Foresight Solar Fund Limited - Audited Half Year Results to 30 June 2014 & Initial Dividend Announcement

Foresight Solar Fund Limited ("FSFL" "The Company”)

Audited Half Year Results to 30 June 2014 & Initial Dividend Announcement 20 August 2014

Net Asset Value £155.43m
Net Asset Value per Share 103.62p
Dividend £4.5m
Dividend per Share 3 pence

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Highlights

  • £150m of equity capital raised (before expenses) through an issue of 150,000,000 shares at Initial Public Offering (IPO) in October 2013.
  • IPO proceeds used to acquire 111MW of operational UK solar capacity comprising seven individual utility scale assets.
  • In accordance with the strategy set out at IPO, the Company, already the largest dedicated UK listed solar investment company, will grow to 185MW of UK solar generating capacity through the agreed acquisition, when operational, of the Kencot and Bournemouth plants, totalling 74MW. These two acquisitions will be financed utilising a £100m bank facility previously announced in May 2014.
  • Further equity capital raises envisaged as assets secured utilising the £100m acquisition facility become operational.
  • Interim dividend of 3 pence per share, in line with the objective announced at the time of the IPO. The Company confirms its intent to deliver a target dividend of 6 pence per ordinary share in respect of its first financial year.
  • Strong pipeline of assets for further growth of the Company whilst maintaining the lowest risk approach to the sector avoiding blind pool, development, construction and subsidy risk in its acquisition of assets.

Commenting on today’s results, Alexander Ohlsson, Chairman of Foresight Solar Fund Limited, said:

"The Board and Foresight Group CI Limited, the Investment Manager, believe that strong progress has been made in maintaining the Company’s position on the UK listed market as the largest solar specific renewable infrastructure company. This position is expected to strengthen further once the exchanged contracts to acquire the Kencot and Bournemouth plants complete. Together this will lead to a combined enterprise value of £250 million for the Company. This growth in scale gives us confidence in further achieving the original objectives of the Company.”

Dividend Timetable

Ex-dividend Date 27th August 2014
Record Date 29th August 2014
Payment Date 30th September 2014

For further information, please contact:

Sarah Cole: scole@foresightgroup.eu / +44 (0)203 667 8154

Details of the conference call for analysts:

A conference call for analysts will be held at 10am on 20 August 2014. To register for the call please contact Malcolm Robertson at Citigate Dewe Rogerson Malcolm.Robertson@citigatedr.co.uk or by phone: +44 (0)20 7638 9571.

 

Foresight Solar Fund Limited (FSFL) Half-Yearly Results to 30 June 2014

Financial Highlights

For the period 13 August 2013 to 30 June 2014

  • Foresight Solar Fund Limited ("The Company”) is a leading listed renewable infrastructure company investing in ground based, operational solar power plants, predominantly in the UK.
  • Net Asset Value per ordinary share of 103.6p at 30 June 2014, compared to 98p at Initial Public Offering ("IPO”) a 5.7% increase. The basis of investment valuation is a Discounted Cash Flow forecast ("DCF”). A weighted average discount rate of 8.0% has been used.
  • Contracts exchanged on Kencot and Bournemouth assets, with grid connections anticipated in Q3/Q4 2014.
  • Interim dividend of 3.0 pence per share approved on 19 August 2014 in relation to the period to 30 June 2014.
  • Further equity capital raises envisaged as assets secured utilising a £100m acquisition facility become operational.
  • The Company’s 111MW, seven asset UK solar portfolio is fully operational. Two of the seven assets have not yet reached financial completion.
  • 9 committed assets in total with capacity of 185MW expected to be fully operational in Q3/Q4 2014.
  • The Company maintains the lowest risk approach to the sector taking no blind pool, development, construction or subsidy risk in its acquisition of assets.
  • Profit for the period was £8.088 million and earnings per share were 5.39 pence.
    Corporate Summary, Investment Objective and Dividends Corporate Summary
    Foresight Solar Fund Limited is a closed-end company with an indefinite life, incorporated in Jersey under The Companies Law 1991 (Jersey), as amended, on 13 August 2013, with registered number 113721.

