ended 31 December 2019, which can be found on the Company's website at www.aquila-european-renewables-income-fund.com. These remain unchanged during the period under review. The key risks are summarised below:
Principal risks, including emerging risks, are mitigated and managed by the Board through continual review, policy setting and regular reviews of the Company's risk matrix by the Audit Committee to ensure that procedures are in place with the intention of minimising the impact of the above mentioned risks. The Board relies on periodic reports provided by the Alternative Investment Fund Manager, Investment Adviser and Administrator regarding risks that the Company faces. When required, experts will be employed to gather information, including legal advisers, and environmental advisers.
The Board was advised that the Audit Committee had carried out a formal review of the risk matrix at the Audit Committee meeting held on 16 April 2020. Specifically, the operational risks and financial impact as a result of the COVID-19 pandemic, and measures introduced to combat its spread, were discussed, with updates on operational resilience received from the Investment Adviser, Administrator and other key service providers. The Board is satisfied that the key service providers have the ability to continue their operations efficiently in a remote or virtual working environment. The Investment Adviser is in close contact with each asset's operation and maintenance service provider and continues to work with the counterparties to identify and mitigate the risk the COVID-19 pandemic may pose. The Board has assessed other relevant areas of risk (price and operational risks) and agreed that mitigants remain appropriate, in light of the COVID-19 pandemic.
The Board is of the opinion that these principal risks are equally applicable to the remaining six months of the financial year as they were to the six months being reported on.
The Company's Investment Adviser, Aquila Capital Investmentgesellschaft mbH is considered a related party under the Listing Rules. Details of the amounts paid to the Company's Investment Adviser and the Directors during the period are detailed in the Note 10 to the Financial Statements.
The Directors have adopted the going concern basis in preparing the financial statements. The following is a summary of the Directors' assessment of the going concern status of the Company.
The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least twelve months from the date of this document. In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income and expense flows. The Company's net assets as at 30 June 2020 were EUR 190.8 million (31 December 2019: EUR 158.9 million). As at 30 June 2020, the Company held EUR 41.5 million (31 December 2019: EUR 38.9 million) in cash. The total expenses for the period ended 30 June 2020 was EUR 1.3 million (31 December 2019: EUR 1.5 million). At the date of approval of this document, based on the aggregate of investments and cash held, the Company has substantial operating expenses cover.
As at 30 June 2020, the Company had approximately EUR 81.9 million of non-recourse debt (on a proportional basis) at the SPV level and the Directors are satisfied that all key financial covenants are forecast to continue to be complied with for at least the forthcoming 12-month period from the date of this document.
The Company has sufficient cash to meet its future investment commitment.
In light of the COVID-19 pandemic the Directors have fully considered each of the Company's investments. The Directors do not foresee any immediate material risk to the Company's investment portfolio and income from underlying SPVs. A prolonged and deep market decline could lead to falling values to the underlying business or interruptions to cash flow, however the Company currently has more than sufficient liquidity available to meet known future obligations.
We confirm that to the best of our knowledge:
We have reviewed Aquila European Renewables Income Fund Plc's interim financial statements (the "interim financial statements") in the interim report of Aquila European Renewables Income Fund Plc for the 6 month period ended 30 June 2020. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
The interim financial statements included in the interim report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Company is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Our responsibilities and those of the Directors
The interim report, including the interim financial statements, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the interim report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
Chartered Accountants London 14 September 2020
| Six months ended 30 June 2020 (Unaudited) |
For the period 8 April 2019 to 31 December 2019 (Audited) |
||||||
|---|---|---|---|---|---|---|---|
| Notes | Revenue EUR'000 |
Capital EUR'000 |
Total EUR'000 |
Revenue EUR'000 |
Capital EUR'000 |
Total EUR'000 |
|
| Unrealised (losses)/gains on investments | 3 | – | (6,759) | (6,759) | – | 8,608 | 8,608 |
| Net foreign exchange losses | – | (8) | (8) | – | (13) | (13) | |
| Interest Income | 4 | 2,709 | – | 2,709 | 1,609 | – | 1,609 |
| Investment Advisory fees | 5 | (716) | – | (716) | (654) | – | (654) |
| Other expenses | (549) | – | (549) | (810) | – | (810) | |
| Profit/(loss) on ordinary activities before finance costs and taxation |
1,444 | (6,767) | (5,323) | 145 | 8,595 | 8,740 | |
| Finance costs | (161) | – | (161) | (199) | – | (199) | |
| Profit/(loss) on ordinary activities before taxation | 1,283 | (6,767) | (5,484) | (54) | 8,595 | 8,541 | |
| Taxation | – | – | – | – | – | – | |
| Profit/(loss) on ordinary activities after taxation | 1,283 | (6,767) | (5,484) | (54) | 8,595 | 8,541 | |
| Earnings/(loss) per Ordinary Share (cents) | 6 | 0.89c | (4.69c) | (3.80c) | (0.04c) | 7.11c | 7.07c |
| Earnings/(loss) per Ordinary Share-diluted (cents) | 6 | 0.89c | (4.68c) | (3.79c) | (0.04c) | 7.09c | 7.05c |
The total column of the Income Statement is the profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period.
