Annual Report and Audited
Financial Statements
For the year ended
31 March 2022
SDCL Energy Efficiency
Income Trust plc
SDCL Energy Efficiency Income Trust Plc Annual Report and Audited Financial Statements for the year ended 31 March 2022
1. HIGHLIGHTS AND OVERVIEW
1.1 Summary of the year to 31 March 2021 1
1.2 Chair’s Statement 2
2. STRATEGIC REPORT: THE COMPANY
2.1 The Role of Energy Efficiency in Reaching Net-Zero 8
2.2 Investment Policy and Approach 10
2.3 Investment Manager’s Report 12
2.4 ESG Management 23
2.5 Investment Portfolio Summary 29
2.6 Company Key Performance Indicators 36
2.7 Stakeholders & Section 172 38
3. STRATEGIC REPORT: PORTFOLIO REVIEW
3.1 Financial Review 42
3.2 Valuation of the Portfolio 46
3.3 Risk Management 51
3.4 Viability Statement 60
4. BOARD AND GOVERNANCE
4.1 Board of Directors 62
4.2 Report of the Directors 64
4.3 Corporate Governance Statement 68
4.4 Nomination Committee Report 78
4.5 Audit and Risk Committee Report 79
4.6 Directors’ Remuneration Report 84
4.7 Statement of Directors’ Responsibilities 90
5. FINANCIAL STATEMENTS
5.1 Independent Auditor’s Report 92
5.2 Financial Statements 99
5.3 Notes to the Financial Statements 103
Company Information 121
Key Company Data 122
Glossary 123
Glossary of Financial Alternative Performance Measures 125
Investing in energy efficiency
SEEIT was the first investment company of its kind listed on the
London Stock Exchange to invest exclusively in energy efficiency
infrastructure projects. Whereas over 65% of energy produced is
typically wasted, the Company targets investments that reduce
wastage in the supply, demand and distribution of energy. These
solutions in turn reduce carbon emissions and costs and can
strengthen energy security, the grid and the energy market as a whole.
Overview GovernanceStrategic Report Financial Statements Additional Information
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 1
6.00p
Target dividend
per share for year to March 2023, a
7% increase from year to March 2022
£171m
Cash on a portfolio basis
at 31 March 2022 available for
investments and the fourth interim
dividend payable in June 2022
11.2%
Percent NAV return
total return on a NAV basis in the year
end at 31 March 2022
£1,164m
Market Capitalisation
at 31 March 2022, up from £758
million at 31 March 2021 and a total
shareholder return
1
of 39.4% since
IPO to 24 June 2022
£350m
Capital raised
during the financial year from three
well-supported equity issues, with
proceeds substantially deployed
or committed to be deployed into
investments from the Company’s
new investment pipeline
1,060,617
tCO2
Carbon Savings
(2021: 657,030 tCO2) from
Company’s portfolio, which also
produced 2,455,305 MWh of electricity
(2021: 1,750,0713 MWh)
1. Highlights and Overview
1.1 Summary of the year to 31 March 2022
10.0p £79.8m
Earnings per share
for year to 31 March 2022
(March 2021: 7.0p)
Profit Before Tax for year to 31 March
2022, up from £32.4 million for the prior
year to 31 March 2021
+ £1b 108.4p
FTSE 250 Index entry, with effect
from September 2021, with a market
capitalisation of over £1 billion
Net Asset Value (“NAV”) per share
1
as
at 31 March 2022, up from 102.5p as at
31 March 2021 and a total return on a
NAV basis
1
in the year of 11.2%
1 In this Annual Report, there are a number of references to financial Alternative Performance Measures. For further details on these, please see the Glossary of
financial Alternative Performance Measures (“APM”)
2 The target dividend stated above by the Company is based on a projection by the Investment Manager and should not be treated as a profit forecast for the Company
3 Per SEEIT’s ESG Report, November 2021
c.£305m
Investment
of approximately c. £305 million in
12 investments during the year and
a further c. £43 million in cash after
the year end
£928m
Investment at fair value
on balance sheet at 31 March 2022,
up from £573 million 31 March 2021
5.62p
Aggregate dividends
per share declared relating to the
year ended 31 March 2022, in line
with target
£913m
Portfolio Valuation
1
at 31 March 2022, up from £553
million at 31 March 2021
1.19x
Cash covered per dividend
Operational cash flow divided by
dividends paid to shareholders during
the year
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1.2 Chair’s Statement
The past year has set the scene for
a watershed period for the energy
efficiency sector and the Company is
well positioned to invest in solutions that
reduce carbon emissions, cut energy
costs, and improve energy security.
At the beginning of the financial
year, the COVID-19 pandemic was a
dominant risk for the global economy.
Though the pandemic remains
ongoing, associated risks began
to recede during the period in the
Company’s key markets and, in the
year, it has not had a material impact
on the financial performance of the
investment portfolio.
Increasing focus on corporate
social responsibility, environmental
sustainability, climate change and
decarbonisation, and specifically
on limiting global warming to 1.5
o
C,
was galvanised by the 26th annual
Conference of the Parties to the United
Nations Framework Convention on
Climate Change (COP26). Hosted
by the United Kingdom in Glasgow,
COP26 resulted in commitments to
strengthen climate targets and phase
down unabated coal power. For
the first time, energy efficiency was
included alongside the deployment
of clean power generation in the
“Calls Upon Parties” in the Glasgow
Climate Pact. In addition to the official
negotiations, side announcements and
pledges were made to cut methane
emissions, to end and reverse
deforestation by 2030, and to make all
new car sales zero emission by 2040
and by 2035 in leading markets.
In 2021 there has been global
supply chain dislocation, spiking of
energy prices and surging inflation
for several months. Since February
2022 the ongoing and tragic situation
in Ukraine has had further massive
impacts on energy prices, supply-
chains, and general inflation, making
markets – particularly energy markets
– even more volatile and uncertain.
The Russian invasion of Ukraine
has further highlighted the need for
resilience in the global energy system,
including through diversification of
energy sources, large-scale, near-term
clean energy solutions, energy cost
mitigation and energy security.
There is now an increasingly
widespread recognition of the role that
energy efficiency can play, particularly
in the short to medium term, in
reducing the amount of energy that
the world uses by cutting waste both
on the supply and demand side. While
the scale of the challenge to displace
fossil fuels, which still represent some
80% of the world’s energy system, with
lower carbon and renewable energy
is very large and will take time, energy
efficiency measures can be taken in
the meantime and can reduce the
amount of overall energy needed.
The global efforts to tackle the climate
crisis and the latest climate data
only further underpin the urgency
and growth drivers in the energy
efficiency sector. Many of our clients
are committed to reaching net-zero
emissions by 2050 or before and most
of the world recognises the urgency of
limiting global temperature rise to 1.5
o
C.
Within the energy sector, efficiency
may not be the whole answer, but it
is probably at least half of it. Efficient
and decentralised energy generation
represents one of the largest and
fastest growing investment categories
of energy and infrastructure markets
4
and the Company, as the first UK
listed investment company to invest
exclusively in the energy efficiency sector,
is a market leader and well placed to
continue to expand its diversified portfolio
of investments capable of delivering
cheaper, cleaner, and more reliable
solutions to energy users.
On behalf of the Board,
I am pleased to present the
annual report and financial
statements (the “Annual
Report”) for the SDCL
Energy Efficiency Income
Trust Plc (‘’SEEIT’’ or ‘’the
Company’’) for the year
ended 31 March 2022.
Tony Roper
Chair of SEEIT
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The Solution
Efficient and decentralised energy that…
Reduces carbon emissions
Reduces energy costs
Improves energy security
67%
Of total energy produced is wasted by conversion, generation,
transmission and distribution inefficiencies
Cost of living
crisis
Rising
inflation
Energy
security fears
Need to
accelerate
transition to
net-zero
Pressure
on corporate
margins
Energy
storage
shortage
Significant
energy price
volatility
Grid instability
Market Backdrop
during Year Ended 31 March 2022
Economic and
supply chain
disruptions from
Covid
Russia
invades
Ukraine; Europe
faces energy
price & security
crisis
Severe
weather events,
e.g., in USA,
creates need for
resilience
Rising
concerns
about climate
change and
responses
to it
Overview GovernanceStrategic Report Financial Statements Additional Information
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Further information on the Investment
Manager’s activities is included in
Section 2.3 Investment Manager’s
Report in and Section 2.5 Investment
Portfolio Summary.
Financial Performance
Profit before tax for the year ended
31 March 2022 was £79.8 million
(2021: £32.4 million) and earnings per
share were 10.0 p (2021: 7.0p). The
Company’s net asset value (“NAV”)
5
at
31 March 2022 was £1,073.1 million
(2021: £693.8 million) and NAV per
share was 108.4p (2021: 102.5p).
The Company’s investment portfolio
(“Portfolio Valuation”) was valued
at £912.7 million at 31 March 2022,
up from the Portfolio Valuation of
£785.0 million at 30 September
2021 and £552.7 million at 31 March
2021, predominantly as a result of
investments made during the year
which, along with other movements in
the Portfolio Valuation, are described
in Section 3.2 Valuation of the
Portfolio.
The Company’s Ongoing Charges
ratio
5
reduced to 1.00 % (2021:
1.13%), benefitting from spreading
costs across a larger net assets base.
Further detail on the Company’s
financial performance and the
alternative performance measures
of Portfolio Valuation and Ongoing
Charges can be found in Section 3.1
Financial Review.
Investment cash inflow from the
portfolio during the year ended 31
March 2022 was £64.7 million (2021:
£42.1 million) on a Portfolio Basis
5
(see Section 3.1 Financial Review for
details), delivering 1.2x cash cover for
interim dividends paid during the year.
Total return on a NAV per share basis
5
for the year was 11.2%, comprising a
5.9p increase in NAV from 102.5p at 31
March 2021 to 108.4p at 31 March 2022
year to March 2023 (an increase of 7%)
and as before, targeting a progressive
dividend growth thereafter. See Section
2.3 Investment Manager’s Report for
further details.
The Company intends to continue to pay
interim dividends on a quarterly basis
through four broadly equal instalments
(in pence per share).
Investment Activity
The Company holds a single investment,
its subsidiary SEEIT Holdco Limited
(“SEEIT Holdco” or “Holdco”) through
which SEEIT’s portfolio of investments
are held. During the financial year,
SEEIT increased and diversified its
portfolio, making over £300 million of
new investments and commitments. In
addition, the Company invested a further
c. £37 million in the portfolio after the
financial year end. Details of these new
investments are provided in Section 2.3
Investment Manager’s Report.
The Company’s target geographies
remain the UK, Europe and North
America, plus other countries where the
Company can invest on a risk-adjusted
basis to secure returns that support its
objectives.
The Company has carefully targeted
key markets and technologies as it
continues to build and diversify its
portfolio, including district energy, green
gas, solar and storage, geothermal,
energy efficient motors and chillers, and
EV charging infrastructure.
and total dividends paid during the year
totalling 5.6p. Total return on a NAV per
share basis
5
since IPO is 8.1% p.a.
The Company’s currency hedging
strategy was successful in limiting
the impact on the NAV arising from
material movements in foreign
exchange rates. Further details on the
Company’s hedging strategy can be
found in Section 3.1 Financial Review.
While yields and discount rates in
the infrastructure sector continue
to tighten, improvements in the
portfolio’s value are also created
from focused investment and active
asset management activity which
is discussed further in Section 2.3
Investment Manager’s Report. Total
return for the Company remains
on track against target and the
Company’s NAV has remained
resilient as the Investment Manager
continues to effectively mitigate
investment and portfolio level risk
amidst a challenging market backdrop.
Dividends
In line with previous guidance, in June
2022 the Company announced its
fourth interim dividend for the year
ended 31 March 2022 of 1.405p per
share, providing an aggregate dividend
of 5.62p per share declared for the
year ended 31 March 2022 which was
fully covered by net cash income and
earnings. The Company paid a total
of £44.2 million in interim dividends
during the financial year which
included the last quarterly dividend
for the year ended 31 March 2021 and
three quarterly dividends for the year
ended 31 March 2022.
Based on the projected investment
cash flows from the current portfolio
prepared by the Investment Manager
and approved by the Board, the
Company is announcing new dividend
guidance of 6.00p per share for the
4 Source : IEA ; https://www.iea.org/reports/energy-
efficiency-2021/executive-summary
5 In this Annual Report, there are a number of
references to financial Alternative Performance
Measures. For further details on these, please see
the Glossary of financial Alternative Performance
Measures (“APM”)
1.2 Chair’s Statement
continued
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SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 5
The Investment Manager entered into
new, exclusive framework agreements
during the year that demonstrate its
ability to secure pipelines of further
investment opportunities from existing
investments and relationships. A
significant proportion of the Company’s
investment activity during the year came
from follow-on investment opportunities,
which is expected to continue.
Our investment strategy of targeting
high credit quality counterparties and
providing services to key industries
through contractual structures that limit
exposure to demand or commodity
price risk is proving to be successful.
The Board is pleased with the timely
deployment of capital into new and
follow-on investments during the year,
which have been consistent with the
Company’s targeted technologies and
geographic markets. This success
demonstrates the Investment
Manager’s ability to source and
secure attractive investments that
meet the Company’s investment
strategy and objectives.
Funding
The Company published a new
prospectus in September 2021 (the
“September 2021 Prospectus”) which
was followed by the successful £250
million capital raise. This capital raise was
the largest completed by the Company to
date and was well-supported by investors
with strong demand.
In March 2022, despite volatile market
conditions due to the Russian invasion
of Ukraine, the Company raised a
further £100 million of capital (having
targeted £75 million), and provided the
Company the opportunity to maintain
investment flexibility through prudent
use of cash reserves.
The Company’s share register has
remained supportive and stable
during the past financial year and the
Board thanks its shareholders for their
continued support in allowing SEEIT
to pursue and achieve its objectives.
At the time of this report, the Group’s
gearing is approximately 34% of
the Company’s 31 March 2022
NAV, on the basis of a look through
consolidated debt in the group, all of
which is currently at investment level
and in line with the Company’s target
structural gearing of 35%.
Portfolio Performance
The Company’s investment portfolio
performance remained broadly in line
with projections during the financial
year. Many of the operational assets
within the portfolio provide key
services to essential industries and
continued to operate with minimal
disruption, despite some challenges
associated with the COVID-19
pandemic, disruptions to the energy
market due to the Russian invasion
of Ukraine and certain investments
being affected by changes in offtake
requirements such as Ironside which
is affected by the idling of the blast
furnace it provides energy services
to. The Investment Manager remains
focused on minimising the Company’s
exposure to risks associated with
energy availability, input pricing,
inflation, supply-chain disruptions, and
additional macroeconomic factors
that are creating volatility across the
industry.
The Investment Manager places a
significant emphasis on managing the
investment portfolio through its asset
management function, not only to
protect the value of each investment
but also to seek opportunities
to create additional value for
stakeholders. It plays an active role,
both in oversight and in support of the
management teams of its portfolio
companies, with a focus both on risk
management and value improvement.
The Investment Manager succeeded
in securing additional value for
certain portfolio investments, as
well as identifying other accretive
opportunities despite the headwinds
described above. Further details
on matters that specifically affected
certain investments are described in
Section 2.3 Investment Manager’s
Report.
Sustainable Future and ESG
SEEIT focuses exclusively on
energy efficiency investments that
contribute to a greener future. The
Company is dedicated to accelerating
the transition to a net-zero carbon
economy and delivering long-term
value for shareholders and society as
a whole.
In November 2021, SEEIT published
its second ESG report, wherein it
reported on the Company’s ESG
considerations and carbon savings
achieved in the investment portfolio in
the previous year.
The Company recognises that in 2023
full disclosure on compliance with
The Task Force on Climate Related
Financial Disclosures (“TCFD”) is
required. The Company welcomes the
adoption of the TCFD guidelines, and
the Investment Manager is working
towards implementing the full scope
of the disclosure recommendations,
which will allow the Company to
highlight the intrinsic environmental
benefits of its investment activities,
while also providing valuable guidance
on improving risk assessment and
management approaches. This is part
of the Company’s broader strategy for
reporting on climate-related issues
and other ESG concerns, which
includes TCFD.
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1.2 Chair’s Statement
continued
See Section 2.4 ESG Management for
further details.
Board and Governance
The Directors’ overarching duty is to
promote the success of the Company
for the benefit of investors, with due
consideration of other stakeholders’
interests. The Company seeks to
maintain high standards of business
conduct and corporate governance,
ensuring, via the Investment Manager,
that appropriate oversight, control,
and policies are in place to ensure the
Company treats its stakeholders fairly.
The Board seeks to guarantee the
alignment of its purpose, values, and
strategy with a culture of openness,
debate, and integrity through ongoing
dialogue and engagement with key
stakeholders.
During the year, following the
2021 board evaluation, the Board
commenced a recruitment process
using a third party. This culminated
in the Board appointing Sarika Patel
as an independent Non-Executive
Director and also as the chair of the
Audit and Risk Committee, with effect
from 1 January 2022. Sarika will support
the other Directors’ skills through
her experience. The Board and the
Investment Manager support equal
opportunities in the recruitment and
management of employees, regardless
of age, race, gender, or personal beliefs
and preferences.
Key Risks
The Board, its Audit and Risk
Committee, and the Investment
Manager monitor the risks that the
Company and its investment portfolio
face on an ongoing basis. Where
relevant, mitigants against these
risks are put in place in line with the
Company’s risk appetite and adjusted
over time as necessary.
The Investment Manager has
remained very selective in making new
investments, with a limited number of
the new opportunities it sees making
it to the stage of being reviewed by
the Investment Committee. Looking
ahead, organic growth of the existing
SEEIT portfolio makes up, by value,
around half of the near-term pipeline
through follow-on opportunities, often
at pre-agreed rates of return, while
the Investment Manager continues to
explore the most attractive secondary
market investment opportunities for
new investments.
The current investment pipeline has
a good balance of smaller and larger
opportunities, often involving bilateral
negotiations where the Investment
Manager has a particular strength or
relationship, which helps the Company
avoid competitive processes where
possible. The Investment Manager
exercises robust pricing discipline
when evaluating any opportunities
within its target markets and
geographies.
In conclusion, we are pleased to
report on another successful year for
the Company. I would like to thank our
shareholders again for their continued
support. The Company is well
positioned to deliver upon our stated
investment objectives.
Tony Roper
Chair
The majority of the risks identified,
including the principal risks, affect only
the Company’s investment portfolio
and therefore potentially impacts
the Company, its performance and
its ability to achieve its investment
objective only indirectly.
The principal risks for the Company
and its investment portfolio are
described below:
• Credit risk of contracted
counterparties
• Operational risks that may impact
day-to-day operations
• Global macroeconomic factors
The principal risks to the Company
have not changed materially from the
prior year. The economic and political
consequences of the Russian invasion
of Ukraine have introduced an entirely
new level of uncertainty to markets
globally. The Investment Manager,
through its asset management team,
is monitoring these events with a view
to mitigate their potential impacts on
the Company where possible.
Pipeline and Outlook
SEEIT benefits from a substantial
pipeline of new investment
opportunities. SEEIT’s target markets
are also expected to continue to grow.
Market drivers include increasing
levels of focus on decarbonisation
targets in the public and private
sectors globally, the need for
increased energy security and
resilience, and relatively high and
volatile energy prices. These factors
continue to drive demand for on-site
generation, efficient distribution, and
demand side reduction solutions to
the challenges faced by commercial,
industrial and public sector clients.
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Overview GovernanceStrategic Report Financial Statements Additional Information
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2. Strategic Report: The Company
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 7
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2.1 The Role of Energy Efficiency in Reaching Net-Zero
SEEIT was the first investment company
of its kind listed on the London Stock
Exchange to invest exclusively in energy
efficiency infrastructure projects.
Whereas over 65%
6
of energy produced
is typically wasted, the Company targets
investments that reduce wastage in
the supply, demand, and distribution of
energy. These solutions in turn reduce
carbon emissions and costs and can
strengthen energy security, the grid, and
the energy market as a whole.
Since the Company launched in 2018,
climate change mitigation has continued
to be an increasingly pertinent
and urgent issue. The most recent
Intergovernmental Panel on Climate
Change report, published in early April
2022, calls for deep and immediate cuts
to greenhouse gas emissions to limit the
impacts of climate change and reduce
exposure to climate tipping points.
Notably, to limit warming to between
1.5
o
C and 2
o
C, according to the
International Panel on Climate Change
(IPCC), global carbon emissions must
peak in the next three years - so at the
latest by 2025. To limit warming to the
Paris Climate Agreement Target of
1.5
o
C, global emissions would have to
decrease by at least 43% by 2030 and
reach net-zero by 2050 at the latest.
7
Unfortunately, current global climate
pledges and policies fall well short
of meeting those targets. The United
Nations estimates that national climate
plans in place today will lead to an
increase in emissions of 14% by 2030.
8
The problem is clear, and so is the
urgency in addressing it. Solutions will
require focused efforts to decrease
emissions by switching to low-carbon
energy sources and sharply reducing
energy demand and energy wastage.
The Role of Energy Efficiency
“Energy efficiency represents more than
40% of the emissions abatement needed
by 2040, according to the IEA Sustainable
Development Scenario. Maintaining global
growth and supporting development in
emerging economies implies a sharp rise
in consumption habits. Meeting this need
requires a transformation of the existing
energy system.”
IEA, March 2021
Reducing energy demand and usage
through energy efficiency strategies
has been identified by organisations
such as the United Nations Framework
Convention on Climate Change
(“UNFCCC”) and the International
Energy Agency (“IEA”) as one of the
most important ways to reach net-zero.
The global population is predicted to hit
10 billion in 2050,
9
leading to increased
energy demand for both renewable
and traditional energy sources. Many
predictions state that global energy
demand will increase by nearly 50%
10
in
the next few decades.
According to the IEA’s Net-Zero by
2050 Pathway,
11
without significant
gains in energy efficiency, the growth
of energy demand due to population
increases would present a substantial
challenge in transitioning to alternative,
lower-carbon sources of electricity.
Without fundamental consumption
changes that include a push towards
maximising energy efficiency, final
energy consumption in 2050 would be
90% above what is required to achieve
the net-zero pathway.
By reducing energy wastage and energy
demand, energy efficiency solutions
further reduce carbon emissions. The
IPCC report heavily emphasises the
importance of these measures, finding
that “demand-side measures and new
ways of end-use service provisions can
reduce global greenhouse gas emissions
in end use sectors by 40-70% by 2050,
compared to baseline scenarios.”
12
“We consider energy
efficiency to be the ‘first
fuel’ as it still represents the
cleanest and, in most cases,
the cheapest way to meet
our energy needs. There is
no plausible pathway to net
zero emissions without using
our energy resources much
more efficiently”
International Energy Agency
(IEA), 2021
6
Source: https://www.weforum.org/
agenda/2018/05/visualizing-u-s-energy-
consumption-in-one-chart#:~:text=Around%20
68%25%20of%20all%20energy,being%20
wasted%20through%20various%20
inefficiencies.
7
Source: IPCC ; https://www.ipcc.ch/2022/04/04/
ipcc-ar6-wgiii-pressrelease/
8
Source: UN ; https://www.un.org/
en/climatechange/net-zero-
coalition#:~:text=No%2C%20commitments%20
made%20by%20governments,2030%2C%20
compared%20to%202010%20levels.
9
Source: https://www.thenationalnews.com/
world/2021/07/11/world-population-day-can-a-
10-billion-strong-humanity-feed-itself-in-2050/
10
Source: https://www.thenationalnews.com/
world/2021/07/11/world-population-day-can-a-
10-billion-strong-humanity-feed-itself-in-2050/
11
Source: IEA ; https://iea.blob.core.
windows.net/assets/deebef5d-0c34-4539-
9d0c-10b13d840027/NetZeroby2050-
ARoadmapfortheGlobalEnergySector_CORR.pdf
12
Source: IPCC ; https://www.ipcc.ch/report/ar6/
wg3/resources/spm-headline-statements/
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SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 9
Energy Efficiency Solutions
GovernanceStrategic Report Financial Statements Additional InformationOverview
Energy efficiency solutions reduce
energy demand, which in turn
reduces energy usage and carbon
emissions.
An immediate and widespread
adoption of energy efficient
technologies across sectors and
geographies is critical to solving the
carbon emission crisis.
Decentralisation through on-site
generation can slash losses on the
supply side, while better and more
efficient equipment can reduce
waste on the demand side.
Cutting energy waste reduces costs
and improves productivity and
profitability.
Conservation and on-site energy
generation using local and
renewable resources can deliver
more reliable solutions that depend
less, if at all, on the grid.
Energy efficiency does not rely
on technologies that are yet to be
invented, and it can be delivered
now, often at lower cost and more
reliably than business as usual.
Energy efficiency measures can be
taken now, whereas transition to
alternative and lower carbon energy
sources takes more time.
Carbon Emissions
Cost of Energy
Energy Security &
Grid Stability
Energy Efficiency Solutions
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 9
The clock is ticking, and the science
is clear – we have no more than the
next few years to reduce energy
demand, address worsening air and
water pollution, and decarbonise.
Society needs to transform the way
we generate and use energy and
other resources if we are to limit
global temperature rises to 1.5°C
and trend towards Net Zero.
Losses of up to 70% in energy
conversion, generation,
transmission, and distribution are
associated with a centralised grid.
Energy is often sourced far from where
it is used and where there is no use for
the heat that is produced along with
the power, resulting in waste.
At least 20-30% of energy is wasted
on the demand side through sub-
optimal equipment such as lighting,
motors, controls, heating ventilation,
and air conditioning.
We have seen energy security risks
affect SEEIT’s main geographies in
the recent years, notably power grid
failures in the US (e.g. Texas and
California) often related to climate,
weather, or natural disasters.
The ongoing war in Ukraine poses
an additional challenge as Europe
faces severe curtailment in natural
gas supplies because of reduced
supplies from Russia.
The Problems
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10 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
2.2 Investment Policy and Approach
Summary of the Investment
Policy
• The Company seeks to achieve its
investment objective by investing
principally in a diversified portfolio of
investments with high quality, private
and public sector counterparties.
The contracts governing these
investments entitle the Company to
receive stable and predictable cash
flows. The Company’s returns take
the form of contractual payments by
counterparties in respect of each
relevant investment.
• Whilst the Company invests
predominantly in operational
investments, the Company may
under certain circumstances invest
while such investments are in a
construction phase or development
phase. In addition the Company
may, to a limited extent, invest in
developers, operators, or managers
of energy efficiency infrastructure
investments.
• In respect of the investment portfolio,
the Company seeks to diversify
its subcontracting exposure by
contracting, where commercially
practicable, with a range of different
engineers, manufacturers, or other
service providers.
• Investments may be acquired
individually or as a portfolio. The
Company may also invest jointly with
a co-investor. The Company aims to
achieve diversification by investing in
a range of different energy efficiency
technologies and contracting with a
wide range of counterparties.
• Though the Company initially
focused its attention on investing in
the UK, over time the Company has
expanded to invest in projects in
Europe, North America, and the Asia
Pacific region.
• In pursuing its investment policy,
the Company will seek to target
sustainable investments, for
example, by making investments
that contribute to greenhouse gas
(“GHG”) emission reductions.
Change to Investment Policy
during financial year
With the development of the energy
efficiency sector and growth of the
Company’s portfolio since IPO, the
Board and the Investment Manager
have, during the financial year ended
31 March 2022, reviewed and slightly
amended the Company's investment
policy as follows:
• increase to short-term gearing
limits (thus enabling larger levels of
acquisition financing, 65% of NAV
versus 50% of NAV previously, to be
used between capital raises);
• small clarifications to certain
definitions; and
• provided for some flexibility to invest
in developers, operators or managers
of energy efficiency infrastructure
projects, limited to 3% of Gross Asset
Value at the point of acquisition.
At the Company’s Annual General
Meeting (“AGM”) held in August 2021,
shareholders voted in favour of these
amendments.
A full copy of the Investment Policy is
available on the Company’s website
and is also in the September 2021
prospectus.
Business model and group
structure
The Company has been established
in the UK as an investment trust to
provide an efficient manner in which
shareholders can access investment
into energy efficiency infrastructure
investments.
The Company has an independent
Board of Directors (see Section 4),
has no employees, and has appointed
Sustainable Development Capital LLP
(“SDCL” or “Investment Manager”)
to manage the investments on its
behalf (See Section 2.3 Investment
Manager’s Report).
The Company makes its investments
via its sole direct subsidiary and main
investment vehicle, SEEIT Holdco
Limited (“Holdco”).
Investment Objective
The Company’s investment objective is to generate an attractive total return for
investors comprising stable dividend income and capital preservation, with the
opportunity for capital growth. The Company seeks to achieve its investment
objective by investing principally in a diversified portfolio of energy efficiency
infrastructure investments through collaboration with high quality, private and
public sector counterparties.
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SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 11
The Investment Manager controls
the actions of Holdco and its direct
and indirect subsidiaries with the
aim of assisting the Company to
achieve its stated objective through
making new investments via Holdco
that are funded by the Company and
managing the existing portfolio of
investments that Holdco has directly
or indirectly invested in.
Holdco typically invests in project
SPVs. The SPVs normally provide
energy efficiency solutions to
counterparties, often through long-
term contracts with a fixed lifespan.
A SPV – and by implication the
portfolio of investments as a whole
– therefore normally has a limited
lifetime over which it provides target
returns to Holdco and ultimately the
Company. These SPVs are normally
structured so that they can be sold
in an active secondary market for
energy efficiency assets although
each of the investments will also have
been assessed individually to ensure
appropriate alternative exit strategies
are in place.
Sanne Group (UK) Limited (‘’Sanne’’)
has been appointed by the Company
as a third-party service provider via an
administration agreement.
Gearing
The Company maintains a
conservative level of aggregate
gearing in the interests of capital
efficiency, to enhance income returns,
long term capital growth, and capital
flexibility. The Company’s target
medium term gearing is 35% of NAV,
calculated at the time of borrowing
(the "Structural Gearing").
