TIDMAEET
RNS Number : 0335Q
Aquila Energy Efficiency Trust PLC
24 June 2022
LEI: 213800AJ3TY3OJCQQC53
AQUILA ENERGY EFFICIENCY TRUST PLC
Final Results
for the period from incorporation on 9 April 2021 to 31 December
2021
The Board of Aquila Energy Efficiency Trust plc ("AEET" or the
"Company") is pleased to announce its audited results for the
period from incorporation on 9 April 2021 to 31 December 2021
("Period").
Investment Objective
The company seeks to generate attractive returns, principally in
the form of income distributions by investing in a diversified
portfolio of energy efficiency investments.
Financial Highlights
Financial information
As at 31 December
2021
NAV per Ordinary Share (pence) (1) 97.38
Ordinary Share price (pence) 95.75
Ordinary Share price discount to NAV(1) 1.7%
Net assets in GBP million 97.38
Ongoing charges(1) 0.9%
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Performance summary
% change
------------------------------------------------ ------------------
NAV total return per Ordinary Share(1) (0.6%)
Share price total return per Ordinary Share(1) (4.3%)
(1) - These are Alternative Performance Measures for the period
from commencement of operations on 9 April 2021 to 31 December
2021. Share price total return is based on an opening share price
of GBP 1.00 and NAV total return is based on an opening NAV after
launch expenses of GBP 0.98 per Ordinary Share.
Period End Highlights
-- NAV per Ordinary Share of 97.38 pence as at 31 December 2021
and NAV total return per Ordinary Share of (0.6%) for the
Period
-- Ordinary Share price at Period end of 95.75 pence versus 100
pence at IPO, representing an Ordinary Share price total return of
(4.3%)
-- Pipeline of near - and medium-term investment opportunities
diversified in terms of geography across Europe, technology, ESCO
partners and counterparties
-- During the Period, the Company entered into commitments to
invest GBP14.1 million of which total investments were GBP12.3
million.
Post Period End Highlights
-- Result of investment strategy review published in April 2022,
which included a number of positive measures for Shareholders,
including an adjustment to the advisory fees payable under the
Investment Advisory Agreement
-- In April 2022 the Company appointed an additional
non-executive Director and Chair of the Audit and Risk Committee to
the Board, David Fletcher, and a search for a fourth member of the
Board is well advanced
-- When the Company last updated on investment, on 21 April
2022, it had made total commitments of approximately GBP19.1m, and,
deployed approximately GBP15.1m. As at 31 May 2022, the Company has
total commitments of approximately GBP19.7m, and, has deployed
approximately GBP15.7m.
-- The Investment Adviser expects an acceleration in the pace of
deployment during July 2022 based on current contractual
negotiations. The Board remains actively engaged with the
Investment Adviser to support them reaching their target of full
deployment of the remaining IPO proceeds, and, the Investment
Adviser is targeting this by the end of December 2022 or early
2023.
Chair's Statement
Introduction
I am pleased to present my first Chair's statement for Aquila
Energy Efficiency Trust Plc which covers the period from 9 April
2021 (the date of incorporation) to 31 December 2021 (the
"Period"). It has been a very busy period for your Board for the
reasons discussed below.
Strategic review
Despite the optimism at the time of flotation in June last year,
deployment of monies raised proved to be very disappointing over
the period and on 31 January 2022, we announced that given the
slower investment deployment than originally anticipated, the Board
was undertaking a comprehensive review of the Company's investment
strategy with a view to ascertaining how best to accelerate
deployment, whilst maintaining the Company's prudent credit
criteria and return objectives.
The Board appointed Complete Strategy Ltd, a consultancy firm
experienced in the energy sector, to conduct this review. The
review concluded that whilst certain changes are required to enable
the Investment Adviser to execute on the Company's investment
strategy, the market opportunity for Energy Efficiency Investments
located in Europe remains attractive, particularly in the context
of high energy prices. The Board consulted extensively with
Shareholders before undertaking the review and following its
conclusion. Shareholders as a whole were supportive of the
continuation of the Company with the certain changes announced on
21 April 2022 and which are outlined below.
Changes following the Strategic review
The Initial Continuation Resolution originally intended for 2025
will now be brought forward and is expected to be voted on by
Shareholders during February 2023. Should the Directors determine
that the rate of deployment has not improved in the period from
conclusion of the review to the end of July 2022, they will
consider bringing that date forward.
The Investment Adviser has agreed to amend the current
Investment Advisory Agreement such that any advisory fees payable
are charged only on committed capital (being the sum of funds
actually invested and funds committed for investment in Energy
Efficiency Investments), this amendment will be applied
retrospectively from the time of the Company's IPO in June 2021.
The original Agreement entitled the Investment Adviser to charge
fees on the Company's NAV which would have included uninvested
cash. This resulted to a reduction of the Investment Adviser fee
from GBP537,331 to GBP76,698.
In addition, the Investment Adviser has increased the resources
allocated to the investment team to help them meet the full
deployment target by the end of December 2022 or early 2023.
The Board has also engaged Complete Strategy Ltd for an initial
period of six months from April 2022 to provide it with a detailed
analysis of monthly deployment performance against agreed
performance milestones with the costs of this borne by the
Investment Adviser.
The Board are of the view that these actions, together with a
focus by the Investment Adviser on larger transactions, partnering
arrangements with repeat introducers of transactions and a smaller
number of geographies, should provide a basis to enable the
Investment Adviser to meet its deployment targets.
Update on deployment & dividends
At the last published update on 21 April 2022, the Company had
agreed to invest a total of approximately GBP19.1 million, of which
it had deployed a total of approximately GBP15.1 million.
As at 31 May 2022, the Company has committed a further GBP0.5
million and deployed GBP0.6 million, taking total commitments to
GBP19.7 million and deployment approximately GBP15.7 million.
In light of slower than anticipated deployment and the current
expectation that the IPO proceeds will not be significantly
deployed within twelve months of Admission, the Company does not
expect that its stated dividend target of 3.5 pence per Ordinary
Share for the financial year ending 31 December 2022 will be
covered by earnings. The Board will review the position in respect
of any dividend which may be declared for the financial year ending
31 December 2022 in light of the deployment of the IPO proceeds as
the year progresses. Due to the delay in receiving income for
distribution and that the financial statements are yet to be filed,
at the date of this report the Board is not recommending payment of
a dividend for the first quarter of 2022.
Board changes
Following the resignations of two Directors, we have appointed
David Fletcher a highly experienced non-executive Director and
Chair of the Audit Committee, as our new Chair of the Audit and
Risk Committee ("ARC") and as Chair of the Remuneration Committee.
I would like to thank my fellow Director Nick Bliss for standing in
as interim Chair of the ARC. We are well advanced in our
recruitment process to appoint our fourth Board member.
Green Economy Mark
We are pleased to report that the Company was awarded with
London Stock Exchange's Green Economy Mark, which recognises
companies that derive 50 per cent or more of their total annual
revenues from products and services that contribute to the global
green economy. We are committed towards reducing CO (2) emissions
and improving air quality, while achieving strong returns for our
investors and allowing them to contribute to the European Union
("EU") goal of a climate neutral economy .
The need for Energy Efficiency
We believe that energy efficiency is the natural partner to
renewable energy if we are to achieve the European goal of net zero
by 2050. The more efficient use of energy is one of the main
pillars of the energy transition. The reduction of daily energy
consumption is Europe's greatest energy resource. We need to make
energy efficiency part of our everyday lives, to consume less and
consume it better. It protects business and consumers against
increases in energy prices, is better for the environment and it
improves the competitiveness of our economies. Increasing energy
efficiency also ensures reduced dependence on energy imports,
thereby improving energy security and reduces conflicts in
distribution .
AEET was launched in recognition of the opportunities, both
economic and social, that are available in monetising energy
efficiency. In terms of implementation, energy efficiency lags the
focus and attention that renewables have received and is an area
with significant growth potential and opportunities, both currently
and for the foreseeable future .
Foreseeable Future
We understand that the actual scope of energy efficiency remains
uncertain to many investors. However, our definition includes all
processes and measures that optimise energy consumption to save
energy. Energy utilisation is increased, and energy losses
resulting from the transport, conversion and storage of energy are
reduced. We distinguish energy efficiency by its aim of reducing
primary energy consumption differentiating from other areas of
efficiency in the power sector, such as generation efficiency from
renewables and from enablers of distribution efficiency, such as
grid-scale batteries .
Being energy efficient means using and paying for less energy,
even as value creation increases, producing more competitively and
sustainably. In simple terms: the economies across Europe are more
competitive and sustainable the more energy-efficient they are.
Energy efficiency drives modernisation and innovation processes in
all sectors and opens up new markets for export opportunities. It
also has the potential to boost employment as it can stimulate
local value creation (e.g., through energy-efficient building
renovation). Most importantly, energy efficiency is critical in
achieving the EU climate targets .
It is widely recognised that there is a financing gap with
energy efficiency investments in both the public and private
sectors, often because of scale and complexity, thus capital should
be directed to focus where it is not currently invested. AEET aims
to be among the important private market conduits to facilitate
additional energy efficiency investment on a pan-European
basis.
Annual General Meeting
We look forward to welcoming Shareholders to the Company's
Annual General Meeting ("AGM") to be held on 28 June 2022 at Cannon
Place, 78 Cannon Street, London EC4N 6AF. The Company will also
hold a General Meeting on 25 July 2022 at 10:00 AM, where this
Annual Report will be laid before Shareholders. The reasons for
holding two general meetings are explained in detail in the Chair's
Letter accompanying the Notice of Meeting published on 1(st) June
2022.
Outlook
The Board and the Investment Adviser, have considered the risks
posed by the war in Ukraine in the context of the Company and are
of the view that these risks are counter-balanced by the recent
increase in energy prices which brings with it renewed government
focus on energy efficiency. We are, of course, very mindful of the
terrible tragedy that conflict produces .
We firmly believe that AEET has a differentiated pan-European
investment strategy that offers attractive opportunities now, and,
in the future, and has the potential to provide Shareholders with
an attractive risk-return profile while achieving a positive
environmental impact for the real economy and society. Whilst risks
around deployment remain, your Board will be actively engaged with
the Investment Adviser to support them to reach deployment targets
and grow the Company .
Miriam Greenwood OBE DL
Chair of the Board
23 June 2022
Sustainable Development Goals and the importance of
Additionality
What does "additionality" mean and why is it important? To
qualify as additional, capital investments must generate an
activity (e.g. related to a UN sustainable development goal (UN
SDG), such as Goal 7: Affordable Energy, Goal 9: Industries,
Innovation and Infrastructure, or Goal: 11 Sustainable Cities and
Communities) that would not have occurred without that capital,
i.e. they must be "in addition to" a baseline scenario that would
have occurred anyway or, in other words, be made knowing that they
will make a real, positive difference. The concept of additionality
originated in carbon offset markets but, more recently, the term
additionality has increasingly appeared in the context of
investment, particularly in the case of sustainable finance (for
example, as green bonds) or impact investing.
As with many concepts in the impact investing world, there is no
consensus on additionality as yet. Moreover, measuring
additionality remains challenging because of the need to quantify
both the impact of investment and its longer-term benefits.
Nonetheless, we believe that it can facilitate funding for
otherwise lower priority initiatives; help to integrate increased
risk management; encourage more comprehensive project designs; lead
to improved outcomes; and align projects with environmental,
social, and governance standards.
In the AEET context , we believe that investments which
financially support new, expanding, or developing sources of energy
efficiency, as opposed to purchasing those already available ,
should be able to claim additionality. The chosen projects will
have a significant impact on displacing emissions by reducing
primary energy consumption. Additionality, we would suggest, is new
capital provided to address specific problems or underinvested
areas highlighted by the UN SDGs.
By definition, additionality puts the focus on more innovative
financial arrangements, transactions that tend to be smaller, often
more complex, as well as time intensive. We recognise that
additionality can never be determined with certainty, as it
involves a prediction of future outcomes; it will always require
analysis and judgments.
The inclusion of additionality is an important consideration for
AEET, as our investment strategy seeks to provide funding for a
high percentage of new energy efficiency projects, rather than
investing in operations and, thus, existing energy efficiency
assets. Therefore, the relevant additionality test for us is
whether a project creates an "incremental" reduction in emissions
which would not have been possible within the same time frame
and/or investment value, without the availability of this
funding.
Investment Adviser's Report
Investment Adviser's Background
The Company's AIFM, International Fund Management Limited (part
of Sanne Group), has appointed Aquila Capital
Investmentgesellschaft mbH as the Investment Adviser to the AIFM in
respect of the Company.
The Investment Adviser offers advice on potential energy
efficiency investments in line with the Company's Investment
Policy. Aquila Capital Investmentgesellschaft mbH is part of Aquila
Group, an experienced and long-term investor in real asset
investments. Founded in 2001 by Dieter Rentsch and Roman
Rosslenbroich, Aquila Group currently manages and/or advises assets
worth around EUR13.9 billion on behalf of institutional investors
worldwide (as at 31 December 2021). Daiwa, one of Asia's largest
investors, is a minority shareholder in the Group.
By investing in clean energy and sustainable infrastructure,
Aquila Capital contributes to the global energy transition and
strengthens the world's infrastructure backbone. The company
initiates, develops, and manages these essential assets along their
entire value chain and lifetime. Aquila Capital's primary objective
is to generate performance for its clients by managing the
complexity of essential assets.
Currently, Aquila Capital manages wind energy, solar PV and
hydropower assets with a generating capacity of more than 15 GW.
Additionally, 1.9 million square metres of real estate and green
logistics projects have been completed or are under development.
Aquila Capital also invests in energy efficiency, carbon forestry,
and data centres. Aquila Capital has been carbon neutral since
2006. Sustainability has always been part of the company's value
system and is an integral part of its investment strategies,
processes and the general management of its assets. The company has
more than 600 employees from 48 nations, operating in 16 offices in
15 countries worldwide.
Aquila Capital believes in stringent corporate governance. It is
licensed as an alternative investment fund manager (for the
avoidance of doubt, it is not acting as AIFM to the Company) in
Germany and is, therefore, subject to high European regulatory
standards.