Profit/(loss) on ordinary activities after taxation is also the "Total comprehensive income for the period".
As at 30 June 2020
| As at 30 June 2020 (Unaudited) |
As at 31 December 2019 (Audited) |
||
|---|---|---|---|
| Notes | EUR'000 | EUR'000 | |
| Fixed assets | |||
| Investments at fair value through profit or loss | 3 | 146,750 | 118,660 |
| Current assets | |||
| Trade and other receivables | 2,953 | 1,927 | |
| Cash and cash equivalents | 41,548 | 38,862 | |
| 44,501 | 40,789 | ||
| Creditors: amounts falling due within one year | |||
| Other creditors | (481) | (532) | |
| (481) | (532) | ||
| Net current assets | 44,020 | 40,257 | |
| Total assets less total liabilities | 190,770 | 158,917 | |
| Capital and reserves: equity | |||
| Share capital | 7 | 1,934 | 1,547 |
| Share premium | 39,876 | 313 | |
| Special reserve | 145,903 | 148,516 | |
| Capital reserve | 1,828 | 8,595 | |
| Revenue reserve | 1,229 | (54) | |
| Total Shareholders' funds | 190,770 | 158,917 | |
| Net assets per Ordinary Share (cents) | 8 | 98.6c | 102.7c |
Approved by the Board of Directors and authorised for issue on 14 September 2020.
Ian Nolan (Chairman)
Company number 11932433
| Notes | Share capital EUR'000 |
Share premium account EUR'000 |
Special reserve EUR'000 |
Capital reserve EUR'000 |
Revenue reserve EUR'000 |
Total EUR'000 |
|
|---|---|---|---|---|---|---|---|
| Opening equity as at 1 January 2020 | 1,547 | 313 | 148,516 | 8,595 | (54) | 158,917 | |
| Shares issued in period | 7 | 387 | 40,273 | – | – | – | 40,660 |
| Share issue costs | – | (710) | – | – | – | (710) | |
| (Loss)/profit for the period | – | – | – | (6,767) | 1,283 | (5,484) | |
| Dividend paid | 9 | – | – | (2,613) | – | – | (2,613) |
| Closing equity as at 30 June 2020 | 1,934 | 39,876 | 145,903 | 1,828 | 1,229 | 190,770 |
| Notes | Share capital EUR'000 |
Share premium account EUR'000 |
Special reserve EUR'000 |
Capital reserve EUR'000 |
Revenue reserve EUR'000 |
Total EUR'000 |
|
|---|---|---|---|---|---|---|---|
| Opening equity as at 8 April 2019 | – | – | – | – | – | – | |
| Shares issued in period | 7 | 1,547 | 153,112 | – | – | – | 154,659 |
| Share issue costs | – | (3,123) | – | – | – | (3,123) | |
| Transfer to special reserve | – | (149,676) | 149,676 | – | – | – | |
| Profit/(loss) for the period | – | – | – | 8,595 | (54) | 8,541 | |
| Dividend paid | 9 | – | – | (1,160) | – | – | (1,160) |
| Closing equity as at 31 December 2019 | 1,547 | 313 | 148,516 | 8,595 | (54) | 158,917 |
| Notes | Six months ended 30 June 2020 (Unaudited) EUR'000 |
For the period 8 April 2019 to 31 December 2019 (Audited) EUR'000 |
|
|---|---|---|---|
| Operating activities | |||
| (Loss)/profit on ordinary activities before taxation | (5,484) | 8,541 | |
| Adjustment for unrealised losses/(gains) on investments | 6,759 | (8,608) | |
| Increase in other debtors | (1,026) | (1,927) | |
| (Decrease)/increase in other creditors | (51) | 532 | |
| Net cash flow from/(used in) operating activities | 198 | (1,462) | |
| Investing activities | |||
| Purchase of investments | 3 | (34,849) | (110,052) |
| Net cash flow used in investing activities | (34,849) | (110,052) | |
| Financing activities | |||
| Proceeds of share issues | 7 | 40,660 | 154,659 |
| Share issue costs | (710) | (3,123) | |
| Dividend paid | (2,613) | (1,160) | |
| Net cash flow from financing activities | 37,337 | 150,376 | |
| Increase in cash | 2,686 | 38,862 | |
| Cash and cash equivalents at start of period | 38,862 | – | |
| Cash and cash equivalents at end of period | 41,548 | 38,862 |
Aquila European Renewables Income Fund Plc is a public Company limited by shares incorporated in England and Wales on 8 April 2019 with registered number 11932433. The Company is domiciled in England and Wales. The Company is a closed-ended investment company with an indefinite life. The Company commenced its operations on 5 June 2019 when the Company's Ordinary Shares were admitted to trading on the London Stock Exchange. The Directors intend, at all times, to conduct the affairs of the Company as to enable it to qualify as an investment trust for the purposes of section 1158 of the Corporation Tax Act 2010, as amended.