The Company has a single class of 150,000,000 Ordinary Shares in issue of nil par value which are listed on the premium segment of the Official List and traded on the London Stock Exchange's Main Market.

The Company’s shareholders include a substantial number of blue-chip institutional investors.

Investment Objective

The Company seeks to provide investors with a sustainable dividend, linked to the Retail Price Index ("RPI") together with the potential for capital growth over the long-term by investing in a diversified portfolio of predominantly UK ground based solar assets.

Investments outside the UK, and assets which are still under construction when acquired, will be limited to 25 percent of the gross asset value of the Company, calculated at the time of investment.

The Company is managed by an experienced team from Foresight Group, an independent infrastructure and private equity investment management firm, overseen by a strong, experienced and majority independent Board.

Dividends

The Company intends to target a 6p annual dividend per Ordinary Share from 1 January 2014 which is expected to increase in line with inflation annually thereafter, together with a target unlevered Internal Rate of Return ("IRR") of between 7-8%, net of all fees and expenses. Dividends on the Ordinary Shares are expected to be paid twice a year, in equal instalments, normally in respect of the 6 months to 30 June and 31 December. The first dividend of 3 pence per Ordinary Share for the period under review was declared on 19 August 2014 and will be paid on 30 September 2014.

Chairman's Statement

For the period 13 August 2013 to 30 June 2014

"The Board and Foresight Group CI Limited, the Investment Manager, believe that strong progress has been made in maintaining the Company’s position on the UK listed market as the largest solar specific renewable infrastructure company. This position is expected to strengthen further once the exchanged contracts to acquire the Kencot and Bournemouth plants complete. Together this will lead to a combined enterprise value of £250 million for the Company. This growth in scale gives us confidence in further achieving the original objectives of the Company."

Results

I am pleased to be able to report strong progress in the formation of the Company’s portfolio of solar investments, both before and following the period end, which is more fully described in the Investment Manager’s Report. The Placing and Offer for Subscription pursuant to the Prospectus published by Foresight Solar Fund Limited on 20 September 2013 ("the Placing & Offer”) proved attractive to investors with £150,000,000 having been raised at the time the ordinary shares listed on 29 October 2013.

The net asset value per Ordinary Share increased to 103.62p at 30 June 2014 from 98.0p per Ordinary Share at launch on 29 October 2013. The performance of the underlying portfolio is more fully described in the Investment Manager’s Report.

Dividend Policy

As noted in the Prospectus published on 20 September 2013 and subject to market conditions, the Company’s performance, financial position and financial outlook, it is the Directors’ intention to pay a sustainable and RPI-linked level of dividend income to Shareholders on a semi-annual basis. Whilst not forming part of its Investment Policy, the Company targeted the payment of an initial annual dividend of 6p per Share from the year commencing 1 January 2014. Given the nature of the Company’s income streams, the Directors anticipate being able to increase the annual dividend in line with RPI for the period commencing 1 January 2015.

I am pleased to announce that, as targeted in the Prospectus, the first interim dividend of 3p per Ordinary Share will be paid on 30 September 2014 in respect of the period from 1 January 2014 to 30 June 2014. The dividend will have a record date of 29 August 2014 and an ex- dividend date of 27 August 2014. The second interim dividend of 3p per Ordinary Share is targeted to be paid in March 2015 in respect of the period from 1 July 2014 to 31 December 2014.

The target dividend should not be taken as an indication of the Company’s expected future performance or results.

Share Issues

During the period from incorporation on 13 August 2013 to 30 June 2014, the Board allotted 150,000,000 Ordinary Shares at a nil par value of 100.0p per share.

Valuation Policy

Investments held by the Company have been valued in accordance with IAS 39 and IFRS 13, using Discounted Cash Flow principles. The portfolio valuations are prepared by Foresight Group, reviewed and approved by the Board quarterly and subject to audit at least annually.