Investment Activity and Pipeline
Investment activity in the period
Since its IPO in June 2021, the Company has begun executing on
its strategy to invest in energy efficiency projects which are
characterised by projects with (i) a low technology risk through
the use of proven technologies; (ii) medium to long term contracts
providing for highly predictable cash flows; and (iii)
counterparties with good creditworthiness. As at the period end,
the Company had entered into commitments to invests GBP14.1 million
of its IPO proceeds of which total investments were GBP12.3
million. In the period between 1 January 2022 and 31 May 2022, the
Company made additional commitments accounting to GBP5.5 million
bringing the total income generating capital deployed since IPO
GBP15.7 million. The Investment Adviser expects the remaining
proceeds of the IPO to be deployed by the end of December 2022 or
early 2023.
GBP14.0 million investment in Italian "Superbonus" projects
In December 2021, the Company entered into commitments to
finance two clusters of "Superbonus" energy efficiency projects for
apartments and other residential buildings in Italy amounting to
GBP14.0 million. "Superbonus" is an incentive measure introduced by
the Italian government through Decree "Rilancio Nr. 34" on 19 May
2020, which aims to make residential buildings (condominiums and
single houses) more energy efficient through improvements to
thermal insulation and heating systems. When qualifying measures
are completed, the energy services company ("ESCO") delivering the
measures is awarded a tax credit equal to 110% of the cost of the
measures. These tax credits can then be sold to banks and, thus,
projects can be financed without the need for a financial
contribution from landlords.
The projects which the Company has committed to finance are
being managed by two ESCOs - Enerstreet and Enerqos Energy
Solutions and entail commitments of GBP8.94 million and GBP5.15
million respectively. The projects involve a range of energy
efficiency measures including insulation, the replacement of
heating systems with more efficient solutions, and energy efficient
windows.
As at 31 December 2021, GBP11.9 million had been committed to
these projects and was earning a contractual rate of return. Of
this, GBP0.2 million had been deployed in cash. The balance of the
commitments is forecast to be deployed before the end of October
this year. These projects, which are being delivered in a series of
stages, generate tax credits which exceed the cost of the Company's
investments. Two Italian banks have agreed to purchase these tax
credits, and the proceeds from this will redeem the investments
within a period of up to 15 months from December 2021. The
investments are structured to deliver a contractual return of 8%
p.a. from the expected project start dates. This means that the
investment commitments become income generating from the dates set
out in the investment documentation and not from the date of cash
deployment. The two Italian banks have credit ratings of A and B,
respectively with the lower rated bank majority owned by the
Italian state.
GBP0.4 million investments in Acetificio Galletti & Enofrigo
Projects with project developer, Noleggio Energia
The Company has completed two rooftop solar PV investments
developed by Noleggio Energia, for two Italian industrial
businesses, enabling these companies to reduce their energy
expenses and CO2 emissions and avoid grid losses through the
self-consumption of the electricity produced. Noleggio Energia was
established in 2017 and is an Italian company that specialises in
providing operating leases for energy efficiency and renewable
energy projects for commercial and industrial clients in Italy.
The first investment of GBP0.29 million was completed at the end
of June to finance a rooftop solar PV project located in Lombardy
for the Italian food product manufacturer Galletti di Galletti
Aurelio e C. snc ("Acetificio Galletti"). The project, which is
operational, is structured as an operating lease for Acetificio
Galletti, which has agreed to make fixed monthly payments for a
contractual period of seven years. The investment is expected to
deliver a contractual return of 7.2% p.a. Acetificio Galletti is a
family-owned business founded in 1871 and is a renowned producer of
vinegars, dressings, pickles and other food products. It has an
investment grade credit rating (B1.2/BBB) from credit ratings
agency Cerved.
The second investment of GBP0.11 million was completed at the
end of December 2021 to finance a rooftop solar PV project in
Veneto for Enofrigo SpA. The project, which is also operational,
has the same seven-year operating lease structure and contracts
similar to those used in the Acetificio Galletti investment. The
investment is expected to deliver a contractual return of 9.4% p.a.
Enofrigo SpA, founded in 1978, is an Italian designer and
manufacturer of wine cabinets and both hot and cold food display
units for bars, restaurants, small supermarkets and larger retail
chain stores. The company nowadays serves more than 5,000 clients
in more than 100 countries. Its Cerved rating is B2.1/BB+.
GBP0.3 million investment in lighting as a service project
developed by Lumenstream
In December 2021 the Company, through its wholly owned
subsidiary, Attika Holdings Limited (Attika), invested GBP0.3
million in a group of four operational lighting projects developed
by a Northern Ireland based lighting services company, Lumenstream
Limited. The Company has purchased receivables under existing
five-year contracts with industrial companies and a leisure
business. The investment is forecast to generate a contractual
return of 9.6% p.a. over the five years. The industrial companies
have investment grade ratings of A1.1-A1.3/ AAA-AA- from Cerved.
The leisure business is not rated but all payments due under its
lighting as a service agreement in the two and a half years up to
the time of the investment have been paid. The investment agreement
with Lumenstream Limited also included a framework agreement under
which the Company has an option to finance future projects
developed by Lumenstream, on agreed terms, and under which the
Company expects to make additional investments.
Investments completed after 31 December 2021
We are pleased to report that, since the period end, the Company
has completed the following investments:
GBP0.7 million investment for the refinancing of the acquisition
of an existing rooftop solar PV plant, with project developer
CO-VER Power Technologies .
In January 2022, the Company refinanced the acquisition of an
existing rooftop solar PV plant in Ascoli Piceno (Central Italy)
with a generating capacity of 901.6 kWp (kilowatts peak). The
investment is based on the purchase of receivables generated by an
energy service contract between the leading Italian engineering
firm CO-VER Power Technologies (CO-VER) and its subsidiary Futura
APV srl ("Futura"). The contract governs the management of an
operating roof-mounted solar PV plant until April 2028. Thereafter,
the investment is based on a feed-in-tariff for an additional six
years, aggregating to a 12-year tenor. The investment is forecast
to generate a return ranging of between 7.0% and 7.3% p.a.
CO-VER has a successful 20-year history in developing industrial
projects in the areas of energy storage systems, co/tri-generation
plants and renewable energies. Futura, which was established in
1981, specialises in the design and construction of overhead and
floor conveyors and is the owner of the PV plant which is backed by
the payments of Gestore dei dervizi energetici (GSE). GSE is a
joint stock company managed by the Italian government which is
responsible for promoting and developing the growth of renewable
assets in Italy. GSE has a credit rating of BBB+ from the Italian
government.
GBP1.2 million investment in rooftop solar PV plant, developed
by Noleggio Energia .
In April 2022, the Company invested GBP1.2 million in a rooftop
solar PV plant in self consumption, including the refurbishment of
the roof, in Lombardy (Northern Italy). The plant has a capacity of
1 MWp (Megawatt peak) and is for the engineering company Tecnocryo
s.p.a (Tecnocryo). The investment is based on the purchase of
receivables generated by a 10-year operating lease contract between
Tecnocryo and Noleggio Energia. The investment is forecast to
generate a contractual return of 7.8% p.a. over a 10-year period.
Tecnocryo has been operational since 1992 and focuses on the design
and realisation of machines for handling cryogenic fluids. The
company has a Cerved credit rating of B2.1, equivalent to BB+,
which is just below investment grade.
GBP1.7 million investment in Comgy GmbH & Co KG (Comgy)
In April 2022 the Company, through Attika, purchased a note for
GBP1.7 million with a tenor of 10 years issued by Comgy. The note
provides for a fixed interest rate of 6.5% p.a. and a variable
component and is forecast to generate a total return in excess of
10% p.a. Comgy is a wholly owned subsidiary of Comgy GmbH, active
in the German sub-metering market. Comgy provides metering
equipment, billing and O&M services mainly to housing companies
with an average rating comparable to S&P BBB+/BBB. The note
purchased by Attika is secured by sub-metering contracts, including
equipment rental and billing as well O&M services with tenors
of between five and ten years. The structure for the investment in
Comgy (transfer of assets and issuing of a note) can be viewed as a
framework under which Attika has the opportunity to purchase a
series of notes from Comgy secured by additional sub-metering
contracts.
GBP0.1 million additional projects with Lumenstream
In January and April 2022 Attika committed to invest GBP0.1
million in additional lighting projects developed by Lumenstream
for a UK subsidiary of Siemens, which has an investment grade
credit rating of AAA/AA- from Cerved and Bearmach Limited,
respectively. The projects use the same five-year lighting as a
service agreement as the other projects financed by Attika. The
total Lumenstream portfolio of projects is forecast to generate a
return of in excess of 10.0% p.a. over the contractual period of
five years.
GBP1.5 million additional investment in Italian "Superbonus"
projects
In April 2022, the Company committed a further GBP1.5 million to
additional Superbonus projects in Italy. These investments are
structured in a very similar way to the first Superbonus
investments, using almost identical documentation, to provide for a
contractual return of 8% p.a. These projects are being managed by
Sol Lucet S.r.l., an energy services company which, since 2013, has
successfully installed renewable energy plants with a generating
capacity of 17.0 MWp as well as combined heat and power (CHP)
plants producing 3.2 MWe (Megawatts electric). Sol Lucet is
currently managing solar PV plants with a generating capacity of
14.0 MWp. The tax credits, which these projects are expected to
generate by the end of 2022, will be acquired by Credit Agricole,
which has a short-term rating of A+ from S&P.
Investment Structures
All the investments in Italy have been made by the Company
through directly purchasing notes issued by an Italian special
purpose vehicle (SPV) established under securitisation laws in
Italy. This SPV has made the capital investments in return for
which receivables have been transferred to it. The receivables are
the payments due from the purchase of tax credits in the case of
the Superbonus investments and from operating leases in the case of
the investments developed by Noleggio Energia and EES. The notes
issued by the SPV, entitle the Company to the economic return from
the receivables and are structured to provide a fixed interest rate
amounting to a 3% p.a. return on capital and variable interest to
capture the return above 3% p.a.
As with its investments in Italy, the structure of the Company's
UK investments is also based on the purchasing of receivables. In
this instance, Attika has purchased the receivables due under
Lumenstream's five-year lighting as a service contract. Lumenstream
has established a special purpose subsidiary to own the lighting
installations financed by Attika and subsidiary has contracted with
Lumenstream's clients to provide energy saving services through the
provision of energy efficient lighting. The receivables from these
contracts have been transferred to Attika.
The structure for the Comgy investment in Germany has elements
of both the Italian investment structure and the Lumenstream
investment structure with Attika, purchasing a note issued by
Comgy. This entitles Attika to the economic return from receivables
and is structured to provide a fixed interest rate amounting to a
6.5% p.a. return of capital and variable interest to capture the
return above 6.5% p.a. As with the Lumenstream structure, Comgy's
parent company has transferred a portfolio of sub-metering and
other services contracts to Comgy, the receivables from which are
payable to Attika, the noteholder.
Investment Pipeline
At the time of the IPO, the Company had access to an advanced
pipeline with a value of GBP180 million spread across 60 potential
projects. As at 31 May 2022, the Company's pipeline of investment
opportunities had increased to an amount in excess of GBP282
million across 135 potential projects, many of which were in the
advanced pipeline and remain available to the Company. The pipeline
is well diversified in terms of (i) geography across Europe; (ii)
technologies; (iii) ESCO partners; and (iv) counterparties.
Projects with a value of GBP34 million are in exclusivity and are
expected to be completed within five months of the date of this
report.
Some projects in the advanced pipeline have been lost for a
combination of reasons including (i) the projects did not meet the
criteria of the Company, for example, from a return or credit risk
perspective; (ii) the projects are no longer being pursued by
either the ESCO or the underlying client; and (iii) the projects
were lost to competing financiers or ESCOs. However, the main
factor affecting planned levels of capital deployment has been
delay to completing new projects. We have found that the Company's
focus on investing in new or newly completed energy efficiency
projects that deliver incremental environmental benefits has led to
delays in the expected levels of capital deployment.
Nevertheless, the Company has been able to complete investments
developed by ESCOs that are expected to develop numerous projects
in the future which the Company is well placed to invest in.
Furthermore, the Investment Adviser believes that capital
deployment achieved in the period since end December 2021 is
encouraging.
Summary of Deals that have Committed Capital as at 31 May
2022
Noleggio Acetificio
Energia Galletti
Galetti Solar PV Italy s.r.l. SNC BBB+/BBB- 28/06/2021 293 7 7.2%
------------- -------------- --------- ------------- ------------ ----------- ------------ ------ --- ---------
Noleggio
Energia Enofrigo
Enofrigo Solar PV Italy s.r.l. s.p.a. BB+-BB 12/10/2021 116 7 9.4%
------------- -------------- --------- ------------- ------------ ----------- ------------ ------ --- ---------
4 Northern
Lumenstream Ireland
1+2 LED Lighting UK Lumenstream Corporates AAA 12/10/2021 267 5 9.6%
------------- -------------- --------- ------------- ------------ ----------- ------------ ------ --- ---------
Banca Monte
Paschi
Enerqos di Siena
Energy Energy or
Superbonus efficient Solution MedioBanca
ENERQOS Renovation Italy s.r.l. Factoring BBB+/BBB- 29/10/2021 5,154 1 8.0%
------------- -------------- --------- ------------- ------------ ----------- ------------ ------ --- ---------
BNL Paribas
Energy or
Superbonus efficient Enerstreet Banca
ENERSTREET Renovation Italy s.r.l. Intesa A+/A/A- 29/10/2021 8,940 1 8.0%
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Noleggio
Energia Tecnocryo
Tecnocryo Solar PV Italy s.r.l. s.p.a BB+-BB 06/01/2022 1,247 10 7.8%
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Futura APV
COVER Solar PV Italy CO-VER srl A- 28/12/2021 690 12 7.0-7.3%
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Not
Comgy Sub-Metering Germany Comgy KG Comgy GmbH rated 02/02/2022 1,730 9 10.8%
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Lumenstream 5 UK
3 LED Lighting UK Lumenstream Corporates AAA/AA- 23/02/2022 121 5 >10%
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Energy
Superbonus efficient Credit
- Sol Lucet Renovation Italy Sol Lucet Agricole AA- 14/03/2022 1,526 1 8.0%
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Market Trends
Electricity prices for industrial and residential customers
across Europe have increased significantly since the completion of
the Company's IPO. Given this strong upward pressure on energy
prices, we have seen a noticeable increase in investment
opportunities in recent months. From our discussions with ESCOs and
other market participants, it is clear that marked increases in
power prices are accelerating investments in energy efficiency
projects and the Company is well positioned to benefit from this
increased demand for funding such projects.