The registered office and principal of business of the Company is 1st Floor, Senator House, 85 Queen Victoria Street, London, EC4V 4AB.
The Company's investment objective is to generate stable returns, principally in the form of income distributions, by investing in a diversified portfolio of Renewable Energy Infrastructure Investments.
The condensed financial statements included in this Interim Report have been prepared in accordance with IAS 34 "Interim Financial Reporting". The accounting policies, critical accounting judgements, estimates and assumptions are consistent with those used in the latest audited financial statements to 31 December 2019 and should be read in conjunction with the Company's annual audited financial statements for the period ended 31 December 2019. The interim financial statements have been prepared in accordance with IFRS to the extent that they have been adopted by the EU and with those parts of the Companies Act 2014 (including amendments by the Companies (Accounting) Act 2017) applicable to companies under IFRS. The financial statements have been prepared on the historical cost basis, as modified for the measurement of certain financial instruments at fair value through profit or loss.
The interim financial statements have also been prepared as far as is relevant and applicable to the Company in accordance with the Statement of Recommended Practice ("SORP") issued by the Association of Investment Companies ("AIC") issued in October 2019.
These condensed financial statements do not include all information and disclosures required in the annual financial statements and should be read in conjunction with the Company's annual financial statements as of 31 December 2019. The audited annual accounts for the year ended 31 December 2019 have been delivered to the Companies House. The audit report thereon was unmodified.
These financial statements are presented in Euro ("EUR") which is the currency of the primary economic environment in which the Group operates and are rounded to the nearest thousand, unless otherwise stated.
The Company owns 100.0% of its subsidiary Tesseract Holdings Limited ("HoldCo") the registered office and principal of business of the Company is 1st Floor, Senator House, 85 Queen Victoria Street, London, EC4V 4AB. The Company has acquired Renewable Energy Infrastructure Investments (the "SPVs") through its investment in the HoldCo. The Company finances the HoldCo through a mix of loan investments and equity. The loan investment finance represents shareholder loans (the "Shareholder loans") provided by the Company to HoldCo. The Company meets the definition of an investment entity as described by IFRS 10. Under IFRS 10 an investment entity is required to hold subsidiaries at fair value through profit or loss and therefore does not consolidate the subsidiary.
The HoldCo is also an investment entity and as described under IFRS 10, values its SPVs investments at fair value through profit or loss.
The Directors have adopted the going concern basis in preparing the financial statements. Details of the Directors' assessment of the going concern status of the Company, which considered the adequacy of the Company's resources and the impacts of the COVID-19 pandemic, are given on page 18.
The Chief Operating Decision Maker, which is the Board, is of the opinion that the Company is engaged in a single segment of business, being investment in renewable energy infrastructure assets to generate investment returns whilst preserving capital. The financial information used by the Chief Operating Decision Maker to manage the Company presents the business as a single segment.
The preparation of the financial statements requires the application of estimates and assumptions which may affect the results reported in the financial statements. Estimates, by their nature, are based on judgement and available information.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities are those used to determine the fair value of the investments as disclosed in note 3 to the financial statements.
The Directors have concluded that the Company meets the definition of an investment entity as defined in IFRS 10.
This conclusion involved a degree of judgement and assessment as to whether the Company met the criteria outlined in the accounting standards.
The key assumptions that have a significant impact on the carrying value of the Company's underlying investments in the SPVs are useful life of the assets, the discount factors, the rate of inflation, the price at which the power and associated benefits can be sold and the amount of electricity the assets are expected to produce.