Outlook

The Board and Foresight Group is encouraged that all of the £100m acquisition facility, secured through Royal Bank of Canada, Royal Bank of Scotland and Santander, has been fully committed against two significant solar projects.

Although the Government has confirmed changes to the Renewable Obligations ("RO”) incentive from March 2015, the Board and Investment Manager both believe that a combination of the investments made to date and the pipeline of potential opportunities currently being considered will continue to provide attractive returns together with the associated benefits of scale to shareholders over the longer term.

Alexander Ohlsson Chairman
19 August 2014

Investment Portfolio

Acquired:

Asset Location MW ROCs Grid connection date Solar panels Hectares Construction party
Wymeswold Leicestershire 32.2 2.0 March 2013 134,000 78 Lark Energy
Castle Eaton Wiltshire 17.8 1.6 March 2014 60,000 40 SunEdison
Highfields Chelmsford, Essex 12.2 1.6 March 2014 40,000 37 SunEdison
High Penn Wiltshire 9.6 1.6 March 2014 34,000 30 SunEdison
Pitworthy North Devon 15.6 1.4 April 2014 49,000 44 SunEdison

 

Operational, awaiting financial completion

Asset Location MW ROCs Grid connection date Solar panels Hectares Construction party
Spriggs Farm Essex 12.0 1.6 March 2014 (accreditation received) 50,000 31 Bester Generation
Hunters Race West Sussex 10.7 1.4 July 2014 41,000 12 Hareon Solar

 

Under construction, awaiting financial completion (expected acquisition):

Asset Location MW ROCs Grid Connection Date Solar Panels Hectares Construction Party
Kencot Oxfordshire 37.0 1.4 Q3/4 2014 144,000 52 Conergy
Bournemouth Dorset 37.0 1.4 Q3/4 2014 146,000 77 Goldbeck


Investment Manager's Report

For the period 13 August 2013 to 30 June 2014

Foresight Group - The Investment Manager

Formed in 1984, Foresight's track record was initially built by focusing on unquoted investments in the UK. As we have grown, our investment approach has since evolved to encompass private equity, infrastructure and environmental investments in the UK, US and Italy.

Foresight is now a leading infrastructure and private equity Investment Manager wholly owned by its Partners. Foresight manage nine dedicated Solar Funds valued at over £775 million including over 154MW of existing operational capacity in the UK. The Solar team has been active since 2007 and consists of 22 investment professionals.

With current assets under management of over £1.2 billion, raised from pension funds and other institutional investors, UK and international private and high net-worth individuals and family offices, Foresight strives to deliver strong, risk-adjusted, returns to its investors.

Foresight's head office is located in The Shard at London Bridge with satellite offices in Rome and San Francisco.

The Company

The Company’s IPO on 24 October 2013 raised £150 million, creating the largest dedicated solar investment company listed in the UK at this time. The Company has maintained its strategy of taking no development, construction or subsidy risk in the acquisition of assets while fully allocating its IPO proceeds across seven fully operational UK assets with a combined capacity of 111MW.

The acquisition of two of these assets, Hunters Race and Spriggs Farm, has not yet been recognised in the financial statements. The vendors have entered into sale agreements contingent on certain conditions being met, including ROC accreditation being received. It is the prudent policy of the Company not to recognise acquisition, or revenue generation, of assets until this accreditation is achieved.

On 19 May 2014, the Company entered into a £100 million debt acquisition facility. This facility will be drawn to fund the further binding agreements entered into for the large scale Kencot and Bournemouth assets which will see the Company reach 185MWs of total capacity later in 2014. It is expected that the facility will be repaid through a combination of excess dividend cover and further equity issuance (when the assets are operational) and/or refinancing with a long-term debt facility.

Following the completion of the acquisition of Kencot and Bournemouth, the Company will own and manage three of the UK's largest operational solar power plants.

Investment Portfolio

IPO proceeds used to acquire 111MW of operational UK solar capacity comprising seven individual utility scale assets. These assets have been, or will be, wholly acquired at attractive pricing and offer manufacturer and geographical diversification within the portfolio.