Market Commentary: Energy Efficiency
1. An introduction to energy efficiency
By definition, energy efficiency aims to reduce primary energy
demand. Primary energy demand is understood to mean the use of
energy carriers which, in the field of conventional energy
production, are fuels such as coal and gas.
Energy efficiency refers to measures whose implementation
results in the same or a better performance with less energy
consumption. According to the laws of economics, scarcity of energy
makes it necessary to relate the input to the output to maximise
the benefit. This means that, for a fixed energy input, the aim is
to achieve maximum output or, for a fixed output, the energy input
is minimised. An illustrative example of this is the use of
energy-saving lamps, which are now mandatory within the EU. Whereas
conventional incandescent lamps convert electrical energy into
desired lighting and undesired heat, the energy requirement for
efficient light sources is reduced due to lower heat losses for the
same amount of lighting. However, this simple, obvious and at the
same time economically sensible change had to be brought about
through legislation. The principle of voluntariness would not have
worked here because energy-saving lamps consume less energy but are
more expensive to buy.
This contradiction is often encountered when it comes to energy
efficiency, but the focus should rather be on the "win-win"
situation. The savings potential specific to lighting is up to 70%,
which ensures short payback times. By contracting, i.e. outsourcing
financing and installation, immediate savings can be achieved, as
the measures pay for themselves through part of the savings. Under
current conditions, Europe offers a cost-efficient savings
potential of 20% to 40% of primary energy. [1]
Energy efficiency is a cornerstone of the energy system
transformation. In addition to the savings needed to achieve
climate targets, synergy effects with renewable energies offer
further great potential for the decarbonisation of the economy. For
this reason, the speed of implementation and the visibility of
energy efficiency must be accelerated and increased. Only in this
way can the limitation of global warming to below 1.5degC be
achieved. To achieve this goal, the International Energy Agency
("IEA") estimates that, from 2035 onwards, almost half of the
world's energy investments will have to be committed to energy
efficiency.
2. Energy Efficiency improvements are crucial to make the energy
transition a reality
"The cleanest energy is that which is not consumed at all"
On the path towards a climate-neutral economy and society, a
reorganisation of the energy system is vital. Systems of
conventional energy production and supply are characterised by high
inefficiencies. Up to two thirds of the primary energy used is
wasted in the process. The potential for making efficiency
improvements along the value and supply chains is correspondingly
large.
Final energy consumption only covers two thirds of the energy
generated in the EU and the UK, as it does not account for losses
during energy production and transportation. The relationship can
be illustrated using the example of a coal-fired power plant, which
has an efficiency of only 30%-40% based on the primary energy used
in the form of coal. This means that, when the thermal energy is
converted into electricity, around 60%-70% of the energy is not
available to the consumer due to heat loss .
Despite the efficiency gains which can be attributed, in
particular, to the use of renewable energies and the use of more
efficient gas-fired power plants (using CCGTs - combined cycle gas
turbines), significant energy losses remain within this process.
Not included in this context are grid-related curtailments of
renewable energies, which are caused by the high inflexibility of
thermal power plants.
In addition, the use of energy-efficient technologies in
cross-sectional applications, i.e. applications used across sectors
such as IT systems and lighting, open up a further savings
potential of up to 70%.
Synergies between Energy Efficiency and Renewable Energy
There are considerable interactions between renewable energies
and energy efficiency that reinforce each other. On the one hand,
renewables are an energy-efficient measure per se. For example,
since wind power and solar PV do not require the use of fuels, they
are 100% efficient from a primary energy perspective. On the other
hand, energy-saving measures on the consumption side increase the
share of renewable energies in the national energy mix.
This correlation can be illustrated by comparing 2019 with 2020,
the latter being characterised by the ramifications of the
pandemic.In 2020, the importance of renewable energies in the
energy mix increased significantly as demand fell. In particular,
countries with already high shares of renewable energies (e.g.
Spain, Germany) showed a significant inverse correlation between
demand and the share of renewables.
In view of the EU's goals to increase very significantly the
share of renewable energy, the central importance of establishing
energy efficiency as a quasi independent energy source (first fuel)
becomes clear.
3. Energy Efficient measures in Generation, Transmission and
Distribution
Efficiency through decentralised in-house energy generation
Based on the advantages of increased decentralised power
generation, renewable energy systems, energy efficiency and small
power generators are becoming more important. System efficiency is
increasingly becoming the focus of debate. Photovoltaic systems can
contribute significantly to the decentralised approach. Existing
surfaces, such as roofs, can be used to generate electricity. This
means that there are no additional costs for the area and
additional land consumption is limited. The technological progress
achieved in the recent past and associated cost reductions promise
short payback periods and, thus, favourable access to renewable
energy. Any excess capacity that results can be fed into the grid,
which can generate additional income. From the point of view of
efficiency, an additional burden on the grid is avoided because
savings of electricity downstream of the meter compared to the
direct consumption of locally generated, clean energy have the same
effect from the perspective of the public power supply as neither
requires grid capacity. Avoiding transport-related energy losses
also contributes to the efficiency of energy produced and consumed
in-house. Corresponding implementations offer cost-efficient
possibilities to increase energy efficiency.
Energy efficiency investments can generate cost savings and
income for end users; for example, through the fitting of solar PV
systems to already built-up areas, such as the roofs of factories,
end users can reduce their energy costs and also generate income
through the sale of surplus capacity. The decisive factor in this
orientation is the prevailing level of energy prices.
Excursus on combined heat and power ("CHP")
Initial situation - separate decentralised heat generation and
centralised supply of electricity
Many EU member states (e.g. Germany) continue to pursue the
construction of flexible gas-fired power plants (gas peakers) in
order to close future electricity gaps or to ensure energy security
in hours with low renewable energy generation. As a result, further
inefficiencies in electricity generation are to be expected
(efficiency around 50%). In addition, there are sometimes loads on
the grids that even result in renewable energy curtailments.
In contrast, CHP plants offer the possibility of companies
supplying themselves with energy while covering their heating needs
with otherwise unused waste heat. This is particularly advantageous
for companies that require process heat, while benefiting overall
from lower costs, fewer emissions and the more effective use of
renewable energies.
Smart meter rollout
In addition to the energy transition, we are also in the midst
of a digital transformation. But instead of seeing this as an
additional challenge, the focus should be on synergising both
transitions. An accelerated expansion of smart meters makes it
possible to use potential lying in the grid. Smart meters offer a
digital exchange of consumption data and storage capacities in real
time and bring benefits for utilities and consumers. For example,
the bidirectional charging and discharging of batteries of an
increasing number of electric vehicles ('EVs') would increase
flexibility on the demand side. While consumers could benefit from
lower prices, there would be additional benefits in terms of the
loads on grids and efficient use of renewable energy.
Effects of decentralisation
The decentralisation of energy generation plus digitalisation
could make the energy supply much more efficient. Increasing demand
flexibility in the context of electrification would significantly
improve the integration of renewable energies. In combination with
renewable self-production, such as through rooftop solar systems,
inefficient and emission-heavy fossil fuel generation would
decrease significantly. In addition, excessive grid loads would be
avoided, minimising transport losses and curtailments of renewable
energy sources.
In addition to the positive effects on system efficiency, these
effects can realise competitive cost savings, especially for
companies.
4. Consumption side - Spotlight building sector
The building sector is by far the largest energy consumer within
the EU. Accounting for 40% of total energy consumption, buildings
are responsible for more than one third of energy-related
greenhouse gas emissions (36%) and are thus at the centre of the
European "efficiency first" approach.
Recent efficiency improvements have made it possible for new
buildings to have an approximately 50% lower energy demand compared
to 20 year old buildings. However, since 220 million buildings -
about 80% of the EU's building stock - were built before 2001, most
buildings are not energy efficient. Many of them are heated with
fossil fuels and have technologies and appliances with high energy
consumption.
As 85%-95% of today's buildings are expected to still be in use
in 2050, extensive energy retrofits of buildings are a prerequisite
for achieving the EU's climate targets. The goal of reducing
emissions by 55% by 2030 requires reducing the emissions from
buildings by 60%, energy consumption by 14%, and energy consumption
for heating and cooling by 18%. Currently, however, the annual rate
of energy retrofits is only running at about 1%, while
comprehensive renovations, which have the potential to meet the
targets, apply to only 0.2% of the EU's building stock
annually.
To achieve the EU's goals, the annual rate of energy renovations
must at least double to 2%. By 2030, about 35 million buildings
would have to undergo energy-efficient refurbishment, which
corresponds to an annual investment requirement of about EUR275
billion.
Energy efficient measures range from insulation to the
electrification of heating and cooling, which can be supplied by
renewable energies in the future, to digitalisation via smart
applications. The EU is pursuing a strategy that it calls the
renovation wave. In view of the ramifications of the pandemic, this
is a "win-win" situation. On the one hand, this approach
contributes to achieving ambitious goals, in particular, the
realisation of electrification via renewable energies; on the
other, up to 160,000 additional green jobs could be created. For
these reasons, member states are free to use the EU's recovery
fund, which prescribes a fixed quota of green investments, to
create additional incentives for private investments.
According to plans that recipient states had to submit to the
European Commission for review, there is a strong focus on
buildings. Apart from Italy, which tops the list of the eight
largest beneficiary countries in absolute terms (around EUR15
billion) an average of 12% of the EU funds are to be used to boost
the renovation wave.
Example Italy: Superbonus 110
With the so-called Superbonus 110, the Italian government
creates incentives for the energy-efficient refurbishment of
buildings. Costs incurred for measures that increase the energy
efficiency of buildings can be claimed for at a rate of 110%
against tax. When qualifying measures are completed, the ESCO -
that carried out the technical installation - is awarded a tax
credit equal to 110% of the costs of the measures. These tax
credits can be sold to banks and, thus, the projects can be
financed without the need for a financial contribution from
landlords.
The Superbonus scheme is expected to lead to investments in
excess of EUR 8.75bn, with a net positive contribution for the
Italian government of approximately EUR 800m. As of 1 July 2021,
more than 24,500 projects for a total investment of EUR 3.5bn have
been submitted, of which 11% are related to condominiums, 43% of
the total investment volume. The expectation is that the Superbonus
arrangements will be extended for a number of years past the
current end date of 31 December 2023, thereby creating attractive
and sustainable opportunities for institutional investors in the
residential sector. To achieve its climate targets, the EU aims to
ensure that targeted renovation rates are incorporated into the
national legislation of member countries. The guiding principle in
relation to the financing of the renovation wave strategy is:
Ensuring accessible and well-targeted funding, including through
the 'Renovate' and 'Power Up' Flagships in the Recovery and
Resilience Facility under NextGenerationEU, simplified rules for
combining different funding streams, and multiple incentives for
private financing"[2]
In accordance with EU targets, the already allocated EU funds
and the economic stimulus that is expected to result courtesy of
the construction sector, further incentive programmes for European
member states are to be expected, analogous to the example set by
Italy (Superbonus 110). In this context, we expect a further
expansion of sustainable investment opportunities in the area of
energy efficiency within the EU.
In addition to financial incentives, ESCOs, which are
responsible for technical implementation, will also play a key
role. Within the EU, however, the development of this sector is
very heterogeneous and requires a correspondingly selective
approach in conjunction with the perspective development of
partnerships.
In Western Europe in particular, structures are already in place
that offer the essential prerequisites for energy-efficient
renovations. However, Italy offers the best overall conditions
currently. The triad of EU funding (EUR 15bn), a national
incentives programme (Superbonus 110) and a mature and
institutionalised ESCO market offers an ideal environment for
private sector investors.
Future efforts will primarily be directed towards improvements
in thermal insulation, to reduce energy consumption, and the
heating of buildings.
The heating in buildings is responsible for around two thirds of
total energy consumption. As more than 50% of this consumption is
based on fossil fuels, the need for energy renovations is of
particular importance. The EU's ambitious plans, as well as the
urgently needed and time-critical reorganisation of the building
sector, will lead to high capital requirements in the future. In
the short to medium term, a steadily improving environment for
private sector investors in search of sustainable impact
investments can therefore be expected. Within the EU, investment
opportunities in the field of energy efficiency will show
significant growth.
5. Policy Update
Energy efficiency is a main pillar of the energy transition. In
this context, the European Commission's increased target of
reducing GHG emissions by 55% by 2030 has significantly increased
the efficiency targets. With the strategy paper "Fit for 55", the
EU Commission published guidelines that must be anchored in
national law by the member states.
However, in view of the current situation and the urgent need
for independence from Russian energy imports, it is clear that even
this increase in targets is not enough. There is an urgent need in
particular to substitute the supply of Russian natural gas or,
ideally, to reduce gas demand altogether. Since energy-efficient
measures have the potential to reduce demand in the short term,
they are at the centre of the politically, socially and
economically necessary effort.
With the "REPowerEU" package, the aim of which is to end
dependence on Russian gas supplies as quickly as possible, the EU
Commission once again adapted the goals to the changed, explosive
framework conditions.
With the focus on electrification in the areas of buildings,
energy supply and industry, the targets are almost double the
already ambitious approach of the "Fit for 55" package. Energy
efficiency has the power to drastically accelerate the energy
transition in accordance with the new requirements. It is an
ongoing responsibility of governments to create efficient and
intelligent framework conditions to optimise the market conditions
for energy efficiency and simultaneously enable sufficient
renewable energy capacities.
In this environment, the use of synergies between the private
sector and government subsidy programmes is of central importance.
One example is the Italian "Superbonus 110", which has already
given a strong boost to the implementation of efficiency measures
in the residential segment in Italy in recent years
6. Conclusion and Outlook
Energy efficiency is a cornerstone of energy system
transformation. In addition to the savings needed to achieve
climate targets, synergy effects with renewable energies offer
further great potential for the decarbonisation of the economy. For
this reason, the speed of implementation and the visibility of
energy efficiency must be accelerated and increased. Only in this
way can we achieve the goal of keeping global warming below
1.5degC. The IEA estimates that, from 2035 onwards, almost half of
the world's energy investments will have to be committed to energy
efficiency if we are to reach this target.