| As at 30 June 2020 (Unaudited) |
As at 31 December 2019 (Audited) |
||||||
|---|---|---|---|---|---|---|---|
| Shareholder | Equity | Shareholder | Equity | ||||
| Loans EUR'000 |
Investments EUR'000 |
Total EUR'000 |
Loans EUR'000 |
Investments EUR'000 |
Total EUR'000 |
||
| (a) Summary of valuation | |||||||
| Analysis of closing balance: | |||||||
| Investments held at fair value through | |||||||
| profit or loss | 102,430 | 44,320 | 146,750 | 67,581 | 51,079 | 118,660 | |
| Total investments | 102,430 | 44,320 | 146,750 | 67,581 | 51,079 | 118,660 | |
| (b) Movements during the period: | |||||||
| Opening balance of investments, at cost | 67,581 | 42,471 | 110,052 | – | – | – | |
| Purchases at cost | 34,849 | – | 34,849 | 67,581 | 42,471 | 110,052 | |
| Total cost of investments | 102,430 | 42,471 | 144,901 | 67,581 | 42,471 | 110,052 | |
| Revaluation of investments to fair value: | |||||||
| Unrealised investments | – | 1,849 | 1,849 | – | 8,608 | 8,608 | |
| Balance of capital reserve – investments held at 30 June 2020 |
– | 1,849 | 1,849 | – | 8,608 | 8,608 | |
| Fair value of investments at 30 June 2020 | 102,430 | 44,320 | 146,750 | 67,581 | 51,079 | 118,660 | |
| (c) Gains on investments in year (per Income Statement) |
|||||||
| Movement on unrealised valuation of investments held |
– | (6,759) | (6,759) | – | 8,608 | 8,608 | |
| (Losses)/gains on investments | – | (6,759) | (6,759) | – | 8,608 | 8,608 |
The Investment Adviser has carried out fair market valuations of the SPV investments as at 30 June 2020 and the Directors have satisfied themselves as to the methodology used, the discount rates and key assumptions applied, and the valuation. All SPV investments are at fair value through profit or loss and are valued using the IFRS 13 framework for fair value measurement.
The key assumptions that have a significant impact on the carrying value of the Company's underlying investments in SPVs are the discount factors, useful life of the assets, the rate of inflation, the price at which the power and associated benefits can be sold and the amount of electricity the assets are expected to produce.
The discount factors applied to the cashflows are reviewed annually by the Investment Adviser to ensure they are at the appropriate level. The weighted average valuation discount rate applied to calculate the SPV valuation is 7.3% as at 30 June 2020 (31 December 2019: 7.6%).
Useful lives are based on the Investment Adviser's estimates of the period over which the assets will generate revenue which are periodically reviewed for continued appropriateness. The assumption used for the useful life of the wind farms is 25 years and solar PV is 30 years. The actual useful life may be a shorter or longer period depending on the actual operating conditions experienced by the asset.
The operating costs of the operating companies are frequently partly or wholly subject to indexation and an assumption is made that inflation will increase at a long-term rate. The SPVs valuation assumes long-term inflation rate according to long-term central bank targets.
The price at which the output from the generating assets is sold is a factor of both wholesale electricity prices and the revenue received from the Government support regime. Future power prices are estimated using external third-party forecasts which take the form of specialist consultancy reports. The future power price assumptions are reviewed as and when these forecasts are updated. There is an inherent uncertainty in future wholesale electricity price projection. Power prices used in the valuation are based on market forward pricing, and then a rolling average of capture rates.
The following assumptions were used in valuations at:
| Metric | 30 June 2020 (Unaudited) |
31 December 2019 (Audited) |
|
|---|---|---|---|
| Discount rate | Weighted average | 7.3% | 7.6% |
| Long-term inflation | Weighted average | 2.0% | 2.0% |
| Asset life | Wind (weighted average) | 26.3 | 25.7 |
| Hydropower (weighted average) | n.a. | n.a. | |
| Power prices | Weighted average | 2 year average. – ~EUR 28/MWh Long-term forecast |
2 year average. – ~EUR 41/MWh Long-term forecast |
IFRS 13 requires disclosure of fair value measurement by level. The level of fair value hierarchy within the financial assets or financial liabilities is determined on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and financial liabilities are classified in their entirety into only one of the following 3 levels:
The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.
Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.
Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.
The fair value of the Company's equity and the shareholder loans investments in HoldCo are determined by the underlying fair values of the SPV investments, which are not traded and contain unobservable inputs. As such, the Company's equity and the shareholder loans investments in HoldCo have been classified as level 3.
The classification of the Company's investments as detailed in Note 12 held at fair value is detailed in the table below:
| As at 30 June 2020 (Unaudited) |
||||
|---|---|---|---|---|
| Level 1 EUR'000 |
Level 2 EUR'000 |
Level 3 EUR'000 |
Total EUR'000 |
|
| Investments at fair value through profit and loss | ||||
| Equity investments in HoldCo | – | – | 44,320 | 44,320 |
| Shareholder loan investments in HoldCo | – | – | 102,430 | 102,430 |
| – | – | 146,750 | 146,750 | |
| As at 31 December 2019 (Audited) |
||||
| Level 1 EUR'000 |
Level 2 EUR'000 |
Level 3 EUR'000 |
Total EUR'000 |
|
| Investments at fair value through profit and loss | ||||
| Equity investments in HoldCo | – | – | 51,079 | 51,079 |
| Shareholder loan investments in HoldCo | – | – | 67,581 | 67,581 |
Due to the nature of the investments, they are always expected to be classified as level 3. There have been no transfers between levels during the period ended 30 June 2020 (31 December 2019: nil).