Crucially, the portfolio has been designed to deliver the target return profile without taking unnecessary risk. This is defined as the avoidance of construction risk, which, in itself, can be managed depending on the balance sheet strength of the construction contractor. More difficult to manage is the risk of failing to meet the 31 March ROC subsidy deadline which, in 2015, is a cliff-edge deadline given the acceleration of the Contracts for Difference ("CfD”) mechanism for projects greater than 5MWs after this date.

Projects are not presently sustainable under this scenario as there is no certainty that assets will be eligible for CfDs or that contractors will be able to refund the construction finance.

Foresight have deliberately set out to execute a low risk strategy of avoiding construction and subsidy risk and have negotiated these terms accordingly with large and experienced contractors. This avoids unnecessary risk exposure for shareholders.

Portfolio Performance

The Company does not take construction or subsidy qualification/accreditation risk and although revenue will accrue to the investment companies from connection, this will not be recognised until financial completion of the acquisition. We expect this to happen for each asset soon after subsidy qualification/accreditation is received. We believe this prudent recognition approach mirrors the risk profile of the Company although it does mean that the NAV calculation will only reflect accrued benefits at this completion date when an acquisition has occurred during the period.

In general, operational performance of the assets has been strong, achieving higher than anticipated returns. This is despite poorer than expected weather conditions during the first six months of the year. The Wymeswold asset has produced 2.4% over and above base case forecasts while irradiance has been 2.2% lower than expectations over the same period. The difference is due to operational efficiencies achieved by our in-house technical team. We do not expect short-term fluctuations in power generation to affect the medium to long-term forecasts.

The focus of the period under review was deployment of the IPO proceeds into a strong operational asset base. The Wymeswold asset is the only asset that has been under our operational management for a significant proportion of the period and therefore providing details of operational performance across the whole portfolio would be less directly relevant for the Company at this time.

Investment performance

The NAV at launch was 98p per share. The NAV per share as at 30 June 2014 had grown to 103.6p. The increase is driven by energy generation and increases in asset valuation above the cost of the investment.

Valuation of the Portfolio

The Investment Manager is responsible for providing fair market valuations of the Company’s assets to the Directors. The Directors review and approve these valuations following appropriate challenge and examination. Valuations are carried out quarterly.

The current portfolio consists of non-market traded investments and valuations are based on a Discounted Cash Flow methodology. This methodology adheres to IAS 39 and IFRS 13.

It is the policy of the Investment Manager to value with reference to DCF immediately following acquisition. This is partly due to the long periods between agreeing an acquisition price and financial completion of the acquisition. Quite often this delay incorporates construction as well as time spent applying for, and achieving ROC accreditation, which the Company’s acquisition of assets is contingent on. Whilst revenues generally accrue for the benefit of the purchaser, revenues accrued do not form part of the DCF calculation when making a fair and proper valuation until ROC accreditation is achieved.

A broad range of assumptions are used in our valuation models. These assumptions are based on long-term forecasts and are not affected by short-term fluctuations in inputs, be it economic or technical.

Valuation Sensitivities

Where possible, assumptions are based on observable market and technical data. In many cases, such as the forward power price, we make use of external professional advisors to provide reliable and evidenced information while often applying a more prudent approach to that of our information providers. We have set out below the inputs we have ascertained would have a material effect upon the NAV should they be flexed. The following information assumes the relevant input is flexed over the entire useful life of the assets. All sensitivities are calculated independently of each other.

Discount Rate

-0.5% -0.25% Base +0.25% +0.5%
Directors’ valuation (£m) 160.65 158.00 155.43 152.95 150.54
NAV per share (£) 1.071 1.053 1.036 1.020 1.004

Energy Yield

P10 (10 year) Base P90 (10 year)
Directors’ valuation (£m) 158.97 155.43 151.71
NAV per share (£) 1.060 1.036 1.011

Power Price

+20% +10% Base -10% -20%
Directors’ valuation (£m) 168.86 162.39 155.43 148.09 140.76
NAV per share (£) 1.126 1.083 1.036 0.987 0.938