Furthermore, it must be emphasised that adaptations and the
implementation of efficiency measures usually create monetary
benefits for the consumer. The negative investment costs of many
efficiency measures are significantly lower than the savings that
can be made over time, while the entire supply system benefits from
higher efficiency both through the avoidance of grid related
curtailments and the implementation of smart solutions.
Additional support comes from the governments in Europe. In
particular, the public focus is on the building sector which, on
the one hand, is the largest consuming sector in Europe and, on the
other, is a potential source of enormous economic stimulus that
could provide a sustainable and efficient way out of the recent
crisis.
Environmental, Social and Governance ("ESG")
Introduction
AEET's goal is to generate attractive returns for investors by
reducing Primary Energy Consumption ("PEC"). AEET seeks to achieve
this through investing principally in a diversified portfolio of
energy efficiency projects with high-quality counterparties. AEET's
investments positively impact the environment by reducing the
amount of carbon dioxide produced, by decreasing PEC and by
increasing the amount of renewable energy used. The synergies
generated by the reduction of PEC and simultaneously using
renewable energy sources further decrease CO 2 emissions.
This is reflected across the investment philosophy and approach,
including the Company's investment adviser, Aquila Capital
Investmentgesellschaft mbH ("Investment Adviser" or "Aquila"), who
is dedicated to the green energy transition. The Company is
committed to be a responsible investor, ensuring that
environmental, social and governance criteria are incorporated into
day-to-day investment decisions as well as generating a positive
impact for society. By reducing PEC, the Company often improve life
standards for end users, for example, better lights, easier
maintenance, reduced danger, security of supply and very
importantly, the reduction of emissions like Nitrogen Oxides
(NOX).
Investment Approach and ESG Approach
AEET's investment approach is focused on investments in energy
efficiency projects located primarily in Europe. These assets are
predominantly proven operational projects that deliver energy
savings for commercial, industrial, and public sector buildings.
AEET seeks to invest in projects for the long term with a focus on
optimising and improving the assets' PEC.
Technologies typically include:
-- LED Lighting System: significant reduction of consumed energy
(up to 70%) and other positive outcomes: reduced heat emission and
therefore less need for ventilation and cooling; better light for
workplaces; less maintenance work; reduction in the use of glass
(particularly beneficial in food production).
-- LED Street Light Systems: significant reduction of consumed
energy, increased safety (better light, light where needed, choice
of light color); integration of other technologies such as sensing
(traffic control), mobile communication systems etc.
-- Solar PV: increases the level of efficient and locally
produced renewable energy. Lower transportation costs, free energy
source.
-- Biomass Boilers: locally consumed; generate energy (heat,
cooling and electricity) from renewable sources, very often
contributing to local job creation. The exhaust for dust needs to
be managed and fulfil strict environmental regulations.
-- Combined Heat and Power plants (CHP): Highly efficient
generation of combined energy outputs like electricity and heat or
cooling.
-- Electrification of transportation vehicles (batteries) such
as trains, trams, buses, ferries, boats etc; replacement or
hybridization of large fossil fuel engines; significant reduction
of fossil fuel consumption, other emissions (NOX) and Sulphur
oxides (SOX); often create a greener and healthier local
environment e.g. by electrification of inner-city buses.
-- HVAC/buildings: Highly efficient heating, ventilation and air
conditioning systems. Often a combination of more efficient use of
energy while simultaneously increasing wellbeing, effectiveness,
and controllability of system, e.g., avoid over-heating/cooling of
workspace by taking weather conditions into consideration.
-- Smart Metering/Submetering: Often providing real-time or
timely information about personal consumption volume, patterns and
costs of energy (heating, electricity, water or gas) in order to
enable energy consumers to manage usage and costs. Pre-requisite to
change consumer behaviour which in itself could reduce energy
consumption by up to 20% (e.g. avoiding standby electricity
consumption).
Environmental Impact
The Company's investment approach is focused on reducing PEC,
which should lead to significant reductions in carbon dioxide
emissions. In addition, local production of energy (CHP, Biomass
Boilers, Solar PV) reduces transportation energy losses and grid
over-utilisation. Smart Meters and other control technologies
enable a better visibility and management of energy and therefore
represent a basis for energy savings.
All projects are managed within the guidelines of local,
regional, and national environmental laws in order to adhere to the
DNSH (do no significant harm) principals. Aquila Capital will
ensure all required regulations and corresponding approvals are
completed prior to the acquisition of the assets (planning
permission).
Social Impact
Energy efficiency measures not only reduce PEC but typically
also increase the life quality and health aspects for different
stakeholder, like employees, users of public facilities and/or
private individuals. This is mainly achieved through advanced
solutions for lighting, heating, cooling and ventilation and the
associated control units.
All project developers are required to adhere to local,
regional, and national health & safety laws, to train and
educate employees accordingly in order to make sure casualties and
injuries are voided.
We incorporate Aquila Capital's ESG policy, which excludes
suppliers and manufacturers that do not meet Aquila Capital's
criteria (exclusion of sectors/subsectors, companies that use
unfavourable labour conditions etc).
For all counterparties a rating is performed (in collaboration
with a third-party rating agency) assessing creditworthiness of the
client as well as a Know Your Client check will be done for the
relevant parties involved to increase transparency of the company's
activities.
Governmental Impact
All our business partners are required to adhere to the
requirements of the national social security and tax
authorities.
Where required by local, regional and/or national authorities
our business partner need to provide evidence that they adhere to
anti bribery and corruption laws.
Due Diligence
The Investment Advisor performs detailed ESG due diligence for
each asset prior to investment. The investment management team
follows a structured screening, due diligence and investment
process which is designed to ensure that investments are reviewed
and compared on a consistent basis. Execution of this process is
facilitated by the team's deep experience in energy efficiency
project investing. As part of this process, the Investment Adviser
will, as relevant for each investment, consider:
-- total PEC reduction, and implied greenhouse gas emissions reduced and/or avoided; and/or
-- total energy production from renewable and non-renewable sources.
As part of this due diligence, various risks are assessed and
documented including risk of climate change, risk of harm to local
biodiversity and other environmental risks. These risks are
evaluated as part of the technical, legal, and insurance due
diligence as applicable. The independent risk management team
evaluates the initial evaluation of the investment management team
in assessing each asset for acquisition. The Investment Adviser
considers the ability for the acquisition to contribute to the UN
Sustainable Development Goals and whether it fits within the
Principles for Responsible Investment ("PRI").
Governance Framework
AEET benefits from an independent Board of Directors, as well as
International Fund Management Limited (part of Sanne Group)
functioning as the Alternative Investment Fund Manager ("AIFM").
The Board of Directors supervise the AIFM, which is responsible for
making recommendations in relation to any investment proposals put
forward by the Investment Adviser. The Investment Adviser is fully
regulated and supervised by BaFin in Germany.
The Company has established procedures to deal with any
potential conflicts of interest in circumstances where Aquila
Capital (or any affiliate) is advising both the AIFM (for the
Company) and other Aquila Capital managed funds who are
counterparties to the Company. In the context of an investment
decision, these procedures may include a fairness opinion in
relation to the valuation of an investment, which is obtained from
an independent expert.
Monitoring of Environmental, Social & Governance
Characteristics
After an investment has been made, continuous ongoing monitoring
commences at both the portfolio and asset levels by the Investment
Adviser. The aim of this ongoing monitoring is to monitor and
calculate the energy consumption/reduction and derive the CO 2
reduction from that.
The environmental characteristics of the Company are moni-tored
on a continuous basis throughout the lifecycle of investments,
including:
-- ongoing monitoring of the PEC based on the energy consumption
and derive from that the CO 2 savings, where appropriate,
monitoring additional environ-ment and ESG relevant developments
both at the portfolio and asset level;
-- annual reporting, including ESG aspects, to relevant
stakeholders including ad-hoc reporting of any material and urgent
issues identified in the monitoring process;
-- semi-annual ESG risk reporting to the Board.
AEET has been awarded the Green Economy Mark from the London
Stock Exchange. The Green Economy Mark identifies London-listed
companies and funds that generate between 50% and 100% of total
annual revenues from products and services that contribute to the
global green economy.
The Company's investment policy (including defined terms) can be
found below as set out in its IPO prospectus dated 10 May 2021.
Investment policy
The Company will seek to achieve its investment objective
through investment in a diversified portfolio of Energy Efficiency
Investments (as defined below) located in Europe, with private and
public sector counterparties. The Company will predominantly invest
in (i) energy efficiency investments including the installation, in
the built environment, transportation industry and other sectors of
the economy, of proven technologies and solutions such as energy
efficient lighting, smart building and metering services,
cogeneration plants, heating, ventilation and air conditioning
(HVAC) systems, efficient boilers, solar photo voltaic plants,
batteries, other energy storage solutions, electric vehicles and
associated charging infrastructure as well as (ii) in the
acquisition of majority or minority shareholdings in companies with
a strategy that aligns with the Company's investment objective,
such as developers, operators or managers of energy efficiency
projects ("Equity Investments") ("Energy Efficiency Investments").
These investments seek to reduce primary energy consumption, reduce
CO(2) emissions and in many cases deliver economic savings and
other benefits to the counterparties including improved air
quality. The Company will not invest in fossil fuel extraction or
mineral extraction projects. The capital value of the investment
portfolio will be supplemented and supported through reinvestment
of excess cash flows, asset management initiatives and the use of
leverage.
The Energy Efficiency Investments will typically include long
term contracts, which entitle the Company or its subsidiaries to
receive stable, predictable cash flows payable by the
counterparties, who will benefit from the use of the installed
equipment during a contractual period typically ranging from five
to fifteen years.
The Company will make Energy Efficiency Investments in
operational, ready-to-build or under construction assets. The
Company may, when making Equity Investments, through such
investments, indirectly hold investments that are in the
development phase.
In respect of each type of investment, the Company will seek to
diversify its commercial exposure by contracting, where
practicable, with a range of different equipment manufacturers,
project developers and other service providers, as well as
off-takers.
Whilst the Company will seek to diversify its commercial
exposure by investing in a diversified mix of technologies, the
assets of the Company may be predominantly concentrated in a small
number of proven technologies.
Investments may be acquired from a single or a range of vendors
and the Company may also enter into joint venture or co-investment
arrangements alongside one or more co-investors, including Aquila
Managed Funds.
The Company will acquire controlling and, opportunistically,
non-controlling interests in Energy Efficiency Investments and may
use a range of investment instruments in the pursuit of its
investment objective, including but not limited to equity,
mezzanine or debt investments.
In circumstances where the Company does not hold a controlling
interest in the relevant investments, the Company will secure its
rights through contractual and other arrangements, to, inter alia,
ensure that the Energy Efficiency Investment is operated and
managed in a manner that is consistent with the Company's
Investment Policy.
Investment restrictions
The Company aims to achieve diversification principally through
investing in a range of portfolio assets across a number of
distinct geographies and a mix of technologies. The Company will
observe the following investment restrictions when making
investments:
-- no more than 20 per cent. of its Gross Asset Value will be
invested in any single asset;
-- no more than 20 per cent. of its Gross Asset Value will be
invested in Energy Efficiency Investments with the same
Counterparty;
-- following full investment of the Net Issue Proceeds, the
Company's portfolio will comprise no fewer than ten Energy
Efficiency Investments;
-- no investments will be made outside of Europe; and
-- no more than 7.5 per cent. of its Gross Asset Value, in
aggregate, will be invested in Equity Investments, and at all times
such investments will only be made with appropriate shareholder
protections in place.
The Company will hold its investments directly or through one or
more SPVs and the investment restrictions will be applied on a
look-through basis.
The Company complies with the investment restrictions set out
below and will continue to do so for so long as they remain a
requirement of the FCA:
-- neither the Company nor any of its subsidiaries will conduct
any trading activity which is significant in
the context of the Group as a whole;
-- the Company must at all times, invest and manage its assets
in a way which is consistent with its object of spreading
investment risk and in accordance with the published investment
policy; and
-- not more than 15 per cent. of the Gross Asset Value at the
time an investment is made will be invested in other closed-ended
investment funds which are listed on the Official List.
The Directors do not currently intend to propose any material
changes to the Company's Investment Policy. As required by the
Listing Rules, any material changes to the Investment Policy of the
Company will be made only with the approval of Shareholders by way
of ordinary resolution.
Currency and hedging
The Company does not intend to use hedging or derivatives for
investment purposes but may use derivative instruments such as
forwards, options, futures contracts and swaps to hedge currency,
inflation, interest rates, commodity prices and/or electricity
prices.
Borrowing policy
The Company may make use of long-term debt on both a limited
recourse and full recourse basis to finance the acquisition or
construction of Energy Efficiency Investments and for working
capital purposes. Gearing will be employed at the level of the
Company, at the level of any intermediate wholly owned subsidiary
of the Company or at the level of the relevant SPV, and any limits
set out in this document shall apply on a look-through basis. In
addition, the Company may make use of short-term debt, such as a
revolving credit facility, to assist with the acquisition of or
investment in suitable opportunities as and when they become
available. Aggregate gearing, whether via long-term or short-term
debt, will not exceed 50 per cent. of Gross Asset Value, calculated
at the time of drawdown. The Company will target aggregate gearing,
whether via long term or short term debt, of 35 between 40 per
cent. of Gross Asset Value, but in any event will not exceed 50 per
cent. of Gross Asset Value, in each case calculated at the time of
drawdown.
Debt may be secured with or without a charge over some or all of
the Group's assets depending on the optimal structure for the Group
and having consideration to key metrics including lender diversity,
cost of debt, debt type and maturity profiles. Intra-group debt
between the Company and subsidiaries will not be included in the
definition of borrowings for these purposes.
In circumstances where the above limits are exceeded as a result
of gearing of one or more Energy Efficiency Investments in which
the Company has a non-controlling interest, the borrowing
restrictions will not be deemed to be breached. However, in such
circumstances, the matter will be brought to the attention of the
Board who will determine the appropriate course of action.
Cash management
Cash held pending investment in Energy Efficiency Investments or
for working capital purposes will either be held in cash or
invested in cash, cash equivalents, near cash instruments, bearer
bonds and/or money market instruments ("Cash and Cash
Equivalents"). There is no restriction on the amount of Cash and
Cash Equivalents that the Company may hold and there may be times
when it is appropriate for the Company to have a significant Cash
and Cash Equivalents position. For the avoidance of doubt, the
restrictions set out above in relation to investing in UK listed
closed-ended investment companies do not apply to money market type
funds.