– – 118,660 118,660
The movement on the Level 3 unquoted investments during the period is shown below:
| As at 30 June 2020 (Unaudited) EUR'000 |
As at 31 December 2019 (Audited) EUR'000 |
|---|---|
| 118,660 | – |
| 34,849 | 110,052 |
| (6,759) | 8,608 |
| 146,750 | 118,660 |
| Six months ended 30 June 2020 (Unaudited) EUR'000 |
Six months ended 30 June 2019 (Audited) EUR'000 |
|
|---|---|---|
| Income from investments | ||
| Interest received from shareholder loans | 2,709 | 1,609 |
| Total Income | 2,709 | 1,609 |
| For the period 8 April 2019 to | ||||||
|---|---|---|---|---|---|---|
| Six months ended 30 June 2020 | 31 December 2019 | |||||
| (Unaudited) | (Audited) | |||||
| Revenue EUR'000 |
Capital EUR'000 |
Total EUR'000 |
Revenue EUR'000 |
Capital EUR'000 |
Total EUR'000 |
|
| Investment Advisory fees | 716 | – | 716 | 654 | – | 654 |
Under the Investment Advisory Agreement, the following fee is payable to the Investment Adviser:
During the first two years of its appointment, the Investment Adviser has undertaken to apply its fee (net of any applicable tax) in subscribing for, or acquiring, Ordinary Shares. If the Ordinary Shares are trading at a premium to the prevailing NAV, the Company will issue new Ordinary Shares to the Investment Adviser. If, however, the Ordinary Shares are trading at a discount to the prevailing NAV at the relevant time, no new Ordinary Shares will be issued by the Company and instead the Company will instruct its broker to acquire Ordinary Shares to the value of fee due in the relevant period.
The Investment Adviser is also entitled to be reimbursed for certain expenses under the Investment Advisory Agreement. These include out-of-pocket expenses properly incurred by the Investment Adviser in providing services, including transactional, organisational, operating and/or travel expenses.
The Company settled investment advisory fees by issuing Ordinary Shares. The Company has issued following shares to settle investment advisory fees in respect of the period under review:
| In respect of the period to | Investment advisory fees | Fair value of issue price |
Number of shares | Date of issue |
|---|---|---|---|---|
| 31 March 2020 | EUR 359,625 | 100.37 cents | 358,299 | 18 May 2020 |
| 30 June 2020 | EUR 356,714 | 99.38 cents | 358,939 | 11 August 2020 |
Earnings/(loss) per share is based on the loss for the period of EUR 5,484,000 (31 December 2019: profit of EUR 8,541,000) attributable to the undiluted weighted average number of Ordinary Shares in issue of 144,183,561 (31 December 2019: 120,853,408) and the diluted weighted average number of Ordinary Shares in issue of 144,542,500 (31 December 2019: 121,143,666) in the period to 30 June 2020. Revenue profits and capital losses are EUR 1,283,000 (31 December 2019: revenue loss of EUR 54,000) and EUR 6,767,000 (31 December 2019: capital profit of EUR 8,595,000) respectively.
| Number of shares | |
|---|---|
| Weighted average number of Ordinary Shares used as the denominator in calculating basic earnings per share | 144,183,561 |
| The effect settled investment advisory fees by issuing Ordinary Shares | 358,939 |
| Weighted average number of Ordinary Shares and potential Ordinary Shares used as the denominator in calculating | |
| diluted earnings per share | 144,542,500 |
| As at 30 June 2020 (Unaudited) |
As at 31 December 2019 (Audited) |
||||
|---|---|---|---|---|---|
| No. of Shares | EUR'000 | No. of Shares | EUR'000 | ||
| Allotted, issued and fully paid: | |||||
| Ordinary Shares of 1 cent each | 193,411,877 | 1,934 | 154,668,084 | 1,547 | 1,547 |
| Total | 193,411,877 | 1,934 | 154,668,084 | 1,547 | 1,547 |
On incorporation, the issued share capital of the Company was 1 Ordinary Share of EUR 0.01 issued to the subscriber to the Company's memorandum. The Company's issued share capital was increased by EUR 50,000 represented by 50,000 Management Shares of nominal value EUR 1.00 each, which were subscribed for by the Investment Adviser. Following admission, the Management Shares were redeemed by the holder.