The Company may also enter
borrowing facilities on a short-
term basis to finance acquisitions
("Acquisition Finance"), provided that
the aggregate consolidated borrowing
of the Company and the investment
portfolio, including any Structural
Gearing, shall not exceed 65% of NAV,
calculated at the time of borrowing.
The Company intends to repay any
Acquisition Finance with the proceeds
from capital raisings in the short to
medium term.
Structural Gearing and Acquisition
Finance are employed either at the
level of the Company, at the level of
the relevant investment, or at the level
of any intermediate wholly owned
subsidiary of the Company. Structural
Gearing and Acquisition Finance
primarily comprise bank borrowings,
though small overdraft facilities may
be utilised for flexibility in corporate
actions.
Use of Derivatives
The Company may use derivatives
for efficient portfolio management
but not for investment purposes. In
particular, the Company may engage
in full or partial interest rate hedging
or otherwise seek to mitigate the risk
of interest rate increases and full or
partial foreign exchange hedging to
mitigate the risk of currency inflation.
The Company does not typically
enter into hedging contracts and
other derivative contracts directly
but may do so via its subsidiaries
when they are available in a timely
manner and on terms acceptable to
it. The Company reserves the right to
terminate any hedging arrangement in
its absolute discretion.
Cash Management
Whilst it is the intention of the
Company to be fully or near fully
invested in normal market conditions,
the Company may hold cash on
deposit and invest in cash equivalent
investments, which could include
short term investments in money
market type funds and tradeable debt
securities.
Project
SPV
Project
SPV
Project
SPV
Project
SPV
Project
SPV
SEEIT Holdco
Overview GovernanceStrategic Report Financial Statements Additional Information
Fund AdministratorInvestment Manager
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12 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
2.3 Investment Manager’s Report
The Investment Manager
Sustainable Development Capital LLP
(“SDCL”, or the “Investment Manager”)
is a leading and specialist investor in
energy efficiency infrastructure.
SDCL was established in 2007 and
has a proven track record of financing,
investing in and developing clean energy,
energy efficiency and decentralised
energy infrastructure projects in the UK,
Europe, North America and Asia.
SDCL was launched to facilitate
investment into environmental
infrastructure markets and has always
focussed on investing in projects that
are good for the environment, good for
people and commercially sustainable.
Market Review for Energy
Efficiency
During the financial year, Europe and
North America started to emerge
from Covid-19 lockdowns. Economies
rebounded with a combination of
demand and stimulus-fuelled growth.
Supply chain and resource constraints
added to high inflationary trends.
Energy prices escalated in the second
half of 2021 in Europe against a
background of, amongst other things,
low wind yields and insufficient storage
of gas, highlighting energy security
vulnerabilities, notably in Europe.
Gas markets responded globally,
with substantial price volatility that
continued throughout the financial
year. No sooner had the United
Nations climate change conference in
Glasgow, COP26, aligned countries on
the objective to work towards net zero
and limiting global temperature rise to
a 1.5
o
C above pre-industrial levels, the
energy price and security crisis took
on another geo-political dimension as
Russia invaded Ukraine.
Alongside the terrible human tragedy
associated with the loss of life,
suffering and displacement resulting
from the war in Ukraine, Europe has
been confronted with a critically
challenging question: how to replace
the 40% of natural gas that it sources
from Russia.
13
The answers are
uncomfortable. 80%
14
of the world’s
energy is generated from natural gas,
oil, and coal. Replacing Russian gas,
and oil, with alternative sources of
conventional and clean energy takes
time and substantial investment.
Meanwhile, the world is wasting much
of the energy it is producing. The World
Economic Forum demonstrated that
in 2019, the United States lost some
70% of its original energy through
conversion, generation, transmission,
and distribution losses before getting
to the point of use. This is another
uncomfortable truth, but one that
we believe is crucial to address.
However, there are encouraging signs
that international governments have
13
Source: IEA ; https://www.iea.org/news/how-
europe-can-cut-natural-gas-imports-from-russia-
significantly-within-a-year
14
Source: EESI ; https://www.eesi.org/topics/fossil-
fuels/description
“Europe has been confronted with a critically challenging
question: how to replace the 40% of natural gas that it
sources from Russia. The answers are uncomfortable. 80%
of the world’s energy is generated from natural gas, oil, and
coal. Replacing Russian gas, and oil, with alternative sources
of conventional and clean energy takes time and substantial
investment. Meanwhile, the world is wasting much of the
energy it is producing.”
Purvi Sapre
SDCL, Fund Manager
of SEEIT
Eugene Kinghorn
SDCL, Group CFO
Jonathan Maxwell
SDCL, CEO & Founder
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SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 13
recognised the vital role that energy
efficiency can play are encouraging.
For example, the Glasgow Climate
Pact signed at COP26 called for energy
efficiency, for the first time, alongside
clean power generation. The European
Commission increased prioritisation of
its “energy efficiency first principle” in a
recast Energy Efficiency Directive and
guidelines on its application.
The conditions of acute energy
security needs, high energy costs, and
the urgency to decarbonise all point
towards energy efficiency, which is one
of the largest, fastest, and cheapest
sources of greenhouse gas emission
reductions, economic productivity and
resilience and energy security.
The IEA refers to energy efficiency
as the “first fuel”. SEEIT’s portfolio is
uniquely focussed on solutions that
reduce generation, transmission and
distribution losses through on-site
generation, storage, and efficient
distribution at local, municipal or district
level. It is also investing in demand side
measures such as lighting, heating,
ventilation, air conditioning, building
management systems and controls.
Taken as a whole, investing in energy
efficiency improves the energy system,
so that when the new clean energy
generation does eventually arrive at
scale, it’s not wasted.
Objectives and dividends
During the financial year, the Company
achieved its financial objectives by
generating sufficient net income from
its investment portfolio to support its
dividends and a positive NAV total return,
consistent with its targets.
The Investment Manager prepared
projections for the Directors and
proposed 6.00 pence per share for the
target dividend for the year ending 31
March 2023, an increase of approx. 7%.
In making the proposal, the Investment
Manager took into account a number
of factors. These included the new
investments made during the year,
projected levels of cash generation
from the investment portfolio, excess of
earnings and cash flow over dividends
paid in prior years and the current
inflationary environment across the
geographies in which the investment
portfolio operates. The aim of the
Company is to continue to deliver future
capital growth and to target covering
of the future progressive dividend with
earnings and cash flow.
Growth
The Company’s portfolio increased
by over £300 million during the year,
through 12 investments. The value of
the Company’s investment portfolio,
including portfolio company leverage,
surpassed £1 billion, compared to
£100 million at IPO.
2.3 Investment Manager’s Report
continued
GovernanceStrategic Report Financial Statements Additional InformationOverview
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14 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
US
Diverse project portfolios spanning most
states:
• Northeastern US CHP – 4 states, 8 sites
• Onyx – 10+ states, 200+ sites
• Primary Energy – 1 state, 5 sites
• RED – 1 state, 100+ customers
• Spark US Energy Efficiency I & II – 36+ states,
250+ sites
• Bio Town – 1 state, 1 site
• SLI – 1 state, 1 site
• FES – 42 states, over 1,000 customers
• Turntide –– 42 states, over 1,000 customers
• 5,000+ motor systems installed
• Baseload – 2 sites
Diversification
Portfolio of projects spanning most
U.S. states, the UK, Europe and Asia
Diversification
Thanks to shareholder support for two
new equity issues during the year that
raised £350 million, the Investment
Manager was able to achieve further
scale and diversification for SEEIT by
geography, technology, industry and
counterparty, described further below.
Geographically, SEEIT added new
investments to its portfolio in the
United States, which now covers
nearly every State. In Europe, SEEIT
gained exposure to a new country,
Portugal, through its acquisition of
an operational green CHP system
and the establishment of a strategic
partnership with Sonae Group.
By technology, SEEIT expanded its
portfolio of lighting and green CHP
projects, so further diversifying
its supply chain and end markets.
In addition, it added exposure
to new markets by funding the
energy efficiency measures for the
first certified net zero multi-family
residential building in the United
States and entered the United States
biogas market, serving the Californian
low carbon transport fuels market
by financing the generation of green
gas upstream, reducing the fugitive
emissions from dairy farms. Post
period, SEEIT added new investments
in geothermal district energy, liquid
cooling for datacentres and rare-earth
free energy efficient motors.
2.3 Investment Manager’s Report
continued
14 | SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022
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SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 15
Spain
• Oliva Spanish
Cogeneration – 9 sites
Singapore
• Singapore Energy Efficiency – 5 sites
• Lycra – 1 site
UK
Wide geographical project coverage
across the UK:
• Huntsman Energy Centre
• Santander UK Lighting – c.530 locations
nationwide
• Moy Park Biomass – 86 boilers across
multiple locations nationwide
• Moy Park Lighting
• Citi Riverdale CCHP
• St. Barts CHP
• Smart Energy – 4 sites
• Kingspan Holywell Solutions
• Supermarket Solar – Targeting 20 locations
nationwide
• EV Network – Targeting 112 locations
nationwide
• GET Solutions – 15 locations nationwide
• Iceotope
Sweden
• Värtan Gas – over
50k
customers
GovernanceStrategic Report Financial Statements Additional InformationOverview
2.3 Investment Manager’s Report
continued
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 15
Japan
• Baseload – 1 site
Vietnam
• SOGA – 2 sites
Iceland
• Baseload – 3 sites
Ireland
• Tallaght Hospital
– 1 site
Portugal
• Capshare– 1 site
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16 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
Risk Management
The Investment Manager constantly
monitors the portfolio for risks, seeking
to identify and to actively mitigate
them. This process is set out further in
Section 3.3. Risk Management.
Credit risk mitigation is a key priority.
The Investment Manager has
sought to ensure that the majority
of the portfolio’s revenues are
associated with investment grade
clients (approx. 60% by investment
value of the investment portfolio
as at 31 March 2022) and, further,
that the investments are providing
essential energy services to essential
infrastructure assets or facilities, such
that they will continue to be needed
even if there is a change of ownership.
New investments during the year were
made with the objective of maintaining
a diversified portfolio of credit
counterparties. During the year, and
indeed since IPO, the Company has
not suffered from any material losses
from credit defaults in the underlying
investment portfolio.
The investment portfolio companies
benefit from over 300 full time
employees at portfolio level, in
addition to the team of over 45 at the
Investment Manager.
Performance risk mitigation is an
ongoing and active function of the
Investment Manager, aimed at
minimising the chances of operational
disruption causing a loss in revenues
to the Company from the underlying
investments. This involves ensuring
that appropriate operation and
maintenance teams and contracts
are in place for new investments,
that availability of energy services
is maintained at the levels required
by clients and that warranties or
guarantees as to performance from
suppliers are enforced if required.
at Indiana Harbor, and also to assist
the client to identify solutions at PCI,
which is a joint venture with Cleveland
Cliffs. At the same time, the Investment
Manager and the Primary Energy
management team will be engaging
with the client on the upcoming
re-contracting at Cokenergy. The net
incremental impact on the valuation as
at 31 March 2022 from the operational
challenges and opportunities at
Primary Energy was however limited to
less than £10 million.
The Company’s revenues from
underlying investments can also
be affected by development and
construction risks, including delays.
Most of the Company’s investments
are in the operational phase but in
some cases, such as Onyx’s portfolio,
they involve development stage
projects. During the financial year, the
impact of and expectations for delay to
some project developments increased
due to supply chain and other
Covid-related factors. Nonetheless,
the Onyx pipeline grew in volume
and quality during the year. The
Investment Manager worked closely
with the Onyx management team and
with its co-shareholder Blackstone
to pro-actively grow the pipeline, as
well as to strengthen and support
the management team, systems and
processes to ensure that risks can be
managed so that Onyx can be in the
best position to address a large and
growing market opportunity.
The Company’s revenues from the
underlying investment portfolio are
exposed to macro-economic factors,
including foreign exchange rate
fluctuations, and volatile inflation and
interest rate environments.
Financial risk mitigation during the
year included an effective foreign
exchange hedging strategy which
resulted in minimal impact on the
The Investment Manager has also
reviewed its insurance strategy across
the portfolio to ensure suitability and
value for money from the insurance
programme and continued level of
coverage across the projects.
The Company’s revenues from
underlying investments can be
affected, in some cases, by changes
in utilisation of assets by clients.
This can occur where investments
have ‘capacity-based’ revenues,
which are derived principally from
a contractual right of first despatch,
whereby an off-taker agrees to pay for
a volume of output to the extent that
it has demand for it. This differs from
revenues that are ‘availability-based,
regulated or pre-determined’, which
are derived principally from making an
investment’s asset available for use
and that do not depend substantially
on the demand for or use of the
project. Most of the Company’s
investments have availability-based,
regulated or pre-determined revenues
(approx. 77% by investment value
of the investment portfolio as at
31March 2022) but in some cases
they have capacity-based revenues
(approx. 18% by investment value
of the investment portfolio as at
31March 2022), such as Ironside and
PCI in the Primary Energy portfolio.
During the financial year, expectations
for future demand lowered at two of the
five investments in the Primary Energy
portfolio. One case was at Ironside with
the announcement in February 2022
of the idling of Indiana Harbor number
4 blast furnace (“IH4”). The other
case was at PCI in conjunction with
a planned transition to lower carbon
solutions over time. The Investment
Manager is working closely with the
Primary Energy management team
and the client, Cleveland Cliffs, to
re-configure the Ironside investments
to serve other blast furnace needs
2.3 Investment Manager’s Report
continued
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GovernanceStrategic Report Financial Statements Additional InformationOverview
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 17
Company’s NAV from fluctuations in
foreign exchange rates. In addition, the
Investment Manager sought, where
possible, opportunities to ensure that
any exposure to energy or commodity
prices are mitigated or passed through
under contracts over the medium
to long term. In certain areas of any
potential residual risk exposure, for
example on EU ETS costs in Spain,
the Investment Manager implemented
forward hedging to help manage the
rising cost of certificates and the short-
term impact on costs and cash flow.
Given the challenges faced across
Europe with rising gas prices, the
Investment Manager has also
implemented a short-term gas
hedging strategy across Vartan Gas
and Oliva Spanish Cogeneration to
manage the short-term impact of this
on the free cash flow within these
investments. The Investment Manager
has also established an internal gas
procurement division at Oliva Spanish
Cogeneration, which it considers is
valuable, to manage risks of fluctuating
prices and supply interruption, and
to optimise return through closer
and more efficient alignment with
the operations of the five natural
gas fuelled investments within Oliva
Spanish Cogeneration.
In addition to physical and financial
risk management, the Investment
Manager has also conducted
a comprehensive review of
cybersecurity across selected key
investments during the year. No
critical issues were flagged in the
review and the Investment Manager
has already commenced actioning
recommendations that have come out
of the exercise.
Value Protection and Creation
The Investment Manager seeks to
generate added value for shareholders
over the short, medium and long term.
Examples of short-term value creation
include the making of investments
on attractive terms. In the case
of new investments, this involves
discipline on purchase price and
upside opportunities. In the case of
operational assets, an example was
the incremental investment in Primary
Energy in September 2021 through
the exercise of an option previously
agreed on attractive terms. In the
case of construction phase assets,
an example was Biotown Ag, where
discount rates can be expected to
reduce as the investment moves from
construction to operational phase and
construction risk becomes sufficiently
mitigated.
Over the medium term, value protection
and creation can involve adding
capacity to drive revenues, rationalising
costs and/or otherwise improving
margins. Successful examples on
operational assets have included, in the
case of Oliva Spanish Cogeneration,
a combination of vertical integration
by in-sourcing fuel supply and forward
purchasing of EU ETS.
In regards to assets under
development or construction, the
Investment Manager has actively
supported platform companies
such as EV Network in structuring
and securing key contracts, for
example with bp pulse and ESB.
The Investment Manager had active
involvement in the negotiation of
material contracts with offtakers,
helping to accelerate roll-out of the
fast-charging network and negotiating
the right to convert a proportion of
development capital to equity on
pre-agreed terms with EV Network,
the company managing the roll-out.
The Investment Manager believes that
the exercising of this right to convert
will lead to additional value for the
Company.
In the case of Onyx Renewables, the
Investment Manager has worked
closely with its partner and co-
shareholder, Blackstone, to drive
additional pipeline generation and
to seek synergies across SEEIT’s
portfolio by making introductions to
other SEEIT portfolio companies, with
the objective of further enhancing
Onyx’s valuable position as one of
the top ten commercial and industrial
solar platforms in the United States.
Another example is RED, where
the Investment Manager has been
working to identify and invest in
accretive projects that provide
additional energy services to existing
and new customers, as well as
to identify new energy efficiency
initiatives.
Over the longer term, the Investment
Manager is focussed on business
strategy and the opportunity
for significant growth in certain
investments. A good example is
Vartan Gas, Stockholm’s gas grid. The
Investment Manager stated, at the
point of acquisition, its environmental
objective of increasing the biogas
content from 70% to 100% over time.
Currently, the biogas content is on
track at approximately 80%. The
Investment Manager believes that
there is additional environmental and
economic opportunity in leveraging
the network to offer additional
services, including electrical, as well
as to service new transport markets
beyond the existing bus networks. The
Investment Manager is also exploring
opportunities to expand downstream
into on-site combined heat and power
generation and, over the longer term,
the role that its distribution assets
might play in the distribution of
hydrogen. These upsides will however
take time, and in some cases years, to
realise.
2.3 Investment Manager’s Report
continued
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18 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
Organic Origination
A key feature of SEEIT’s growth and
competitive advantage has become
the follow-on investment opportunities
that arise from its existing portfolio,
through investment in assets or
commitments to platforms, or what
the Investment Manager refers to as
SEEIT’s “organic” pipeline. Examples
include the series of projects that
SEEIT has invested in under the rights
of first refusal or other arrangements
that it has with Sparkfund in the
US and the EV Network in the UK,
and the development of future
investment opportunities in onsite
solar generation that the Onyx
management team specialises
in. These arrangements generate
substantial volumes of deal flow, often
at pre-agreed rates of return, which
provides defensive characteristics in a
competitive environment.
Acquisitions in the Market
The Investment Manager has continued
to be selective in its approach to
acquisitions in the market. It has
continued to exercise pricing discipline
and has preferred to make investments
through a private or bilateral negotiation
with a vendor, rather than through a
competitive auction process competing
on price alone.
During the year the Investment
Manager secured significant new
investments in Red Rochester and
FES Lighting in the USA, Capshare
in Portugal, and incremental stakes
in Primary Energy and Oliva Spanish
Cogeneration. These investments
were all secured through private or
bilateral negotiations and added to
the investment portfolio to achieve
further diversification and enhance
the Company’s ability to deliver on its
stated objective.
The Investment Manager has seen
similarly high levels of investor appetite
inflation, energy and carbon price
volatility and most recently the Russian
invasion of Ukraine – seeking to
mitigate risks associated with external
circumstances is essential.
The Investment Manager’s team
consists of investment professionals
with experience in portfolio
management, asset and risk
management, managing construction
and operation and maintenance
(O&M) contracts and ESG
Management. Further information on
ESG Management can be found in
Section 2.4.
Focussing On Performance
The Investment Manager seeks
opportunities to improve margins
and returns, whether by increasing
capacity, unlocking new sources
of revenue, or addressing cost
inefficiencies. For example, in the
case of its Oliva Spanish Cogeneration
portfolio in Spain, the Investment
Manager put in place measures to
improve the cost efficiency of fuel gas
by bringing in house at investment
level the gas procurement. Other
examples included establishing
priorities to expand revenue streams
and increase biogas content in the
Värtan Gas investment in Stockholm
and actively developing pipeline
opportunities with Onyx. The
Investment Manager also seeks
opportunities for collaboration
between portfolio companies.
The portfolio is managed through a
combination of:
• Over 45 employees at SDCL, plus
over 300 full time employees at
the project level, predominantly
dedicated to “on the ground”
operations of the Company’s largest
assets in the UK, Europe and North
America; and
and therefore competition for district
energy assets in Europe and North
America and has therefore preferred
to adopt a strategic or buy-and-build
strategy as opposed to pursuing
existing platforms at high prices.
During and shortly after the period
end, the Company made its first
investments from the new allocation
of up to 3% of gross asset value to
developers, operators or managers
of energy efficiency projects, in
accordance with the modification of
the Company’s Investment Policy in
August 2021. These investments offer
the Company exposure to potentially
‘breakthrough’, although commercially
proven, technologies, together with
the opportunity to invest in a scalable
pipeline of projects. One of these
investments involved a US$10 million
investment in Turntide, a company that
manufactures energy efficient motors
that do not use rare earth minerals,
together with a negotiated opportunity
to invest up to US$100 million in
project opportunities. Another of these
investments involved an investment
of £3 million in a company that offers
an energy efficient cooling solution
for data centres, Iceotope, together
with a negotiated opportunity to invest
up to another £100 million in project
opportunities. Both investments were
made alongside several other high
quality institutional investors.
Active Asset Management of
Investments
In addition to overseeing the portfolio
and each investment, the Investment
Manager carefully considers emerging
geopolitical and macroeconomic
developments that may impact the
performance of the investments.
In the current market – made
increasingly volatile due to extenuating
circumstances such as the COVID-19
pandemic, supply chain disruptions,
2.3 Investment Manager’s Report
continued
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GovernanceStrategic Report Financial Statements Additional InformationOverview
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 19
• Coordinated full time presence
on-site, teams of professional
advisers and active day-to-day
involvement by the Investment
Manager's management team,
including a team of senior and
experienced professionals focused
solely on driving value through asset
management and improvement.
The Investment Manager typically
seeks to maintain influence and
control over investments through
board representation and to secure
protection through financing and
contractual arrangements. The
Investment Manager seeks to retain
the right to step in and replace
subcontractors in the event of
underperformance.
The Investment Manager is particularly
focused on maintaining health and
safety, reporting on and improving
ESG factors, enhancing the value of
its services, identifying and mitigating
risks, and developing the skills of
individuals involved in managing
investments in the portfolio. The
Investment Manager is in the process
of undertaking a periodic review of
its health and safety governance
programme to ensure it is consistent
across all investments and remains fit
for purpose as part of the management
of the overall investment portfolio.
Long-Term Contracted
Cash Flows
The Company derives its return on its
investments primarily through receipt
of contracted cash flows through the
operational life of the investments in the
portfolio. These are often calculated
upfront and can be based on a variety
of factors, including but not limited to:
heat and electricity availability, output
of heat and electricity, opportunity for
energy savings, or other energy related
services. Cash flows may however have
potential to be variable or fluctuating
for certain investments, if they rely on a
host counterparty’s demand for energy
or can be impacted by volatility in the
energy market. Certain investments also
assume that cash flows will continue
beyond the current contractual period
– further details are in Section 3.2
Valuation of Portfolio.
Once operational, investments provide
attractive levels of cash distributions
and running yield, and are designed to
achieve relatively high, contracted, and
predictable cash flows. The quality of
this running yield is enhanced through
investments with strong delivery
partners, where the risks involved in
implementation, operation, and the
associated revenues can be identified
and mitigated.
Based on an illustrative model of
projected future cashflows over
the next 15 years, the Investment
Manager believes that the Company
will generate sufficient cash to fully
cover dividends over the medium to
long-term, with excess cashflows after
dividend payments expected to be re-
invested to grow the Company’s NAV
in line with its target returns
15
.
The visibility of revenues derived from
the contracts at the operational phase
provides support for an attractive
and growing yield to be returned to
investors.
2.3 Investment Manager’s Report
continued
Distributable cash flow Dividends paid to shareholders
FY 2023
100,000
(£’000s)
50,000
0
FY 2025FY 2024 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 FY 2036 FY 2037
15
Note: The chart above is for illustrative purposes only, assuming a 14 year weighted average portfolio term and does not represent a forecast. There can be no
assurance that these cash flows will be met. The hypothetical cash flows do not take into account any unforeseen costs, expenses or other factors which may affect
the portfolio assets and therefore the impact on the cash flows to the Company. As such, the graph above should not, in any way, be construed as forecasting the
actual cash flows or actual returns from the portfolio
Projected Cash Flows
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20 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
The Solutions
The Problem
Most energy is wasted before reaching the
end user, and yet more energy is wasted
when what remains gets there …
Energy is wasted during:
• Conversion
• Generation
• Transmission
• Distribution
• End use
Bringing the energy
generation close to or
at the point of use and
as a result, reducing
associated generation,
transmission and
distribution losses
Cleaner
and More
Efficient
Supply
Providing solutions
and services reducing
the consumption of
energy at the point of
use
Point of Use /
Demand
Reduction
Connecting supply
with demand in the
most efficient way
compared to the
alternative solutions
Green Energy
Distribution
2.3 Investment Manager’s Report
continued
Portfolio Construction
SEEIT’s portfolio is diversified and allocated
between efficient supply, distribution, and
demand reduction. Selected examples are
shown in the Venn diagram below:
20 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
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SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 21
Cleaner and
More Efficient
Supply
Point of Use
/ Demand
Reduction
Green Energy
Distribution
Large-scale green
gas-to-grid project
in the US
District energy system
providing C&I utility
services over 1,200
acre Eastman Business
Park in the US
Energy efficiency
retrofit at one of
Ireland’s largest
public hospitals
Over 200 on-site
solar and storage
projects in the US
Portfolio of geothermal power
plants in Japan, Iceland, and
the US
5 cogeneration
projects for steel
industry in the US
Fast electric vehicle
charging stations for
operators in the UK
9 cogeneration
projects for olive
industry in Spain
Over 1,000 LED lighting
customers across 42 states in
the US
LED Lighting for 500+
Santander buildings in the UK
Stockholm’s gas grid, 70% biogas,
with over 50,000 customers
Strategic Report
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22 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
Exploring co-investment
opportunities
As set out in the Company's
investment policy, the Company may
co-invest alongside one or more
co-investors, which could include
investment companies, other financial
investors, or strategic investors in the
relevant sector.
The Investment Manager will consider
co-investment opportunities where it
believes such opportunities to be in
the best interests of the Company, for
instance, to manage the Company's
exposure to an investments or
counterparty and ensure compliance
with investment policy restrictions.
Outlook
Overall, SEEIT’s portfolio has grown
to scale and benefits from a critical
mass to support diversified income
and growth opportunities from a
combination of organic as well as new
investment.
The market background and outlook
provide tailwinds for energy efficiency,
given that energy efficiency is more
valuable than ever as a solution to
economic, climate and energy security
challenges.
SEEIT will continue to focus on
operational investments and to a
more limited extent, on investments
in the development or construction
phase that the Investment Manager
considers can be commissioned
within a short period of time
following commitment and at low
risk that project commissioning will
overrun (both in terms of time and
budget). The Investment Manager
will seek opportunities to improve
margins to achieve capital gain from
operational projects, as well as to seek
NAV growth through acquisitions
at attractive prices or through
development and construction stage
projects that can be commissioned
quickly to generate total return.
Against an outlook of heightened risks
to energy prices, energy security and
decarbonisation, energy efficiency
has a crucial role to play, with the
potential to offer large scale, proven,
rapid and cost-effective solutions. The
Investment Manager believes that
SEEIT is well placed to continue to
perform and grow.
2.3 Investment Manager’s Report
continued
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GovernanceStrategic Report Financial Statements Additional InformationOverview
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 23
2.4 ESG Management
Through its focus on energy efficiency
solutions, SEEIT’s investments provide
positive environmental outcomes
by reducing overall energy-related
greenhouse gas emissions. However,
in addition to environmental issues, the
Company has evolved its ESG approach
to integrate a broader range of material
social and governance issues centred
on key focus areas that maximise long
term value creation for both investors
and society.
SEEIT’s Responsible Investment Policy,
outlined above, sets out four focus
areas that provide the Company an ESG
lens with which to view its operations.
The Responsible Investment Policy acts
as the nexus of the Company’s ESG
considerations and is thus carried out
in SEEIT’s entire ESG management
process.
The Company’s ESG Management
process sets out how material ESG
risks and opportunities are identified,
systematically analysed and assessed,
monitored and managed throughout
the investment lifecycle of projects,
from initial screening and due diligence
to acquisition and asset management.
The Investment Manager’s focus
on developing and investing in
energy efficiency solutions signifies
the Company’s involvement in
decarbonising energy production and
thus facilitating net-zero. As part of that
commitment, the Investment Manager
strictly monitors, with the intention of
abating, the Company’s climate risks
and related impacts. This includes key
performance indicators which are used
to measure, monitor, and manage ESG
outcomes.
ESG Management
Responsible Investment Policy
The Company’s commitment to
facilitating net-zero is an integral
aspect to its Responsible Investment
Policy, the purpose of which is to
set out the Company’s approach to
responsible investment and incorporate
its considerations into its investment
decision-making and monitoring
processes. This policy applies to all
of the Company’s investments and is
overseen on a day-to-day basis by the
Investment Manager.
The Company’s focus in looking at the
material ESG issues in its investments
covers four principal areas:
The Company’s Responsible
Investment Principles govern the ESG
management process to make sure
that sustainability, and specifically the
energy transition, are incorporated into
the governance of our operations.
The Investment Manager is responsible
for implementing SEEIT’s ESG policy
under instruction and supervision of the
Board. The Investment Manager then
oversees all aspects of ESG policy and
implementation, including how ESG
considerations, such as climate-related
factors, are incorporated into processes
for investment appraisal and asset
management.
The investment appraisal process is
conducted in two main stages with
early identification of climate-related
and other ESG issues during the
first phase followed by detailed due
diligence to resolve any identified
concerns and confirm that climate-
related targets will be met during
project operation.
Climate-related performance targets
for all portfolio projects are monitored
and reported quarterly. This informs any
interventions and is reflected in quarterly
reporting to the Company’s Board.
1
Aiding the transition to a net-zero
carbon economy by maximising
energy efficiency through its
investment strategy and operations
2
Pro-actively minimising the
environmental footprint of operations
through managing negative impacts,
such as waste, biodiversity loss, and
emissions
3
Securing robust governance and
business integrity, including assessing
resilience to physical climate risk and
engaging as an active participant on
ESG with its delivery partners
4
Providing safe, diverse, and inclusive
environments for all workers, contractors
and members of the community who
use or encounter its projects
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24 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
Climate-Related Environmental Performance Data – year to 31 March 2022
The principal environmental performance data of SEEIT’s portfolio is set out in the tables below which cover, respectively:
portfolio energy generation and savings; Scope 1, 2 and 3 GHG emissions; and carbon intensity indicators.