Changes to and compliance with the Investment Policy
The Directors do not currently intend to propose any material
changes to the Company's investment policy. As required by the
Listing Rules any material changes to the Company's investment
policy set will require the approval of Shareholders by way of an
ordinary resolution at a general meeting and the approval of the
FCA.
Compliance with the above restrictions will be measured at the
time of investment and non-compliance resulting from changes in the
price or value of assets following investment will not be
considered as a breach of the investment restrictions.
In the event of a breach of the investment guidelines and the
investment restrictions set out above, the AIFM shall inform the
Board upon becoming aware of the same and if the Board considers
the breach to be material, notification will be made to a
Regulatory Information Service.
Key Performance Indicators
The Board measures the Company's success in achieving its
investment objective by reference to the following Key Performance
Indicators ('KPIs'):
-- Deployment of IPO proceeds
In the Company's prospectus published on 10 May 2021, it was
stated that the proceeds would be significantly deployed or
committed to acquire suitable assets within twelve months from IPO
(2 June 2022). As announced on 21 April 2022, the Investment
Adviser revised this target to the end of December 2022. As at 31
December 2021 and as at 31 May 2022, GBP14.1 million and GBP19.6
million of the total IPO proceeds of GBP100 million have been
deployed, respectively.
The Board has engaged an independent adviser, Complete Strategy
Ltd for an initial period of six months from the date of the above
announcement in April 2022. Complete Strategy will assist the Board
in monitoring the deployment of the IPO proceeds by providing the
Board with a detailed analysis of monthly deployment performance
during the period and its costs will be borne by the Investment
Adviser.
-- To meet its target total dividend in each financial year
As disclosed in the Company's prospectus published on 10 May
2021, the Company is targeting a dividend of a minimum of 3.5 pence
per Ordinary Share in relation to the financial year ending 31
December 2022, and a minimum of 5 pence per Ordinary Share in
relation to the financial year ending 31 December 2023, with the
aim of increasing this dividend progressively over the medium term.
The Company did not intend to pay a dividend in the first financial
period to 31 December 2021, whilst it was deploying the IPO
Proceeds.
However as announced on 21 April 2022, in light of slower than
anticipated deployment to date and the current expectation that the
IPO proceeds will not be significantly deployed within twelve
months of Admission, the Company does not expect that its stated
dividend target of 3.5 pence per Ordinary Share for the financial
year ending 31 December 2022 will be covered by earnings. The Board
will review the position in respect of any dividend which may be
declared for the financial year ending 31 December 2022 in light of
the deployment of the IPO proceeds as the year progresses. The
Board recognises that over the medium to long term dividends form a
key component of the total return to shareholders.
-- Premium or discount of share price to NAV
The Board monitors the price of the Company's shares in relation
to their NAV and the premium or discount at which they trade. As at
period end, the share price has closed at a (1.7%) discount to the
NAV as at 31 December 2021.
-- Green credentials
The Investment Adviser for every project, considers the
potential energy savings and energy production respectively as well
as CO(2) emission savings. Since the beginning of commercial
operations of the first project (solar plant) in mid-October 2021
and as at 31 December 2022, energy savings of 54.5 MWh were
estimated and 25.1 tonnes of reduced CO emissions were calculated.
The CO(2) avoidance achieved by all the Aquila Capital Funds is in
excess of eight million tonnes, which is equivalent to emissions of
0.5 million European households ( https://www.aquila-capital.de/en/
).
-- Quality of investments
Investment opportunities are initially analysed by the
Investment Adviser. The goal of this analysis is to determine the
key characteristics and value drivers of the investment
opportunity, including: (i) counterparty creditworthiness; (ii)
volume and size of the investment; (iii) duration and price level
of remuneration schemes; (iv) expected life of investment; (v)
stability of regulatory and tax framework; (vi) visibility into
future performance; (vii) other barriers to entry; (viii)
correlation of cash flows to inflation; (ix) resilience within the
economic environment; (x) expected returns; and (xi) the ability to
close successfully on the investment. A portfolio analysis can be
found at the Investment Adviser's report .
-- Maintenance of a reasonable level of ongoing charges
The expenses of managing the Company are carefully monitored by
the Board. The Board receives and reviews management accounts which
contain an analysis of expenditure which are reviewed at their
quarterly Board meetings. The Board reviews the ongoing charges on
a quarterly basis and considers these to be reasonable in
comparison to peers.
Based on the Company's average net assets during the period
ended 31 December 2021, the Company's ongoing charges figure
calculated in accordance with the AIC methodology was 0.94%.
Risk Management
Principal risks and uncertainties
During the period the Company has carried out a robust
assessment of its principal and emerging risks and the procedures
in place to identify any emerging risks are described below.
Procedures to identify principal or emerging risks :
The Board regularly reviews the Company's risk matrix, with a
focus on ensuring that the appropriate controls are in place to
mitigate each risk. The experience and knowledge of the Board is
important, as is advice received from the Board's service
providers, specifically the AIFM, who is responsible for the risk
and portfolio management services and outsources the portfolio
management to the Investment Adviser.
1. Investment Adviser: the Investment Adviser provides a report
to the Board on a quarterly basis or such other period as required
on industry trends, insight into future challenges in the energy
efficiency sector including the regulatory, political and economic
changes likely to impact the sector;
2. Alternative Investment Fund Manager ("AIFM"): following
advice from the Investment Adviser and other service providers, the
AIFM maintains a register of identified risks including emerging
risks likely to impact the Company;
3. Broker: provides advice periodically specific to the Company
on the Company's sector, competitors and the investment company
market whilst working with the Board and Investment Adviser to
communicate with shareholders;
4. Company secretary: briefs the Board on forthcoming
legislation/regulatory change that might impact on the Company;
and
5. AIC: The Company is a member of the Association of Investment
Companies ("AIC"), which provides regular technical updates as well
as drawing members' attention to forthcoming industry and
regulatory issues.
Procedure for oversight
Audit and Risk Committee: Undertakes a review at least twice a
year of the Company's risk matrix and a formal review of the risk
procedures and controls in place at the AIFM and other key service
providers to ensure that emerging (as well as known) risks are
adequately identified and, so far as practicable, mitigated.
Principal risks
The Board considers the following to be the principal risks
faced by the Company along with the potential impact of these risks
and the steps taken to mitigate them.
Principal Risks Potential Impact/Description Mitigation
Portfolio Risk
--------------------------------- --------------------------------------
Counterparty / Credit The Company allocates Continued monitoring
funds to a Counterparty of the investments
that defaults on its and the counterparties/service
obligations. providers, including
the use of credit
This would impact rating data providers,
the Company's ability allows the Investment
to meet dividends Adviser to identify
and achieve its intended and address risks
goals and returns early. The Investment
for its investors. Adviser seeks to mitigate
credit risks, for
example, in the case
of Solar PV investments,
by the counterparty
having the opportunity
to sell electricity
to the grid or other
customers. The Investment
Adviser also seeks
to structure investments
whereby contracts
can be adapted/extended
to accommodate periods
of payment defaults.
Diversification of
counterparties and
service providers
ensures any impact
is limited. In addition,
a diversified portfolio
provides further mitigation.
--------------------------------- --------------------------------------
Concentration Risk Concentration of exposure The Investment Adviser
to investments in and AIFM constantly
a limited number of monitor existing and
countries, counterparties, proposed investments/portfolio
geographical markets, on a pre trade basis,
tenure and currencies enabling the effective
can lead to default observation of portfolio
on loans or other concentrations and
obligations resulting prospectus limits.
in Company underperformance
and inability to meet
targets.
--------------------------------- --------------------------------------
Environmental / Social Not integrating ESG The Investment Adviser
/ Governance (ESG) adequately into the performs detailed
investment and monitoring due diligence on ESG
processes can lead for each asset prior
to r eputational risk to recommendation.
and exposure to greenwashing
claims. General standards
including IFS Performance
Standards, IFC Environmental
Health and Safety
Guidelines ("EHS")
and Equator Principles
as well as local health
and safety and social
laws are reviewed
on a regular basis
for all assets depending
on the location and
development status
of each asset.
--------------------------------- --------------------------------------
Economic and Markets
Risks
--------------------------------- --------------------------------------
Premium/Discount Management Market sentiment moves The Company's Broker
share price to a discount monitors the market
which may it more for the Company's
difficult for the shares and report
Company to issue new at quarterly Board
equity. meetings. The Company
has the authority
The Ordinary Shares if appropriate, to
may trade at a discount purchase Ordinary
to Net Asset Value Shares in the market
and not be liquid with the result of,
making Shareholders amongst other things,
unable to realise enhancing the Net
their investments Asset Value per Ordinary
through the secondary Share.
market at Net Asset
Value or at market The Company seeks
price. to maintain engagement
with shareholders.
Loss of market confidence
in the Board / Investment
Manager.
--------------------------------- --------------------------------------
Interest Rates/Inflation Changes to interest The Company may use
rates may impact discount derivative instruments
rates applied to the such as futures, options
portfolio valuations and swaps to protect
and attractiveness the Company from fluctuations
of returns. of interest rates.
Can affect the spread
between, amongst other
things, the income
on the Company's assets
and the expense of Aquila's Asset Management
its interest-bearing team regularly monitor
liabilities, the value effectiveness of hedging
of its interest-earning together with Risk
assets and its ability Management.
to realise gains from
the sale of assets Investment Advisor
(should this be desirable). will manage correlation
of cash flows to inflation
and resilience to
the economic environment.
Investment Advisor
seeks to incorporate
RPI adjustments in
investment documentation
where possible.
In addition, Renewable
energies represent
an effective protection
against inflation,
as renewable energies
benefit from rising
electricity prices
with no burden on
the cost side in relation
to the use of resources.
--------------------------------- --------------------------------------
Exchange Rates The Company holds The Company maintains
investments in currencies the majority of uninvested
other than British cash in base currency
Pounds. Changes in (GBP).
foreign currency rates
may therefore impact For any non-base currency
the value in sterling assets, the Investment
between periods of Advisor can use forward
investments and of foreign exchange contracts
the income received. to seek to hedge up
to 100% of non-GBP
exposure.
--------------------------------- --------------------------------------
Pandemic-(COVID-19) COVID-19 and the response The Company's response
by Governments, has is focused on dealing
had a significant with the economic
impact on economies impact of COVID-19.
across the world over All parties to the
the last two years Company operate effective
resulting in market work from home policies
volatility, uncertainty, and these are assessed
supply chain issue annually.
and speed of decision
making.
--------------------------------- --------------------------------------
Equity Market Volatility The Company's ability The Company's adviser
to raise equity from and broker monitors
investors to repay market conditions
debt or to support and reports regularly
further investments to the Board. In the
could be impacted event that the Company
by stock market volatility is unable to raise
and pricing. new equity or debt
capital, the Company
could hold back from
making new investments
until the stock market
recovered and, in
extremis, investments
could be sold to raise
liquidity.
--------------------------------- --------------------------------------
Portfolio Management
--------------------------------- --------------------------------------
Investment Performance With investment concentration The Investment Advisor
in energy efficiency has a well-defined
space, unquoted investments, investment strategy
changes to regulatory and process in place
framework or poor which is regularly
investment decisions, reviewed and monitored
there is a risk that by the AIFM and the
the portfolio underperforms independent Board
and as a result, the of Directors.
target returns are
not met over the longer There is limited regulatory
term. This could lead risk exposure due
to the dividend not to focus on projects
being covered and/or with authorisation
an inability to pay and project business
the target dividend. plans with limited
or no exposure to
government subsidies.
The Investment Advisor
has good experience
in renewable sustainability/energy
transition and understands
and manages the risks
closely.
--------------------------------- --------------------------------------
Pipeline, Investment An important part As announced on 31
Deployment and Cash of the Investment January 2022 and 21
Drag Adviser's role is April 2022, the Board
its ability to source undertook a comprehensive
high quality potential review of the Company's
investment opportunities investment strategy,
in line with the Company's due to slower investment
investment strategy. deployment than originally
anticipated. The Board
Should suitable opportunities appointed Complete
not be forthcoming Strategy Ltd, a consultancy
and cash remains uninvested firm experienced in
the portfolio returns the energy sector,
could be lower than to conduct this review.
that required meet The Board with the
the dividend targets. assistance of Complete
Slow deployment of Strategy Ltd and the
investments and excess AIFM monitor the investment
cash on deposit. pipeline received
from the Investment
Cash drag can lead Adviser.
to reduced portfolio The Investment Adviser
income and inability has a track record
to pay dividends out in originating potential
of income. investments.
The Investment Adviser
Reputational risk continues to build
of not meeting prospectus a diversified pipeline
targets. of investment opportunities
for possible acquisition
by the Company. In
addition, it is developing
relationships with
energy services companies,
project developers
and technology providers
which bring multiple
investment opportunities
to the Investment
Adviser.
The Investment Adviser
continues to originate
potential investments
and is actively increasing
the value of its pipeline.
As of 30 April, the
total investment value
of the pipeline has
increased from GBP178.5
million to GBP233
million since the
time of IPO.
The team has expanded
to help the origination
activity.
Further, an emphasis
on repeat business
with existing partners
has been effective
in closing transactions
and deploying capital.
--------------------------------- --------------------------------------
Competition for Assets With increasing numbers The Board and AIFM
of investors seeking oversee the investment
exposure to energy pipeline and monitor
efficiency assets, its progress in relation
it is possible that to Company targets.
new competitors will
enter the market in The Investment Adviser
which the Company continues to build
operates. This could a diversified pipeline
lead to increased of investment opportunities
pricing for the Company's for possible acquisition
target investments by the Company. In
with corresponding addition, it is developing
lower returns and relationships with
slower deployment energy services companies,
of uninvested cash. project developers
and technology providers
which bring multiple
investment opportunities
to the Investment
Manager.
--------------------------------- --------------------------------------
Changes to subsidies The value of the Company's Diversification of
or other support mechanisms investments may be investments by technology
for the Company's adversely affected and geography mitigates
investments if subsidies or other the impact of any
support mechanisms, such risks. Many of
on which such investments the investments which
may depend, are changed the Investment Adviser
negatively. seeks do not rely
on subsidies or other
support mechanisms.