On 11 February 2020, the Company issued 290,258 Ordinary Shares to the Company's Investment Adviser, in relation to advisory fees payable for the period ended 31 December 2019.
On 6 March 2020, the Company issued Ordinary Shares of 38,095,235 raising aggregate gross proceeds of EUR 40.0 million.
On 18 May 2020, the Company issued 358,299 Ordinary Shares to the Company's Investment Adviser, in relation to advisory fees payable for the period ended 31 March 2020.
Since the period end, the Company issued a further 358,939 Ordinary Shares to the Company's Investment Adviser, in relation to advisory fees payable for the period ended 30 June 2020.
Net assets per Ordinary Share as at 30 June 2020 is based on EUR 190,770,000 (31 December 2019: EUR 158,917,000) of net assets of the Company attributable to the 193,411,877 (31 December 2019: 154,668,084) Ordinary Shares in issue as at 30 June 2020.
The Company has declared the following interim dividends in respect of the period under review:
| Six months ended 30 June 2020 (Unaudited) | ||||
|---|---|---|---|---|
| In respect of the period to | Dividend amount per Ordinary Share |
Amount EUR '000 |
Pay Date | |
| 1st Interim Dividend | 31 March 2020 | 0.75 cents | 1,451 | 22 June 2020 |
| 2nd Interim Dividend | 30 June 2020 | 0.75 cents | 1,453 | 14 September 2020 |
| Total | 2,904 |
| Period ended 31 December 2019 (Audited) | ||||
|---|---|---|---|---|
| In respect of the period to | Dividend amount per Ordinary Share |
Amount EUR '000 |
Pay Date | |
| 1st Interim Dividend | 30 September 2019 | 0.75 cents | 1,160 | 29 November 2019 |
| 2nd Interim Dividend | 31 December 2019 | 0.75 cents | 1,162 | 20 March 2020 |
| Total | 2,322 |
The Company has paid the following interim dividends in respect of the period under review:
| Six months ended 30 June 2020 (Unaudited) | ||||
|---|---|---|---|---|
| In respect of the period to | Dividend amount per Ordinary Share |
Amount EUR '000 |
Pay Date | |
| 2nd Interim Dividend | 31 December 2019 | 0.75 cents | 1,162 | 20 March 2020 |
| 1st Interim Dividend | 31 March 2020 | 0.75 cents | 1,451 | 22 June 2020 |
| Total | 2,613 |
| Period ended 31 December 2019 (Audited) | ||||
|---|---|---|---|---|
| In respect of the period to | Dividend amount per Ordinary Share |
Amount EUR '000 |
Pay Date | |
| 1st Interim Dividend | 30 September 2019 | 0.75 cents | 1,160 | 29 November 2019 |
| Total | 1,162 |
Fees payable to the Investment Adviser are shown in the Income Statement. As at 30 June 2020, the fee outstanding to the Investment Adviser was EUR 356,714 (31 December 2019: EUR 300,417).
Fees are payable to the Directors, effective from appointment of the Directors 8 April 2019, at an annual rate of EUR 75,000 to the Chairman, EUR 46,000 to the Chairman of the Audit Committee and EUR 41,000 to the other directors. Directors fees paid during period was EUR 102,000.
During the period, the Company advanced shareholder loans to HoldCo EUR 34,849,000. The accrued interest and the shareholder loans outstanding at the period end was EUR 104,996,000.
The Directors had the following shareholdings in the Company, all of which were beneficially owned.
| Ordinary Shares As at 30 June 2020 (Unaudited) |
Ordinary Shares At 31 December 2019 (Audited) |
|
|---|---|---|
| Ian Nolan | 100,000 | 100,000 |
| David MacLellan | 75,000 | 75,000 |
| Kenneth MacRitchie | 50,000 | 50,000 |
| Patricia Rodrigues | 50,000 | 50,000 |
The Company's distributable reserve consists of the Special reserve and Revenue reserve. The Company currently pays dividends from the Special reserve.
Capital reserve represents unrealised investments as such its not distributable.
The revenue reserve is distributable. The amount of the revenue reserve that is distributable is not necessarily the full amount of the reserve as disclosed within these financial statements of EUR 1,229,000 as at 30 June 2020 (31 December 2019: EUR loss of 54,000).