 

Inflation

- 1% + 0.5% Base - 0.5% + 1%
Directors’ valuation (£m) 156.50 155.97 155.43 154.86 154.30
NAV per share (£) 1.043 1.040 1.036 1.032 1.029


Operating costs (investment level)

- 10% - 5% Base + 5% + 10%
Directors’ valuation (£m) 156.43 155.93 155.43 154.91 154.39
NAV per share (£) 1.043 1.040 1.036 1.033 1.029

Financial Results

The Company has prepared financial statements for the Interim Period from incorporation to 30 June 2014. No meaningful activities took place between incorporation and IPO. The first full accounting period of the Company ends 31 December 2014.

As at 30 June 2014, the NAV of the Fund was £155.43 million or £1.036 per share issued, an increase of 5.7% on the Launch NAV. Profit before tax for the period was £8,087,934 and earnings per share were 5.39 pence.

The Directors have satisfied themselves with the valuation methodology including the underlying assumptions used to approve the portfolio valuation. Since inception, the Company has confirmed its intent to deliver its target dividend of 6p per ordinary share in respect of its first financial period. Strong underlying asset performance and attractive pricing gives the Directors comfort that target distribution levels will be met while maintaining capital in real terms.

Financing

The proposed acquisition facility outlined in the IPO Prospectus reached financial close within the period for a total facility size of £100 million. This facility will be drawn to fund the future acquisition of operational UK solar power plants. It is expected that the facility will be repaid through utilisation of one or more of; excess dividend cover, further equity issuance and/or refinancing with a long-term debt facility.

The providers of the facility are RBC, RBS and Santander.

The first asset which will be formally acquired by the Company utilising this debt facility is expected to be the 37MW Kencot asset which is currently under construction.

The Articles provide that gearing, calculated as borrowings as a percentage of the Company’s Gross Asset Value will not exceed 50% at the time of drawdown. It is intended that there will be no borrowings at the level of each investment. It is the Board’s current intention that gearing, calculated as borrowings as a percentage of the Company’s Gross Asset Value, will not exceed 40 percent at the time of drawdown.


Risk Management

Reliance is placed on the internal systems and controls of external service providers such as the Administrator and the Investment Manager in order to effectively manage risk across the portfolio. The identification, quantification and management of risk are central to the role of the Investment Manager who, for this purpose, categorises risk as follows:

Day to Day Risk Management
  • Monitoring performance of contractors
  • Promoting safe, compliant and reliable operating environments
  • Levels of solar irradiation
  • Insurance
  • Land and property, including lease negotiations
  • Environmental, including health and safety concerns
  • Technology (supplier, warranties and quality)
Business and Strategic Risk Management
  • Integration of risk management into key business processes such as acquisition identification, performance management, resource allocation
  • Economic factors including power prices, interest rates and inflation
  • Political factors including tax and energy subsidy legislation
  • Financial and technical reporting accuracy and timeliness
Corporate Oversight and Governance
  • The Board provide oversight to identify and mitigate significant risks. The Board are responsible for monitoring the Company’s reliance on professional advisors
  • Conflicts of Interest
  • Performance against financial objectives

Outlook

The first asset which will be formally acquired by the Company utilising the acquisition facility is expected to be the 37MW Kencot asset which is currently under construction. Reflecting the Company's preferred risk profile of acquiring only operating assets, Kencot is expected to become operational in Q3/Q4 2014 and will qualify under the 1.4 ROC rate. Kencot further demonstrates the Investment Manager’s ability to source large scale solar assets at prices that deliver on the return proposition of the Company.

The Bournemouth asset, also in construction, will be acquired on a similar basis to Kencot and is also expected to become operational in Q3/Q4 2014.

A pipeline of additional 1.4 ROC assets that will be connected before 31 March 2015 is being pursued on behalf of the Company. The ROC regime is due to end for UK solar assets over 5MWs in size in March 2015 and will be replaced by a CfD mechanism. We have started, and will continue, to work with developers to facilitate their participation in the CfD auction process to lock-in subsidies and to put the Company in the best position to secure assets under the CfD regime going forward. At the same time, we have confidence that the secondary market in ROC (and Feed-in-Tariff) assets will remain strong. We also expect portfolios of up to 5MW ROC assets to deliver significant pipeline volume going forward.