--------------------------------- --------------------------------------
Inappropriate Investment Lack of resource, The Investment Adviser
Advice experience or depth has substantial resources
in the team to source and is not required
and vet appropriate to commit all of its
investments. resources to the Company.
Possible conflicts The Company and AIFM
with other private are made aware of
Aquila clients and and review potential
private investing conflicts of interest
vehicles of which at the time of each
Aquila cannot disclose investment being made.
to Board or AIFM. Conflicts of interest
and investment allocation
The Investment Adviser policies are in place
is dependent on key agreed with the Board.
people to identify,
acquire and manage
the Company's investments. The strength and depth
of the Investment
Adviser's resources
mitigate the risk
of a key person departure
and provides ability
to draw skills from
other areas if need
be.
Investment focus on
proven technologies
and standardized technical
and financial suppliers'
DD, including an assessment
of supplier's reference
projects, reduce the
acquisition risks.
--------------------------------- --------------------------------------
Operational Risk
--------------------------------- --------------------------------------
IT Security A hacker or third Service providers
party could obtain have been carefully
access to the Investment selected for their
Adviser or any other expertise and reputation
service provider and in the sector. Each
destroy data or use service provider has
it for malicious purposes provided assurances
resulting in reputational to the AIFM and Company
damage and possible on their cyber policies
GDPR concern. and business continuity
Data records could plans along with external
be destroyed resulting audit reviews of their
in an inability to procedures where applicable.
make investment decisions The AIFM, Administrator
and/or monitor investments. and Board include
Cyber Risk in their
reviews of counter
parties.
--------------------------------- --------------------------------------
Financial Risk
--------------------------------- --------------------------------------
Portfolio Valuation The principal component The Investment Adviser
of the Company's balance has experience in
sheet is its portfolio undertaking valuations
of energy efficiency of renewable sustainability/energy
assets. The Investment transition assets.
Adviser is responsible
for preparing a fair The AIFM and the Board
market value of the review and interrogate
investments which the valuations and
rely on projections underlying assumptions
and cashflows. provided by the Investment
Adviser.
There is a risk that
these valuations and
underlying assumptions
such as discount rates
being applied are
not a fair reflection
of the market meaning
that the investment
portfolio could be
over or under valued.
--------------------------------- --------------------------------------
Regulatory Risks
--------------------------------- --------------------------------------
Regulatory Risk The Company is required All service providers
to comply with Section including the Broker,
1158 of the Corporation Administrator, Investment
Tax Act to ensure Adviser and AIFM are
maintenance of investment experienced in these
trust status, UK Listing areas and provide
Authority regulations comprehensive reporting
including Listing to the Board and on
rules, Foreign Account the compliance of
Tax Compliance Act these regulations.
and Alternative Investment
Fund Managers Directive
("AIFMD"). The Company complies
with article 8 of
The Company looks the SFDR and as noted
to comply with relevant under "ESG" looks
ESG rules and regulations to comply with local
and continue to monitor requirements in order
those such as the to mitigate potential
Sustainable Finance risks.
Disclosure Regulation
("SFDR"). Mitigation measures
for post Brexit impact
Failure to comply includes inflation
with the relevant and interest rate
rules and obligations management, currency
may result in reputational and cash management,
damage to the Company tax and legal advice
or have a negative as appropriate, and
financial impact. Fund marketing through
Impact of post Brexit approved channels
on the Company and and AIFM oversees
the portfolio. The this reporting accordingly.
Board continues to
review the impact
of Brexit in terms
of the new trading
deal and general business
environment, including
possible tax and other
issues.
--------------------------------- --------------------------------------
The Board are of the opinion that these are the principal risks,
but mindful of their obligations under the changes made to the AIC
Code of Corporate Governance, the Board has also considered below
emerging risks.
Emerging Risk
Act of War / Sanctions As evidenced with The invasion of Russia
the ensuing war in to Ukraine brings
Ukraine and the various uncertainty to the
sanctions and restrictions commodities market
imposed, there is and how price levels
a possibility there of modules and other
could be supply delays hardware will be impacted
for O&M, sanction directly or indirectly.
considerations, volatile The Company does not
markets and general have any direct exposure
uncertainty. More in Ukraine or Russia,
difficult energy markets there are also no
expected along with direct business relations
inflationary pressures with counterparties
on inputs. from these countries;
therefore, preliminary
It has also led to assessments lead us
short term price increases to the conclusion
and more focus on that our investments
renewable energy infrastructure. in Europe are not
impacted directly
Possible change to at this time.
the world order and
globalisation.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the financial statements in accordance with UK
adopted international financial reporting standards in conformity
with the requirements of the Companies Act 2006.
Under company law, 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 the financial
statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable UK adopted international financial
reporting standards in conformity with the requirements of the
Companies Act 2006 have been followed, subject to any material
departures disclosed and explained in the financial statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
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 and the Directors' Remuneration Report
comply with the Companies Act 2006.
The Directors have delegated responsibility to the Investment
Adviser for the maintenance and integrity of the corporate and
financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination
of Financial Statements may differ from legislation in other
jurisdictions.
Directors' confirmations
The Directors consider that the Annual Report and Accounts,
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.
Each of the Directors, whose names and functions are listed in
the Corporate Governance section confirm that, to the best of their
knowledge:
-- the Company's financial statements, which have been prepared
in accordance with international financial reporting standards in
conformity with UK adopted international financial reporting
standards in conformity with the requirements of the Companies Act
2006, give a true and fair view of the assets, liabilities,
financial position and loss of the Company; and
-- the Strategic Report includes a fair 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 it faces.
In the case of each Director in office at the date the
Directors' report is approved:
-- so far as the Director is aware, there is no relevant audit
information of which the Company's auditors are unaware; and
-- they have taken all the steps that they ought to have taken
as a Director in order to make themselves aware of any relevant
audit information and to establish that the Company's auditors are
aware of that information.
For and on behalf of the Board,
Miriam Greenwood
Chair of the Board
23 June 2022
Financial Statements
AQUILA ENERGY EFFICIENCY TRUST
PLC
STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME
For the period from 9 April 2021 (date of incorporation)
to 31 December 2021
Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000
---------------------------------- ------ -------------------- --------------------- ----------------
Unrealised losses on investments 4 - (17) (17)
Net foreign exchange losses - (29) (29)
Investment Income 5 91 - 91
Investment Advisory fees 6 (77) - (77)
Other expenses 7 (587) - (587)
Loss on ordinary activities
before taxation (573) (46) (619)
---------------------------------- ------ -------------------- --------------------- ----------------
Taxation 8 - - -
Loss on ordinary activities
after taxation (573) (46) (619)
---------------------------------- ------ -------------------- --------------------- ----------------
Return per Ordinary Share 9 (0.01p) (0.00p) (0.01p)
---------------------------------- ------ -------------------- --------------------- ----------------
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
Return on ordinary activities after taxation is also the
"Total comprehensive income/(expense) for the period".
STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
2021
Notes GBP'000
------------------------------------------ ------- --------------------------------------------------------------
Fixed assets
Investments at fair value through profit
or loss 4 12,307
------------------------------------------ ------- --------------------------------------------------------------
Current assets
------------------------------------------ ------- --------------------------------------------------------------
Trade and other receivables 10 5,274
Cash and cash equivalents 80,129
--------------------------------------------------------------
85,403
-------------------------------------------------- --------------------------------------------------------------
Creditors: amounts falling due within
one year 11 (329)
Net current assets 85,074
--------------------------------------------------- --------------------------------------------------------------
Net assets 97,381
--------------------------------------------------- --------------------------------------------------------------
Capital and reserves: equity
Share capital 12 1,000
Share premium -
Special reserve 13 97,000
Capital reserve (46)
Revenue reserve (573)
Shareholders' funds 97,381
--------------------------------------------------- --------------------------------------------------------------
Net assets per Ordinary Share 14 97.38p
------------------------------------------ ------- --------------------------------------------------------------
No. of ordinary shares in issue 100,000,000
--------------------------------------------------- --------------------------------------------------------------
Approved by the Board of Directors and authorised for issue on 23 June
2022.
Signed on behalf of the Board of Directors
Miriam Greenwood OBE DL
Chair of the Board
STATEMENT OF CHANGES IN EQUITY
Share
Share premium Special Capital Revenue
capital account reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- ------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Opening
equity as
at
9 April
2021 - - - - -
Shares
issued
in
period 12 1,000 99,000 - - - 100,000
Share
issue
costs - (2,000) - - - (2,000)
Transfer
to
special
reserve 13 - (97,000) 97,000 - - -
Loss for
the
period - - - (46) (573) (619)
Closing
equity
as at
31
December
2021 1,000 - 97,000 (46) (573) 97,381
---------- ------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
STATEMENT OF CASH FLOWS
For the period from 9 April 2021 (date of incorporation) to
31 December 2021
2021
Notes GBP'000
------------------------------------------------- ------- -------------------------------------------------
Operating activities
Loss on ordinary activities before taxation (619)
Adjustment for unrealised losses on investments 17
Increase in trade and other receivables (5,274)
Increase in creditors 329
Net cash flow used in operating activities (5,547)
---------------------------------------------------------- -------------------------------------------------
Investing activities
Purchase of investments 4 (12,324)
Net cash flow used in investing activities (12,324)
---------------------------------------------------------- -------------------------------------------------
Financing activities
Proceeds of share issues 12 100,000
Share issue costs (2,000)
Net cash flow generated from financing
activities 98,000
---------------------------------------------------------- -------------------------------------------------
Increase in cash 80,129
---------------------------------------------------------- -------------------------------------------------
Cash and cash equivalents at start of
period -
------------------------------------------------- ------- -------------------------------------------------
Cash and Cash equivalents at end of period 80,129
---------------------------------------------------------- -------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
For the period from 9 April 2021 (date of incorporation) to 31
December 2021
1. GENERAL INFORMATION
Aquila Energy Efficiency Trust Plc (the "Company") is a public
Company limited by shares incorporated in England and Wales on 9
April 2021 with registered number 13324616. 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 2 June 2021 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 address of the Company is 6th Floor, 125
London Wall, London, EC2Y 5AS.
The Company's investment objective is to generate attractive
returns, principally in the form of income distributions, by
investing in a diversified portfolio of Energy Efficiency
Investments.
Sanne Fund Management (Guernsey) Limited acts as the Company's
Alternative Investment Fund Manager (the "AIFM") for the purposes
of Directive 2011/61/EU on alternative investment fund managers
("AIFMD").
The Company's Investment Adviser is Aquila Capital
Investmentgesellschaft mbH authorised and regulated by the German
Federal Financial Supervisory Authority.
Sanne Fund Services (UK) Limited (the "Administrator") provides
administrative and company secretarial services to the Company
under the terms of an administration agreement between the Company
and the Administrator.
2. BASIS OF PREPARATION
The financial statements have been prepared in accordance with
the UK adopted international accounting standards in conformity
with the requirements of the Companies Act 2006.
The 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") in April 2021.
The financial statements are prepared on the historical cost
basis, except for the revaluation of certain financial instruments
at fair value through profit or loss. The principal accounting
policies adopted are set out below. These policies are consistently
applied.
The functional currency of the Company is Sterling. Accordingly,
the financial statements are presented in Sterling rounded to the
nearest thousand. They have been prepared on the basis of the
accounting policies, significant judgements, key assumptions and
estimates as set out below. However, fluctuations in foreign
exchange differences are considered in the sensitivity analysis,
see note 4.
Accounting for Subsidiary
The Company owns 100% of its subsidiary Attika Holdings Limited
("HoldCo"), the registered office address of the HoldCo is 6th
Floor, 125 London Wall, London, EC2Y 5AS. The Company has acquired
Energy Efficiency Investments through its investment in the HoldCo.
The Company will finance the HoldCo through a mix of SPV
investments, equity and direct investments. 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 an investment entity and as described under IFRS
10 Values its SPVs investments at fair value through profit or
loss.
Characteristics of an investment entity
Under the definition of an investment entity, the Company should
satisfy all three of the following tests:
I. Company obtains funds from one or more investors for the
purpose of providing those investors with investment management
services;
II. Company commits to its investors that its business purpose
is to invest funds solely for returns from capital appreciation,
investment income, or both; and
III. Company measures and evaluates the performance of
substantially all of its investments on a fair value basis.
In assessing whether the Company meets the definition of an
investment entity set out in IFRS 10 the Directors note that:
I. the Company has multiple investors and obtains funds from a
diverse group of shareholders who would otherwise not have access
individually to investing in Energy Efficiency Investments due to
high barriers to entry and capital requirements;
II. the Company intends to hold these Energy Efficiency
Investments over the contractual period of the asset for the
purpose of capital appreciation and investment income. Thereby, the
exit strategy for AEET refers to the end point of the contractual
period for all Energy Efficiency investments. The existing Energy
Efficiency Investments that have committed capital are expected to
generate renewable energy output between 1 and 7 years from their
relevant commercial operation date (this has the potential to be
longer depending on the tenor of future investments), the Directors
believe the Company is able to generate returns to the investors
during that period; and
III. the Company measures and evaluates the performance of all
of its investments on a fair value basis which is the most relevant
for investors in the Company. Management use fair value information
as a primary measurement to evaluate the performance of all of the
investments and in decision making.
The Directors are of the opinion that the Company meets all the
typical characteristics of an investment entity and therefore meets
the definition set out in IFRS 10. The Directors agree that
investment entity accounting treatment appropriately reflects the
Company's activities as an investment trust.
The Directors have also satisfied themselves that Attika
Holdings Limited meets the characteristic of an
investment entity. Attika Holdings Limited has one investor,
Aquila Energy Efficiency Trust Plc, however, in substance Attika
Holdings Limited is investing the funds of the investors of Aquila
Energy Efficiency Trust Plc on its behalf and is effectively
performing investment management services on behalf of many
unrelated beneficiary investors.
The Directors believe the treatment outlined above provides the
most relevant information to investors.