The following table shows subsidiaries of the Company. As the Company is regarded as an Investment Entity as referred Note 2, these subsidiaries have not been consolidated in the preparation of the financial statements.
| Subsidiary entity name | Effective ownership % |
Activity | Country of incorporation |
Registered address |
|---|---|---|---|---|
| Tesseract Holdings Limited | 100.0 | HoldCo Subsidiary entity, owns underlying SPV investments |
United Kingdom | 1st Floor Senator House 85 Queen Victoria Street London EC4V 4AB |
| Holmen II Wind Park ApS | 100.0 | Subsidiary entity, owns investment in Holmen II |
Denmark | Gyngemose Parkvej 50, 2860 Søborg, Denmark |
| Aalto Wind No 2 Ltd. Oy | 100.0 | Subsidiary entity, owns investment in Oldhava |
Finland | Oy, Bulevardi 1, 6th floor, 00100 Helsinki, Finland |
| Svindbaek Vindkraft HoldCo ApS |
100.0 | Subsidiary entity, owns investment in Svindbaek |
Denmark | Gyngemose Parkvej 50, 2860 Søborg, Denmark |
| Svindbaek Vindkraft GP ApS | 100.0 | Subsidiary entity | Denmark | Gyngemose Parkvej 50, 2860 Søborg, Denmark |
The Company's investments in subsidiaries are held through HoldCo.
The following table shows associates and other entity of the Company. The Company's investments in associates and other entity are held through HoldCo.
| Associate entity name | Effective ownership % |
Activity | Country of incorporation |
Registered address |
|---|---|---|---|---|
| Aquia Enlica, Lda | 18.0 | Associate entity, owns equity investment in Sagres |
Portugal | RuaFilipe Folque, nº 10 J, 2º direito, Lisbon |
| Midtfjellet Vindkraft AS | 25.9 | Associate entity, owns equity investment in Tesla |
Norway | Sandviksvågen 45, Fitjar, Norway |
| Oyfjellet Wind HoldCo Sarl | 13.7 | Other entity, owns equity investment in The Rock |
Luxembourg | Am Scheerleck 23, 6868 Wecker, Grand Duchy of Luxembourg |
As disclosed in Note 4, the Company finances the HoldCo through a mix of shareholder loans and equity. The shareholder loans accrue at an interest rate range of 5.3% to 10.3%.
HoldCo finances its SPV investments through a mix of shareholder loans and equity. The shareholder loans accrue at an interest rate range of 5.5% to 10.5%.
There are no restrictions on the ability of the Company's subsidiaries associates and other entities to transfer funds in the form of interest and dividends.
The Company and the HoldCo do not provide financial support, guarantees or any other financial benefits to the subsidiaries associates and other entity.
Since the period end, the Company issued 358,939 Ordinary Shares to the Company`s Investment Adviser, in relation to advisory fees payable for the period ended 30 June 2020.
On 10 September 2020, the Company announced it had entered into a Sale and Purchase Agreement to acquire 100% of the equity in a Portuguese solar portfolio for approximately EUR 16 million.
The amount, expressed as a percentage, by which the share price is more than the Net Asset Value per Ordinary Share.
| As at 30 June 2020 | Page | ||
|---|---|---|---|
| NAV per Ordinary Share (cents) | a | 3 | 98.63 |
| Share price (cents) | b | 3 | 100.50 |
| Premium | (b÷a)-1 | 1.9% |
Total return statistics enable the investor to make performance comparisons between investment trusts with different dividend policies. The total return measures the combined effect of any dividends paid, together with the rise or fall in the share price or NAV. This is calculated by the movement in the share price or NAV plus the dividends paid by the Company assuming these are reinvested in the Company at the prevailing NAV/Share price.
| As at 30 June 2020 | Page | Share price | NAV | |
|---|---|---|---|---|
| Opening at 1 January 2020 (cents) | a | 107.8 | 102.7 | |
| Dividend adjustment | b | 3 | 1.5 | 1.5 |
| Closing at 30 June 2020 (cents) | c | 3 | 100.5 | 98.6 |
| Total return | ((b+c)÷a)-1 | (5.4%) | (2.5%) |
n/a = not applicable.
A measure, expressed as a percentage of average net assets, of the regular, recurring annual costs of running an investment company.
| As at 30 June 2020 | EUR'000 | |
|---|---|---|
| Average NAV | a | 191,548 |
| Annualised expenses* | b | 2,537 |
| Ongoing charges | (b÷a) | 1.3% |
* Annualised expenses consists of investment advisory fees and other expenses.