Portfolio Energy Generation and Savings
IMPACT
Period Carbon
Savings
Renewable
Electricity
Generated
Renewable
Heat
Generated
Non-Renewable
Electricity
Generated
Non-
Renewable
Heat Generated
Energy
Efficiency
(Electricity)
Energy
Efficiency
(Thermal)
tCO2e MWh MWh MWh MWh MWh MWh
2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21
EU 167,191 160,898 195,723 195,910 - - 721,754 720,198 487,511 459,068 - - - -
Oliva Spanish Cogeneration 161,627 157,215 195,723 195,910 - - 721,754 720,198 487,511 459,068 - - - -
Värtan Gas 5,564 3,684 - - - - - - - - - - - -
USA 872,106 475,060 75,294 9,542 - -
1,417,920
791,983 718,082 14,739 188,076 51,571 - -
Onyx 29,030 3,679 75,294 9,542 - - - - - - - - - -
Primary Energy 716,651 451,280 1,259,942 786,422
Spark US Energy 15,719 20,101 - - - - - - - - 44,145 51,571 - -
Northeastern US CHP - - - - - - 4,860 5,561 10,212 14,739 - - - -
RED Rochester - - - - - - 153,118 - 707,870 - - - - -
FES Lighting 110,707 - - - - - - - - - 143,931 - - -
UK 16,597 18,335 745 1,993 36,031 33,580 43,867 30,446 51,079 34,085 38,831 40,229 3,691 4,101
Moy Park Biomass 9,660 9,003 - - 36,031 33,580 - - 2,882 2,050 - - - -
Santander UK Lighting 6,071 6,869 - - - - - - - - 24,610 26,008 3,691 4,101
Hunstman Energy Centre - - - - - - - - - - - - - -
Citi Riverdale CCHP (3,983) (2,075) - - - - 24,065 17,752 23,358 17,642 - - - -
Moy Park Lighting 3,020 3,242 - - - - - - - - 14,221 14,221 - -
St Barts CCHP 322 322 - - - - 12,531 11,003 12,111 11,003 - - - -
Supermarket Solar UK 161 448 745 1,993 - - - - - - - - - -
GET Solutions 1,346 526 - - - - 7,271 1,691 12,728 3,390 - - - -
ASIA 4,723 2,738 - - - - - - - - 11,562 6,702 - -
SEEIPL 4,723 2,738 - - - - - - - - 11,562 6,702 - -
TOTAL PORTFOLIO 1,060,617 657,031 271,762 207,445 36,031 33,580 2,183,541 1,542,627 1,256,672 507,892 238,469 98,502 3,691 4,101
Portfolio GHG Emissions
SCOPE 1 SCOPE 2 SCOPE 3
Direct Emissions Indirect Emissions Other Emissions
tCO2e MWh tCO2e MWh tCO2e
2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21
EU 366,020 363,787 2,794,579
2,804,691
2,487 1,996 14,646 11,258 8,210 3,806
Oliva Spanish Cogeneration 362,532 361,863 2,775,506 2,794,191 2,368 1,950 12,798 10,265 - -
Värtan Gas 3,488 1,924 19,073 10,500 119 46 1,848 993 8,210 3,806
USA 365,223 - 1,993,948 - 5,149 - 48,408 - 256,920 153,095
Onyx - - - - - - - - - -
Primary Energy 256,920 153,095
Spark US Energy - - - - - - - - - -
Northeastern US CHP - - - - - - - - - -
RED Rochester 365,223 - 1,993,948 - 5,149 - 48,408 - - -
FES Lighting - - - - - - - - - -
UK 6,162 2,257 74,090 50,122 - - - - 15,832 16,220
Moy Park Biomass 1,450 1,180 48,361 44,242 - - - - 801 827
Santander UK Lighting - - - - - - - - - -
Hunstman Energy Centre - - - - - - - - - -
Citi Riverdale CCHP - - - - - - - - 10,622 10,629
Moy Park Lighting - - - - - - - - - -
St Barts CCHP - - - - - - - - 4,409 4,764
Supermarket Solar UK - - - - - - - - - -
GET Solutions 4,712 1,077 25,729 5,880 - - - - - -
ASIA - - - - - - - - - -
SEEIPL - - - - - - - - - -
TOTAL PORTFOLIO 737,405 366,044 4,862,617 2,854,813 7,636 1,996 63,054 11,258 280,962 173,121
2.4 ESG Management
continued
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GovernanceStrategic Report Financial Statements Additional InformationOverview
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 25
Carbon Intensity Indicators
Weighted
Average Carbon
Intensity
Total Carbon
Emissions
(S1+2)
"Total Carbon
Emissions
(S1+2+3)"
Carbon
Footprint
Carbon
Intensity
Carbon
Intensity
Exposure
to Carbon-
Related Assets
Exposure
to Carbon-
Related Assets
tCO2e / £M
Value
tCO2e tCO2e
tCO2e / £M
Value
tCO2e / £M
Revenue
tCO2e / £M
Value
£ %
2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21
EU 3,010 3,116 368,507 367,167 376,717 370,973 404 664 1,879 - 3,010 3,116 210 222 23.1% 40.1%
Oliva Spanish
Cogeneration
2,969 3,116 364,900 365,177 364,900 365,177 400 661 1,863 - 2,969 3,116 123 117 13.5% 21.2%
Värtan Gas 41 - 3,607 1,991 11,817 5,797 4 4 16 - 41 - 88 104 9.6% 18.9%
Tallaght - - - - - - - - - - - - - - 0.0% 0.0%
Capshare - - - - - - - - - - - - - - 0.0% 0.0%
USA 1,909 - 370,372 - 627,292 25,879 406 - 5,184 - 1,909 - 420 201 46.1% 36.4%
Onyx - - - - - - - - - - - - - - 0.0% 0.0%
Primary Energy - - - - 155,910 24,152 - - - - - - 111 152 12.2% 27.5%
Primary Energy II - - - - 46,773 1,727 - - - - - - 33 46 3.7% 8.2%
Primary Energy III - - - - 54,237 - - - - - - - 78 - 8.5% 0.0%
Spark Fund - - - - - - - - - - - - - - 0.0% 0.0%
Tecogen - - - - - - - - - - - - 3 4 0.4% 0.6%
RED 1,909 - 370,372 - 370,372 - 406 - 5,184 - 1,909 - 194 - 21.3% 0.0%
FES Lighting - - - - - - - - - - - - - - 0.0% 0.0%
Biotown - - - - - - - - - - - - - - 0.0% 0.0%
SLI - - - - - - - - - - - - - - 0.0% 0.0%
UK 734 2,195 6,162 11,360 21,994 27,638 7 21 3,285 - 734 32 41 38 4.5% 6.9%
Moy Park Biomass 87 32 1,450 550 2,251 1,376 2 1 352 - 87 32 17 17 1.8% 3.1%
Santander UK Lighting - - - - - - - - - - - - - - 0.0% 0.0%
Hunstman - - - - - - - - - - - - 13 12 1.5% 2.1%
Citi Riverdale CCHP - - - - 10,622 10,669 -
- - - - - 3 3 0.3% 0.6%
Mo
y Park Lighting - - - - - - - - - - - - - - 0.0% 0.0%
St Barts - - - - 4,409 4,782 - - - - - - 1 1 0.1% 0.2%
Tesco - - - - - - - - - - - - - - 0.0% 0.0%
Smartenergy - - - - - - - - - - - - - 0 0.0% 0.0%
GET Solutions 647 2,163 4,712 10,811 4,712 10,811 5 20 2,933 - 647 - 7 5 0.8% 0.9%
EVN - - - - - - - - - - - - - - 0.0% 0.0%
Base Power - - - - - - - - - - - - - - 0.0% 0.0%
ASIA - - - - - - - - - - - - - - - 0.0%
SEEIPL - - - - - - - - - - - - - - 0.0% 0.0%
SOGA - - - - - - - - - - - - - - 0.0% 0.0%
TOTAL PORTFOLIO 5,653 5,311 745,041 378,527
1,026,003
424,490 817 685 10,349 0 5,653 3,148 671 461 73.6% 83.4%
Collecting energy and carbon data across the portfolio is currently a manual process which the Company is continuously
evolving and improving. Further enhancements to the reporting process during this financial year resulted in a change to
the historic data, principally to the re-classification between categories of the portfolio’s energy generation and savings. The
comparative data for 2021 is therefore based on the data the Company reported in its November 2021 ESG report rather
than the data reported in its Annual Report and Accounts for 31 March 2021.
2.4 ESG Management
continued
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26 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
2.4 ESG Management
continued
Mitigating our Climate Impacts
Calculating GHG Emissions
The Investment Manager is dedicated
to mitigating the Company’s climate
impacts through its ESG management
process, which gathers climate-
related performance data quarterly.
One of the most critical datasets
gathered from investments are their
relevant carbon emissions. The
Investment Manager calculates
carbon savings, renewable electricity
and heat generated, and energy
efficiency savings each reporting
period based on power usage data
recorded at the investment level.
The Investment Manager also
calculates Scope 1, 2 and 3 emissions
based on the guidance from the
Greenhouse Gas Protocol, which is
the most comprehensive and globally
standardised framework to measure
and manage GHG emissions.
Due to the operational and
organisational boundaries the
Investment Manager set with regards
to the Greenhouse Gas Protocol,
the Company considers the Scope
1 and 2 emissions of its underlying
investment portfolio to be its own
Scope 1 and 2, instead of considering
them as “Investments” under Scope 3.
This allows the Investment Manager
to take a critical look at the Scope 1,2
and 3 emissions of the Company’s
investments in order to create detailed
and strategic plans for abating them.
Net-Zero Strategy
The Investment Manager is
committed to aligning the Company’s
portfolio with the International
Energy Agency’s net-zero scenario,
recognising the importance of
decarbonising power generating
assets to follow the sectoral
decarbonisation pathway. The
Investment Manager’s ESG Team has
reviewed the Science Based Target
Initiative and created an internal
timeline and working group to analyse
decarbonisation scenarios for the
Company’s highest emitting assets.
The ESG Team continues to monitor
existing and potentially ‘breakthrough’
technologies and other innovative
solutions to reduce climate impacts of
the Company’s projects.
The Investment Manager also
considers the impact of future
investments on net-zero and will
continue to pursue projects that
facilitate the global energy transition.
FUEL COMBUSTION OUTSOURCED ACTIVITIES
Overview of scopes and emissions across a value chain
18
CO
2
CH
4
N
2
O HFCsSF
6
PFCs
SCOPE 2
INDIRECT
SCOPE 1
DIRECT
SCOPE 3
INDIRECT
PURCHASED ELECTRICITY
FOR OWN USE
COMPANY OWNED
VEHICLES
PRODUCT
USE
CONTRACTOR OWNED
VEHICLES
WASTE DISPOSAL
EMPLOYEE BUSINESS TRAVEL
PRODUCTION OF
PURCHASED MATERIALS
18 Picture: Greenhouse Gas Protocol
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GovernanceStrategic Report Financial Statements Additional InformationOverview
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 27
2.4 ESG Management
continued
Climate Risk Management and
Resilience of Strategy
SEEIT considers the resilience of
its strategy in terms of the impact
of climate-related risks on its
portfolio and on the prospects for
new acquisition or development
opportunities in the future, on its
pipeline.
In terms of the investment portfolio,
the Investment Manager is
considering how different climate-
related scenarios would impact
investments and related revenues
and costs over time. This includes
consideration of both transition
risks and physical risks which
are assessed during investment
appraisal and on an on-going basis
as part of asset management. The
scenarios considered reflect general
assumptions about short-, medium-
and long-term climate-related impacts
under a range of scenarios and are
assessed in terms of project specific
impacts.
This approach enables SEEIT to
identify climate-related risks relevant to
each project against which mitigation
measures and plans are formulated.
In line with evolving Task Force on
Climate-Related Financial Disclosure
(TCFD) guidelines, the Investment
Manager’s ESG team is now working
to model the long-term climate risks
associated with SEEIT’s investments
depending on specific IPCC scenarios
and will suggest specific actions to
mitigate the Company’s risk exposure.
For new acquisition and development
opportunities the Company considers
the impact of climate-related scenarios
in making decisions about the
technologies and markets to focus on.
Whilst this involves commitments to
deploy resources to new regions and to
develop new technology partnerships
the Company can adapt its business
development strategy in the medium
to long term to take account of impacts
suggested by climate-related scenario
analysis as they evolve.
For more information on risks and risk
management, see Section 3.3 Risk
Management.
Task Force on Climate-Related
Financial Disclosures (“TCFD”)
Guidelines
The Investment Manager and the
Company supports the importance
of adhering to TCFD to maintain
consistent climate-related financial
risk disclosures and indicate the
opportunities for investments related
to the energy transition. The TCFD
regulations are not yet mandatory for
the Company and as such, this section
reflects the work undertaken so far
by the Company on a voluntary basis.
Sustainability and climate are integral
aspects of the Company’s overall
operations, as reflected in many of the
disclosures outlined in this report and
mapped out below for reference.
In the year ahead the Investment
Manager will continue to progress
relevant matters as the Company
prepares to fully adopt TCFD.
SDCL is a signatory of the UN PRI
SEEIT supports the
recommendations of the Task
Force on Climate-related Financial
Disclosures’
LSE Green Economy Mark – SEEIT
carries the Green Economy Mark
that recognises equity issuers with
green revenues of 50% or more.
Boutique investment
manager of the year
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28 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
Recommendation Disclosure
Governance
Describe the Board’s oversight of climate-
related risks and opportunities.
Climate-related considerations are always included when reviewing or setting strategy, major plans of
action, risk management policies, annual budgets and business plans as well as setting the performance
objectives of the Company.
The Company’s board is informed about climate related issues affecting the portfolio and potentially
impacting SEEIT’s strategy and business prospects at least quarterly, through regular reporting by the
Investment Manager for discussion during quarterly board meetings. Additional matters arising outside
of the regular reporting cycle which the Investment Manager considers require Board notification and/
or a decision on actions will be notified to the Board immediately.
Describe management’s role in assessing
and managing climate-related risks and
opportunities.
The Investment Manager is responsible for implementing SEEIT’s ESG policy under instruction and
supervision of the Board.
Details are located above in Section 2.4 ESG Management.
Strategy
Describe the climate-related risks and
opportunities the organisation has
identified over the short, medium, and
long term.
As a company investing primarily in investments that improve sustainability through reduced use of
energy or utilisation of renewable energy resources, risk and opportunity are assessed primarily in
terms of the long-term capability of those investments to deliver sustainable solutions while taking
account of possible policy changes or potential technology improvements whilst maintaining net
income to deliver financial returns.
Details on climate-related opportunities and climate-related risks are located in Section 3.3. Risk Management
Describe the impact of climate
related risks and opportunities on the
organisation’s businesses, strategy, and
financial planning.
The overall impact of the climate related issues affecting the Company is generally positive due to
the fact its investments are designed to provide lower-emission solutions to climate-related issues.
Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C or
lower scenario.
The Company considers the resilience of its strategy in terms of the impact of climate-related risks
on its portfolio and on the prospects for new investments or development opportunities in the future.
Risk Management
Describe the organisation’s processes
for identifying and assessing climate-
related risks.
Identifying risks is a key part of the Investment Manager’s due diligence process for each potential
investment. The Investment Manager currently takes the obvious climate associated risks into
consideration during due diligence but is onboarding a new process to consider the diverse array of
risks more quantitatively.
Describe the organisation’s processes
for managing climate-related risks.
The ESG due diligence process includes engagement and dialogue with investee companies’
management or project developers to discuss a wide range of ESG matters which will inform both
the due diligence process and the development of each asset management plan. The Investment
Manager will take an active management approach when managing climate-related risks, and is
finalising a strategy to do so across the portfolio.
Describe how processes for identifying,
assessing, and managing climate-
related risks are integrated into the
organisation’s overall risk management
Climate-related and other ESG considerations are reviewed, analysed and managed as an integral
part of the Company’s overall risk management procedures for investment appraisal and investment
management. The Investment Manager plans to further refine its process for incorporating climate-
related risks into its overall risk management.
Metrics and Targets
Disclose the metrics used by the
organisation to assess climate related
risks and opportunities in line with its
strategy and risk management process.
The Company reports on a variety of climate-related metrics related to energy consumption, savings,
and emissions – in addition to overall ESG models.
Details on the relevant metrics are laid out in the tables above in Section 2.4 ESG Management and
Section 2.6 Company Key Performance Indicators
Disclose Scope 1, Scope 2, and, if
appropriate, Scope 3 GHG emissions,
and the related risks.
The Company reports on its Scope emissions in accordance with the guidelines set out in the
Greenhouse Gas Protocol.
Details on our emissions data are above in Section 2.4 ESG Management.
Describe the targets used by the
organisation to manage climate-related
risks and opportunities and performance
against targets.
The Company seeks to measure, monitor, and report climate related KPIs that are consistent with
relevant international standards, both statutory and voluntary, for assessing the sustainability of the
Company’s activities.
Details on these KPI’s are in the tables above in Section 2.4 ESG Management and Section 2.6
Company Key Performance Indicators
2.4 ESG Management
continued
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SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 29
GovernanceStrategic Report Financial Statements Additional InformationOverview
2.5 Investment Portfolio Summary
Investment Update
During the financial year, SEEIT
successfully increased the scale of its
portfolio, investing over £300 million in
new investments and commitments.
The Investment Manager has actively
sought to make investments in a wider
range of technological solutions for
energy efficiency. For example, since
31 March 2021, SEEIT has made
investments focused on supply and
distribution and demand reduction
involving:
• Geothermal district energy
• Biomass (forest waste) fuelled
combined heat and power
• Green gas (agricultural waste)
combined heat and power and gas
grid injection
• Net zero carbon residential homes
• Industrial motors, controls and
batteries
• Datacentre cooling
The Company started the year with
approximately £126 million of cash
and no revolving credit facility (“RCF”)
debt drawn. The available cash and
RCF was used to acquire the Red
Rochester and SOGA investments
for c. £140 million, commit an initial
c. £10 million out of a total of £22
million to Biotown, pay the fourth
quarterly dividend in June 2021 and be
available for general working capital
purposes. In September 2021 the
Company published a new prospectus
with a twelve-month share issuance
programme and completed a £250
million capital raise shortly thereafter.
The proceeds were partially used to
repay approximately £70 million of
debt under the RCF held by SEEIT
Holdco, and £34 million was used
to acquire the remaining 35% stake
in the Primary Energy portfolio in
September 2021. The remainder was
utilised, committed or allocated to new
investments, including FES Lighting
and Sustainable Living Innovations,
and follow-on investments, including
EV Network, Onyx and Spark US
Energy Efficiency II.
A further £100 million capital raise
was concluded in March 2022 (see
Financing Update below) and the
proceeds supported the Company’s
c.£32 million investment in Capshare
and allocations to follow-on investments
and opportunities, including Turntide,
Baseload and Iceotope.
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30 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
SOGA RED Tallaght Hospital Biotown
Investment/
Commitment Date
April 2021 April 2021 May 2021 July 2021
Type
New New New New
Location
Singapore & Vietnam USA Ireland USA
Commitment
c. £2m c. £139m c. £6m
17
£22m
18
Lycra Primary Energy
Sustainable Living
Innovations FES Lighting
Investment/
Commitment Date
September 2021 September 2021 October 2021 November 2021
Type
New Follow-on New New
Location
Singapore USA USA USA
Commitment
c. £3m
19
c. £34m c. £4m c. £16m
Capshare EV Network Onyx
Spark US Energy
Efficiency II
Investment/
Commitment Date
March 2022 Various in period Various in period Various in period
Type
New Follow-on Follow-on Follow-on
Location
Portugal UK USA USA
Commitment
c. £32m c. £8m c. £21m c. £11m
Investment activity since 31 March 2021
During the Financial Year Ended 31 March 2022
Over £300 million in new investments and commitments.
2.5 Investment Portfolio Summary
continued
30 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
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Baseload Turntide Iceotope
Investment/
Commitment Date
May 2022 May 2022 June 2022
Type
New New New
Location
Sweden USA UK
Commitment
c. £21m
20
c. £8m c. £3m
Biotown Onyx
Spark US Energy
Efficiency II
Investment/
Commitment Date
Various in period Various in period Various in period
Type
Follow on Follow on Follow on
Location
USA USA USA
Commitment
c.£1m c.£18m c.£3m
Tallaght Hospital EV Network FES Lighting
Investment/
Commitment Date
Various in period Various in period Various in period
Type
Follow on Follow on Follow on
Location
Ireland UK USA
Commitment
c.£2m £6m c.£2m
After the Financial Year Ended 31 March 2022
17
A total commitment of £6
million of which £1.4 million
had been deployed by 31
March 2022
18
A total commitment of £22
million of which £14 million
had been deployed by 31
March 2022
19
A total commitment of £3m
which £0.3m had been
deployed by 31 March 2022
20
A total commitment of £21m
not yet drawn
GovernanceStrategic Report Financial Statements Additional InformationOverview
Over £300 million in new investments and commitments.
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 31
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32 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
2.5 Investment Portfolio Summary
continued
Portfolio Analysis
The below table provides a summary of the Company’s total portfolio as at 31 March 2022:
Project Phase Customer Industry Technology Overview
Ireland
Tallaght Hospital Construction Tallaght Hospital Healthcare: Hospital Combined Heat and
Power (CHP), Heating,
Ventilation, and Air
Conditioning (HVAC),
Building Management
Systems (BMS) and
other Energy Efficiency
(EE) solutions
Energy efficient measures for one of
Ireland’s largest hospitals, resulting
in more efficient generation of power
onsite as well as overall reduction in
consumption of power on-site
Portugal
Capshare Operational Sonae Arauco PT
and Portuguese
energy market
Industrial:
Manufacturing
Biomass Onsite efficient generation of renewable
heat and electricity
Spain
Oliva Spanish
Cogeneration
(includes nine
investments)
Operational Spanish energy
market and olive
processing plants
Industrial: Food
production
CHP, biomass and
olive processing
plants
Onsite efficient generation of heat
and power to support the process of
recycling waste from olive oil production
for energy production as well as
secondary olive oil products
Sweden
Värtan Gas
(consisting of
Gasnätet and
Stockholm Gas)
Operational 54,000+
customers
Utility: Biogas and
natural gas supply
Biogas and natural
gas pipeline
Gas supply and distribution to
buildings and transport across
Stockholm, with high levels of system
efficiency
United States
Onyx (includes five
investments)
Operational,
construction and
development
pipeline
70+ off takers
across 200+
assets
Public and private
sector
Solar and energy
storage
Onsite solar and battery energy storage
providing efficient renewable power for
public and private sector customers
Primary Energy
(includes five
investments)
Operational Cleveland-Cliffs
and US Steel
Industrial: Steel
production
CHP, Steam turbines,
and pulverized coal
injection plant
Recycling of waste gases from steel
processing as well as other fuel sources
to produce onsite energy to the customer
sites that is more efficient and cleaner than
the grid
Spark US Energy
Efficiency I
Operational,
construction and
development
pipeline
Various Commercial: Various Lighting and energy
efficiency measures
Multi technology energy efficiency
measures in buildings for small and
medium-sized companies, resulting in
decrease in consumption of energy onsite
Spark US Energy
Efficiency II
Operational,
construction and
development
pipeline
Various Commercial: Various Lighting and energy
efficiency measures
Multi technology energy efficiency
measures in buildings for small and
medium-sized companies, resulting in
decrease in consumption of energy onsite
RED Rochester Operational 100+ companies Industrial: various Multiple energy and
utility services
Onsite efficient power and heat generation
and distribution, as well as energy, water
and waste management for industrial and
commercial companies located within a
large commercial and industrial business
park
Biotown Operational
and expansion
construction
NIPSCO, a public
utility
Utility: Biogas and
green gas supply
Biogas fired energy
generation
Conversion of agricultural and food waste
into biogas for energy generation and
green gas supply
Northeastern US
CHP
Operational Various (eight) Commercial: Various CHP Onsite efficient generation of power and
heat for the public and private sector
customers
SLI Construction Sustainable Living
Innovations
Residential Direct energy
efficiency systems,
solar and control
systems
Direct energy efficiency systems, solar
and control systems in the building, which
collectively support the Net Zero Energy
designation of 303 Battery Street building
in Seattle
FES Lighting Operational,
development
pipeline
Various Commercial: Various Lighting Energy efficiency though lighting retrofits
for a range of mainly small and medium
sized companies, resulting in decrease
in energy consumption onsite
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GovernanceStrategic Report Financial Statements Additional InformationOverview
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 33
2.5 Investment Portfolio Summary
continued
Project Phase Customer Industry Technology Overview
United Kingdom
Moy Park
Biomass
Operational Moy Park Industrial: Food
Production
Biomass boilers Onsite and efficient generation of
renewable heat
Santander UK
Lighting
Operational Santander plc Commercial: Banking Lighting and energy
efficiency measures
Energy efficient measures for buildings
including more efficient lighting,
resulting in decrease in consumption
of energy across the customer’s site
Huntsman
Energy Centre
Construction Huntsman Industrial:
Polyurethane
manufacture
Steam raising boilers Recycling and reduction of waste
gases from chemical manufacturing
to produce onsite and efficient energy
to the site
Citi Riverdale
CCHP
Operational Citigroup Data centres:
Banking
Combined Cooling,
Heat and Power
(CCHP)
Onsite and efficient combined cooling
and power for a data centre
Moy Park
Lighting
Operational Moy Park Industrial: Food
Production
LED lighting Efficient lighting, resulting in decrease
in consumption of energy across the
customer’s estate
GET Solutions Operational Holiday Inn and
Crowne Plaza
hotels
Travel: Hotels CHP Onsite and efficient generation of heat
and power
St Barts CCHP Operational St
Bartholomew’s
Hospital
Healthcare: Hospital Combined Cooling,
Heat and Power
(CCHP)
Onsite and efficient power, heating and
cooling for England’s oldest hospital
Supermarket
Solar UK
Operational,
construction and
development
Tesco plc Commercial: Retail Rooftop solar Onsite solar projects providing efficient
renewable power to the customer’s
sites
EV Network Construction Charge point
operators
(e.g. BP
Chargemaster,
ESB Energy)
EV Infrastructure Electric vehicle
charging stations
Rapid and ultra-fast EV charging
stations, providing enhanced system
efficiency compared to petrol or diesel
Kingspan
Holywell
Solutions
Operational Kingspan Industrial:
Manufacturing
Lighting and energy
efficiency measures
Energy efficient measures for building
materials manufacturing site, resulting in
decrease in consumption of energy on
the customer site
SmartEnergy Operational Various Industrial: Various CHP, HVAC, BMS and
other EE solutions
Energy efficient measures for small and
medium-sized businesses, resulting in a
decrease in consumption of energy on
customer sites
Singapore
SEEIPL (includes
three projects)
Operational Various Industrial: Various Chillers and
compressors
Energy efficient chillers and
compressors, resulting in decrease in
consumption of energy on customer
sites
Lycra Construction The LYCRA
Company
Industrial:
Manufacturing
Chillers Energy efficient chillers, resulting in
decrease in consumption of energy on
customer sites
SOGA (located in
Vietnam)
Operational Various Industrial:
Manufacturing
Rooftop solar Onsite solar projects providing efficient
renewable power to the customer sites
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2.5 Investment Portfolio Summary
continued
Portfolio Diversification by Project
Portfolio Diversification by Technology
Project Exposure
As at 31 March 2022
Technology Exposure
As at 31 March 2022
Project Exposure
As at 31 March 2021
Technology Exposure
As at 31 March 2021
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Red Rochester
Primary - Northlake
Primary - PCI
Primary - Cokenergy
Oliva - Cepuente
Capshare
Remainder of portfolio
Onyx Obsidian Portfolio
Oliva - Celinares
Cash
Värtan Gas
Primary - Portside
10% 8%18% 4% 22% 16%
3%
3% 2%
3% 2%
8%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Värtan Gas
Onyx Operational Portfolios
Primary - PCI
Onyx Cons & Dev Portfolio
Oliva - Cepuente
Oliva - Biolinares
Remainder of portfolio
Primary - Cokenergy
Oliva - Colinares
Cash
Primary - Northlake
Primary - Portside
11% 10%15% 4% 22% 21%
3%
3% 3%
3% 3%
4%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Various/otjers
Gas Distribution Networks
Remainder of portfolio
CHP (Others)
Cash
Biomass
Solar & Storage
Industrial process efficiency solutions
CHP (Natural Gas)
Lighting
17% 12%18% 8% 16%6% 4%4%
3%
12%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
CHP (Others)
Industrial process efficiency solutions
Remainder of portfolio
Solar & Storage
Cash
Biomass
Gas Distribution Networks
Lighting
CHP (Natural Gas)
Gas boilers
15% 15%16% 8% 21%7%
1%
3%
2%
11%
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SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 35
2.5 Investment Portfolio Summary
continued
GovernanceStrategic Report Financial Statements Additional InformationOverview
Portfolio Diversification by Geography
Portfolio Diversification by Investment Stage
Country Exposure
As at 31 March 2022
Lifecycle Stage
As at 31 March 2022
Country Exposure
As at 31 March 2021
Lifecycle Stage
As at 31 March 2021
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
US Europe
UK
Asia
Cash
55% 16%6%
1%
22%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
US Europe
UK
Singapore
Cash (held in UK)
39% 21%8%
0.3%
32%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Operating Construction
Development
Cash
73% 16%10%
1%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Operating Construction
Development
Cash
65% 21%7% 7%
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36 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
The Company sets out below its financial, operational and climate-related key performance indicators (KPIs) that it uses
to track the performance of the Company over time against the objectives as described in the Strategic Report. The
Board believes that the KPIs detailed below provide shareholders with sufficient information to assess how effectively the
Company is meeting its objectives. The Board monitors these KPIs on an ongoing basis.