Foresight Group CI Limited
Investment Manager 19 August 2014

Statement of Directors' Responsibilities

The Directors of Foresight Solar Fund Limited (the "Directors") have accepted responsibility for the preparation of these non-statutory accounts for the period ended 30 June 2014 which are intended by them to give a true and fair view of the state of affairs of the Company and of the profit or loss for that period. They have decided to prepare the non-statutory accounts in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU").

In preparing these non-statutory accounts, the Directors have:

  • selected suitable accounting policies and applied them consistently;
  • made judgements and estimates that are reasonable and prudent;
  • stated whether they have been prepared in accordance with IFRS as adopted by the EU; and
  • prepared the non-statutory accounts on the going concern basis as they believe that the Company will continue in business.

The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.


For and on behalf of the Board
Alexander Ohlsson Chairman
19 August 2014


Directors

The Directors, who are non-executive and, other than Mr Dicks, independent of the investment manager and Foresight Group CI Limited, are responsible for the determination of the investment policy of the Company, have overall responsibility for the Company’s activities including its investment activities and for reviewing the performance of the Company’s portfolio. The Directors are as follows:

Alexander Ohlsson (Chairman)

Mr Ohlsson is managing partner for the law firm Carey Olsen in Jersey. He is recognised as a leading expert in corporate and finance law in Jersey and is regularly instructed by leading global law firms and financial institutions. He is the independent chairman of the States of Jersey’s audit committee and an Advisory Board member of Jersey Finance, Jersey’s promotional body. He is also a member of the Financial and Commercial Law Sub-Committee of the Jersey Law Society which reviews as well as initiates proposals for legislative changes. He was educated at Victoria College Jersey and at Queens’ College, Cambridge, where he obtained an MA (Hons) in law. He has also been an Advocate of the Royal Court of Jersey since 1995.

Mr Ohlsson was appointed as a non-executive Director and Chairman on 16 August 2013.

Christopher Ambler

Mr Ambler has been the Chief Executive of Jersey Electricity plc since 1 October 2008. He previously held various senior positions in the global industrial, energy and materials sectors working for major corporations, such as ICI/Zeneca, the BOC Group and Centrica/British Gas as well as in strategic consulting roles. Mr Ambler is a Chartered Engineer and a Member of the Institution of Mechanical Engineers. He holds a first class Honours Degree from Queens’ College Cambridge and an MBA from INSEAD.

Mr Ambler was appointed as a non-executive Director on 16 August 2013.

Peter Dicks

Mr Dicks is currently a director of a number of quoted and unquoted companies. In addition, he was the Chairman of Foresight VCT plc and Foresight 2 VCT plc from their launch in 1997 and 2004 respectively until 2009 and since then he has continued to serve on both of these boards. He is also on the Board of Foresight 3 VCT plc, Foresight 4 VCT plc, Graphite Enterprise Trust plc and Mears Group plc. He is also Chairman of Unicorn AIM VCT plc and Private Equity Investor plc.

Mr Dicks was appointed as a non-executive Director on 16 August 2013.

Environmental and Social Governance

The Company invests in solar farms. The environmental benefits received through the production of renewable energy are widely published.

Further to the obvious environmental advantages of large scale renewable energy each investment is closely scrutinised for localised environmental impact. Where improvements can be made we will work with planning and local authorities to minimise the visual and auditory impact of sites.

Foresight Group is a signatory to the United Nations Principles for Responsible Investing ("UNPRI”). The UNPRI is a global, collaborative network of investors established in 2006.

It is the intention of the Investment Manager to appoint a health and safety consultant to review all portfolio assets to ensure they not only meet but outclass industry and legal standards. The Kent Wildlife Trust has also been appointed to review site operations across the UK with the aim of minimising the impact all our sites may have on local wildlife.