Going concern
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 Company continues to meet day-to-day liquidity needs through
its cash resources. 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
Company's cash position, income and expense flows. The Company's
net assets at 31 December 2021 were GBP 97.4million. As at 31
December 2021, the Company held GBP 80million in cash. The total
expenses for the period ended 31 December 2021 was GBP 0.6 million,
which represented approximately 0.6% of average net assets during
the period. At the date of approval of this document, based on the
aggregate of investments and cash held,
the Company has substantial operating expenses cover.
The major cash outflows of the Company are the payment of
dividends and costs relating to the acquisition of new investments.
The Directors are confident that the Company has sufficient cash
balances to fund commitments to acquisitions should they become
payable.
In light of the continuing COVID-19 pandemic and the war in
Ukraine, the Directors have 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
cashflow, however the Company currently has more than sufficient
liquidity available to meet any future obligations.
Following the slower than anticipated investment deployment and
the consequential appointment of an independent consultant to
review the Company's investment strategy, the results of this
review were announced on 21 April 2022. The review concluded that
the market opportunity for the Company remains attractive and that
the actions to be taken in relation to the execution of the
investment strategy and other changes provided an improved
basis for the Company to execute its investment objective, with
full deployment targeted by the end of December 2022 or early 2023.
In reaching this conclusion, the Directors consulted with
shareholders who, overall, were supportive of the continuation of
the Company with these changes. An element of the consultation
process was the Directors' proposal to bring forward the Initial
Continuation Resolution to February 2023, or earlier if
appropriate. A further resolution will be put at the February 2023
General Meeting, conditionally upon the Continuation resolution
being passed, to amend the Articles of Association of the Company
so that a Continuation vote will be put at the AGM of the Company
to be held in 2026 and every four years thereafter, as envisaged in
the May 2021 IPO Prospectus. If any Continuation resolution put to
shareholders is not passed, then the Directors shall, within six
months of such Continuation resolution not being passed, put
proposals to shareholders for the reconstruction, reorganisation or
liquidation of the Company. Taking into account the factors above,
the Directors have assessed that the Initial Continuation
Resolution will pass, however, the Directors recognise that the
outcome of this is not yet known and therefore creates material
uncertainty around going concern, due to the event falling within
12-month period from the approval of this Annual Report. The
Directors note that these conditions indicate the existence of
material uncertainty which may cast significant doubt about the
Company's ability to continue as a going concern.
Based on the assessment and considerations above, the Directors
have concluded that the financial statements of the Company should
be prepared on a going concern basis.
Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires the
application of estimates and assumptions which may affect the
results reported in the financial statements. Estimates, by their
nature, are based on judgement and available information.
The 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 4 to the financial statements.
As disclosed above, 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 SPVs are
contractual period 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.
The discount factors are subjective and therefore it is feasible
that a reasonable alternative assumption may be used resulting in a
different value. The discount factors applied to the cashflows are
reviewed annually by the Investment Adviser to ensure they are at
the appropriate level. The Investment Adviser will take into
consideration market transactions, where of similar nature, when
considering changes to the discount factors used.
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.
Energy Efficiency investments are not sensitive to fluctuations
in future revenues if a fixed indexation clause is applied to its
cashflow schedule.
Adoption of new IFRS standards from 1 January 2022
A number of new standards, amendments to standards and
interpretations are effective for the annual periods beginning
after 1 January 2022. None of these are expected to have a
significant effect on the measurement of the amounts recognised in
the financial statements of the Company.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for 31 December 2021 reporting
periods and have not been early adopted by the Company. These
standards are not expected to have a material impact on the entity
in the current or future reporting periods and on foreseeable
future transactions.
Amendments to IAS 1: Classification of Liabilities as Current or
Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to
76 of IAS 1 to specify the requirements for classifying liabilities
as current or non-current. The amendments are effective for annual
reporting periods beginning on or after 1 January 2023.
Reference to the Conceptual Framework - Amendments to IFRS 3
In May 2020, the IASB issued Amendments to IFRS 3 Business
Combinations - Reference to the Conceptual Framework. The
amendments are effective for annual reporting periods beginning on
or after 1 January 2022.
Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which
it introduces a definition of 'accounting estimates'. The
amendments are effective for annual reporting periods beginning on
or after 1 January 2023.
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS
Practice Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS
Practice Statement 2 Making Materiality Judgements. The amendments
to IAS 1 are applicable for annual periods beginning on or after 1
January 2023.
3. SIGNIFICANT ACCOUNTING POLICIES
Financial Instruments
Financial assets
The Company's financial assets principally comprise of cash and
cash equivalents, investments held at fair value through profit and
loss, and trade and other receivables.
The Company's investment in HoldCo is held at fair value through
profit or loss. Gains or losses resulting from the movements in
fair value are recognised in the Company's Statement of Profit or
Loss and Comprehensive Income at each valuation point.
Trade and other receivables are initially recognised at fair
value and subsequently measured at amortised cost using the
effective interest rate method.
SPV investments and equity investments in HoldCo are designated
at fair value through profit or loss. Gains or losses resulting
from the movements in the fair value are recognized in the
Company's Statement of Profit or Loss and Comprehensive income at
each valuation point.
Financial liabilities
The Company's financial liabilities include trade and other
payables and other short term monetary liabilities which are
initially recognised at fair value and subsequently measured at
amortised cost using the effective interest rate method.
Recognition, derecognition and measurement
Financial assets and financial liabilities are recognised in the
Company's Statement of Financial Position when the Company becomes
a party to the contractual provisions of the instrument. Financial
assets and financial liabilities are initially measured at fair
value. Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at fair
value through profit or loss) are added to or deducted from the
fair value of the financial assets or financial liabilities, as
appropriate, on initial recognition. Transaction costs directly
attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognised
immediately in profit or loss.
A Financial liability (in whole or in part) is derecognised when
the Company has extinguished its contractual obligations, it
expires or is cancelled. Financial assets are derecognised when the
rights to receive cash flows from the investments have expired or
the Company has transferred substantially all risks and rewards of
ownership.
Subsequent to initial recognition, financial assets at fair
value through profit or loss are measured at fair value. Gains and
losses resulting from the movement in fair value are recognized in
the Statement of Profit or Loss and Comprehensive Income. Financial
liabilities are subsequently measured at amortised cost using the
effective interest rate method.
Taxation
Investment trusts which have approval under Section 1158 of the
Corporation Tax Act 2010 are not liable for taxation on capital
gains. Shortly after listing the Company received approval as an
Investment Trust by HMRC. Current tax is the expected tax payable
on the taxable income for the period, using tax rates that have
been enacted or substantively enacted at the date of the Statement
of Financial Position.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
statement of financial position liability method. Deferred tax
liabilities are recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited to the Statement of
Profit or Loss and Comprehensive Income except when it relates to
items charged or credited directly to equity, in which case the
deferred tax is also dealt with in equity.
Segmental reporting
The Chief Operating Decision Maker ("CODM"), which is the Board,
is of the opinion that the Company is engaged in a single segment
of business, being investment in energy efficiency assets to
generate investment returns whilst preserving capital. The
financial information used by the CODM to manage the Company
presents the business as a single segment.
Income
Income includes investment income from financial assets at fair
value through profit or loss..
Investment income from financial assets at fair value through
profit or loss is recognised in the Statement of Profit or Loss and
Comprehensive Income within investment income when the Company's
right to receive income is established.
Dividend income is recognised when the right to receive it is
established and is reflected in the Statement of Profit or Loss and
Comprehensive Income as Investment Income.
Expenses
All expenses are accounted for on an accruals basis. In respect
of the analysis between revenue and capital items presented within
the Statement of Profit or Loss and Comprehensive Income, all
expenses are presented as revenue as it is directly attributable to
the operations of the Company.
Payment of Investment Advisory fees in shares
The Company issues shares to the Investment Adviser in exchange
for receiving investment advisory services. The fair value of the
investment advisory services received in exchange for shares is
recognised as an expense at the time at which the investment
advisory fees are earned, with a corresponding increase in equity.
The fair value of the investment advisory services is calculated by
reference to the definition of investment advisory fees in the
Investment Advisory Agreement.
Foreign currency
Transactions denominated in foreign currencies are translated
into Sterling at actual exchange rates as at the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies at the period end are reported at the rates of exchange
prevailing at the period end. Any gain or loss arising from a
change in exchange rates subsequent to the date of the transaction
is included as an exchange gain or loss to capital or revenue in
the Statement of Profit or Loss and Comprehensive Income as
appropriate. Foreign exchange movements on investments are included
in the Capital account of the Statement of Profit or Loss and
Comprehensive Income.
Cash and cash equivalents
Cash and cash equivalents includes deposits held at call with
banks and other short-term deposits with original maturities of
three months or less.
Trade and other payables
Trade and other payables are initially recognised at fair value,
and subsequently re-measured at amortised cost using the effective
interest method where necessary.
Share capital and share premium
Ordinary Shares are classified as equity. Costs directly
attributable to the issue of new shares (that would have been
avoided if there had not been a new issue of new shares) are
recognised against the value of the ordinary share premium
account.
Repurchase of the Company's own shares are recognised and
deducted directly in equity. No gain or loss is recognised in
profit or loss on the purchase, sale, issue or cancellation of the
Company's own equity instruments.
4 Investments
Equity
SPV investments Investments Total
(a) Summary
of valuation GBP'000 GBP'000 GBP'000
-------------- ----------------------------- ---------------------------- ---------------------------- ----------------------------
Investments at fair value through
profit or loss 12,154 153 12,307
---------------------------- ---------------------------- ----------------------------
12,154 153 12,307
-------------------------------------------- ---------------------------- ---------------------------- ----------------------------
(b) Movements
during the
period:
-------------- ----------------------------- ---------------------------- ---------------------------- ----------------------------
Opening
balance of
investments,
at cost - - -
Additions, at cost 12,324 - 12,324
---------------------------- ---------------------------- ----------------------------
Cost of investments at 31 December
2021 12,324 - 12,324
--------------------------------------------- ---------------------------- ---------------------------- ----------------------------
Revaluation
of
investments
to
fair value:
Unrealised movement in fair
value of investments (170) 153 (17)
---------------------------- ---------------------------- ----------------------------
Balance of capital reserve - investments
held at 31 December 2021 (170) 153 (17)
--------------------------------------------- ---------------------------- ---------------------------- ----------------------------
Fair value of investments at
31 December 2021 12,154 153 12,307
--------------------------------------------- ---------------------------- ---------------------------- ----------------------------
(c) Loss on investments in period (per
Statement of Profit or Loss and
Comprehensive
Income)
--------------------------------------------- ---------------------------- ---------------------------- ----------------------------
Movement on unrealised valuation of
investments
held (170) 153 (17)
--------------------------------------------- ---------------------------- ---------------------------- ----------------------------
Loss on investments (170) 153 (17)
--------------------------------------------- ---------------------------- ---------------------------- ----------------------------
Fair value
measurements
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:
Level 1
The unadjusted quoted price in an active market for identical assets
or liabilities that the entity can access at the measurement date.
Level 2
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.
Level 3
Inputs are unobservable (i.e. for which market data is unavailable) for
the asset or liability.
The classification of the Company's investments held at fair value is
detailed in the table below:
---------------------------------------------------------------------------------------------------------------------------------------
31 December 2021
-------------- -----------------------------------------------------------------------------------------------------------------------
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ---------------------------- ---------------------------- ----------------------------
Investments
at fair
value
through
profit or
loss - - 12,307 12,307
- - 12,307 12,307
-------------------------------------------- ---------------------------- ---------------------------- ----------------------------
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 31 December 2021.
The movement on the Level 3 unquoted investments during the period is
shown below:
---------------------------------------------------------------------------------------------------------------------------------------
31 December
2021
GBP'000
-------------- ----------------------------- ---------------------------- ---------------------------- ----------------------------
Opening
balance -
Additions during the period 12,324
Unrealised loss on investments
adjustments (17)
Closing balance 12,307
--------------------------------------------- ---------------------------- ---------------------------- ----------------------------
Valuation Methodology
SPV investments
The Company acquired SPV investments during the period. The SPV
investments have been made by the Company through directly
purchasing notes issued by an Italian SPV established under
securitisation laws in Italy. The Investment Adviser has determined
that the fair value as at 31 December 2021 is the purchase cost,
adjusted by any foreign exchange differences. The purchase cost is
deemed to be appropriate basis of fair value due to the timing of
investment acquisition (i.e. close to period end date). The
Directors have satisfied themselves as to the fair value of the SPV
investments as at 31 December 2021.
Equity investments
The Company owns 100% of its subsidiary Attika Holdings Limited
("HoldCo"). The Company meets the definition of an investment
entity as described by IFRS 10, as such the Company's investment in
the HoldCo is valued at fair value. HoldCo's working capital
balances and fair value of investments are included in calculating
fair value of the HoldCo.
Valuation Assumptions
31 December
2021
------------------------ ----------- ------------
Foreign exchange rates GBP / EUR 0.84
------------------------ ------------- ------------
Foreign Exchange Rate Sensitivity
This sensitivity considers a 10% movement in relevant non-GBP
currencies, which in the case of the Portfolio Valuation at 31
December 2021 is EUR. A 10% increase in foreign exchange rates
would result in a NAV per share reduction of 1.22p based on the
Portfolio Valuation as at 31 December 2021.
A 10% decrease in foreign exchange rates would result in a NAV
per share increase of 1.22p based on the Portfolio Valuation as at
31 December 2021.
5 Investment Income
For the period ended 31 December
2021
GBP'000
-------------------- ----------------------------------------------------------------------------------------------
Investment income 36
Bank interest
income 55
-------------------- ----------------------------------------------------------------------------------------------
Total Investment
Income 91
-------------------- ----------------------------------------------------------------------------------------------
6 Investment Advisory
fees
For the period ended 31 December
2021
------------------------ ----------------------------------------------------------------------------------------
Revenue Capital Total
GBP'000 GBP'000 GBP'000
------------------------ ---------------------------- ---------------------------- ----------------------------
Investment Advisory
fees 77 - 77
------------------------ ---------------------------- ---------------------------- ----------------------------
Under the Investment Advisory Agreement, the following fee is payable
to the Investment Adviser:
(i) 0.95 per cent. per annum of Committed Capital of the Company up to
and including GBP500 million; and
(ii) 0.75 per cent. per annum of Committed Capital of the Company above
GBP500 million.