Dividend cover ratio calculation is based on net cash flows generated at the SPVs adjusted for fund level expenses and dividends paid by the Company during the period.
| As at 30 June 2020 | EUR'000 | |
|---|---|---|
| Net cashflow | a | 5,041 |
| Dividend paid | b | 2,613 |
| Dividend cover | (a÷b) | 1.9 |
| As at 30 June 2020 | EUR'000 |
|---|---|
| Valuation reduction due to reduction in forecast electricity prices | 5,200 |
| Valuation reduction due to other expenses, taxation and foreign exchange losses | 1,559 |
| Total valuation reduction as per Condensed Statement of Comprehensive Income | 6,759 |
| AIC | Association of Investment Companies |
|---|---|
| Alternative Investment Fund or 'AIF' | An investment vehicle under AIFMD. Under AIFMD (see below) Aquila European Renewables Income Fund Plc is classified as an AIF. |
| Alternative Investment Fund Managers Directive or 'AIFMD' | A European Union directive which came into force on 22 July 2013 and has been implemented in the UK. |
| Annual General Meeting or 'AGM' | A meeting held once a year which Shareholders can attend and where they can vote on resolutions to be put forward at the meeting and ask directors questions about the company in which they are invested. |
| the Company | Aquila European Renewables Income Fund Plc. |
| Discount | The amount, expressed as a percentage, by which the share price is less than the net asset value per share. |
| Dividend | Income receivable from an investment in shares. |
| Ex-dividend date | The date from which you are not entitled to receive a dividend which has been declared and is due to be paid to Shareholders. |
| EU | European Union |
| Financial Conduct Authority or 'FCA' | The independent body that regulates the financial services industry in the UK. |
| Gearing | A way to magnify income and capital returns, but which can also magnify losses. A bank loan is a common method of gearing. See also 'leverage' below. |
| GWh | Gigawatt hour |
| HoldCo | Tessseract Holdings Limited, the wholly owned Subsidiary of the Company. |
| Index | A basket of stocks which is considered to replicate a particular stock market or sector. |
| Investment company | A company formed to invest in a diversified portfolio of assets. |
| IPO | Initial Public Offering |
| Investment Trust | An investment company which is based in the UK and which meets certain tax conditions which enables it to be exempt from UK corporation tax on its capital gains. The Company is an investment trust. |
| Leverage | An alternative word for 'Gearing'. |
|---|---|
| Under AIFMD, leverage is any method by which the exposure of an AIF is increased through borrowing of cash or securities or leverage embedded in derivative positions. |
|
| Under AIFMD, leverage is broadly similar to gearing, but is expressed as a ratio between the assets (excluding borrowings) and the net assets (after taking account of borrowing). Under the gross method, exposure represents the sum of a company's positions after deduction of cash balances, without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without the deduction of cash balances and after certain hedging and netting positions are offset against each other. |
|
| Liquidity | The extent to which investments can be sold at short notice. |
| MWh | Megawatt hour |
| Net assets or net asset value ("NAV") | An investment company's assets less its liabilities. |
| NAV per Ordinary Share | Net assets divided by the number of Ordinary Shares in issue (excluding any shares held in treasury). |
| Ongoing charges | The "ongoing charges" ratio is an indicator of the costs incurred in the day-to-day management of the Company, expressed as a percentage of average net assets. This ratio Calculation is based on Association of Investment Companies ("AIC") recommended methodology. |
| Ordinary Shares | The Company's Ordinary Shares in issue. |
| Portfolio | A collection of different investments held in order to deliver returns to Shareholders and to spread risk. |
| Premium | The amount, expressed as a percentage, by which the share price is more than the net asset value per share. |
| PPAs | Power Purchase Agreements |
| PV | Photovoltaic |
| Share price | The price of a share as determined by a relevant stock market. |
| Total return | Total return statistics enable the investor to make performance comparisons between investment trusts with different dividend policies. The total return measures the combined effect of any dividends paid, together with the rise or fall in the share price or NAV. This is calculated by the movement in the share price or NAV plus the dividends paid by the Company assuming these are reinvested |
in the Company at the prevailing NAV/Share price.
| Directors (all non-executive) | Ian Nolan (Chair) David MacLellan Kenneth MacRitchie Patricia Rodrigues |
|---|---|
| Registered office | 1st Floor Senator House, 85 Queen Victoria Street London EC4V 4AB |
| AIFM | International Fund Management Limited Sarnia House Le Truchot St Peter Port Guernsey GY1 1GR |
| Investment Adviser | Aquila Capital Investmentgesellschaft mbH Valentinskamp 70 D-20335 Hamburg Germany |
| Sponsor and Bookrunner | Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT |
| Joint Bookrunner | Van Lanschot Kempen Wealth Management N.V Beethovenstraat 300 1077 WZ Amsterdam The Netherlands |
| Administrator and Company Secretary | PraxisIFM Fund Services (UK) Limited 1st Floor Senator House, 85 Queen Victoria Street London EC4V 4AB |
| Registrar and Receiving Agent | Computershare Investor Services Plc The Pavilions Bridgwater Road Bristol BS13 8AE |
| Independent Auditors | PricewaterhouseCoopers LLP 7 More London Riverside London SE1 2RT |
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