2.6 Company Key Performance Indicators
Financial KPIs
108.4p 117.5p 5.62p
Net Asset Value (“NAV")
per share (pence)
Share price
(pence)
Dividends per share
(pence)
(31 March 2021: 102.5p) (31 March 2021: 112.0p) (31 March 2021: 5.5p)
Definition Definition Definition
NAV divided by number of shares outstanding
as at 31 March
Closing share price as at 31 March Aggregate dividends declared per share in
respect of the financial year
Commentary Commentary Commentary
NAV has increased compared with the prior
year due to earnings per share of 10.0 pence
exceeding the dividend paid of 5.6 pence –
see Section 3.1 Financial Review.
The share price has generally continued to
grow steadily during the year despite market
volatility
The dividend increased year on year due
to predictability of cash generation from
portfolio plus new investments made
previously. The Company met its stated
dividend targets for the years ended
31March 2021 and 31 March 2022.
1.19x 11.2% 1.00%
Dividend cash cover
(x)
Total Return on NAV basis in the
year (%)
Ongoing charges ratio
(%)
(31 March 2021: 1.17x) (31 March 2021: 8.0% (31 March 2021: 1.13%)
Definition Definition Definition
Operational cash flow divided by dividends
paid to shareholders during the year
NAV growth and dividends paid per share in
the year
Annualised ongoing charges (i.e. excluding
investment costs and other irregular costs)
divided by the average published undiluted
NAV in the period, calculated in accordance
with AIC guidelines
Commentary Commentary Commentary
The target was for net operational cash inflow
to fully cover dividends paid. The Company
met its target for the years ended 31 March
2021 and 31 March 2022.
NAV growth in the year (described above) resulted
in strong financial performance for the year. In both
years the Company exceeded its target of 7-8% p.a.
(based on IPO price).
Reduced year on year by benefitting from the
growth in NAV and therefore spreading costs
across a larger base. See Section 3.1 Financial
Review.
Operational KPI
14.8 49%
Weighted average investment life
(years)
Largest five investments as a %
of NAV (%)
(31 March 2021: 13.4) (31 March 2021: 44%)
Definition Definition
Weighted average number of years to be
remaining in investment contracts
Total value of five largest investments divided by
the sum of all investments held in the portfolio
together with any cash, calculated at year end
Commentary Commentary
Increased due to new investments made during
the year
Target is to maintain good portfolio
diversification, achieved in both financial years.
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GovernanceStrategic Report Financial Statements Additional InformationOverview
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 37
2.6 Key Performance Indicators
continued
Climate-Related KPIs
Climate-related reporting
The Company seeks to measure, monitor and report climate-related KPIs that are consistent with all relevant international standards,
both statutory and voluntary, for assessing the sustainability of the Company’s activities. As well as TCFD, these include the
Streamlined Energy and Carbon Reporting (“SECR”) and the requirements under SFDR and EU Taxonomy Regulations.
The Company’ aim is that its investments should contribute to substantial climate change mitigation and that its
performance against the measured KPIs should be used to demonstrate if this aim has been achieved.
1,026,004 tCO2 745,041tCO2 3,748,007
21,994
tCO2 in the UK 6,162 tCO2 in the UK 131,722 in the UK
Total Carbon Emissions
(Scope 1, 2 and 3)
Total Carbon Emissions
(Scope 1 and 2)
Energy consumption used to
calculate above emissions
(MWh)
(31 March 2021: 541,161 tCO2, of which
18,477 tCO2 was in the UK)
(31 March 2021: 368,041 tCO2, of which
2,257 tCO2 was in the UK)
(31 March 2021: 2,291,542, of which 100,102
was in the UK)
Definition Definition Definition
SEEIT follows the Greenhouse Gas Protocol
definition of Scopes:
- Scope 1 emissions are direct emissions from
owned or controlled sources.
- Scope 2 emissions are indirect emissions
from the generation of purchased energy.
- Scope 3 emissions are all indirect emissions
(not included in scope 2) that occur in
the value chain of the reporting company,
including both upstream and downstream
emissions.
Total Scope 1 and 2 Carbon Emissions Underlying global energy use in MWh
Commentary Commentary Commentary
Increase driven by addition of new
investments in the year
Increase driven by addition of new
investments in the year
Increase driven by addition of new
investments in the year
817 74%
Carbon Footprint Exposure to Carbon-Related
Assets
(31 March 2021: 685) (31 March 2021: 83%)
Definition Definition
Total Scope 1 and 2 Carbon Emissions / Total
portfolio value (tCO2e/£M)
Percentage of portfolio assets by asset
value tied to the energy and utilities sector
(excluding renewable)
Commentary Commentary
The increase is mainly due to the addition of
RED to the portfolio, which is a large user of
natural gas
Decrease in exposure to carbon related
assets reflects an overall move towards lower-
carbon assets over the last year.
The calculation approach in each case follows several
key principles, to maintain a consistent approach. The
principles are:
1. Where possible to capture fundamental data
regarding project performance. Examples of this data
include energy generated (kWh) and fuel consumed
(kWh);
2. Use publicly available emissions factors from
government sources specific to the project location;
3. Where a project was commissioned, or purchased,
by SEEIT mid-way through the reporting period, only
the portion of the period after commissioning or
purchase date should be recognised; and
4. Where SEEIT owns less than 100% of a project, the
total project savings should be reduced pro-rata with
the ownership percentage.
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38 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
Section 172: Promoting the success of the Company
The Directors consider, both individually and together, that they have fulfilled their duties under Section 172 of the
Companies Act 2006 to act in good faith and to promote the success of the Company for the benefit of shareholders and
stakeholders as a whole (having regard to the stakeholders and matters set out in Section 172 of the UK Companies Act
2006 (‘Companies Act’)) in the decisions taken during the year, as set out below:
Section 172(1) Description
(a) the likely consequences of any
decision in the long-term
The aim of the Board is always to ensure the long-term sustainable success of the Company and,
therefore, the likely long-term consequences of any decision are a key consideration. During the year
under review, the Board believe they acted in good faith, with a view to promoting the Company’s long-
term sustainable success and to achieving its wider objectives for the benefit of its shareholders as a
whole, having had regard to our wider stakeholders and the other matters set out in Section 172 of the
Companies Act. See the rest of this Section 2.7 for the Board’s decisions on capital raising, approving
dividends and the oversight and monitoring of the Investment Manager’s activities in relation to risk and
portfolio management for the Company.
(b) the interests of the company’s
employees
As a closed-ended investment company, the Company does not have any direct employees. However the
interests of employees in project companies within the investment portfolio are considered when making
decisions for the Company’s benefit, such as promoting positive health and safety cultures and adherence
to Covid-19 regulations.
(c) the need to foster the company’s
business relationships with suppliers,
customers and others
The Board’s approach is described under “Stakeholders” below.
(d) the impact of the company’s
operations on the community and the
environment
The Board places a high value on the monitoring of ESG issues and sets the overall strategy for ESG
matters related to the Company. The Board provides oversight for the managing of climate-related risks
for the group by the Investment Manager, including transparent disclosure of these risks, and reviews
mitigating actions taken by the Investment Manager to reduce or eliminate them where possible. A
description of the Company’s Responsible Investment Policy is available on the Company’s website
and further detail on climate-related risks is set out in Section 2.4 ESG Management and Section 3.3
Risk Management.
(e) the desirability of the company
maintaining a reputation for high
standards of business conduct
The Board’s approach is described under “Culture and Values” below. For further information please
also see Section 2.4 ESG Management.
(f) the need to act fairly as between
members of the company
The Board’s approach is described under “Stakeholders” below. For further information please also
see Section 4.3 Corporate Governance Statement.
The issues, factors and stakeholders the Directors consider relevant in complying with Section 172(1) (a) to (f) are described
in detail below. The Investment Manager provides updates to the Board at quarterly meetings on the above items, including
the rationale behind investment decisions, its relationships with the Company’s shareholders and key stakeholders and the
Company’s reputation in the broader market. This is further supported by reports from a number of advisers such as the
Company’s broker and financial PR consultant.
Further, the Companies (Miscellaneous Reporting) Regulations 2018 require Directors to explain how they have discharged
their duties under Section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of
“members as a whole”. The Board’s approach is described under “Stakeholders” below.
Stakeholders
The Board challenges the Investment Manager to balance the interests and concerns of all stakeholders effectively and
to best address these at all stages to ensure continuing positive stakeholder engagement. The Company is committed to
maintaining good communications and building positive relationships with all stakeholders. To achieve this, the Company,
either directly or via the Investment Manager, interacts with a variety of stakeholders important to its success. The Company
seeks to achieve the correct balance between engagement and communication, whilst working within the limitations of
what can be disclosed to the various stakeholders with regards to maintaining confidentiality of market and/or commercially
sensitive information.
2.7 Stakeholders & Section 172
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SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 39
2.7 Stakeholders & Section 172
continued
The Company has identified the following key stakeholders:
• Shareholders;
• The Investment Manager;
• The Company’s key service providers;
• The Company’s investment business partners; and
• Lenders at project level and corporate level
Why they are important Engagement
Shareholders
As the Company is an investment
trust, its shareholders are also its main
stakeholders. Continued shareholder
support and engagement are critical to
the existence of the Company and to the
delivery of the long-term strategy
The Company currently has over 600 shareholders.
Through the Company’s engagement activities, it strives to obtain investor endorsement for the
Company’s strategic objectives and how they are executed.
During the year, the Board reviewed and challenged the Investment Manager’s pipeline of opportunities
and authorised the Prospectus and Share Issuance Programme published on 2 September 2021.
Following extensive engagement with shareholders, the Company completed successful capital raises
in September 2021 and March 2022, the result of which significantly enlarged the shareholder base and
increased liquidity in the Company’s shares.
The Company also engaged, directly or via the Investment Manager, with shareholders in the year
through meetings, market announcements and various written materials, including the Company
Factsheet available on the Company’s website.
Following consultation with shareholders in 2021 via the Investment Manager, the Board recommended
minor changes in the investment policy which it believes will assist the Investment Manager in achieving
the Company’s investment objective. These changes were approved at the 2021 AGM.
At every Board meeting, the Directors receive updates on the share trading activity, share price
performance and any shareholders’ feedback, as well as any mention of the Company or other
comments in the press and other publications.
Through a combination of the above engagement activities, clear reporting and shareholder support,
the Board has been able to ensure the Company’s investment pipeline and fundraising programme have
been aligned with the investment strategy and that funds have been available to secure the current asset
portfolio. The Company will continue to engage actively with shareholders in future.
The Investment Manager
The Investment Managers’ performance
is critical for the Company to deliver
its investment strategy and meet its
objectives.
Constructive and ongoing engagement with the Investment Manager is important to ensure that the
expectations of shareholders are being met and that the Board is aware of any challenges to the
investment strategy or management of the Company’s portfolio of investments.
The Company conducts both ongoing and an annual review of the Investment Manager’s performance
and terms of engagement and feedback is provided after such reviews. The most recent annual review
took place in March 2022 and written feedback was given to the Investment Manager.
The Board and the Investment Manager maintain an open and ongoing dialogue on key issues facing
the Company with a view to ensuring that key decisions relating to, inter alia, potential investments,
portfolio performance and the Company’s investment strategy are aligned with achieving long-term
value for shareholders. This open dialogue takes the form of at least quarterly scheduled board
meetings and frequent informal contact, as appropriate to the subject matter.
Key service providers
The Company has a number of other
key service providers, each of which
provides a vital service to the Company
and ultimately to its shareholders. The
Company’s key service providers are the
Administrator and Company Secretary,
Auditor, Corporate Broker, Depositary
and Registrar.
During the year, the Company conducted a review of the terms of all key service provider engagements
along with their fee levels to ensure an appropriate level of support was being provided to the
Company. The Directors provided specific feedback to key service providers with the aim of ensuring
the Company receives the appropriate service. The Company seeks to ensure a two-way engagement
between the Board and key service providers on service delivery expectations and feedback on
important issues experienced by service providers during the year.
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40 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
Why they are important Engagement
Investment business partners
The Company has various business
partners including, crucially the
counterparty hosts to whom the
Company’s investments are providing
critical energy services to as well
as sub-contractors who provide key
services to individual or groups of
portfolio companies, such services
include operations and maintenance,
technical asset management and EPC
construction that are considered vital to
the success of the investments.
As the Company acquires new portfolio investments, the Investment Manager undertakes a review
of the contracting terms of all counterparties to ensure they are fair and appropriate. The Directors
received an update on plans for the Investment Manager to seek to maintain long-term collaborative
partnerships with these counterparties to ensure relationship stability and that the Company’s
investment return targets are achieved. Since there were several new investments made during
this year, the Investment Manager implemented its onboarding methods to ensure the foundations
are laid for long term partnerships – this included the use of initial 100-day plans and proactive
communication to employees at investment level to introduce the Company as a long-term business
partner, notably in the case of the investment in RED in Rochester which became the single largest
investment in the portfolio.
Lenders at project level and corporate level
The availability of funding and liquidity
are crucial elements in ensuring the
Company’s ability to execute against
investment opportunities as they arise.
Considering how important the availability of funding is, the Company aims to demonstrate to its
lenders through regular reporting and dialogue that it is a well-managed business, and in particular,
that the Investment Manager is focused on providing regular and careful management of risk within
the investment portfolio and the Company as a whole. During the year the Directors received and
reviewed the Investment Manager’s recommendation for pursuing a larger credit facility which
assisted with the addition of three new lenders into the RCF of the Company’s single subsidiary, SEEIT
Holdco, thereby ensuring that the Company had access to liquidity to make further investments.
Culture and values
The Directors’ overarching duty is to
promote the success of the Company
for the benefit of shareholders,
with due consideration of other
stakeholders’ interests. The Company
seeks to maintain high standards
of business conduct and corporate
governance and ensures via the
Investment Manager that appropriate
oversight, control and suitable policies
are in place to ensure the Company
treats its stakeholders fairly.
The Board seeks to ensure the
alignment of its purpose, values and
strategy with this culture of openness,
debate and integrity through ongoing
dialogue and engagement with its key
stakeholders. The Board, made up of
40% male and 60% female members,
aims to achieve a supportive business
culture combined with constructive
challenge and to provide a regular
flow of information to shareholders
and relevant information as required
to other key stakeholders. Both the
Board and the Investment Manager
support equal opportunities for
recruitment and when managing
existing employees, regardless of age,
race, gender or personal beliefs and
preferences.
Although the Company has no
employees, it is committed to
respecting human rights in its broader
relationships. The Company does not
tolerate corruption, fraud, the receiving
of bribes or breaches in human
rights. The Company aims to maintain
standards of business integrity, a
commitment to truth and fair dealing
and a commitment to complying with
all applicable laws and regulations.
The Company has a number of policies
and procedures in place to assist
with maintaining a culture of good
governance including those relating
to diversity, anti-bribery (including the
acceptance of gifts and hospitality),
tax evasion, conflicts of interest, and
directors’ dealings in the Company’s
shares. The Board assesses and
monitors compliance with these
policies regularly through Board
meetings and the annual evaluation
process. The Board seeks to appoint
the most appropriate service providers
for the Company’s needs and
evaluates their services on a regular
basis. The Board considers the culture
of the Investment Manager and other
service providers through regular
reporting and by receiving regular
presentations as well as through ad
hoc interactions.
The Board and Investment Manager
work closely together in developing
and monitoring the Company’s
approach to environmental, social
and governance matters. SEEIT
fully endorses the United Nations-
supported Principles for Responsible
Investment and the Investment
Manager is a signatory to the UNPRI
to ensure that the six principles
are embedded in the Company’s
behaviours and practices and applied
to all SEEIT investments.
2.7 Stakeholders & Section 172
continued
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SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 41
3. Strategic Report: Portfolio Review
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 41
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42 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
Financial information
In accordance with IFRS 10 the
Company carries its investment in
SEEIT Holdco at fair value as it meets
the conditions of being an Investment
Entity (see Note 2 for details). The
fair value of SEEIT Holdco includes
the fair value of the underlying
investments which is described in
further detail in Section 3.2 Valuation
of the Portfolio.
In order to provide shareholders
with more transparency into the
Company’s capacity for investment,
ability to make distributions, operating
costs and gearing levels, results have
been reported in the pro forma tables
below on a non-statutory “Portfolio
Basis” to include the impact if SEEIT
Holdco were to be consolidated on
a line-by-line basis. The Directors
consider the non-statutory Portfolio
Basis to be a helpful basis for
users of the financial statements to
understand the performance and
position of the Company. This is
because key balances such as cash
and debt balances carried in SEEIT
Holdco and all expenses incurred
in SEEIT Holdco, including debt
financing costs, are shown in full
rather than being netted off. The
“Portfolio Basis” is presented as an
alternative performance measure.
The pro forma tables that follow show
the Company’s result for the year
ended 31 March 2022 compared
to the pro forma balance sheet at
31 March 2021 and the pro forma
Income statement and Cash Flow for
the year to 31 March 2022.
The impact of including SEEIT Holdco
is shown in the Holdco reallocation
column in the Income Statement and
Balance Sheet which reconciles back
to the statutory financial statements
(“IFRS”) and constitute a reallocation
between line items rather than
affecting NAV and Earnings. In the
Cash Flow statement the Holdco
column simply represents the net
difference between the Portfolio Basis
and IFRS for movements that may
occur only in SEEIT Holdco or only
the Company.
NAV per share and Earnings per
share are the same under the
Portfolio Basis and the IFRS basis.
Summary Financial
Statements
On the Portfolio Basis, Total Income
of £92.5 million (2021: £41.1 million)
represents the return from the portfolio
recognised as income comprising
dividends, interest and valuation
movements. Further detail on the
valuation movements is given in
Section 3.2 Valuation of the Portfolio.
On an IFRS basis, Total income of
£88.8 million (2021: £37.8 million)
comprises income received by the
Company and valuation movements
in its investment (see Note 5). Both
Total Income and Expenses and
Finance Costs are lower than on the
Portfolio Basis, as costs incurred by
the Holdco are included by netting
off within Total Income under IFRS,
not under Expenses and Finance
Costs. The costs incurred by the
Holdco not included on an IFRS
basis include transaction abort costs,
foreign exchange movements related
to hedging and financing expenses
related to the RCF.
The increase in Total income compared
to the prior year is mainly as a result of
the increase in the size of the portfolio
and thereby generating a higher
amount of revenue from interest and
dividends, in addition to the movements
in fair value as described in Section 3.2
Valuation of the Portfolio. The increase
in Expenses and Finance costs is also
mainly due to the growth of the size of
the portfolio with total fees accruing to
the Investment Manager of £7.2 million
for the year (2021: £4.0 million).
Neither the Investment Manager
nor any of its affiliates receives other
fees from the Company’s portfolio of
investments.
3.1 Financial Review
Portfolio Basis Summary Income Statement
Year to 31 March 2022 Year to 31 March 2021
£ millions
Portfolio Basis
Holdco
reallocation
IFRS
(Company) Portfolio Basis
Holdco
reallocation
IFRS
(Company)
Total income 92.5 (3.8) 88.8 41.1 (3.3) 37.8
Expenses and Finance Costs (12.7) 3.8 (9.0) (8.7) 3.3 (5.4)
Profit before Tax 79.8 - 79.8 32.4 - 32.4
Earnings 79.8 - 79.8 32.4 - 32.4
Earnings per share (pence) 10.0 - 10.0 7.0 - 7.0
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SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 43
Profit before tax of £79.8 million (2021: £32.4 million) included net foreign exchange losses of £7.3 million (2021: £4.6 million loss)
incurred by Holdco comprising a £22.0 million gain on revaluing of non-GBP investments for the year ended 31 March 2022 offset
by loss on hedging of £29.3 million. The foreign exchange gains and losses are reflected in the investment value of Holdco.
In the year, the Company and Holdco incurred £0.3 million (2021: £1.1 million) of abort costs on unsuccessful bids and bids
that were in progress (mainly legal, technical and tax due diligence) at the end of the financial year.
On both the Portfolio Basis and IFRS basis, Earnings were £79.8 million (2021: £32.4 million) and Earnings per share were
10.0p (2021: 7.0p).
Portfolio Basis Balance Sheet
As at 31 March 2022 As at 31 March 2021
£ millions
Portfolio Basis
Holdco
reallocation
IFRS
(Company) Portfolio Basis
Holdco
reallocation
IFRS
(Company)
Investments at fair value 912.7 15.5 928.2 552.7 19.9 572.6
Working capital (10.6) 9.4 (1.2) 14.9 (15.8) (0.8)
Debt - - - - - -
Cash 170.9 (24.9) 146.1 126.2 (4.1) 122.1
Net assets attributable to
Ordinary Shares 1,073.1 - 1,073.1 693.8 - 693.8
NAV per share 108.4 - 108.4 102.5 - 102.5
On a Portfolio Basis, Investments at fair value are £912.7 million (2021: £552.7 million), representing the Portfolio Valuation.
The increase of £360.1 million is predominantly due to new investments during the year (£304.9) although further detail on
the movement in Investments at fair value is given in Section 3.2 Valuation of the Portfolio.
On a Portfolio Basis, cash at 31 March 2022 was £170.9 (2021: £126.2 million); mainly reflecting cash from equity capital
raised and cash received from investments, net of cash used for investments. The Company is expecting to utilise the cash
balance in paying the fourth quarterly interim dividend on 30 June 2022, and approximately £37m million was utilised since
the year end to complete further investments (please refer to Section 2.5 Investment Portfolio Summary). On an IFRS basis,
cash at 31 March 2022 was £146.1 million (March 2021: £122.1 million) which reconciles to the Portfolio Basis through the
cash held by Holdco at this date.
An analysis of net cash movement is shown in the cash flow analysis below.
On an IFRS basis, Investments at fair value were £928.2 million (2021: £572.6 million), reflecting the Portfolio Valuation
adjusted for cash, working capital and debt held by Holdco. A reconciliation between the Portfolio Valuation at 31 March
2022 and Investment at fair value shown in the financial statements is given in Note 11 to the financial statements, the
principal differences are as per the table below.
March 2022
£’000
March 2021
£’000
Portfolio Valuation 912.7 552.7
Holdco cash 24.9 4.1
Holdco debt
-
-
Holdco net working capital (9.4) 15.8
Investment at fair value (see Note 11) 928.2 572.6
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44 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
3.1 Financial Review
continued
NAV per share at 31 March 2022 was 108.4p (2021: 102.5p). NAV per share has increased by 5.9p since last year, reflecting the
earnings in the year of 10.0p, interim dividends paid during the year of 5.6p and accretive share issues in the year of 1.5p.
Analysis of growth in NAV
NAV per share
(pence)
NAV per share at 1 April 2021 102.5
Change in discount rate 3.3
Change in macroeconomic assumptions 1.3
Foreign exchange loss (0.7)
Portfolio performance 6.1
Earnings per share to 31 March 2022 10.0
Interim dividends paid
1
(5.6)
106.9
NAV accretive share issues
2
1.5
NAV per share at 31 March 2022 108.4
1
Consisting of a fourth interim dividend of 1.375p per share paid in June 2021 for the year ending 31 March 2021 and three interim dividends of 1.405p per
share each paid for the year ended 31 March 2022
2
Arising from issuing of shares in the Company in September 2021 and March 2022 at a price higher than the prevailing NAV per share.
Portfolio Basis Cash Flow Statement
For the year ended 31 March 2022 For the year ended 31 March 2021
£ millions
Portfolio Basis Holdco IFRS (Company) Portfolio Basis Holdco IFRS (Company)
Cash from investments 64.7 (11.7) 53.0 42.1 (6.1) 36.0
Operating and finance costs
outflow (11.8) 2.9 (8.9) (6.4) 1.7 (4.7)
Net cash inflow before
capital movements
52.9 (8.8) 44.1 35.7 (4.4) 31.3
Cost of new investments
including investment costs (304.9) (14.9) (319.8) (255.2) (61.4) (316.6)
Share capital raised net of
costs
343.9 - 343.9 368.0 - 368.0
Movement in borrowings
(1.7) 1.7 - (64.7) 64.7 -
Movement in capitalised debt
costs and FX hedging
(1.3) 1.3 - 2.1 (0.4) 1.6
Dividend paid
(44.2) - (44.2) (30.4) - (30.4)
Movement in the year
44.7 (20.7) 24.0 55.4 (1.6) 53.9
Cash at start of the year
126.2 (4.1) 122.1 70.8 (2.4) 68.1
Cash at end of the year
170.9 (24.9) 146.1 126.2 (4.1) 122.1
Cash inflows from the portfolio on a Portfolio Basis were £64.7 million (2021: £42.1 million), in line with expectations. The
increase in cash received compared with the previous period reflects the increase in the size of the portfolio.
The cost of new investments by the SEEIT group on a Portfolio Basis of £304.9 million (2021: £255.2 million) includes
investment acquisition costs as described in the Valuation Movements below.
On an IFRS basis, costs of new investments of £319.8 million (2021: £316.7 million) reflects funding extended by the Company to
Holdco in the year to make portfolio investments and for repayment of the RCF that Holdco utilised to make new investments.
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3.1 Financial Review
continued
Net cash flow before capital
movements in the year on a Portfolio
Basis was £52.8 million (2021: £35.7
million) and covers dividends paid of
£44.2 million in the year (2021: £30.4
million) by 1.2 times.
Share capital raised (net of costs)
totalled £343.9 million (2021: £368.0
million) reflecting the net proceeds of
shares issued during the year through
three separate capital raisings under
the share issuance programme.
Hedging for the group is undertaken
by Holdco and therefore the Company
should have no cash flows for this
on an IFRS basis. Holdco enters
into forward sales to hedge foreign
exchange rate exposure in line with
the Company’s hedging policy set
out below (see ‘Foreign Exchange
Hedging’). On a Portfolio Basis, there
was a net cash inflow of £5.4 million
on foreign exchange hedging in the
year.
Ongoing charges
Ongoing charges, in accordance
with AIC guidance, are defined as
annualised ongoing charges (i.e.
excluding investment costs and other
non-recurring items) divided by the
average published undiluted NAV in
the year. On this basis the Ongoing
charges ratio is 1.00% (2021: 1.13%)
for the full year. The Ongoing charges
percentage has been calculated
on the Portfolio Basis to take into
consideration the expenses of the
Company and Holdco.
As expected, the Ongoing Charges
ratio has reduced year on year,
benefitting from the growth in the net
assets, meaning the known ongoing
costs of the Company are spread
across a larger base, and benefitting
from the reduction in management
fees percentage above £750 million.
Group Drawings and Gearing
Levels
The Investment Manager periodically
considers refinancing options aligned
to the pipeline of potential transactions
and in the interest of efficient capital
management and foreign exchange
hedging. This enables the Company
to make new investments via SEEIT
Holdco. During the year, SEEIT Holdco
increased the RCF to £145 million
and ING, HSBC and Intesa Sanpaolo
joined Investec as lenders. The facility
includes an uncommitted accordion
of £55 million and has also been
extended to June 2024. As at 31 March
2022 the RCF was undrawn.
Foreign Exchange Hedging
The Company applies foreign
exchange hedging through currency
hedges entered into by Holdco. The
objective of the Company's hedging
strategy is to protect the NAV from
material movements in foreign
exchange rates, and to provide stability
and predictability of near to medium
term Sterling cash flows.
This is achieved on an income basis
by hedging forecast investment
income from non-Sterling investments
for up to 24 months through foreign
exchange forward sales. On a capital
basis, this is achieved by hedging
a significant portion of the portfolio
value through rolling foreign exchange
forward sales. The Investment
Manager also seeks to utilise
corporate debt facilities in the local
currency to reduce foreign exchange
rate exposure.
As part of the Company’s hedging
strategy the Investment Manager
will regularly review non-Sterling
exposure in the portfolio and adjust
the levels of hedging accordingly and
in doing so will also take into account
the cost benefit of hedging activity.
The hedging strategy also dictates
that at times the Company needs to
retain additional cash to meet the
liquidity requirements imposed by
hedging counterparties during periods
of volatility affecting the Company
adversely.
Net foreign exchange losses in the
year ended 31 March 2022 was £7.3
million, representing c. 0.7% of NAV.
Going concern
The Directors believe that the Group
has adequate resources to continue
in operational existence for the
foreseeable future. Therefore, they
continue to adopt the going concern
basis of accounting in preparing the
financial statements. Further details of
the processes carried by the Company
in determining that the going concern
basis continues to be appropriate can
be found in Section 4.2 Report of the
Directors.
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46 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
Introduction
The Investment Manager is
responsible for carrying out the fair
market valuation of the SEEIT group’s
portfolio of investments (the “Portfolio
Valuation”) which is presented to
the Directors for their consideration
and approval. A valuation is carried
out on a six-monthly basis, as at
31 March and 30 September each
year. The Portfolio Valuation is the
key component in determining the
Company’s NAV.
The Company has a single investment
in a directly and wholly owned holding
company, SEEIT Holdco. It recognises
this investment at fair value. To derive
the fair value of SEEIT Holdco, the
Company determines the fair value of
investments held directly or indirectly
by SEEIT Holdco and adjusted for
any other assets and liabilities. The
valuation methodology applied by SEEIT
Holdco to determine the fair value of its
investments is described below.
For non-market traded investments
(being all the investments in the
current portfolio), the valuation
is predominantly based on a
discounted cash flow methodology
and adjusted in accordance with the
IPEV (International Private Equity
and Venture Capital) valuation
guidelines where appropriate to
comply with IFRS 13 and IFRS 9, given
the special nature of infrastructure
investments. Certain investments may
be held at cost if in the early part of
a construction phase, however this
will still be supported by a discounted
cash flow analysis or similar method to
determine fair value. For the 31 March
2022 valuation, this is the case for
investments in Tallaght Hospital, EV
Network and Lycra. For the investment
in the development pipeline of Onyx,
fair value is derived from assuming a
price that can be achieved per MW.
Where an investment is traded in an
open market, a market quote would
be used although currently this is not
applicable to the investment portfolio.
The Investment Manager exercises
its judgment in assessing the
expected future cash flows from each
investment based on the project’s
expected life and the financial
models produced for each project
company and adjusts the cash
flows where necessary to take into
account key external macro-economic
assumptions and specific operating
assumptions.