7 Other expenses
For the period ended 31 December
2021
------------------------------------------------------------------------------------------
Revenue Capital Total
GBP'000 GBP'000 GBP'000
---------------------- ---------------------------- ----------------------------- -----------------------------
Secretary and
administrator fees 108 - 108
Tax compliance 13 - 13
Directors' fees 111 - 111
Broker fees 30 - 30
Auditor's fees 119 - 119
AIFM fees 51 - 51
Registrar's fees 13 - 13
Marketing fees 58 - 58
FCA and listing fees 12 - 12
Other expenses 72 - 72
---------------------- ----------------------------- -----------------------------
Total expenses 587 - 587
---------------------- ---------------------------- ----------------------------- -----------------------------
Prior to appointment as the Company's Auditor, the auditors received
a fee of GBP109,200 (including VAT of GBP18,200) for non-audit reporting
accountant services, which have been treated as a capital expense and
included in 'share issue costs' disclosed in the Statement of Changes
in Equity.
8 Taxation
(a) Analysis of
charge in the period
----------------------
For the period ended 31 December
2021
------------------------------------------------------------------------------------------
Revenue Capital Total
GBP'000 GBP'000 GBP'000
---------------------------- ----------------------------- -----------------------------
Corporation tax - - -
Taxation - - -
---------------------- ---------------------------- ----------------------------- -----------------------------
(b) Factors affecting
total tax charge
for the period:
The effective UK corporation tax rate applicable to the Company for the
period is 19.00%. The tax charge differs from the charge resulting from
applying the standard rate of UK corporation tax for an investment trust
company.
The differences are
explained below:
---------------------------- ----------------------------- -----------------------------
Revenue Capital Total
GBP'000 GBP'000 GBP'000
---------------------- ---------------------------- ----------------------------- -----------------------------
Loss on ordinary
activities before
taxation (573) (46) (619)
---------------------- ---------------------------- ----------------------------- -----------------------------
Corporation tax at
19% (109) (9) (118)
Effects of:
Utilised management
expenses 109 - 109
Losses on investments
not taxable - 9 9
Total tax charge for
the period - - -
---------------------- ---------------------------- ----------------------------- -----------------------------
Investment companies which have been approved by the HM Revenue & Customs
under section 1158 of the Corporation Tax Act 2010 are exempt from tax
on capital gains. Due to the Company's status as an Investment Trust,
and the intention to continue meeting the conditions required to obtain
approval in the foreseeable future, the Company has not provided for
deferred tax on any capital gains or losses arising on the revaluation
of investments.
9. Return per Ordinary Share
Return per share is based on the loss for the period of GBP619,000 attributable
to the weighted average number of Ordinary Shares in issue 79,699,248 in
the period to 31 December 2021. Revenue loss and capital losses are GBP573,000
and GBP46,000 respectively.
10. Trade and other receivables
As at 31 December 2021
GBP'000
--------------------------------- -----------------------
Intercompany receivable 5,170
Interest income receivable 36
Prepaid Expenses 68
---------------------------------
Total 5,274
--------------------------------- -----------------------
11. Trade and other payables
As at 31 December 2021
GBP'000
------------------------------------------- -------------------------------------------------------------------------------------------------
Accrued expenses 329
Total 329
------------------------------------------- -------------------------------------------------------------------------------------------------
12. Share
capital
As at 31 December
2021
No. of shares GBP'000
------------ ---------------------------------------------- ----------------------------------- ------------------------------------------
Allotted,
issued and
fully paid:
Ordinary Shares of 1p each ('Ordinary
Shares') 100,000,000 1,000
Total
------------ ---------------------------------------------- ----------------------------------- ------------------------------------------
On incorporation, the issued share capital of the Company
was 1 ordinary share of GBP0.01 issued to the subscriber to
the Company's memorandum. The Company's issued share capital
was increased by GBP50,000 represented by 50,000 Management
Shares of nominal value GBP1.00 each, which were subscribed
for by the Investment Adviser. Following admission, the Management
Shares were redeemed by the holder.
On admission 2 June 2021, 99,999,999 Ordinary Shares were
allotted and issued to shareholders as part of the placing
and offer for subscription in accordance with the Company's
prospectus dated 10 May 2021.
For the
period from
9 April
2021 to 31 Shares is issue Shares in issue
December at the beginning at the end of
2021 of the period Shares subscribed the period
------------ ---------------------------------------------- ----------------------------------- ------------------------------------------
Management
shares -
Ordinary
shares - 100,000,000 100,000,000
13. Special Reserve
As indicated in the Company's prospectus dated 10 May 2021, following
admission of the Company's Ordinary Shares to trading on the London Stock
Exchange, the Directors applied to the Court and obtained a judgement
on 12 August 2021 to cancel the amount standing to the credit of the share
premium account of the Company. The amount of the share premium account
cancelled and credited to a special reserve was GBP97,000,000.
14. Net assets per Ordinary Share
Net assets per ordinary share as at 31 December 2021 is based on
GBP97,381,000 of net assets of the Company attributable to the
100,000,000 Ordinary Shares in issue as at 31 December 2021.
15. Financial risk
management
The Investment Adviser, AIFM and the Administrator report to the Board on a quarterly basis
and provide information to the Board which allows it to monitor and manage financial risks
relating to its operations. The Company's activities expose it to a variety of financial risks:
market risk (including price risk, interest rate risk and foreign currency risk), credit risk
and liquidity risk. These risks are monitored by the AIFM. Each risk and its management is
summarised below.
(i) Currency risk
Foreign currency risk is defined as the risk that the fair values of future cashflows will
fluctuate because of changes in foreign exchange rates. The Company's financial assets and
liabilities are denominated in GBP and substantially all of its revenues and expenses are
in GBP. The Company is not considered to be materially exposed to foreign currency risk.
(ii) Interest rate risk
The Company's interest rate risk on interest bearing financial assets is limited to interest
earned on cash and investments.
The Company's interest and non-interest bearing assets and liabilities as at 31 December 2021
are summarised below:
Interest bearing Non-interest Total
bearing
Assets GBP'000 GBP'000 GBP'000
Cash and cash equivalents 38,055 42,074 80,129
Trade and other
receivables - 5,274 5,274
Investments at fair value
through profit or loss 12,154 153 12,307
Total assets 50,209 47,502 97,710
Liabilities
Creditors - (329) (329)
Total liabilities - (329) (329)
(iii) Price risk
Price risk is defined as the risk that the fair value of a financial instrument held by the
Company will fluctuate. Investments are measured at fair value through profit or loss. As
at 31 December 2021 the Company held investments with an aggregate fair value of GBP12,307,000.
All other things being equal, the effect of a 10% increase or decrease in the share prices
of the investments held at the period end would have been an increase or decrease of GBP1,231,000
in the loss after taxation for the period ended 31 December 2021 and the Company's net assets
at 31 December 2021.
The Investment Adviser has determined that the fair value of the investments as at 31 December
2021 is the purchase cost, adjusted by any foreign exchange differences. The purchase cost
is deemed to be appropriate basis of fair value due to the timing of investment acquisition
(i.e. close to period end date). The Directors have satisfied themselves as to the fair value
of the investments as at 31 December 2021.
Credit risks
Credit risk is the risk of loss due to the failure of a borrower or counterparty to fulfil
its contractual obligations. The Company is exposed to credit risk in respect of Trade and
other receivables and cash at bank. The Company's credit risk exposure is minimised by dealing
with financial institutions with investment grade credit ratings. The Company has advanced
share holder loans to Holdco, however it does not consider these loans a risk as they are
intra-Group. No balances are past due or impaired.
As at 31 December 2021
GBP'000
Investments at fair value through profit or loss 12,154
Trade and other
receivables 5, 274
Cash and cash equivalents 80,129
Total 97,557
The table below shows the cash balances of the Company and the credit rating for each counterparty:
Rating As at 31 December 2021
(GBP'000)
Goldman Sachs-Liquid
reserve fund AAA-S&P Rating 25,000
EFG Deposit account A / F1-Fitch Rating 38,055
Royal Bank of Scotland
International A - 2 / BBB-S&P Rating 17,074
80,129
Liquidity risks
Liquidity risk is the risk that the Company may not be able to meet a demand for cash or fund
an obligation when due. The Investment Adviser, AIFM and the Board continuously monitor forecast
and actual cashflows from operating, financing and investing activities to consider payment
of dividends or further investing activities.
Financial assets and liabilities by maturity at the period end are shown below:
Less than 1 year 1-2 years 2-5 years Total
GBP'000 GBP'000 GBP'000 GBP'000
Assets
Investments at fair value
through profit or loss - - 12,307 12,307
Trade and other
receivables 5,274 - - 5,274
Cash and cash equivalents 80,129 - - 80,129
Liabilities
Other creditors (329) - - (329)
85,074 - 12,307 97,381
Capital management
The Company considers its capital to comprise ordinary share capital, distributable reserves
and retained earnings. The Company is not subject to any externally imposed capital requirements.
The Company's primary capital management objectives are to ensure the sustainability of its
capital to support continuing operations, meet its financial obligations and allow for growth
opportunities. Generally, acquisitions are anticipated to be funded with a combination of
current cash and equity.
16. Related party transactions
Fees payable to the Investment Advisor are shown in the Income Statement.
As at 31 December 2021, the fee outstanding to the Adviser was GBP77,000.
The Company owns 100% of Attika Holdings Limited, as disclosed in
note 2. As at 31 December 2021, the Company has a receivable balance
of GBP5.17 million against Attika Holdings Limited.
Fees are payable to the directors at an annual rate of GBP55,000
to the Chairman, GBP42,000 to the Chairman of the Audit and Risk
Committee and GBP37,000 to the other directors. These fees were
effective from the date of appointment of each director being 9
April 2021 for each Board member except Miriam Greenwood who was
appointed on 19 April 2021.
During the period, GBP36,000 was paid to the Chairman; GBP27,000
was paid to the Chairman of the Audit and Risk Committee; and GBP24,000
was paid to the other directors. Total payment made during the period
is GBP87,000.
The directors had the following shareholdings in the Company, all
of which were beneficially owned.
Ordinary
shares
At 31 December
2021
Miriam Greenwood OBE DL 24,000
Nicholas Bliss 20,000
17. Subsequent events note
The Company entered into GBP5,476,000 amount of investments post
31 December 2021 through 23 June 2022.
OTHER INFORMATION
In reporting financial information, the Company presents
alternative performance measures, "APMs", which are not defined or
specified under the requirements of IFRS. The Company believes that
these APMs, which are not considered to be a substitute for or
superior to IFRS measures, provide stakeholders with additional
helpful information on the performance of the Company. The APMs
presented in this report are shown below:
ALTERNATIVE PERFORMANCE
MEASURES
(Discount)/Premium
The amount, expressed as a percentage, by which the share price
is more than the Net Asset Value per Ordinary Share.
NAV per Ordinary Share
(pence) a 97.38
Share price (pence) b 95.75
(Discount)/Premium (b÷a)-1 -1.7%
=========================== ============== =================================
Ongoing charges
A measure, expressed as a percentage of average net assets, of
the regular, recurring annual costs of running an investment company.
Period end NAV a 97,381
Annualised expenses (
prorated
based on the total number
of days per year over the
number of days from date
of incorporation:
GBP664,000
x 365 days/ 266 days ) b 911
Ongoing charges (b÷a) 0.9%
=========================== ============== =================================
Total return
A measure of performance that includes both income and capital
returns. This takes into account capital gains and reinvestment
of dividends paid out by the Company into the Ordinary Shares of
the Company on the ex-dividend date.
Opening at 2 June 2021
(pence) a 100.00 98.00
Closing at 31 December
2021
(pence) b 95.75 97.38
Total return (b÷a)-1 -4.3% -0.6%
=========================== -------------- ================================= =================================
n/a = not applicable.
Note: There were no dividends paid during the period ended 31
December 2021.
FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory
accounts. The financial information for the period to 31 December
2021 is derived from the statutory accounts for the Period, which
will be delivered to the Registrar of Companies.
The Annual Report for the period ended 31 December 2021 was
approved on 23 June 2022. The full Annual Report can be accessed
via the Company's website at
https://www.aquila-energy-efficiency-trust.com .
The Annual Report will be submitted to the National Storage
Mechanism and will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
This announcement contains regulated information under the
Disclosure Guidance and Transparency Rules of the FCA.
ANNUAL GENERAL MEETING ("AGM") and GENERAL MEETING ("GM")
The AGM of the Company will be held at the offices of CMS Law,
Cannon Place, 78 Cannon St, London EC4N 6AF ON 28 June 2022 at 2.00
p.m.
The GM of the Company will be held at the offices of Sanne
Group, 6th Floor, 125 London Wall, London, EC2Y 5AS on 25 July 2022
at 10.00 a.m. The GM will be held in order to: receive the
Company's Annual report and Accounts for the period ended 31
December 2021, with the reports of the Directors and auditors
thereon; to approve the Directors' remuneration policy report
included in the Annual Report and Accounts for the period ended 31
December 2021; to approve the Directors' remuneration report
included in the Annual Report and Accounts for the period ended 31
December 2021; to appoint the PricewaterhouseCoopers ("PwC") as
auditors to the Company; to authorise the Audit and Risk Committee
to fix the remuneration of the auditors until the conclusion of the
next AGM of the Company; and, to authorise the Directors to declare
and pay all dividends of the Company as interim dividends..
The reasons for holding two general meetings are explained in
detail in the Chair's Letter accompanying the Notice of Meeting
published on 1st June 2022.
Even if shareholders intend to attend the above meetings, all
shareholders are encouraged to cast their vote by proxy and to
appoint the "Chair of the Meeting" as their proxy. Details of how
to vote, either electronically, by proxy form or through CREST, can
be found in the Notes to the respective Notices of Meeting.
Shareholders are invited to send any questions for the Board or
the Investment Adviser in advance by email to
ukfundcosec@sannegroup.net.
23 June 2022
For further information please contact:
Sanne Fund Services (UK) Limited +44 (0) 20 3327 9720
Company Secretary
LEI: 213800AJ3TY3OJCQQC53
END
[1] IEA (2020)
[2] EU Commission (2022)
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(END) Dow Jones Newswires
June 24, 2022 02:00 ET (06:00 GMT)
Aquila Energy Efficiency (LSE:AEEE)
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Aquila Energy Efficiency (LSE:AEEE)
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