The fair value for each investment is
then derived from the application of
an appropriate market discount rate
(on an unlevered basis) to reflect the
perceived risk to the investment’s
future cash flows and the relevant
year-end foreign currency exchange
rate to give the present value of those
cash flows. Where relevant, project
level debt balances are then netted
off to arrive at the valuation for each
asset. The discount rate takes into
account risks associated with the
financing of an investment such
as investment risks (e.g. liquidity,
currency risks, market appetite), any
risks to the investment’s earnings (e.g.
predictability and covenant of the
income) and a thorough assessment
of counterparty credit risk, all of which
may be differentiated by the phase of
the investment.
The Investment Manager uses
its judgement in arriving at the
appropriate discount rate. This is
based on its knowledge of the market,
taking into account intelligence
gained from its bidding activities,
discussions with financial advisers in
the appropriate market, and publicly
available information on relevant
transactions.
All the operational investments
included in the valuation have an
underlying contract for energy
services. The valuation is based on the
future expected cash flows derived
from these contracts. For the March
2022 valuation the assumed future
cash flows match the maturity of the
underlying contract or regulatory life of
the asset except in the case of four of
the assets in Primary Energy and the
assets in Oliva Spanish Cogeneration
where it is assumed that future
contract extensions are achieved and
hence the expected cash flows are
currently projected to extend beyond
the maturity date of the existing
contract with the counterparty.
For the valuation as at 31 March
2022, the Directors commissioned
a report from a third-party valuation
expert to provide their assessment
of the appropriate discount rate
range for each investment (excluding
small investments with an aggregate
value of less than 1% of the Portfolio
Valuation) in order to further
benchmark the valuation prepared by
the Investment Manager.
The valuation methodology is
materially unchanged from the
Company’s IPO and has been applied
consistently in each subsequent
valuation.
Portfolio Valuation
The Portfolio Valuation as at 31 March
2022 was £912.7m, an increase of
£360.0 compared to the Portfolio
Valuation of £552.7m as at 31 March
2021 and an increase of £127.7m
compared to the Portfolio Valuation
of £785.0m at 30 September 2021 –
the increase is mainly a result of the
new investments during the year,
with additional movements described
below.
3.2 Valuation of the Portfolio
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Valuation Movements
A breakdown of the movement in the Portfolio Valuation in the period is illustrated in the chart and set out in the table below.
£700.0
552.7
300.5
12.7
788.6
22.0
33.1
56.5
912.7
(64.7)
31 March
2021
New
investments
Macroeconomic
changes
(infl, tax)
Rebased
Portfolio
Valuation
Foreign
Exchange
Change in
Discount
Rates
Balance of
portfolio
return
31 March
2022
Cash from
investments
£600.0
£500.0
£400.0
£300.0
£200.0
£100.0
£0
£1,000.0
£900.0
£800.0
Increase
Decrease Total
Valuation Movements During the Year To 31 March 2022 (£’000)
Portfolio Valuation – 31 March 2021 552.7
New Investments 300.5
Cash from Investments (64.7)
235.9
Rebased Portfolio Valuation 788.6 % on Rebased
Changes in Macroeconomic Assumptions
12.7 1.6%
Changes in Foreign Exchange
22.0 2.8%
Changes in Discount Rates
33.1 4.2%
Balance of Portfolio Return
56.5 7.2%
124.2
Portfolio Valuation – 31 March 2022
912.7
The Portfolio Valuation at 31 March 2022 was £912.7 million, an increase of 65% from the Portfolio Valuation £552.7 million
at 31 March 2021. Allowing for investments of £300.5 million as outlined in Section 2.5 Investment Portfolio Summary and
cash receipts from investments of £64.7 million, the rebased Portfolio Valuation is £788.6 million. An overall increase of
£124.2 million was achieved above the rebased valuation – after adjusting for changes in macro-economic assumptions,
foreign exchange movements and changes in discount rates, this resulted in a portfolio return in the year of £56.5 million,
equating to a 7.2% return in the year.
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3.2 Valuation of the Portfolio
continued
Return from the Portfolio
Each movement between the rebased
valuation of £788.6 million and the 31
March 2022 valuation of £912.7 million
is considered in turn below:
(i) Changes in macroeconomic
assumptions of £12.7 million:
Inflation assumptions: Previously certain
jurisdictions had both near-term and
long-term inflation assumptions and
the remaining jurisdictions had only
long-term assumptions. To achieve
consistency and reflect the impact
of the current high inflation macro
environment more accurately, the
approach in all jurisdictions is to apply a
3-year near-term bridge to the relevant
long-term inflation assumption. This has
resulted in an uplift in the valuation due
to high near-term inflation compared
to the assumptions applied for the
March 2021 valuation or at the time of
investments during the year.
Tax rate assumptions: There were
no changes to corporation tax rate
assumptions during the year.
Further details on the macroeconomic
assumptions applied to the 31 March
2022 valuation and comparison to
previous periods can be found in Note4.
(ii) Changes in foreign exchange rates
of £22.0 million:
The gain of £22.0 million on the
investment portfolio in the year reflects
the movements of GBP against US
Dollar, Euro and Swedish Krona in the
year or since new investments were
made. This however only reflects the
movement in underlying investment
values and is shown before the
offsetting effect of foreign exchange
hedging that is applied at the level of
SEEIT Holdco outside of the Portfolio
Valuation which resulted in a loss of
£29.3 million. Therefore overall foreign
exchange movements did not have a
significant impact on NAV in the period
with a net loss from foreign exchange
hedging and movement in the assets of
£7.3 million.
(iii) Changes in valuation discount
rates of £33.1 million:
The discount rate used for valuing each
investment represents an assessment of
the rate of return at which infrastructure
investments with similar risk profiles
would trade on the open market.
During the year there were selected
reductions of discount rates that in
aggregate resulted in an increase in the
valuation of £33.1 million.
The Investment Manager observed
downwards pressure on discount
rates generally in the market for energy
efficiency investments, notably in the
second half of the financial year. This
has resulted in a reduction applied to
discount rates for several investments
in the portfolio in several countries and
across several technologies, and is the
main reason for the reduction of the
weighted average discount rate since
September 2021. Over the course of the
financial year these reductions broadly
offset new investments that were
acquired at discount rates above the
prevailing weighted average.
In addition, investments moving from
construction phase to operational phase
has contributed marginally to the overall
reduction in weighted average discount
rate.
The weighted average discount rate for
the portfolio as at 31 March 2022 was
7.0% on an unlevered basis (March
2021: 7.0% and September 2021: 7.2%)
and c. 8.0% on a levered basis.
The Directors noted that the discount
rates used by the Investment Manager
were within the ranges advised by the
third-party valuation expert.
(iv) Balance of portfolio return of
£56.5million:
This refers to the balance of valuation
movements in the year (excluding (i) to
(iii) above) and which provided an uplift
of £56.5 million. The balance of portfolio
return reflects the net present value
of the cash flows unwinding over the
period at the average prevailing portfolio
discount rate and various additional
valuation adjustments described below.
The portfolio delivered a return of 7.2%
in the financial year.
The portfolio valuation, and by
implication the return achieved, includes
several key estimates and judgements in
addition to key changes assumed in the
portfolio valuation. These are described
below and while some had a positive
impact on the portfolio valuation,
others may have an adverse impact on
the portfolio valuation – overall these
estimates and judgements have had a
net positive impact on the valuation:
• The adverse impact of the idling of
Blast Furnace 4 at Primary Energy
which affects the Ironside investment,
and lower than expected energy
demand at PCI, although partially
offset by an uplift in valuation from
increased revenues assumed to be
derived from recontracting of key
contracts in Primary Energy and the
use of an interim agreement, resulting
in an overall broadly offsetting impact
• The remaining 35% stake in the
Primary Energy portfolio of five assets
was acquired in September 2021
at a price that was pre-determined
in December 2020 when SEEIT
increased its stake from 50% to
65%. The carrying value of the
existing stake was higher than the
consideration paid in September 2021
and therefore the Portfolio Valuation
benefited from an uplift of more
than £10 million to bring the newly
acquired 35% stake in line with the
valuation of the 65% stake.
• Uplift in valuation of c. £13 million
for Oliva Spanish Cogeneration,
mostly from the reversal of
previous provisions for EU ETS cost
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3.2 Valuation of the Portfolio
continued
assumptions by assuming prudent
compensation using proposed
legislative changes
• Adverse impact from a delay in the
construction portfolio within Onyx and
the following development pipeline,
although broadly offset in part from an
increase in the assumed megawatts
to be delivered in the development
portfolio
• Uplift in the valuation of c. £10 million
due to a net increase in forecast
customer load assumptions at Red
Rochester resulting in additional
revenues from those previously
assumed.
Additional information on critical
estimates and judgements are in Note 3.
As in the previous year, the Investment
Manager has reviewed the impact of
the COVID-19 pandemic on the portfolio
during the year, and the overall impact
on the financial performance and
cash flow projections has again not
had a material impact on the Portfolio
Valuation and NAV.
The pandemic caused some operational
and financial disruption to certain
assets, of which the two key impacts are
listed below:
• It has caused slower than anticipated
decision making from potential
counterparties in the US, resulting
in slower than previously assumed
deployment of onsite solar generation
projects in the Onyx investment
• Lower than expected revenue from
delivering gas to restaurant customers
in Stockholm in the Vartan Gas
investment, which has also been
assumed to continue in the near term
and therefore continue to adversely
affect near-term cash flows and
valuation.
Key sensitivities
The following chart illustrates the sensitivity of SEEIT’s NAV per share to changes
in key valuation input assumptions (with the labels indicating the impact of the
sensitivities on the NAV in pence per share):
FX
-/+ 10%
Inflation
-/+ 50 bps
Corporation Tax
+/- 500 bps
Discount Rates
+/- 50 bps
(5.0p) 5.0p0p(4.0p) 2.0p 3.0p 4.0p(2.0p) (1.0p)(3.0p) 1.0p
Negative change to assumption
Positive change to assumption
For each of the sensitivities, it is
assumed that potential changes
occur independently of each other
with no effect on any other base case
assumption, and that the number of
investments in the portfolio remains
static throughout the modelled life.
For the purpose of the sensitivities
described below, the potential
changes are applied as at 31 March
2022 and remain constant thereafter
apart from inflation which is applied
with compounding effect.
Please refer to Note 4 in the Notes to
the Financial Statements for further
detail on the key sensitivities in this
section and Note 3 for further detail on
critical estimates and judgements and
their sensitivities.
Discount Rate Sensitivity
The weighted average discount
rate that is applied to each portfolio
company's forecast cash flow, is the
single most important judgement and
variable for the purposes of valuing
the portfolio.
A 0.5% increase in the discount
rates would result in a NAV per
share decrease of 4.1p based on the
Portfolio Valuation as at 31 March
2022. A 0.5% decrease in the discount
rates would result in a NAV per share
increase of 4.5p based on the Portfolio
Valuation as at 31 March 2022.
Corporation Tax Rate Sensitivity
This sensitivity considers a 5% p.a.
movement in corporation tax rates in
each country where an investment is
held – for the valuation as at 31 March
2022 this included UK, Spain, Sweden,
Singapore and USA. The profits of
each portfolio company are subject to
corporation tax in the country where
the project is located.
A 5% p.a. increase in corporation
tax rates would result in a NAV
per share reduction of 3.3p based
on the Portfolio Valuation as at 31
March 2022. A 5% p.a. decrease in
corporation tax rates would result in a
NAV per share increase of 3.2p based
on the Portfolio Valuation as at 31
March 2022.
The sensitivity is shown on the basis
that corporation tax rates remain as
the sensitised level for the remainder
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3.2 Valuation of the Portfolio
continued
of any period in which cash flow is
assumed for that project and that
no mitigations that may be available
are applied. Key mitigants available
include portfolio structuring changes
including gearing, and the option
available to the Company to use
interest streaming of dividends to
shareholders in the future, whereby a
portion of the dividend distribution is
designated as interest, allowing net
taxable interest income to be reduced.
The sensitivity mainly shows the
unmitigated impact of changes in US,
Swedish and Spanish tax rates. The
exposure to UK corporation tax at
project level has negligible sensitivity
to the sensitised movements in UK
corporation tax rates, including the
impact of the expected future tax rises
announced by the UK government,
because of UK entities within the
group being able to offset aggregate
profits and losses.
Inflation rate sensitivity
This sensitivity considers a 0.5% p.a.
movement in near-term and long-term
inflation in the underlying investment
cash flows which is considered a
reasonable range on the long-term
inflation assumptions as well as the
range of assumptions introduced for
the initial three years prior to reverting
to the long-term assumption.
A 0.5% p.a. increase in inflation rates
would result in a NAV per share
increase of 1.2p based on the Portfolio
Valuation as at 31 March 2022. A 0.5%
p.a. decrease in inflation rates would
result in a NAV per share reduction of
1.1p based on the Portfolio Valuation
as at 31 March 2022.
The Company’s exposure to inflation
via its investment portfolio is currently
largely to the USA and Europe with
c.55% and c. 22% of NAV respectively
although the level of exposure to
inflation in underlying investments
in each geography varies. The
investment portfolio as at 31 March
2022 has a positive correlation to
inflation with approximately half of
the current portfolio by value having
revenues that are partly or wholly
inflation linked.
The Company’s portfolio includes
investments that benefit from
fixed or escalating revenues that
are not directly linked to inflation.
This includes the assets in Primary
Energy where periodic recontracting
is assumed in the valuation. It is
assumed that the renewed revenue
contracts entered into in future years
reset the revenues at such a level
that it materially offsets increases
to project level costs such as O&M
that is materially inflation-linked.
Within the portfolio of Oliva Spanish
Cogeneration assets there is some
natural offsetting or protection
between revenues and costs for
inflation increases and decreases.
The assumption in the Vartan Gas
investment is that the regular renewals
of customer contracts (typically
annually) include inflationary increases
to the tariffs charged, however it is
also assumed that this would not
result in the charges being above the
regulatory cap and therefore the full
inflationary increase is not passed
on to the customer each time. In the
current portfolio there are several
investments with no or negligible
exposure to inflation, notably the
investments in the UK and the senior
debt loan investments in Spark US
Energy Efficiency I and II, FES Lighting
and Biotown.
The Investment Manager aims to
construct and maintain a portfolio
that generates year-on-year revenue
growth on a progressive basis. The
Investment Manager does not aim
to construct and maintain a portfolio
of investments purely with direct
inflation-linked returns, however
it targets any potential portfolio
downside inflation impact to be
broadly offset through revenue growth
over the medium to long-term.
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 March 2022 is
US Dollar, Singapore Dollar, Swedish
Krona and Euro, from the foreign
exchange rates used at 31 March 2022
– the sensitivity is shown below pre
and post mitigation from hedging.
This sensitivity is presented after
considering the effect of hedging
implemented by the Company. Using
historical levels of hedging and the
Company’s hedging strategy as
described in Section 3.1 Financial
Review as a guide, at an assumed
level of 90% hedging, a 10% increase
(strengthening of GBP) in foreign
exchange rates would result in a
NAV per share reduction of 0.8p and
10% decrease (weakening of GBP) in
foreign exchange rates would result in
a NAV per share increase of 0.8p.
Without any hedging, a 10% increase
(strengthening of GBP) in foreign
exchange rates would result in a NAV
per share reduction of 7.7p based on
the Portfolio Valuation as at 31 March
2022. A 10% decrease (weakening of
GBP) in foreign exchange rates would
result in a NAV per share increase of
8.4p based on the Portfolio Valuation
as at 31 March 2022.
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Risk Management Framework
The Company has a risk management
framework that covers all aspects of
the Company’s activities, including
systems and procedures designed
to ensure that all applicable risks
pertaining to the Company, its portfolio
of investments and any stakeholders
can be identified, monitored and
managed.
The Investment Manager is a key
service provider to the Company and
is tasked with operating a number of
key controls within the Company’s risk
management framework.
The risk management framework
and risk appetite is overseen by the
Company’s Audit and Risk Committee,
which meets as a minimum on a
quarterly basis. The remit of the
Audit and Risk Committee includes
a requirement to monitor and keep
under review the adequacy and
effectiveness of the internal financial
controls, internal controls and risk
management systems relied on by the
Company.
The Audit and Risk Committee
receives regular risk management
reports from the Investment
Manager to support its assessment,
in addition to updates to the risk
register, whereby each risk is rated,
risk mitigating factors detailed and
applicable controls highlighted. The
Audit and Risk Committee and the
Investment Manager discuss and
consider emerging risks and possible
mitigants on a regular basis and,
where required, additionally with the
Company’s other advisers.
Part of the Company’s wider risk
management framework captures
the activities of key service providers,
including the Investment Manager,
which has its own risk management
function with appropriate systems
and controls on which the Company
places reliance.
The Company monitors a number
of key risk indicators and metrics,
principally affecting the Company
indirectly via its investment portfolio,
which are categorised as follows:
3.3 Risk Management
Description Indicator Examples
Credit
Incorporates risks arising from credit of
counterparties.
• Offtaker credit, subcontractor credit
Market Regulatory
Incorporates risks arising from new laws
and regulations as well as government
policy and actions.
• Carbon regulations, regulated revenues
Investment
Incorporates risks arising from asset
performance.
• Operations, construction
Regulatory, Reputational and Compliance
Incorporates risks arising from fund
and asset compliance with relevant
standards, policies and best practice.
• Anti-Money Laundering (“AML”), conflicts of interest, Health and Safety
• ESG compliance
• Climate related risks per TCFD guidelines
Macroeconomic
Incorporates risks arising in the wider
economy.
• Interest rates, inflation, tax, accounting
Financial
Incorporates risks arising from ongoing
investment performance.
• IRR, yield, NAV, leverage
• Also includes portfolio diversification and contract length
Operational
Incorporates risks arising from the
management of the portfolio.
• Resourcing, processes, procedure, cyber and physical security
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52 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
Principal Risks
The table below summarises the key
prevailing risks to the Company and
its investment portfolio and detail
of the mitigation of such risks as
applicable. These risks are monitored
by the Investment Manager and have
been reviewed by the Board. The key
risks faced by the Company and its
investment portfolio are materially the
same as in the prior year although the
likelihood of certain risks crystalising
may have moved over time.
The majority of the risks are faced
directly by the investment portfolio
and only indirectly by the Company.
Risks are typically not expected to
change materially through the year, as
operational and financial performance
of underlying projects are measured
over the medium to long term and are
typically consistent between periods.
A heat map of the risk categories
illustrating the residual impact
and the likely probability of the risk
crystallising.
3.3 Risk Management
continued
Risk Type Risk Watchlist
1
Macroeconomic Inflation, Corporation Tax
2
Market Regulory EU ETS costs
3
Reputational and Compliance ESG Compliance
4
Credit Counterparty credit
5
Investment
Construction delays, operational
disruption
6
Financial Renewal of debt facilities
7
Operationa Cybersecurity
Probability
LOW
HIGH
MEDIUM
HIGH
MEDIUM
LOW
2
5
3
6
7
1
4
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3.3 Risk Management
continued
In addition to the categories listed above, the Company also assesses portfolio wide “event based risks” such as COVID-19
and Climate Change (detailed later in this section).
The risk types are categorised as “High”, “Medium” and “Low” based on post-mitigations used by the Investment Manager
and the below summarises risks that are considered to have a residual risk rating of High or Medium after mitigation.
Risk Type Risk Description Mitigation
Residual Risk: High
Credit Counterparty risks relating
to potential default
Default risks relating to
counterparties for energy
services contracts and
relating to key service
providers are the
Company’s largest inherent
risks.
• Thorough counterparty due diligence is undertaken on prospective investments, which
includes credit rating assessments to determine whether credit counterparties are of
sufficient quality.
• On-going counterparty risks are monitored with potential to be mitigated via credit risk
management relating to counterparties (including through credit risk assessments,
diversification across such counterparties or selling investments).
• Additional protections such as parent company guarantees may also be available.
• Otherwise, prospective investment due diligence processes include assessments as to
the likely rate of recoverability of project capital, in the event of any counterparty default,
for example via the potential for alternative off-taker arrangements or through expected
continuing plant operations due to the underlying profitability of such plants as distinct
from overall counterparty group profitability.
• Key single exposure is to Cleveland Cliffs which currently has a credit rating of sub-
investment grade (albeit with an improvement of its credit during the period) and as a
result, this credit risk remains high.
Market
Regulatory
Market regulation changes
that could result in
negative financial impact
or volatility of revenues
• Manager seeks to diversify technologies exposure across the portfolio and will aim to use
“best available technology” to minimise this risk.
*
Specifically, regarding EU
ETS, the risk is recognised
that the costs of such EU ETS
certificates may continue
to rise materially, adversely
impacting the cashflows
of the Oliva Spanish
Cogeneration portfolio.
*
• The Spanish RoRi mechanism is designed to mitigate, over the medium-term to long-term,
against fluctuations in commodity prices and is an important part of the revenue stream for
the Company’s investment in Oliva Spanish Cogeneration. Calculations of payments under the
mechanism are re-based every 6 years and reset mid-term with an adjustment for gas prices
made every 6 months and remaining costs and revenues adjusted every 3 years.
• However, due to short and medium-terms price increases, the assets have experienced
additional cost. The mechanics of the RoRi should adjust over the long-term for fluctuations of
EU ETS costs that are incurred by some of the Oliva Spanish Cogeneration assets.
• There is a risk that costs of EU ETS certificates may continue to rise materially, adversely
impacting the cashflows of the Oliva Spanish Cogeneration portfolio. Exposure to rising EU ETS
Certificate pricing during the year was mitigated by advance purchases of such certificates at
favourable prices.
• The Investment Manager has implemented a number of actions to reduce the short- and
medium-term impact including advance purchases of such certificates at favourable prices as
well as gas and electricity hedging costs to protect operational margins. However, the scope for
advance purchasing of such certificates at moderate prices may be diminished, in the period
ahead, if the prevailing trend of rising certificate prices continues which would likely impact
near term, and potentially medium-term, cash flows.
• Over the longer term, the Investment Manager is assessing options such as carbon capture
and procurement of green gas to address this risk.
• Despite these risks, SEEIT’s portfolio will also benefit from higher carbon pricing across certain
projects as Energy Efficiency Projects result in greater avoided costs and reduced greenhouse
gas emissions for the end user. In addition, recent regulatory updates from the Spanish
government are proposing to update the EU-ETS compensation every six months which, if
adopted, should substantially mitigate this risk
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3.3 Risk Management
continued
Risk Type Risk Description Mitigation
Residual Risk: Medium
Investment Re-contracting • The Company has exposure to re-contracting risk. The majority of projects in its
portfolio are contracted for the medium to long-term. The key risk is that the value of the
Company’s investment in the five projects involved in Primary Energy assumes that some
re-contracting is achieved. But this risk is mitigated by the fact that Primary Energy has
a good track record of re-contracting, given inter alia that it is providing a combination of
emissions control and renewable energy, providing essential services to the operations of
the project clients and at a competitive price compared to the grid.
Operations
Underperformance across
operational assets
• Experienced and skilled contractors are employed for projects and appropriate
contractual performance assurances may further mitigate such risks.
• However, there may be situations where contractual protections will not provide
complete protection against underperformance. This is likely to occur where revenues
are capacity rather than availability based such as the idling of Ironside at Primary Energy
or at the investment in PCI.
• Due diligence undertaken on prospective investments seeks to identify risks relating to
decommissioning and on-going maintenance. Leading equipment manufacturers are
selected, and the Company seeks to only adopt tried-and-tested technology, in mitigation
of operational risks.
• Range of established technologies across which SEEIT has invested in is broad so
systemic issues are limited.
Construction
Delayed construction/
cost overruns resulting in
financial underperformance
• Technical due diligence at project design stage, the use of conservative construction
time-period assumptions, the appointment of leading construction engineers and the use
of tried-and-tested technology should all contribute towards mitigation of this risk.
• Contractual protections negotiated with developers may also be used to ensure the
Company is not itself directly at risk for the costs of construction delays.
• The Company’s Investment Policy limit on the level of exposure to development and
construction projects also helps mitigate the effect of this risk by ensuring it remains a
relatively small proportion of the total invested portfolio.
Regulatory,
Reputational
and
Compliance
ESG compliance of
counterparties
Risk that assets or partners
are not adhering to
relevant ESG policies and
requirements (e.g. labour
laws)
• The Investment Manager undertakes ESG onboarding and checklists for all new
investments to ensure compliance with ESG standards.
• For all greenfield opportunities or where contracts can be amended, appropriate
compliance and monitoring requirements will be included.
• Where existing contracts cannot be amended, the Investment Manager will use best
endeavours to ensure compliance and regular monitoring of counterparties.
*
• The Investment Manager is working with direct counterparties to understand and target
compliance with best practice where possible.
• The Investment Manager recognises that compliance throughout the whole supply chain is
more difficult to monitor and will endeavour to work with third parties where possible to ensure
best practice.
Operations Cyber Risk
The Company’s range of
different assets may be
exposed to a number of
cyber and/or fraud related
risks, which require a
tailored mitigation plan
according to the specifics of
each portfolio asset.
• Cyber security controls are operated by service providers and other contractors in
respect of portfolio assets.
• Appropriate security access controls are in place at host sites, reflecting the essential
nature of energy services provided to such hosts.
• The Investment Manager has undertaken a third-party review of cyber risk across key
projects and whilst no red flags were identified, recommendations are being actioned by
Asset Management.
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3.3 Risk Management
continued
Risk Type Risk Description Mitigation
Residual Risk: Medium continued
Investment Risks relating to
fluctuations in pricing
of feedstock, unhedged
energy price exposures or
regulated revenues
The Company may face
feedstock shortages leading
to higher production costs
or inability to produce the
required amount of energy
using desired inputs.
Prices for energy inputs
may also rise with changing
market conditions which
could affect economic
returns
• At the stage of prospective investment due diligence, careful consideration is provided to
any potential exposures relating to future feedstock availability or prices, or any reliance
on energy pricing or subsidies.
• The Investment Manager reviews market prices, where residual market-related
exposures may remain unhedged, with a view to reducing such pricing exposures and
uncertainty.
• A gas procurement entity was established in Spain during the year which is expected
to deliver savings in purchase prices of gas delivered to Spanish cogeneration assets,
relative to previous prices obtained via third-party brokers.
Macroeconomic Corporation tax
Changes to corporate
rules could increase tax
payments
• Comprehensive tax and structuring advice is taken prior to making new investments,
structuring these appropriately within the overall low risk approach to taxation of the
Company.
• The Company is able to use intragroup profits and losses efficiently that allows it to
negate the rise in UK corporation tax rates completely.
• Risk of rising corporation tax rates in the US has been partially reflected in the valuation
through applying a higher discount rate than otherwise.
• Significant new investment in the US provides opportunity for structuring and
consolidations that may reduce impact of rising corporation tax rates.
• The Company, by virtue of being a HMRC approved investment trust, can potentially
utilise interest streaming to reduce the overall impact of rising corporation tax rates
across the portfolio.
Inflation
Inflation may be higher
or lower than base case
expectations
• The Investment Manager continues to monitor the effect of inflation on a regular basis
through detailed stress testing and sensitivity analysis.
• The Investment Manager is building the portfolio to mitigate against material changes to
inflation. Further mitigation is the recontracting feature within some of the assets which
should allow for incorporation of inflationary impact at the time of recontracting.
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3.3 Risk Management
continued
Emerging Risks
The Company monitors not just existing risks but also emerging risks which may or may not crystalise over the medium-long term.
Risk Type Risk Description Mitigation
Operations Impact upon assets of
technological changes
and/or accelerated ‘net
zero’ targets, resulting in
loss of value
The Company may plan
to hold energy efficiency
assets generating
cashflows over the long-
term, however its assets
may be impacted through
technological changes, or
otherwise impacted through
accelerated international
timeframes to reach ‘net-
zero’ carbon emission
targets.
• The Board and Investment Manager monitor portfolio technology diversification and
any environmental-related risks, including with respect to the timeframe within which
natural gas cogeneration assets remain acceptable as a target technology.
• Such investments achieve a high degree of combined thermal and electrical
efficiency, making important and demonstrable contributions to the transition towards
‘Net-Zero’ status.
• Due diligence on prospective investments includes, as applicable, consideration of the
adaptability and flexibility of prospective assets to achieve progressive environmental
impact targets with a view to a potential longer-term transition towards alternative fuel
sources such as biogas and hydrogen.
Various:
Regulatory,
operations,
macroeconomic
Conflict in Ukraine • The impact of the conflict is evolving and whilst we currently don’t anticipate direct
disruption to the portfolio (primarily gas supply), this situation is being closely
monitored. The Company notes the heightened risk to western businesses re:
Cybersecurity and have reflected that in the cyber risk status.
• The Investment Manager is assessing the impact of sanctions on the portfolio supply
chain and stakeholders and will continue to work with the project companies to ensure
compliance with all regulations.
• The Company will monitor the conflict as an Event Risk within its risk reporting going
forward.
Investment Increased investor activity
could impact ability to
acquire projects at desired
returns
• Whilst the sectors that the Investment Manager invests in are relatively niche
compared to utility scale renewables, more players are starting to invest in their area,
resulting in increased competition and this may result in a downward pressure on
returns
• Risk can be managed through focusing on own network of developers, partners and
offtakers and ensuring a strategic angle to our investment
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3.3 Risk Management
continued
Specific Event Risks
COVID-19
The impact upon the Company of the COVID-19 pandemic can be divided into two components; the operating issues
arising directly from the pandemic (including health and safety related impacts) and the longer-term impacts in relation to
portfolio investments arising from negative macroeconomic effects.
Overall, COVID-19 impacted the portfolio to a relatively modest degree during the previous twelve months as it has in the
preceding period. With the majority of offtakers operating as essential industries, the operation of portfolio projects has
broadly adapted well to accommodate the pandemic environment.
Longer-term however, substantial impacts may emerge in respect of stressed economic conditions and political responses. In
particular, the risk of further lockdowns could have an impact on offtaker demand as well as further stressing the supply chain.
Risk Type Risk Description Impact and Mitigation Actions
Operations Health and Safety • COVID-19 site practices continued for employees and contractors and remain under
on-going review to reflect local regulations and requirements. Where required and
possible, employees continued working from home.
Cyber • Key controls operate at local host sites and apply with SDCL (including through service
provider Tribeca and internal SDCL anti-fraud controls).
Credit Counterparty Default • No material non-payment from offtakers as most offtakers were deemed as essential
industry during the lockdown and continued to operate.
• The Company works with counterparties who have not experienced any credit
related issues during the COVID period. Subcontractors could be replaced given the
established technologies used if this did occur.
Investment Asset Performance • Some assets have experienced slower than usual repair and maintenance services
due supply chain issues impacting equipment availability. Enhanced planning and
preparation has been conducted to minimise this disruption.
• Majority of offtakers’ operations are predominantly back to normal.
Construction • Some assets in development have experienced a slowdown on development time
for projects given that the offtakers have primarily been focused on COVID-19
management rather than energy management. It is expected is that this will start to
resolve as restrictions are lifted in all jurisdictions.
Regulatory Political/Regulatory • No immediate regulatory impact on the SEEIT portfolio though future government
intervention could have a negative or positive impact on the assets.
Macroeconomic Corporation tax • Increased risk across the portfolio arising from governments’ response to the
economic and social consequences of the COVID-19 pandemic, which may result
in an increase in corporation tax rates to fund their recovery expenditure – higher
corporation tax announced in the UK and proposed in the US and potential to see
similar trends across Europe.
• See Principal Risks above for mitigants.
Brexit
Whilst the Company has not experienced any material impact from Brexit, the Investment Manager will continue to review any
developments in the relationship between the EU and the UK, both in the near term as businesses adjust and over the longer
term as UK and EU regulation may diverge over time.
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3.3 Risk Management
continued
Specific Event Risks continued
Climate-Related Risks
The Climate-related and other ESG considerations are reviewed, analysed and managed as an integral part of the Company’s
overall risk management procedures for investment appraisal and project management. The Investment Manager has during
the period implemented a specific process for assessing climate-related risks before making investments as part of its due
diligence process for each investment opportunity.
This involves a two-stage process carried out to first identify any red flags against a check list of climate-related considerations.
In addition, a detailed assessment of a wide range of ESG issues is undertaken as well as any project specific due diligence
that is required based on the initial red flag assessment. Detailed due diligence will also give consideration to external climate-
related risks such as regulatory and market impacts which are included in scenario and sensitivity analyses conducted for
each project and assessed in terms of the impact on project returns over different time periods.
Risk Type Risk Description Impact and Mitigation Actions
Market
Regulatory
Policy and Legal changes
Short to medium-term
risk to revenues or costs
through changes in carbon-
related charges, emissions
standards or energy prices.
• Generally the Company seeks to mitigate these risks by ensuring any impact is
primarily borne by the beneficiary of the asset rather than the Company as owner.
• Longer term, the pipeline development strategy is able to take account of policy
and regulatory changes as the Company retains flexibility to pursue opportunities in
different technologies or regions which are identified as policy priorities.
Operations Technology changes
In the medium-term
some technologies may
face the risk of regulatory
intervention due to higher
emissions standards being
imposed.
• This is mitigated by revenues from the projects being secured through long-term
agreements.
• Additionally, as the asset owner, the Company may be able to upgrade or switch
technologies if this is commercially attractive e.g. at PCI, there is a plan to transition to
lower carbon solutions over time. This introduces the risk of substitution to a process
such as pulverisation.
Investment Feedstock supply
Short-term climate-related
market risks to the portfolio
relate mainly to unexpected
changes in feedstock prices
caused by, for example,
unusual weather events,
which may affect some
projects.
• In general, the Company seeks to pass material price risk on to hosts so there is no
direct impact on the Company.
• Medium-term market risks from climate-related events are similarly limited but such
risks may increase over time if the financial impact on a host is not relieved. This is
mitigated by focusing on hosts with good credit ratings where the Company provides
critical energy services.
• Furthermore, any climate-related market risks are likely to be systemic in nature and
not exclusive to the Company and therefore alternatives are unlikely to avoid the same
risks.
• Longer term portfolio risks are limited by the duration of underlying service
agreements and likely to manifest in other trends such as technology shift to
accommodate market conditions.
Natural/physical events
Could impact infrastructure
of the Projects as well as
disrupt the supply chain.
• Physical risks to the portfolio from climate change can potentially be significant,
although for much of the portfolio longer-term exposure is limited by the fixed life of
assets under management.
• In line with TCFD requirements the Company will be conducting detailed assessment
of physical risks to assets in order to better assess this type of risk.
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3.3 Risk Management
continued
Impact of Climate-Related Risks
SEEIT aims to hold assets for
their useful operating life, which is
generally in the range 5 to 15 years
but may often be longer or may be
extended through refurbishment or
replacement in order to maintain on-
going operating capability for longer
periods. The strategic considerations
involved in planning investment in, and
management of such assets will take
account of longer-term climate-related
targets such as net zero by 2040 (or
sooner) and may involve planning
for technology transition in order to
maintain a path towards net zero within
or ahead of that timeframe.
The Company believes that the overall
impact of the climate-related issues
affecting the Company is generally
positive for the following reasons:
• The Company’s investments are
designed to provide solutions to
climate-related issues, and this
provides a natural hedge against
climate-related impacts as these
may be expected to increase
demand for the kind of solutions
the Company provides.
• The Company’s supply chains
are equally engaged in providing
solutions to climate-related
problems and this helps ensure
both short and medium-term
reliability of suppliers which are
prioritising such solutions and
longer-term innovation as research
and development efforts lead to
new and more effective solutions
which the Company may decide to
deploy.
• The complexity and capital
requirements of effective longer-
term climate-related solutions
favours the Company which
believes it has the necessary
resources to identify investment and
development opportunities where
it is well placed to add value and in
turn access additional capital when
required to fund the investment or
development of such opportunities.
Notwithstanding these competitive
advantages the Company considers
how climate-related risks could affect
its portfolio and where possible seeks
to minimise exposure to such risks
through appropriate commercial
measures, physical risk management
and choices of technology.
In line with evolving TCFD practice the
Company will seek to develop further
climate-related scenario analysis
based on a range of long-term climate
outcomes and incorporating more
detailed physical risk assessment.
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60 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
Viability Assessment Period
The Directors have assessed the
prospects of the Company over a
five-year period to 31 March 2027.
Consistent with prior years, the Directors
have determined that a five-year period
is an appropriate period over which to
provide this viability statement as this
period accords with the Company’s
business planning exercises and is
appropriate for the investments owned
by the Company and the nature of the
Company.
Assessment Process
In making this statement the Directors
have considered the resilience of
the Company, taking account of its
current position, the principal risks
facing the business in severe but
plausible downside scenarios, and the
effectiveness of any mitigating actions.
The Company benefits from investments
where the majority have predictable
long-term cash flows and a set of risks
that can be identified and assessed
and would not be expected to change
materially from one period to the next.
The investments are each supported
by detailed financial models and the
investments that have financing in place
have done so on a non-recourse basis to
the Company. The Directors believe that
the diversification within the portfolio of
predominantly operational investments
helps to withstand and mitigate for the
risks it has identified that the Company
may face.
The Investment Manager prepared, and
the Directors reviewed five-year cash
flow projections as part of business
planning, including as part of the
approval process of the Company’s
budget and business plan, and to
approve dividends on a quarterly basis
after reviewing medium-term cash flow
projections. The projections consider
cash flows, dividend cover, Investment
Policy compliance and other key
financial indicators over the period.
These projections are based on the
Investment Manager’s expectations
of future asset performance, income
and costs, and are consistent with the
methodology applied to provide the
valuation of the investments during
the year.
The Directors received updates from the
Investment Manager during the year of
the actual and likely impact of COVID-19
on the portfolio which included reports
on any operational disruption to the
underlying investments and the impact
on the projected cash flows from the
investments as part of the Investment
Manager’s valuation updates.
The Investment Manager provided
analysis on these projections at various
points through the year that considers
the potential impact of the Company’s
principal risks actually occurring in
severe but plausible downside scenarios.
The Audit and Risk Committee had the
opportunity to review and challenge the
scenario analysis which included the
potential adverse impact of the scenarios
detailed below on the Company’s
projected near-term, medium and long-
term cash flows and the associated
effect on ability to pay dividends, to settle
ordinary liabilities and on earnings and
the NAV.
Scenarios Reviewed and Impact
The Investment Manager selected these
scenarios on the basis that each could
be reasonably assumed as a downside,
but plausible impact caused by market
factors, including the knock-on effect
of the COVID-19 pandemic and global
recession, affecting the Company
directly or indirectly
• significant rising of EU-ETS costs in
Spain of 50-75% above prevailing
costs, lasting over the medium term
without enacting mitigating options,
resulting in a c. 5% reduction in
value of the Portfolio Valuation and
therefore NAV of the Company;
• US corporation tax rate rises of 5%,
resulting in a c.2.5% reduction in
value of the Portfolio Valuation and
therefore NAV of the Company;
• counterparty credit deterioration as
a result of a particularly challenging
macro-economic environment
for smaller non-investment grade
counterparties, including supply
chain issues, rising inflation, rising
interest rates and market liquidity,
resulting in an assumed permanent
loss in revenues from approximately
20% of underlying customers and
approximately 15% reduction in
value of the Portfolio Valuation and
therefore NAV of the Company;
• extreme challenging operational
environment resulting in zero
demand for energy services at
Ironside and PCI, two of the five
investments in Primary Energy, with
immediate and permanent effect,
resulting in a c. 5% reduction in
value of the Portfolio Valuation and
therefore NAV of the Company.
The Audit and Risk Committee reviewed
and challenged the Investment Manager
on each of the scenarios presented,
including reviewing the likelihood of
the risks of the scenarios materialising
and the potential mitigants that the
Investment Manager may apply
to reduce any potential downside
risk. The Audit and Risk Committee
concluded that the scenarios, each
prepared individually, demonstrated
good resilience of the Company against
adverse factors impacting its portfolio.
The Investment Manager also provided
the Audit and Risk Committee with a
severe scenario that calculated the
extent of the loss in revenue required
to threaten the Company’s solvency.
The outcome of this scenario provided
comfort that the Company should remain
viable over the period assessed.
Confirmation of viability
Based on the reviews conducted
throughout the year, the Directors
confirm that they have a reasonable
expectation that the Company will be
able to continue in operation and meet
its liabilities as they fall due over the
period to 31 March 2027.
On behalf of the Board
Tony Roper
Chair
3.4 Viability Statement
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4. Board and Governance
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 61
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62 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
Appointed: 12 October 2018
Tony started his career as a structural
engineer with Ove Arup and Partners in
1983. In 1994 he joined John Laing plc
to review and make equity investments
in infrastructure projects both in the UK
and abroad and then in 2006 he joined
HSBC Specialist Investments to be the
fund manager for HSBC Infrastructure
Company Limited (now HICL Infrastructure
plc). In 2011, Tony was part of the senior
management team that bought HSBC
Specialist Investments from HSBC,
renaming it InfraRed Capital Partners.
Tony was a managing partner and a senior
member of the infrastructure management
team at InfraRed Capital Partners until
June 2018 during which time he oversaw
the successful launch of The Renewables
Infrastructure Group on the London Stock
Exchange.
Tony is the chair of abrdn European
Logistics Income plc.
Tony has a master’s degree in engineering
from University of Cambridge and is an
ACMA.
Appointed: 12 October 2018
Helen joined Climate Group in March 2017
as Chief Executive Officer. Climate Group
is an international non-profit organisation
with a mission to drive climate action, fast.
In addition to leading the growing Climate
Group team, Helen sits on the board of
the We Mean Business Coalition, and the
Mission Council for Pukka Herbs.
Prior to joining the Climate Group, Helen
worked at Forum for the Future where
she founded the organisation’s US office.
At Forum, Helen led work with large US
corporations such as Target, Walmart,
Nike, Gap, and Levi Strauss & Co. to
solve complex sustainability challenges.
Helen joined Forum from Médecins
Sans Frontières where she worked on
humanitarian missions in countries
including Democratic Republic of Congo,
Sudan, Pakistan and Nigeria.
Helen qualified as a Chartered Accountant
with Deloitte and has an undergraduate
degree in Philosophy from Cambridge
University, and a master’s degree from
Birkbeck College, University of London.
Anthony (Tony) Roper
Independent Non-Executive Chair
Helen Clarkson
Independent Non-Executive Director,
Management Engagement Committee
chair
During the year, following a
recruitment process, Sarika Patel
was appointed as a Director of the
Company on 1 January 2022 and
replaced Helen Clarkson as chair of
the Audit and Risk Committee. With
effect from 1 January 2022, Helen
Clarkson was appointed as the chair
of the Management Engagement
Committee.
The Directors are of the opinion
that the Board as a whole has
an appropriate balance of skills,
experience and diversity.
As at the date of this
Annual Report, the
Board consists of
five Directors who
have complementary
and relevant skills
and backgrounds.
4.1 Board of Directors
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Appointed: 21 October 2020
Emma is an experienced director
having worked in both the UK and North
America. She has broad capital markets
and significant international investment
expertise, gained as both an executive
and non-executive director. From 2002
to 2013 Emma was a founding partner
of Oriel Securities, which was sold to
Stifel Corporation, and in her early career
she worked for HSBC James Capel and
Schroders.
Emma currently serves as a non-executive
director of St James’s Place plc and of
IA Financial Group (listed on the TSX in
Canada). She is also a director of privately
owned ED&F Man Holdings and serves on
the board of Claridge, a private investment
firm, and on the board of one of its largest
individual investments.
Emma has a master’s degree in Latin and
Greek from the University of Oxford.
Emma Griffin
Independent Non-Executive Director,
Remuneration Committee chair
Appointed: 12 October 2018
Chris has over 40 years’ experience in
projects, infrastructure, and environmental
finance and economics. He spent the
majority of his career to date at the European
Investment Bank, heading the infrastructure
and environmental investment funds
business from 2005 to 2017. In this capacity,
he had pan-European responsibility for a
diverse portfolio of activities, including equity
funds for infrastructure and clean energy,
energy efficiency, carbon finance, natural
capital and structured finance.
From 2000 to 2005 he led the lending
operations team responsible for EIB’s
financing in the transport and infrastructure
sectors in Spain, closing €4-5bn of financing
annually for Europe’s largest national
infrastructure programme, much of it in
public-private partnership form. He spent
the 1990s in similar jobs throughout central
Europe, Finland and Greece, and the 1980s
in Africa and the Caribbean. Prior to his time
at EIB he worked for the Lesotho National
Development Corporation, the European
Commission and Lazard Brothers.
Chris also serves as non-executive director
on a number of private equity and debt
funds pursuing ESG and impact strategies
in Europe, Latin America, Africa and Asia.
He is also a member of various advisory
committees including that for the Climate
Bond Initiative and the OECD Centre for
Green Finance & Investment.
Chris holds degrees in Economics and
Management from the University of Durham.
Appointed: 1 January 2022
Sarika Patel joined the Board as an
independent non-executive director of the
Company and chair of the Audit and Risk
Committee on 1 January 2022.
Sarika has over 30 years’ experience in a
mixture of public and private organisations.
She is a non-executive director and chairs
the Audit committees at Foresight Forestry
Fund plc, Sequoia Economic Infrastructure
Income Fund Limited, and abrdn Equity
Investment Trust. Sarika is the chair of
Action for Children and is a board member
of the Office for Nuclear Regulation where
she chairs the Audit, Risk and Assurance
Committee.
She is a Chartered Accountant and a
Chartered Marketer and is a double
graduate in Law and Commerce.
Christopher (Chris) Knowles
Senior Independent Non-Executive
Director
Sarika Patel
Independent Non-Executive Director,
Audit and Risk Committee chair
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4.2 Report of the Directors
The Directors are pleased to present the Annual Report
for the year ended 31 March 2022. In accordance with
the Companies Act 2006 (as amended), the Listing Rules
and the Disclosure Guidance and Transparency Rules,
the Corporate Governance Statement, the Directors’
Remuneration Report, the Audit and Risk Committee
Report, the Nomination Committee Report and the
Statement of Directors’ Responsibilities should be read in
conjunction with one another and the Strategic Report.
As permitted by legislation, some of the matters normally
included in the Directors’ Report have instead been
included in the Strategic Report, as the Board considers
them to be of strategic importance. Therefore, a review of
the business of the Company, recent events and outlook
can be found in Section 2 Strategic Report: The Company,
along with information regarding environmental, social and
governance issues.
Corporate Governance
The Company’s Corporate Governance Statement is set out
in Section 4.3 Corporate Governance Statement and forms
part of this report.
Details regarding independent professional advice and
insurance are set out in Section 4.3 Corporate Governance
Statement.
Principal Activity
The Company is a closed-ended UK investment trust that
invests in energy efficiency infrastructure projects. Further
details can be found in the Strategic Report. The Directors
do not anticipate any change in the principal activity of the
Company in the foreseeable future.
Investment Trust Company Status
The Company has been approved as an investment trust
under Sections 1158/1159 of the Corporation Tax Act
2010. The Company is required to meet relevant eligibility
conditions and ongoing requirements as an investment
trust, in particular that the Company must not retain more
than 15% of its eligible investment income. The Directors
are of the opinion, following advice from the Investment
Manager, that the Company continues to conduct its affairs
as an Approved Investment Trust under the Investment
Trust (Approved Company) (Tax) Regulations 2011.
Directors
The Directors in office at the date of this report and their
biographical details are shown in Section 4.1 Board of
Directors.
Details of the Directors’ terms of appointment can be
found in Section 4.3 Corporate Governance Statement.
The beneficial interest of the Directors and their connected
persons in the ordinary shares of the Company are set out
in Section 4.6 Directors’ Remuneration Report.
The Investment Manager
The Company and the Investment Manager entered into
the Investment Management Agreement pursuant to which
the Investment Manager has been given responsibility,
subject to the overall supervision of the Board, for active
discretionary investment management of the portfolio in
accordance with the Company’s investment objective and
policy.
The Investment Manager is authorised and regulated as an
‘‘alternative investment fund manager’’ (‘‘AIFM’’) by the FCA
and, as such, is subject to the FCA Rules in the conduct of
its investment business.
As the entity appointed responsible for risk management
and portfolio management, the Investment Manager is
the Company’s AIFM. The Investment Manager has full
discretion under the Investment Management Agreement
to make investments in accordance with the Company’s
Investment Policy. This discretion is, however, subject to:
(i) the Board’s ability to give instructions to the Investment
Manager from time to time; and
(ii) the requirement of the Board to approve certain
investments where the Investment Manager has a
conflict of interest in accordance with the terms of the
Investment Management Agreement.
The Investment Manager also has responsibility for
financial administration and investor relations, advising
the Company and its group in relation to the strategic
management of the Portfolio, advising the Company in
relation to any significant investments and monitoring the
Company’s funding requirements.
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The Board keeps the performance of the Investment
Manager under continual review. The Directors believe that
the continuing appointment of the Investment Manager, on
the agreed terms, is in the best interest of the Company and
its shareholders as a whole.
Further information on the SDCL group can be found at
their website: https://www.sdclgroup.com/
AIFM Requirements
AIFM requirements have continued to apply since 1 January
2021 (Brexit), through existing transposed rules replicating
the EU AIFM Directive, within the rules of the UK’s FCA.
AIFM requirements impose detailed and prescriptive
obligations on fund managers, including prescriptive rules
on measuring and capping leverage, the treatment of
investors, liquidity management, the use of ‘‘depositaries’’
and cover for professional liability risks. The AIFM
requirements further impose conditions on the marketing of
entities such as the Company to investors in the UK.
Independent Auditor and Disclosure of
Information
PricewaterhouseCoopers LLP has expressed its willingness
to continue in office as independent auditor of the Company
and resolutions for its re-appointment and to authorise the
Audit and Risk Committee to determine its remuneration will
be proposed at the forthcoming AGM.
Further information about the Company’s independent
auditor, including tenure, can be found in the Section 4.5
Audit and Risk Committee’s Report.
Financial Risk Management
The principal risks and uncertainties facing the Company
are set out in Section 3.3 Risk Management. Information
about the Company’s financial risks and policies for
managing these risks are set out in Note 13 to the financial
statements.
Foreign Account Tax Compliance Act (“FATCA”)
and the OECD Common Reporting Standards
(“CRS”)
The Board, in conjunction with the Company’s service
providers and advisers, will ensure the Company’s
compliance with FATCA and CRS requirements to the
extent relevant to the Company.
Share Capital
The issued share capital of the Company as at 31 March
2022 and at the date of this report was 990,288,000 ordinary
shares and the total voting rights of the Company were
990,288,000.
The Company has one class of ordinary shares which carry
no rights to fixed income and have no restrictions attached
to them. Shareholders are entitled to all dividends paid by
the Company and, on a winding up, provided the Company
has satisfied all of its liabilities, the shareholders are entitled
to all of the surplus assets of the Company.
Shareholders are entitled to attend and vote at all general
meetings of the Company and, on a poll, to one vote for
each ordinary share held.
Articles of Association
The Company’s Articles of Association may be amended
by the shareholders of the Company by special resolution
(requiring a majority of at least 75% of the persons voting on
the relevant resolution). A resolution will be proposed at the
forthcoming AGM of the Company to amend the Articles of
the Company in relation to a proposed change on the cap
on Directors’ remuneration. Further details on the proposed
changes to Director’s remuneration can be found in the
Directors’ Remuneration Report.
Share Repurchases
At the AGM held on 10 August 2021, the Company was
granted the authority to purchase up to 14.99% of the
Company’s ordinary share capital in issue at the date that
the AGM notice was published, amounting to 101,495,361
ordinary shares. No ordinary shares have been bought
back under this authority. Renewal for this authority will be
sought at the forthcoming AGM.
Significant Voting Rights
As at 31 March 2022, the Company is aware or had been
informed of the following notifiable interests in the voting
rights of the Company, in accordance with Disclosure
Guidance and Transparency Rule 5.1.2:
Number of
Ordinary
shares held
% of voting
rights
Investec Wealth & Investment
Limited
125,001,255 12.62
M&G plc 99,449,992 11.00
BlackRock, Inc. 100,716,725 10.16
4.2 Report of the Directors
continued
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The Company has been informed of the following changes
to notifiable interests between 31 March 2022 and the date
of this report:
Number of
Ordinary
shares held
% of voting
rights
M&G plc
109,973,279 11.10
Blackrock, Inc.
98,826,933 9.97
Dividends to Shareholders
The Company’s policy is to pay interim dividends on a
quarterly basis so typically there is no final dividend payable.
The total aggregate interim dividends attributable to
shareholders for the year amounted to £44.2 million (2021:
£30.4 million).
Details of the interim dividends paid during the year under
review are noted in the table below:
Dividend Year ended
Dividend per
share
Fourth interim dividend 31 March 2021 1.375p
First interim dividend 31 March 2022 1.405p
Second interim dividend 31 March 2022 1.405p
Third interim dividend 31 March 2022 1.405p
On 16 June 2022, the Board declared a fourth interim
dividend of 1.405p per share with respect to the year ended
31 March 2022, payable on 30 June 2022.
Going Concern
The Company’s business activities, together with the factors
likely to affect its future development, performance and
position are set out in Section 2.3 Investment Manager’s
Report.
The financial position of the Company, its cash flows,
liquidity position and borrowing facilities are described
in Section 3.1 Financial Review. In addition, notes to the
financial statements include the Company’s objectives,
policies and processes for managing its capital; its
financial risk management objectives; details of its financial
instruments and hedging activities; and its exposures to
credit risk and liquidity risk.
The Company has prepared, and the Directors have
reviewed a cash flow forecast covering the minimum period
of twelve months from the date of approval of this report,
taking into consideration potential changes in investment
and trading performance and applying a 10% reduction
in revenues to test the resilience of cash flows in the near
term. The forecast demonstrates an expectation to continue
to generate positive cash flows for the foreseeable future
that as a minimum will meet liabilities as they fall due.
The Company’s portfolio of investments benefit from
a range of long-term contracts with a diversified set of
counterparties across multiple sectors and jurisdictions.
A key risk facing the Company is that counterparties to
the investments may not be able to make their contractual
payments. The Directors reviewed a severe downside
scenario where the Company would not receive any further
income from its investment for the next 12 months from
signing of the financial statements and taking into account
all committed payments for running the Company, the
Company would have sufficient cash reserves to continue
as a going concern.
As at 31 March 2022, the Company’s net current
assets were £144.9 million, including cash balances of
£146.1 million. Further amounts of cash are held by the
Company’s direct and indirect subsidiaries, which are
sufficient to meet current obligations as they fall due. The
major cash outflows of the Company are the payment of
dividends and payments relating to the investment in new
assets, both of which are discretionary.
The Company’s single subsidiary, SEEIT Holdco, has a RCF
that has adequate headroom in its covenants that have
been tested for historic and forward interest cover and
group loan to value limits. As at 31 March 2022, the facility
was undrawn. The Company is a guarantor to the RCF
(seeNote 17) but has no other guarantees or commitments.
Accordingly, the Directors believe that it is appropriate to
continue to adopt the going concern basis in preparing the
financial statements.
4.2 Report of the Directors
continued
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Directors’ Responsibilities Pursuant to
Section172 of the Companies Act 2006
The Directors fulfilled their duties under Section 172 of the
Companies Act 2006 to act in good faith and to promote
the success of the Company for the benefit of shareholders
as a whole. See Section 2.7 Stakeholders & Section 172 for
further details.
Employees and Officers of the Company
The Company does not have any employees and therefore
employee policies are not required. The Directors of the
Company who were in office during the year and up to
the date of signing the financial statements are listed in
Section4.1 Board of Directors.
Greenhouse Gas Emissions
Information about the Company’s greenhouse gas
emissions are set out in Section 2.4 ESG Management.
Political Donations
The Company made no political donations during the year
or the preceding year.
Anti-bribery and Tax Evasion
The Company is committed to ensuring that the Company,
its subsidiaries, partners, agents and anyone contracted
to it, including by the Company’s Investment Manager and
key service providers, complies with the requirements of
the UK Bribery Act 2010 or equivalent legislation in other
jurisdictions.
The Criminal Finances Act (“CFA”) (Commencement No. 1)
Regulations 2017 (SI 2017/739) brought Part 3 of the CFA,
the corporate offences of failure to prevent facilitation of tax
evasion, into force on 30 September 2017. The Company
does not tolerate tax evasion in any of its forms in its group
or the project companies in which it invests. The Company
complies with the relevant UK law and regulation in relation
to the prevention of facilitation of tax evasion and supports
efforts to eliminate the facilitation of tax evasion worldwide.
It also works to make sure its business partners share this
commitment.
The Company’s Anti-Bribery and Criminal Finances policy is
published on the Company’s website. These statements are
regularly reviewed by the Board.
Requirements of the Listing Rules
Listing Rule 9.8.4 requires the Company to include certain
information in a single identifiable section of the Annual
Report or a cross-reference table indicating where the
information is set out. The Directors confirm that there are no
matters requiring disclosure in relation to Listing Rule 9.8.4.
The Report was approved by the Board on 30 June 2022
and signed on its behalf by:
Tony Roper
Chair
4.2 Report of the Directors
continued
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4.3 Corporate Governance Statement
This Corporate Governance Statement forms
part of the Directors’ Report.
The Board of Directors has considered the Principles and
Provisions of the Association of Investment Companies
(“AIC”) Code published in February 2019. The AIC Code
addresses the Principles and Provisions set out in the UK
Corporate Governance Code 2019 (the UK Code) published
in July 2018, as well as setting out additional Provisions on
issues that are of specific relevance to the Company.
Statement of Compliance with the AIC Code
The Board recognises the importance of sound corporate
governance culture that meets the requirements of the UK
Listing Authority and the AIC Code.
As an AIC member, the Company has considered the
Principles and Provisions of the AIC Code. The AIC Code
addresses the Principles and Provisions set out in the
UK Corporate Governance Code (the UK Code). The
Board considers that reporting against the Principles and
Provisions of the AIC Code, which has been endorsed by the
Financial Reporting Council (FRC), provides more relevant
information to shareholders. The UK Code can be found
at www.frc.org.uk.
The Company has complied with the Principles and
Provisions of the AIC Code. In respect of the UK Code, the
following items are not considered to be relevant (and so
are not reported on further) due to the Company being an
externally managed investment Company with no executive
directors or employees:
■ The role of the chief executive;
■ Executive Directors’ remuneration; and
■ The need for an internal audit function
The AIC Code is available on the AIC website
(www.theaic.co.uk). It includes an explanation of how
the AIC Code adapts the Principles and Provisions set
out in the UK Code to make them relevant for investment
companies.
Set out below are the full details of how the Company has applied the Principles of the AIC Code:
AIC Code Principle Compliance Statement
A
A successful company is led by an effective Board, whose
role is to promote the long-term sustainable success
of the company, generating value for shareholders and
contributing to wider society.
In managing the Company, the aim of the Board and of
the Investment Manager is always to ensure the long-term
sustainable success of the Company and, therefore, the
likely long-term consequences of any decision are a key
consideration.
B
The Board should establish the Company’s purpose,
values and strategy, and satisfy itself that these and its
culture are aligned. All Directors must act with integrity,
lead by example and promote the desired culture.
The Company’s investment objective is to generate an
attractive total return for investors comprising stable
dividend income and capital preservation, with the
opportunity for capital growth.
The Board seeks to ensure the alignment of its purpose,
values and strategy with a culture of openness, debate and
integrity through ongoing dialogue and engagement with
its stakeholders. The Directors aim to achieve a supportive
business culture combined with constructive challenge
and to provide a regular flow of information to shareholders
and other stakeholders.
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AIC Code Principle Compliance Statement
C
The Board should ensure that the necessary resources
are in place for the company to meet its objectives and
measure performance against them. The Board should
also establish a framework of prudent and effective
controls, which enable risk to be assessed and managed.
The Directors regularly consider the Company’s financial
position in the context of its business model, the balance
sheet, cash flow projections, availability of funding and the
Company’s contractual commitments.
The Company is subject to various risks in pursuing its
objectives and in order to effectively assess and manage
risk, appropriate controls and policies are in place which
are regularly reviewed and assessed by the Audit and Risk
Committee. These are detailed in the Strategic Report in
Section 3.3 Risk Management, in Section 4.5 Audit and
Risk Committee Report and in Note 13 to the financial
statements.
The Directors confirm they have carried out a robust
assessment of the emerging and principal risks facing the
Company, including those that would threaten its business
model, future performance, solvency or liquidity. See
Section 3.3 Risk Management for further details.
The Directors have assessed the prospects of the
Company over a five-year period to 31 March 2027. The
Directors have determined that a viability statement for
a five-year period is appropriate as this period accords
with the Company’s business planning exercises and is
appropriate for the investments owned by the Company
and the nature of the Company.
See Section 3.4 Viability Statement for further details on
the Viability Statement.
D
In order for the company to meet its responsibilities to
shareholders and stakeholders, the Board should ensure
effective engagement with, and encourage participation
from, these parties.
The Company describes its key stakeholders, the
reason they are important and how it seeks to gain an
understanding of their interests and how the Board
engages with them. See Section 2.7 Stakeholders &
Section 172 for further details.
F
The Chair leads the Board and is responsible for its overall
effectiveness in directing the company. They should
demonstrate objective judgement throughout their tenure
and promote a culture of openness and debate. In addition,
the Chair facilitates constructive Board relations and the
effective contribution of all non-executive Directors, and
ensures that Directors receive accurate, timely and clear
information.
The role and responsibilities of the Chair are described
in Section 4.3 Corporate Governance Statement. The
Company recognises that the Chair leads the Board and
is responsible for its overall effectiveness in directing the
affairs of the Company.
The annual evaluation of the Board’s effectiveness always
considers the performance of the Chair, and whether
they have performed their role effectively. The Directors
have concluded that the Chair has fulfilled their role and
performed well to support effective functioning of the
Board as evidenced in the third-party Board evaluation that
took place during the latter part of the financial year.
G
The Board should consist of an appropriate combination
of directors (and, in particular, independent non-executive
Directors) such that no one individual or small group of
individuals dominates the Board’s decision making.
During the year under review, the Board consisted only
of non-executive Directors and all of the Directors are
deemed to be independent of the Investment Manager.
In the Board’s opinion, each Director continues to provide
constructive challenge and robust scrutiny of matters that
come before the Board.
The Board also considers the composition of the Board as
well as longer-term succession plans and during the year
added a fifth Director.
4.3 Corporate Governance Statement
continued
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AIC Code Principle Compliance Statement
H
Non-executive Directors should have sufficient time to
meet their Board responsibilities. They should provide
constructive challenge, strategic guidance, offer specialist
advice and hold third-party service providers to account.
The Board considers the required time commitment
annually and, during the year under review, the Board
concluded that all Directors continued to devote sufficient
time to the business of the Company. Through their
contributions in meetings as well as outside of the usual
meeting cycle, the Directors share their experience and
guidance with, as well as constructively challenge, the
Investment Manager.
The Management Engagement Committee annually
assesses the performance of all third-party service
providers.
I
The Board, supported by the Company Secretary, should
ensure that it has the policies, processes, information, time
and resources it needs in order to function effectively and
efficiently.
The Board’s responsibilities are set out in the schedule of
Matters Reserved for the Board and certain responsibilities
are delegated to its Committees, so that it can operate
effectively and efficiently.
All Board policies were reviewed and where appropriate,
updated during the year and are continued to be reviewed
on a regular basis. Directors are also provided with any
relevant information and have access to the Company
Secretary and independent advisers, if required.
J
Appointments to the Board should be subject to a formal,
rigorous and transparent procedure, and an effective
succession plan should be maintained. Both appointments
and succession plans should be based on merit and
objective criteria and, within this context, should promote
diversity of gender, social and ethnic backgrounds,
cognitive and personal strengths.
The Company is committed to ensuring that any vacancies
arising are filled by suitably qualified candidates.
The Board has adopted a Diversity Policy, which
acknowledges the benefits of greater diversity, and
remains committed to ensuring that the Company’s
Directors bring a wide range of skills, knowledge,
experience, backgrounds and perspectives to the Board.
The appointment of a new Director during the year
followed a structured and transparent process as
described further below. The Company’s policy on the
tenure of Directors also helps guide long-term succession
plans and recognises the need and value of progressive
refreshing of the Board. Both policies are described in more
detail in the Nomination Committee Report.
K
The Board and its committees should have a combination
of skills, experience and knowledge. Consideration should
be given to the length of service of the Board as a whole
and membership regularly refreshed.
The Nomination Committee, which comprises the whole
Board, is responsible for identifying and recommending to
the Board the appointment of new Directors.
The Nomination Committee reviews, at least annually, the
key skills and experience of each Director and the skills
matrix is reviewed at least once per year to ensure that
the Board has an appropriate mix of skills and experience
particularly when considering longer-term succession
plans.
4.3 Corporate Governance Statement
continued
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AIC Code Principle Compliance Statement
L
Annual evaluation of the Board should consider its
composition, diversity and how effectively members work
together to achieve objectives. Individual evaluation should
demonstrate whether each director continues to contribute
effectively.
The Directors are aware that they need to monitor and
improve Board performance continuously and recognise
that this can be achieved through regular Board evaluation,
which provides a valuable feedback mechanism for
improving Board effectiveness.
The Board has agreed that an external Board evaluation
will be carried out every three years and, in the intervening
years, evaluations will be carried out by means of
questionnaires and interviews.
An external evaluation of the performance of the Board, its
Committees and individual Directors took place during the
year, by an external performance evaluator, Fletcher Jones.
The next external evaluation is due to take place in 2025.
Further details of the results of the Board evaluation
process can be found in the Nomination Committee report.
M
The Board should establish formal and transparent
policies and procedures to ensure the independence and
effectiveness of external audit functions and satisfy itself
on the integrity of financial and narrative statements.
The Audit and Risk Committee supports the Board in
fulfilling its oversight responsibilities by reviewing the
performance of the external Auditor, audit quality, as well
as the Auditor’s objectivity and independence. The Audit
and Risk Committee also reviews the integrity and content
of the financial statements, including the ongoing viability
of the Company.
More details can be found in the Audit and Risk
Committee’s Report.
N
The Board should present a fair, balanced and
understandable assessment of the company’s position and
prospects.
The Audit and Risk Committee supports the Board in
assessing that the Company Annual Report presents a
fair, balanced and understandable assessment of the
Company’s position and prospects.
Please refer to the Audit and Risk Committee Report for
further information.
O
The Board should establish procedures to manage risk,
oversee the internal control framework, and determine
the nature and extent of the principal risks the company
is willing to take in order to achieve its long-term strategic
objectives.
The work of the Audit and Risk Committee, that
supports the Board through its independent oversight
of the financial reporting process, including the
financial statements, the system of internal control and
management of risk, the appointment and ongoing
review of the quality of the work and independence of the
Company’s external Auditor, is described in the Report of
the Audit and Risk Committee Report.
P
Remuneration policies and practices should be designed
to support strategy and promote long-term sustainable
success.
The Directors are all non-executive and independent
of the Investment Manager. They receive fees and no
component of any Director’s remuneration is subject
to performance factors. Whilst there is no requirement
under the Company’s Articles of Association or letters of
appointment for Directors to hold shares in the Company,
4 of the 5 Directors do hold shares in the Company and the
details of their shareholdings are set out in the Directors’
Remuneration Report.
4.3 Corporate Governance Statement
continued
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AIC Code Principle Compliance Statement
Q
A formal and transparent procedure for developing a policy
for remuneration should be established. No director should
be involved in deciding their own remuneration outcome.
As the Company has no employees and the Board is
comprised wholly of non-executive Directors, the Board
has established a separate Remuneration Committee.
Directors’ remuneration is determined by the Committee,
at its discretion within an aggregate ceiling as set out
in the Company’s Articles of Association. Each Director
abstains from voting on their own individual remuneration.
The details of the Remuneration Policy and Directors fees
can be found in the Directors’ Remuneration Report. The
terms and conditions of the Directors’ appointments are
set out in Letters of Appointment, which are available
for inspection on request at the registered office of the
Company.
R
Directors should exercise independent judgement and
discretion when authorising remuneration outcomes,
taking account of company and individual performance,
and wider circumstances.
The process of reviewing the Directors’ fees is described
in the Directors’ Remuneration Report, although because
there are no performance related elements of the
remuneration, there is very little scope for the exercise of
discretion or judgement.
UK Corporate Governance Code Principle E relates to the treatment of employees and so is generally not applicable to companies under the AIC Code if, as in
the case of the Company, there are no employees.
The Board of Directors
The Directors of the Company who were in office during the
year and up to the date of signing the financial statements
are listed on pages 62 to 63.
Board Independence
The Board consists of five independent non-executive
Directors, who were considered independent of the
Investment Manager at the time of their appointment. The
independence of the Directors is reviewed as part of the
annual evaluation process and, in line with the guidelines of
the AIC Code, continues to be considered independent in
character and judgement and entirely independent from the
Investment Manager.
Appointment of New Directors
Any appointments to the Board are subject to a formal,
rigorous and transparent procedure. The Nomination
Committee is responsible for satisfying itself that there
is succession planning in place for Directors to ensure
continued refreshment of the Board; identifying and
nominating appointments to the Board for their approval
and are also responsible for identifying and nominating
candidates to fill Board vacancies, as and when they arise.
As part of the appointment process, the Nomination
Committee:
■ evaluates the balance of skills, knowledge and
experience on the Board;
■ will draw up a description of the role including the
capabilities required and use an external search
consultancy in the search for candidates; and
■ will ensure that appointments are made based on
merit and after assessing candidates by means of
objective criteria, ensuring that appointees have enough
time available to devote to the position, and also set
out the terms and conditions of the appointment
of non-executive Directors setting out clearly what
is expected of them in terms of time, commitment,
committee service and involvement outside Board
meetings.
Induction Process
New appointees to the Board are provided with a full
induction programme.
The programme covers the Company’s investment strategy,
policies and practices. The Directors are also given key
information on the Company’s regulatory and statutory
requirements as they arise, including information on the role
of the Board, matters reserved for its decision, the terms
of reference for the Board Committees, the Company’s
corporate governance practices and procedures and the
latest financial information.
Terms of Appointment
The terms of appointment of the Directors are formalised
in letters of appointment, copies of which are available for
inspection at the Company’s registered office. None of the
4.3 Corporate Governance Statement
continued
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Directors has a contract of service with the Company nor
has there been any other contract or arrangement between
the Company and any Director at any time during the year.
Re-Election
The Articles of Association provide that each of the
Directors shall retire at each AGM. All Directors, including
Sarika Patel who was appointed during the year, intend to
retire at the forthcoming AGM and offer themselves for
re-election. In the case of Sarika Patel, she will be offering
herself for election.
As set out further below, the Board carries out an annual
review of each Director and the Board, as a whole. The
Board believes that the balance of skills, gender, experience
and knowledge of the current Board provides for a sound
base from which the interests of investors will be served to
a high standard.
The Board recommends the election of Sarika Patel and the
re-election of all other Directors at the forthcoming AGM.
Board Responsibilities
Under the leadership of the Chair, the Board is responsible
for the effective stewardship of the Company’s affairs,
including strategy, corporate governance, risk assessment
and overall investment policy.
Role and Responsibilities of the Chair
The Chair leads the Board and is responsible for its overall
effectiveness in directing the affairs of the Company. Key
aspects of the Chair’s role and responsibilities are to:
■ act with objective judgement;
■ promote a culture of openness and debate;
■ facilitate constructive Board relations and the effective
contribution of all Directors;
■ work with the Company Secretary to ensure that all
Directors receive accurate and timely information so
that they can discharge their duties;
■ seek regular engagement with the Company’s
shareholders; and
■ act on the results of the annual evaluation of the
performance of the Board, its Committees and
individual Directors.
The Chair, Tony Roper, met the independence criteria upon
appointment and has continued to meet this condition
throughout his term of service.
Role and Responsibilities of the Senior
Independent Director
The key elements of the Senior Independent Director’s role
are to:
■ act as a sounding board for the Chair;
■ lead the annual evaluation of the Chair as part of the
annual evaluation process;
■ in the event of any major difference of opinion on
the direction of the Company, act as an intermediary
between the Chair, other Directors and the Investment
Manager; and
■ provide a conduit for views of shareholders in the event
that the usual channels are not available or not suitable
in the circumstances.
Chris Knowles was appointed as Senior Independent
Director at IPO.
The complete responsibilities of the Chair and Senior
Independent Director are available on the Company’s
website.
Delegation of Responsibilities
The Board has delegated the following areas of
responsibility to a number of service providers, each
engaged under separate contracts:
The day-to-day administration of the Company has been
delegated to Sanne Group Secretaries (UK) Limited in its
capacity as Company Secretary and Sanne Group Fiduciary
Services (UK) Limited as Administrator (the ‘Company
Secretary’ and/or ‘Administrator’).
The Board has access to the Company Secretary to advise
on all governance and day-to-day administrative matters.
The Company Secretary is also responsible to the Board for
guaranteeing that statutory obligations are met.
The management of the Company’s portfolio is delegated
to the Investment Manager, Sustainable Development
Capital LLP.
The Investment Manager has full discretion (within agreed
parameters) to make investments in accordance with the
Company’s Investment Policy and has responsibility for
financial administration and investor relations, in addition to
advising the Board in relation to further capital raisings and
the payment of dividends amongst other matters, subject to
the overall supervision and oversight of the Board.
4.3 Corporate Governance Statement
continued
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Among the specific tasks of the Investment Manager are
the overall financial management of the Company and
existing portfolio as a whole, including the deployment of
capital, management of the SEEIT group’s debt facilities,
hedging arrangements, the sourcing of new investments,
operating the risk management framework, preparing
the semi-annual valuations, the statutory accounts, the
management accounts, business plans, presenting results
and information to shareholders, coordinating all corporate
service providers to the Company and giving the Board
general advice.
Members of the Investment Manager are also appointed
as directors of the SEEIT group’s project companies and/
or intermediate holding companies and as part of their
role in managing the portfolio, they attend board meetings
of these companies and make appropriate decisions.
Material decisions are referred back to the Investment
Manager’s Investment Committee for consideration, and
the Company’s Board is consulted on key matters relevant
to the Company’s strategy, policies or overall performance,
both on an ad hoc basis where required and during formal
reporting sessions, including all matters outside the
Investment Manager’s delegated authority.
Board and Chair Tenure Policy
The Board’s policy regarding tenure of service of the
Directors including its Chair, is that any decisions regarding
tenure should balance the benefits of continuity and
knowledge and the orderly transition of responsibilities
through succession plans for the retirement and
appointment of Directors against the need to periodically
refresh the Board composition to maintain an appropriate
mix of the required skills, experience, diversity and length
of service. The Board considers each of the Directors’
independence carefully on an annual basis as part of the
Board self-evaluation and succession planning process.
It is not envisaged that any Board members will continue on
the Board past 9 years, except where required by Company
circumstances at that time (and then only for a limited
period), to be agreed by the Board as a whole, taking into
account their independence and the need to balance this
against the benefits of maintaining continuity, knowledge
and experience.
Culture
The culture of the Board is considered as part of the
annual performance evaluation process that is undertaken
by each Director. The culture of the Company’s service
providers, including their policies, practices and behaviour,
is considered by the Board as a whole during the annual
review of the performance and continuing appointment of
all service providers. Further information on the Company’s
culture and values and engagement with its service
providers and other stakeholders is set out in Section 2.7
Stakeholders and Section 172.
Diversity
Diversity, including, but not limited to, gender, ethnicity,
professional and industry specific knowledge, is an
important consideration in ensuring that the Board and its
Committees have the right balance of skills, experience,
independence and knowledge necessary to discharge their
responsibilities. The right blend of perspectives is critical to
ensuring an effective Board and a successful Company.
The Board has adopted a Diversity Policy and considers
that its composition with respect to the balance of skills,
ethnicity and cultural diversity, gender, experience and
knowledge, coupled with a mixed length of service,
provides for a sound base from which the interests of
shareholders will be served to a high standard.
The Board of Directors comprised five independent
non-executive Directors; two male and three female
(being60% female representation), as at 31 March 2022.
Matters Reserved for the Board
The Directors have adopted a formal schedule of matters
specifically reserved for their approval. The Directors have
overall responsibility for the Company’s business activities
in accordance with the Company’s Articles and Investment
Policy. The Board has delegated certain functions as
described further below and retains the right to vary the
delegation from time to time.
Reserved matters for the Board’s approval include:
■ capital raising activities;
■ declaring dividends;
■ reviewing the performance and appointments of key
service providers;
■ setting terms of references for the Board and relevant
Committees; and
4.3 Corporate Governance Statement
continued
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■ monitoring constitution and efficiency of the Board and
its Committees and key governance aspects such as
General Meetings and shareholder circulars.
Committees of the Board
The Board has four committees to assist with its operations;
the Audit and Risk Committee, the Management
Engagement Committee, the Remuneration Committee and
the Nomination Committee. Each Committee’s delegated
responsibilities are clearly defined in formal terms of
reference, which are available on the Company’s website.
The Company Secretary acts as secretary to each
Committee. No persons other than the Committee
members are entitled to attend Committee meetings unless
formally invited by the respective Committee.
Membership of the Board committee’s as at 31 March 2022 are as follows:
Audit and Risk
Committee
Remuneration
Committee
Nomination
Committee
Management
Engagement
Committee
Chair Sarika Patel* Emma Griffin Tony Roper Helen Clarkson**
Members Chris Knowles Tony Roper Helen Clarkson Tony Roper
Tony Roper Helen Clarkson Chris Knowles Chris Knowles
Emma Griffin Chris Knowles Emma Griffin Emma Griffin
Helen Clarkson** Sarika Patel* Sarika Patel* Sarika Patel*
*appointment to the committee with effect from 1 January 2022
** resignation as chair of the Audit and Risk Committee and appointment as the chair of the Management Engagement Committee with effect from 1 January 2022
Audit and Risk Committee
The Board considers that the members of the Audit and
Risk Committee have the requisite skills and experience to
fulfil the responsibilities of the committee. The Chair of the
Audit and Risk Committee has significant recent and relevant
financial experience. The Audit and Risk Committee has
direct access to the Company’s independent auditor and
provides a forum through which the independent auditor
reports to the Board. Representatives of the independent
auditor attend meetings of the Audit and Risk Committee at
least twice ayear.
Further details about the Audit and Risk Committee and
its activities during the year under review are set out in the
Audit and Risk Committee Report.
Nomination Committee
The Nomination Committee meets at least once a year to
consider Board succession planning and recruitment and
to conduct the annual Board evaluation exercise.
Further details about the Nomination Committee and its
activities during the year under review are set out in the
Nomination Committee Report.
Remuneration Committee
The Remuneration Committee meets at least once a
year and deals with matters of Directors’ remuneration.
In particular, the Remuneration Committee reviews
and makes recommendations to the Board regarding
the ongoing appropriateness and relevance of the
remuneration policy, Directors’ annual fee levels and also
considers the need to appoint independent professional
external remuneration consultants.
Further details about the Remuneration Committee
and remuneration matters are set out in the Directors’
Remuneration Report.
Management Engagement Committee
The Company has established a Management Engagement
Committee. The Board has formally delegated duties and
responsibilities within agreed written terms of reference
for the Committee, which are available on the Company’s
website.
Helen Clarkson was appointed as the chair of the
Management Engagement Committee on 1 January 2022.
As at 31 March 2022, the Management Engagement
Committee was comprised of all Directors on the Board of
the Company. The Committee meets at least once a year.
The Committee met formally once during the year to
assess the performance of the Investment Manager and
the Company’s other key third party service providers. This
annual review process includes two-way feedback, which
4.3 Corporate Governance Statement
continued
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provides the Board with an opportunity to understand the
views, experiences and any issues encountered by service
providers during the year. In addition, the Management
Engagement Committee is actively involved in reviewing
the contractual relationships of the Investment Manager
and the Company’s other key third party service providers
and ensuring the contractual terms remain aligned with the
objectives of the Company and the interests of Shareholders.
Following the Committee’s assessment of the Investment
Manager, and based on its performance, the continued
appointment of the Investment Manager is considered to
be in the interests of shareholders as a whole, and it was
recommended that SDCL continue as Investment Manager.
Meetings
The Board is scheduled to meet at least five times a year
and between these formal meetings there is regular
contact with the Investment Manager, the Administrator
and the Company’s Corporate Broker. The Directors are
kept fully informed of investment and financial controls,
and other matters that are relevant to the business of the
Company that should be brought to the attention of the
Directors.
The Board considers agenda items laid out in the notice
and agenda of any meeting which are circulated to the
Board in advance of the meeting as part of the board
papers. Directors may request any agenda items to be
added that they consider appropriate for Board discussion.
Each Director is required to inform the Board of any
potential or actual conflicts of interest prior to Board
discussion. Board meetings include a review of investment
performance and associated matters such as health and
safety, marketing, investor relations, risk management,
gearing, general administration and compliance, peer
group information and industry issues.
The number of scheduled Board committee meetings held during the year and the attendance of the Individual Directors is
shown below:
Scheduled Board
meetings
Audit and Risk
Committee
Remuneration
Committee
Nomination
Committee
Management
Engagement
No. of meetings held 5 5 1 2 1
Tony Roper 5 5 1 2 1
Helen Clarkson 5 5 1 2 1
Chris Knowles 5 5 1 2 1
Emma Griffin 5 5 1 2 1
Sarika Patel
1
1 1 1 – 1
1
appointment as a Director with effect from 1 January 2022 and attended all scheduled and ad hoc Board and Committee meetings post appointment.
During the year ended 31 March 2022, there were 24
additional ad hoc Board meetings held in order to deal with
administrative matters and these were attended by those
Directors available and/or delegated by the Board to one or
more members to action.
Insurance and Indemnity Provisions
Directors’ and Officers’ liability insurance cover is in
place in respect of the Directors. The Company’s Articles
of Association provide, subject to the provisions of UK
legislation, an indemnity for Directors in respect of costs
which they may incur relating to the defence of any
proceedings brought against them arising out of their
positions as Directors, in which they are acquitted, or
judgement is given in their favour by the Court.
Except for such indemnity provisions in the Company’s
Articles of Association and in the Directors’ letters of
appointment, there are no qualifying third-party indemnity
provisions in force.
The Board has agreed arrangements whereby Directors
may take independent professional advice in the
furtherance of their duties.
Conflicts of Interests
It is the responsibility of each individual Director to avoid
an unauthorised conflict of interest situation arising. All
Directors must inform the Board as soon as they become
aware of the possibility of an interest that conflicts, or might
possibly conflict, with the interests of the Company.
4.3 Corporate Governance Statement
continued
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A register of conflicts is maintained by the Company
Secretary and regularly reviewed by the Board to ensure
that any authorised conflicts remain appropriate. The
Directors are required to confirm at Board meetings
whether there has been any change to their position.
The Board has adopted a policy that records all gifts and
hospitality in excess of £50 accepted by the Directors from
the Company’s service providers and other relevant third
parties.
Reporting on Stakeholder Engagement
The Company sets out how it interacts and engages
with its stakeholders in Section 2.2 Investment Policy
and Approach. The stakeholder relationships identified
provide the foundation for the Company’s sustainability,
which in return provides benefits to all parties. Both the
Board and the Investment Manager value the importance
of maintaining a high standard of business conduct and
stakeholder engagement in order to ensure a positive
impact on the environment in which the Company operates.
Relations with Shareholders
The Company welcomes the views of its shareholders,
placing great importance on communication with them.
Senior members of the Investment Manager make
themselves available, as practicable, to meet with principal
shareholders and key sector analysts and feedback from
these meetings is provided to the Board. The Directors also
make themselves available to engage with shareholders
and offers meetings annually as part of good governance to
those shareholders who wish to meet them.
The Board is kept fully informed of all relevant market
commentary on the Company by the Company’s Financial
PR agency, as well as receiving relevant updates from the
Investment Manager and the Company’s Corporate Broker.
The Company reports formally to shareholders twice a year.
The results of the AGM are announced by the Company
promptly after the relevant meeting and also published on
the Company’s website. Additionally, other notices and
information are provided to shareholders on an ongoing
basis through the Company’s website in order to assist in
keeping shareholders informed.
The Company Secretary and Registrar monitor the
voting of the shareholders and proxy voting is taken into
consideration when votes are cast at the AGM.
The Company is committed to ongoing shareholder
dialogue and takes an active interest in voting outcomes.
Where there are substantial votes against any resolution at
an AGM, the Company will consider what, if any, actions it
intends to take going forward.
2021 AGM
The 2021 AGM of the Company was held on 10 August
2021. Resolutions 1 to 11 related to ordinary business and
resolutions 12 to 14 related to special business as follows:
■ to approve the purchase of the Company’s own shares;
■ to authorise the disapplication of Statutory Pre-emption
Rights; and
■ to approve that a general meeting may be convened on
not less than 14 clear days’ notice.
All votes cast were in favour and as a result each of the
resolutions proposed at the AGM were passed.
2022 AGM
The next AGM of the Company is currently scheduled to be
held on 12 September 2022.
A separate notice convening the AGM will be sent to
shareholders and published on the Company’s website in
July 2022 and will include an explanation of the items of
business to be considered at the meeting.
4.3 Corporate Governance Statement
continued
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4.4 Nomination Committee Report
Nomination Committee
The Nomination Committee is chaired by Tony Roper
and the membership of the Committee comprises all
Directors of the Company, all of whom are independent and
non‑executive.
During the year, the Nomination Committee held two
meetings. The Nomination Committee operates within
clearly defined terms of reference, which are available on
the Company’s website.
Function of the Nomination Committee
The principal duties of the Nomination Committee are to:
■ regularly review the structure, size and composition
required of the Board and make recommendations to
the Board with regard to any changes (including skills,
knowledge and experience in accordance with Principle
K of the AIC Code);
■ give full consideration to succession planning for
Directors taking into account the challenges and
opportunities facing the Company;
■ be responsible for identifying and nominating, for the
approval of the Board, candidates to fill Board vacancies
as and when they arise; and
■ ensure plans are in place for orderly succession to
the Board and oversee the development of a diverse
pipeline for succession.
Matters Reviewed in the Year
Appointment of a Fifth Director
The Company has a formal, rigorous and transparent
process for the appointment of directors. Specialist
recruitment consultants assist the committee with
this process. The committee’s recommendations for
appointments are put to the Board for approval.
There was one Board appointment during the year. Sarika
Patel was appointed to the Board as a non‑executive
Director with effect from 1 January 2022. As part of the
recruitment process, a job description was prepared, which
considered the existing balance of skills and experience
of the Board and gaps identified. A suitable recruitment
agency, which did not have any connection with the
Company, was engaged to assist in identifying potential
candidates and was given a role profile outlining the skills,
attributes and experience that the Board was looking for in
a successful candidate.
A range of candidates were considered, and a short list
was compiled. Those on the shortlist were then formally
interviewed by the Nomination Committee. Following this
process, the Committee concluded that Sarika Patel was
the best candidate for the role based on her level of relevant
experience and background. On the recommendation of the
Nomination Committee, the Board agreed the appointment.
Performance Evaluation
In accordance with the AIC Code, the Directors undertake
an annual evaluation of the Board, its Committees, the Chair
and the Directors. In addition, an external evaluation is
undertaken every three years.
An external evaluation process was carried out for the year
ended 31 March 2022 which was externally facilitated by
Fletcher Jones. The evaluation process involved an analysis
of the Chair’s performance, Board performance and that of
its committees and individual Directors.
The results of the evaluation process were reported to and
discussed by both the Nomination Committee and the
Board.
The results of the evaluation and recommendations
received indicates that all the current Directors contribute
effectively and have the skills and experience relevant to the
leadership and direction of the Company and sufficient time
to discharge their responsibilities.
Terms of Reference
The Committee reviewed its terms of reference in
March 2022 to ensure that it is still operating effectively and
in line with its delegated duties and responsibilities.
Tony Roper
Chair of the Nomination Committee
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The Audit and Risk Committee is chaired by Sarika Patel,
who was appointed as the chair of the Committee on
1 January 2022, the date she was appointed to the Board
of the Company as a Director. Helen Clarkson was the
chair of the Committee during the year for the period from
1 April 2021 to 1 January 2022 and has ensured that an
orderly transition to Sarika has taken place.
The Board is satisfied that the Committee is properly
constituted. The Company’s Chair is a member of the
Audit and Risk Committee given his independence on
appointment as Company Chair and that he has continued
to meet this condition throughout his term of service, in
addition to his extensive relevant experience in dealing with
matters such as valuation and risk management.
The Audit and Risk Committee operates within clearly
defined terms of reference and comprises all of the
Directors. It is also the formal forum through which the
independent auditor reports to the Board of Directors and
met seven times during the year.
The Audit and Risk Committee has adopted formal Terms of
Reference which are available on the Company’s website.
The Terms of Reference are reviewed annually. The Committee
last reviewed its terms of reference in March 2022 to ensure
that it is still operating effectively, and minor amendments to its
terms of reference were recommended to the Board.
The main functions of the Audit and Risk Committee are:
■ Assessing, and recommending to the Board for
approval, the contents of the half year and annual
financial statements and reviewing the independent
auditor’s report thereon, including consideration as
to whether the financial statements are overall fair,
balanced and understandable;
■ Reviewing the valuation of the Company’s investments
prepared by the Investment Manager and making a
recommendation to the Board on the valuation;
■ Agreeing with the independent auditor the external
audit plan including discussing with the independent
auditor the key risk areas within the financial statements;
■ Considering and understanding the key risks of
misstatement of the financial statements and
formulating an appropriate plan to review these and
agreeing with the Investment Manager its processes to
manage these risk areas;
■ Reviewing and recommending for approval the Viability
and Going Concern Statements and reviewing the work
prepared by the Investment Manager in support of
these statements;
■ Reviewing the scope, results, cost‑effectiveness,
independence and objectivity of the independent
auditor as well as reviewing the effectiveness
of the external audit process and making any
recommendations to the Board for improvement of the
audit process;
■ Reviewing and recommending to the Board for approval
the audit, audit related and non‑audit fees payable to
the independent auditor or their affiliated firms overseas
and the terms of their engagement;
■ Reviewing the appropriateness of the Company’s
accounting policies;
■ Ensuring the adequacy and effectiveness of the internal
control and risk management systems;
■ Considering and recommending to the Board for
approval the Investment Manager’s recommendations
to changes in the Company’s Risk Management policy
and Treasury policy;
■ Reviewing the Company’s risk appetite and overall risk
management approach;
■ Monitor current and emerging risk exposures on behalf
of the Board and challenge the actions taken to mitigate
against such risks, taking into account scenario analysis;
■ Considering any reports or information received in
respect of whistleblowing;
■ Reviewing effectiveness of controls of sub‑contractors
and suppliers; and
■ Reporting to the Board on how it has discharged its
duties.
None of the members of the Audit and Risk Committee
have any involvement in the preparation of the financial
statements of the Company, as this has been contracted to
the Investment Manager and the Company’s Administrator.
The Audit and Risk Committee meets the independent auditor
regularly and as needed. It discusses the scope of annual audit
work and audit findings with the independent auditor. The
independent auditor attends the Audit and Risk Committee
meetings at which the annual and interim financial statements
4.5 Audit and Risk Committee Report
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4.5 Audit and Risk Committee Report
continued
are considered. The Committee also ensures that it meets
with the independent auditors without representatives of
the Investment Manager and Administrator being present.
The Audit and Risk Committee has direct access to the
independent auditor and to key senior staff of the Investment
Manager. It reports its findings and recommendations to the
Board which retains the ultimate responsibility for the financial
statements of the Company.
Significant Activities in the Year
During the year, the Audit and Risk Committee’s
discussions have been broad ranging and focused on but
not limited to:
■ Agreeing the audit plan and fees with the independent
auditor in respect of the review of the half‑yearly report
for the six months ended 30 September 2021 and the
statutory audit of the Annual Report for the year ended
31 March 2022, including the principal areas of focus;
■ Receiving and discussing with the independent auditor
their report on the results of the review of the half‑yearly
financial statements and the year‑end audit;
■ Reviewing and challenging information received from
the Investment Manager recommending the rationale
for preparing the financial statements on a going
concern basis and including a viability statement. This
was discussed with the independent auditor prior to
concluding that the recommendation be made by the
Committee that the board approve the adoption of the
financial statements on a going concern basis and their
approval of the viability statement;
■ Reviewing and challenging the valuation prepared by
the Investment Manager and its valuation process,
together with the Company’s auditor;
■ In light of the continued growth of the Company,
reviewing and recommending to the Board the
continued application of IFRS 10 Investment Entity
which is considered a key judgement for the Company’s
accounting policies; and
■ Reviewing the Company’s annual and half‑yearly
financial statements and recommending these to the
Board for approval.
■ Conducting a review of the risk management systems of
the Company and its third‑party service providers, and
introduced further enhancement to the system;
■ Discussing and reviewing the outcome of a cyber risk
review undertaken in the financial year;
■ Reviewing the Investment Manager’s ongoing
programme of stress scenarios aimed at understanding
the impact on the Company of downside but plausible
scenarios;
■ Considering and recommending changes in the
Company’s Risk Management policy and Treasury
policy;
■ Reviewing reports of internal controls of key advisers
and gaining assurance from the Investment Manager
and Administrator on these
In addition to formal Audit and Risk Committee meetings
during the year, the Audit and Risk Committee has
had regular contact and meetings with the Investment
Manager, the Administrator and the Auditor.
Key Issues Considered for Financial Statements
After discussion with the Investment Manager and the
independent auditor, the Audit and Risk Committee
determined that the key risks of misstatement of the
Company’s financial statements related to the valuation of
the Company’s investment in SEEIT Holdco and in turn the
valuation of the underlying investments held via SEEIT Holdco.
Valuation of Investments
As outlined in Note 11 to the financial statements, the total
carrying value of the investment portfolio at fair value at
31 March 2022 was £912,714k (31 March 2021: £552,672k).
Market quotations are not available for these financial
assets, and therefore their valuation is undertaken using
predominantly a discounted cash flow methodology, or a
similar method to determine the fair value of an investment.
This requires a number of material estimates to be made as
further explained in Note 3 to the financial statements.
The valuation process and methodology was discussed
by the Audit and Risk Committee with the Investment
Manager at the time of the interim review, in March 2022
prior to the year‑end valuation process, and again post
year end in May and June as part of the year‑end sign off
process. The Investment Manager carries out a valuation
semi‑annually and provides a detailed valuation report to
the Company.
The Audit and Risk Committee reported to the Board on
the challenges it made to the valuation and the outcome of
discussions with the Investment Manager and independent
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auditor on the valuation, particularly in relation to key
judgements. The Audit and Risk Committee met with
the independent auditor when it reviewed and agreed
the independent auditor’s group audit plan, and also at
the conclusion of the audit of the financial statements,
focussing much of its discussion on the valuation process
and the outcome of the audit of the valuation.
The Company engaged an independent valuation expert
to provide a report on a fair and reasonable range of
discount rates for the investments in the portfolio as at
31March 2022. The Audit and Risk Committee received
a presentation from the independent valuation expert and
challenged the assumptions and conclusions as needed.
The Audit and Risk Committee was satisfied that this report
confirmed the reasonableness of the discount rates applied
by the Investment Manager in its valuation of the portfolio
as at 31 March 2022.
Valuation of investments – key forecast assumptions
The Audit and Risk Committee considered in detail those
assumptions that are subject to judgement and may have a
material impact on the valuation. The key assumptions are:
Valuation of investments – valuation discount rates
The discount rates adopted to determine the valuation are
selected and recommended by the Investment Manager.
The discount rate is applied to the expected future cash
flows for each investment’s financial forecasts derived under
the assumptions explained above, amongst others, to arrive
at a valuation (discounted cash flow valuation). Theresulting
valuation is sensitive to the discount rate selected. The
Investment Manager is experienced and active in the
valuation of these investments and adopts discount rates
reflecting its extensive experience of the current market. It
is noted however that the judgement required is subjective
and that there is a range of discount rates which could be
applied. The discount rate assumptions and the sensitivity of
the valuation of the investments to this discount rate are set
out in Section 3.2 Valuation of the Portfolio. The vast majority
of the underlying investments are valued using a discounted
cash flow valuation with a small selection of investments
being valued using other forms of fair value calculations
such as earnings multiples.
The Audit and Risk Committee discussed with the
Investment Manager the process adopted to arrive at
the selected valuation discount rates (which includes
comparison with other market transactions and an
independent review of valuation discount rates by the
independent valuation expert) and satisfied itself that the
rates applied were appropriate. The independent auditor
explained to the Audit and Risk Committee the results of
its review of the valuation, including its consideration of the
Company’s underlying cash flow projections, the economic
assumptions and discount rates.
Macroeconomic assumptions
Macroeconomic assumptions include inflation and tax rate
assumptions. The Investment Manager’s assumptions in
this area are set out and explained in Section 3.2 Valuation
of the Portfolio.
Other key assumptions
The Investment Manager has discussed and agreed the key
valuation assumptions with the Audit and Risk Committee.
These included critical estimates and judgements regarding
future cash flow assumptions for investments in Primary
Energy, Onyx, Oliva Spanish Cogeneration and Vartan
Gas. In relation to the key judgements underpinning the
valuation, the Investment Manager has provided sensitivities
showing the impact of changing these assumptions, further
described in Note 3. These have been reviewed by the
Investment Manager and the Audit and Risk Committee to
assist in forming an opinion on the fairness and balance of
the Annual Report, together with their conclusion on the
overall valuation.
Key Risks Considered
The Company’s key risks are set out in more detail in
Section 3.3 Risk Management.
The Audit and Risk Committee actively provides risk
management oversight and reviews and challenges on a
regular basis the risk updates provided by the Investment
Manager.
During the financial year there was a particular focus on
several key risks which included a focus on the ongoing
impact of the COVID‑19 pandemic and mitigants available
to the Company.
These risks and reviews included:
Counterparty and credit risk
■ Reviewing the dynamic levels of risk associated with
the counterparties associated with the Company’s
investments;
■ Reviewing stress tests assessing the impact of material
credit counterparty defaults;
■ Assessing the Investment Manager’s feedback on
limited mitigants available to the Company; and
4.5 Audit and Risk Committee Report
continued
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4.5 Audit and Risk Committee Report
continued
■ Monitoring compliance with the Company’s Treasury
Policy in relation to exposures to deposit takers.
Operations and Business interruption risk
■ Receive and challenge regular formal and informal
updates from the Investment Manager on the level
of business interruption or potential for business
interruption at the operational level of the investments,
particularly focusing on event risks such as the
Covid‑19 pandemic and Brexit and the resulting impact
on supply chain.
■ Receive a detailed third‑party review, arranged by the
Investment Manager, to assess the current levels of
cyber security risk, particularly in light of the growth of
the Company‘s investment portfolio and the nature of
the underlying investments.
Macro-economic and market risk
■ Reviewing the impact of global rises in inflation,
including the sensitivity of the valuations of Company’s
underlying investments to changes in inflation in the
near, medium and long term;
■ Reviewing the impact of the Ukraine conflict and the
emerging risk of larger scale conflict as well as seeking
assurance on compliance with sanctions; and
■ Reviewing the impact of global rises in corporation
taxes, including the sensitivity of the valuations of
Company’s underlying investments to potential changes
not yet enacted, discussing potential mitigants available
to the Company and agreeing reviews to be undertaken
by the Investment Manager.
Internal Controls and Risk Management
The Audit and Risk Committee is responsible for reviewing
and monitoring the effectiveness of the Company’s internal
financial control systems and risk management systems on
which it is reliant.
During the year, the Audit and Risk Committee concluded
a review of the risk management systems of the Company
and its third‑party service providers that commenced in
the prior year and introduced further enhancement to the
systems and reporting where appropriate.
The Board has considered the need for an internal
audit function, and it has decided that the systems and
procedures employed by the Investment Manager and
the Administrator, including their own internal review
processes and processes in place in relation to the
Company, provide sufficient assurance that a sound system
of internal control, which safeguards the Company’s assets,
is maintained. An internal audit function specific to the
Company is therefore considered unnecessary at this time,
however the Board is keeping this under regular review
and focuses on identifying any areas where internal control
improvements can be made.
The Audit and Risk Committee recognises that these
control systems can only be designed to manage rather
than eliminate the risk of failure to achieve business
objectives. It is understood that they provide reasonable,
but not absolute, assurance against material misstatement
or loss, and rely on the operating controls established by
the Company’s Administrator and the Investment Manager.
The Audit and Risk Committee has performed reviews of
the internal financial control systems and risk management
systems during the year. The Audit and Risk Committee is
satisfied with the internal financial control systems of the
Company.
Appointment of the Independent Auditor
PricewaterhouseCoopers LLP (“PwC”) was appointed to be
independent auditor for the SEEIT group at the IPO of the
Company in December 2018.
The objectivity of the independent auditor is reviewed
by the Audit and Risk Committee which also reviews
the terms under which the independent auditor may be
appointed to perform non‑audit services. The Audit and
Risk Committee reviews the scope and results of the
audit, its cost‑effectiveness and the independence and
objectivity of the independent auditor, with particular
regard to any non‑audit work that the independent auditor
may undertake and the level of non‑audit fees. In order to
safeguard auditor independence and objectivity, the Audit
and Risk Committee ensures that any other advisory and/
or consulting services provided by the independent auditor
does not conflict with its statutory audit responsibilities.
Non audit services generally only cover reviews of
interim financial statements and capital raising work.
The independent auditor may not undertake any work
for the Company in respect of the preparation of the
financial statements, preparation of valuations used in
financial statements, provision of investment advice, taking
management decisions or advocacy work in adversarial
situations.
The total proposed fees for audit and audit related services
amounted to £501k for the year ended 31 March 2022 of
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which £381k related to the Company and £120k related to
audit of its direct subsidiary, SEEIT Holdco, some of the
SEEIT group’s intermediate and project subsidiaries and
other audit‑related services. Non‑audit fees amounted to
£45k for the year ended 31 March 2022 due for the interim
review of the Company’s half yearly financial statements.
Notwithstanding such non‑audit services, the Audit and
Risk Committee considers PwC to be independent of the
Company and that the provision of such non‑audit services
is not a threat to the objectivity and independence of the
conduct of the audit.
To fulfil its responsibility regarding the independence of the
independent auditor, the Audit and Risk Committee considered:
■ a report from the independent auditor describing
their arrangements to identify, report and manage any
potential independence threats; and
■ the extent of non‑audit services provided by the
independent auditor.
To assess the effectiveness of the external audit process,
the Audit and Risk Committee reviewed:
■ the independent auditor’s fulfilment of the agreed audit
plan and variations from it;
■ the evaluations from the Investment Manager and
Administrator on the performance of the independent
auditor’s team; and
■ all reports highlighting any significant issues that arose
during the course of the audit.
The Audit and Risk Committee is satisfied with PwC’s
effectiveness and independence as auditor having
considered the degree of diligence and professional
scepticism demonstrated by the firm. As such, the
Committee has not considered it necessary during this
period to conduct a tender process for the appointment of
its independent auditor for the year ending 31 March 2022.
As this is the fourth audit conducted by PwC and the third
full year of operation of the Company, it is not expected
that the Company will tender the external audit in the near
future.
The Audit and Risk Committee will conduct a formal review
of PwC following the issue of these financial statements
to ensure that the Audit and Risk Committee considers
all aspects of the independent auditor’s service and
performance.
Whistleblowing
The Board has considered the UK Corporate Governance
Code recommendations in respect of arrangements by
which staff of the Company’s key advisers and project
companies may, in confidence, raise concerns within
their organisations and the Board and the Investment
Manager has a whistleblowing policy which supports these
recommendations.
Sarika Patel
Chair of the Audit and Risk Committee
4.5 Audit and Risk Committee Report
continued
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4.6 Directors’ Remuneration Report
The Board presents the Directors’ Remuneration Report for
the year ended 31 March 2022.
The Remuneration Report is made up of two sections;
the Annual Report on Remuneration and the Directors’
Remuneration Policy report.
The membership of the Remuneration Committee
comprises all Directors of the Company, all of whom are
independent and non‑executive.
The Remuneration Committee’s main functions include:
(i) agreeing the policy for the remuneration of the
Directors and reviewing and proposing changes to the
Company’s Remuneration policy;
(ii) reviewing and considering ad hoc fees to the Directors
in relation to duties undertaken over and above routine
business; and
(iii) appointing independent professional external remuneration
consultants, as may be required from time to time.
The Remuneration Committee met once during the year and
operates within clearly defined terms of reference, which are
available on the Company’s website. The Committee reviewed
its terms of reference in March 2022 to ensure that it is still
operating effectively, and minor amendments to its terms of
reference were recommended to the Board and duly approved.
The key activities during the year included the review
of the level of Directors’ annual remuneration proposed
for the next financial year, taking into account advice
received in the prior year from an independent professional
external remuneration consultant, and considering and
recommending to the Board an appropriate level of
Directors’ remuneration for additional, specific corporate
work undertaken during the year. This is described further
below under Directors’ remuneration.
The Law requires the Company’s independent auditor to
audit certain disclosures provided. Where disclosures have
been audited, they are indicated as such. The auditor’s
opinion is included in their report on pages 92 to 98.
Statement of the Chair of the Remuneration
Committee
The Committee assists the Board in developing a fair and
transparent framework for setting the levels of Directors’
remuneration while having regard to the Company’s financial
position and performance, remuneration in other companies
of comparable scale and complexity and market statistics
generally. It also reviews the ongoing appropriateness and
relevance of the Directors’ Remuneration Policy. No Director is
involved in determining their own remuneration.
The Board may determine that additional remuneration may
be paid, from time to time, to any one or more Directors in the
event such Director or Directors are requested by the Board
to perform extra or special services on behalf of the Company.
Where the Company requires the Directors to work on specific
corporate actions, such as the raising of further equity, an
additional fee will be determined (on each occasion) by the
Committee and recommended to the Board.
Directors’ Remuneration Review and Review of
Directors’ Fees for 2023
During the year, the Committee undertook an analysis on
Directors’ remuneration of comparable companies, together
with the advice received from Trust Associates, who had
undertaken a review of the Directors’ remuneration in the
prior year and also further considered the expectations
on the time of the Directors. Based on its analysis, the
Committee’s recommendation is set out below:
■ the base annual Director’s fee be increased to £47,000
(2022: £45,000);
■ the annual fee paid to the Chair be increased to £67,000
(2022: £65,000);
■ the annual supplement paid to the Chair of the Audit
and Risk Committee remains at £5,000 (2022: £5,000);
■ the annual supplement for the roles of Senior
Independent Director and Chair of the Remuneration
Committee to remain at £2,000 (2022: £2,000);
■ the recommendation of additional fees, up to a limit of
£10,000 per director, to be paid for specific corporate
work that may be undertaken during the year ended
31 March 2023; and
■ the cap on the aggregate annual Directors base
remuneration limit be increased from £300,000 to
£400,000.
In the year ended 31 March 2022, an additional fee of
£5,000 was paid to each of the Directors on the Board
at the time in respect of work undertaken in relation to
the publishing of a new prospectus, implementation of
a placing programme and a capital raising in September
2021. An additional fee of £2,500 was earned by each of
the Directors in respect of work undertaken in relation to a
capital raising in March 2022.
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4.6 Directors’ Remuneration Report
continued
Directors’ Remuneration for the Year Ended 31 March 2022 (Audited)
The table below sets out the Directors’ remuneration for the year ended 31 March 2022:
Total Directors’
Fees for the year
ended 31 March
2022
Total
£’000
Total Directors’
Fees for the year
ended 31 March
2021
Total
£’000
Tony Roper Chair 72.5 50.0
Helen Clarkson
1
Management Engagement Committee chair 57.5 40.0
Chris Knowles Senior Independent Director 54.5 40.0
Emma Griffin Remuneration Committee chair 54.5 18.0
Sarika Patel
2
Audit and Risk Committee chair 15.0 –
Total 254.0 148.0
1
Helen Clarkson was the chair of the Audit and Risk Committee for the period from 1 April 2021 to 1 January 2022 although received fees consistent with
remuneration of the chair of the Audit and Risk Committee up to 31 March 2022 to ensure an orderly handover to Sarika Patel
2
Appointed to the Board and its Committees with effect from 1 January 2022
The Directors Remuneration for the year ended
31March 2022, detailed in the table above, is inclusive
of the increases in the directors’ fees, approved by the
shareholders at the AGM held on 10 August 2021 and
the additional fees paid for specific corporate work
(September2021: £5,000 per director and March 2022:
£2,500 per director). An explanation of the additional fees
paid for the specific corporate work are set out in this
Remuneration report.
The Directors are also entitled to be paid all reasonable
expenses properly incurred by them in connection with
the performance of their duties. These expenses include
those associated with attending general meetings, Board
or Committee meetings and legal fees. In the year, such
expenses were de minimis.
There are no other taxable benefits payable by the
Company other than certain expenses which may be
deemed to be taxable. None of the above fees were paid to
third parties.
Annual Percentage Change in the Directors’
Remuneration
The annual percentage change in remuneration in respect
of the financial years prior to the current year in respect of
each Director role is detailed in the table below. The annual
percentage change is calculated based on the aggregate
annual base Directors’ remuneration plus an additional fee
for acting in the role as either Chair of the Company, Senior
Independent Director or as a chair of a committee. The
percentage calculation excludes any additional fees earned
for corporate transaction work, as described further above.
Director Role Date appointed
Financial year
to 31 March
2020
Financial year
to 31 March
2021
Financial year
to 31 March
2022
Tony Roper Chair 12 October 2018 – 11.1% 30.0%
Helen Clarkson* Management Engagement Committee
Chair
12 October 2018 – 14.2% 25.0%
Chris Knowles Senior Independent Director 12 October 2018 – 14.2% 17.5%
Emma Griffin Remuneration Committee Chair 21 October 2020 – – 17.5%
Sarika Patel Audit and Risk Committee Chair 1 January 2022 – – –
* Previously the Audit and Risk Committee chair from incorporation until 1 January 2022 and appointed as the chair of the Management Engagement
Committee, with effect from 1 January 2022.
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4.6 Directors’ Remuneration Report
continued
Relative Importance of Spend on Pay
The table below sets out the remuneration paid to the Directors in comparison to dividends paid to shareholders for the year ended 31 March 2022:
Year to 31
March 2022
£’000
Year to 31 March
2021
£’000 % change
Directors’ remuneration 254 148 71.6
Dividends paid to shareholders 44,207 30,413 45.3
Company Performance
The graph above highlights the comparative total
shareholder return (“TSR”) for an investment in the Company
from inception to 31 March 2022 compared with an
investment in the FTSE 250 index over the same period. The
Company is a member of the FTSE 250 and All Index hence
they have been selected for the above graph.
The Board is responsible for the Company’s investment
strategy and performance, although day‑to‑day management
of the Company’s affairs, including the management of the
Company’s portfolio, has been delegated to the Investment
Manager. An explanation of the performance of the
Company is given in Section 3.1 Financial Review.
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4.6 Directors’ Remuneration Report
continued
Directors Interests in the Company (audited)
As at 29 June 2022, the interests of the Directors and any connected persons in the ordinary shares of the Company are set out in the table below:
Ordinary shares of
£1 each held at 31
March 2022
Ordinary shares of
£1 each held at 31
March 2021
Tony Roper 128,500 95,000
Helen Clarkson 8,326 5,000
Christopher Knowles
1
37,000 10,000
Emma Griffin 20,509 15,000
Total 194,335 125,000
1
Christopher Knowles’ immediate family members hold an additional 55,000 ordinary shares in the Company. These immediate family members holding
ordinary shares in the Company do not meet the definition of Persons Closely Associated (PCAs) as defined in Article 3(1)(26) of the Market Abuse Regulation
(MAR).
There have been no changes to any of the above holdings
between 31 March 2022 and the date of this report.
None of the Directors or any persons connected with them
had a material interest in the Company’s transactions,
arrangements or agreements during the year.
As at the date of this report, Jonathan Maxwell, CEO
and Founder of the Investment Manager, holds 175,000
ordinary shares. Jonathan Maxwell is considered to be a
Person Discharging Managerial Responsibilities (“PDMR”)
by both the Board of Directors and Investment Manager.
There have been no changes in the year in respect of each
of the Directors as notifiable to the Company in accordance
with DTR 3.1.2 R.
Statement of voting at AGM on the Annual
Report
A binding Ordinary Resolution approving the Remuneration
Policy was approved by shareholders at the AGM held
on 11 September 2019 and an advisory vote adopting
the Directors’ Remuneration Report for the year ended
31March 2021 was approved by shareholders at the AGM
held on 10 August 2021.
The votes cast by proxy were as follows:
Directors’
remuneration
report
(AGM 2021)
Remuneration
policy
(AGM 2019)
Votes for 499,644,892 121,799,095
% 99.62 100
Votes against 1,762,839 –
% 0.35 –
Total votes cast 501,407,731 121,799,095
Votes withheld 1,347 –
Resolutions to approve the Directors’ Remuneration
Report in respect of the year ended 31 March 2023 and
the Directors’ Remuneration Policy will be proposed at the
forthcoming AGM.
Remuneration Policy
This Remuneration Policy provides details of the
remuneration policy for the Directors of the Company.
AllDirectors are independent and non‑executive, appointed
under the terms of Letters of Appointment, and none of
the Directors has a service contract. The Company has no
employees.
This Remuneration Policy was approved by shareholders
at the AGM of the Company held on 10 September
2019 and is also available on request at the Company’s
registered office. The Remuneration Policy will be put to
the shareholders for approval, at the Company’s 2022 AGM
scheduled to be held in September 2022.
The Company follows the recommendation of the AIC Code
that non‑executive Directors’ remuneration should reflect
the time commitment and responsibilities of the role.
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4.6 Directors’ Remuneration Report
continued
The Board’s policy is that the remuneration of
non‑executive Directors should reflect the experience of
the Board as a whole and be determined with reference to
comparable organisations and appointments.
The fees of the non‑executive Directors are determined
within the limits set out in the Company’s Articles of
Association and Directors’ remuneration is determined
by the Remuneration Committee, at its discretion within
the current aggregate limit of £300,000, as set out in the
Company’s Articles of Association. Proposed changes to
this limit are detailed in this Report and will be subject to
shareholder approval at the forthcoming AGM.
There are no performance conditions attaching to the
remuneration of the Directors as the Board does not
consider such arrangements or benefits necessary or
appropriate for non‑executive Directors.
The Company is committed to ongoing shareholder dialogue
and any views expressed by shareholders on the fees being
paid to Directors would be taken into consideration by the
Board when reviewing the Directors’ Remuneration Policy
and in the annual review of Directors’ fees.
Under the Directors’ letters of appointment, there is
no notice period. All Directors of the Company receive
an annual fee appropriate for their responsibilities and
time commitment but no other incentive programme or
performance‑related emoluments. As such there are:
■ no service contracts with the Company;
■ no long‑term incentive schemes;
■ no options or similar performance incentives; and
■ no payments for loss of office unless approved by
shareholder resolution.
The Directors’ remuneration shall:
■ reflect the responsibility, experience, time commitment
and position of each Director on the Board;
■ allow the Chair, Senior Independent Director, Chair
of the Audit and Risk Committee and Chair of the
Remuneration Committee to be remunerated in
excess of any potential remaining Board members
to reflect their increased roles of responsibility and
accountability;
■ be paid quarterly in arrears;
■ include remuneration for additional, specific corporate
work which shall be carefully considered and only
become due and payable on completion of that work;
and
■ be reviewed annually and, at least every three years,
by an independent professional external remuneration
consultant with experience of investment companies
and their fee structures.
The Remuneration Committee met in March 2022 to
consider the current levels of annual base Directors’
remuneration and the proposed level base Directors’
remuneration for the year ended 31 March 2023.
The Remuneration Committee also met in June 2022 to
approve an additional fee of £2,500, earned by each of the
Directors in respect of work undertaken in relation to the
capital raising in March 2022. The additional fee agreed by
the Remuneration Committee forms part of the Directors’
Remuneration for the year ended 31 March 2022, approved by
shareholders at the Company’s AGM held on 10 August 2021.
The Committee concluded that the proposed changes to
the Director’s annual remuneration and the increase of the
aggregate annual Directors’ remuneration limit for year
ending 31 March 2023, be recommended and were put to
the Board.
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4.6 Directors’ Remuneration Report
continued
Proposed Base Directors’ Fees to be Paid for the Year Ending 31 March 2023:
Proposed
Base Fees
to be paid for the
year ending
31 March 2023
Total
£’000
Base Fees
paid for the
year ended
31 March 2022
Total
£’000
Tony Roper Chair 67.0 65.0
Helen Clarkson Management Engagement Committee chair 47.0 50.0
Chris Knowles Senior Independent Director 49.0 47.0
Emma Griffin Remuneration Committee chair 49.0 47.0
Sarika Patel
1
Audit and Risk Committee chair 52.0 12.5
Total 264.0 221.5
1
Appointed to the Board and its Committees with effect from 1 January 2022.
The proposed remuneration recommendations for the year
ended 31 March 2023 would result in an increase in the
aggregate Directors’ annual base remuneration to £264,000
in the coming year, reflecting not only the proposed
increases but also the full year effect of the appointment of
Sarika Patel from 1 January 2022. The proposed increases to
fees would remain below the Company’s current approved
annual aggregate Directors’ remuneration limit of £300,000.
As a result of having increased the number of Directors to
five recently, and to ensure there is sufficient headroom
should the Board look to recruit an additional Director in
the future, the Board is recommending an increase of the
aggregate annual Directors’ remuneration limit to £400,000
to be put forward to shareholders for approval at the AGM
scheduled to be held on 12 September 2022.
The Board also considered the availability of each Director,
taking into account their other commitments, and concluded
that each Director made adequate time available for the
appropriate discharge of the Company’s affairs. Each
Director abstains from voting on their own individual
remuneration.
The Board has adopted the recommendations from the
Remuneration Committee and will seek shareholder approval
at the upcoming 2022 AGM in relation to the proposed
remuneration payable to the Directors for the year ending
31 March 2023 with a view to implementing the proposed
increases backdated to the start of the Company’s current
fiscal year, the changes to the aggregate annual Directors’
remuneration limit and the Company’s Remuneration Policy.
The Directors’ Remuneration Report was approved by the
Board on 30 June 2022 and signed on its behalf by:
Emma Griffin
Chair of the Remuneration Committee
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4.7 Statement of Directors’ Responsibilities
Statement of Directors’ Responsibilities in
Respect of the Financial Statements
The Directors are responsible for preparing the Annual
Report and 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 accounting
standards.
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
accounting standards 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 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 also 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 are responsible for the maintenance
and integrity of the Company’s website. Legislation in
the United Kingdom 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 Company Information confirm that, to the best of
their knowledge:
■ the Company financial statements, which have been
prepared in accordance with UK‑adopted international
accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit of the
company; and
■ the Strategic Report: Portfolio Review 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.
The Annual Report and Financial Statements were
approved by Board on 30 June 2022 and the above
responsibility statement was signed on its behalf by:
Tony Roper
Chair
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5. Financial Statements
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Independent auditors’ report to the
members of SDCL Energy Efficiency
Income Trust plc
Report on the audit of the financial statements
Opinion
In our opinion, SDCL Energy Efficiency Income Trust plc’s financial statements:
● give a true and fair view of the state of the company’s affairs as at 31 March 2022 and of its profit and cash flows for
the year then ended;
● have been properly prepared in accordance with UK-adopted international accounting standards; and
● have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Audited Financial Statements (the “Annual
Report”), which comprise: the statement of financial position as at 31 March 2022; the statement of comprehensive income,
the statement of changes in shareholders' equity and the statement of cash flows for the year then ended; and the notes to
the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit and Risk Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were
not provided.
Other than those disclosed in the notes to the financial statements, we have provided no non-audit services to the company
or its controlled undertakings in the period under audit.
Our audit approach
Overview
Audit scope
● The company invests in a diversified portfolio of energy efficient projects through an intermediate holding company named
SEEIT Holdco Limited. We performed an audit of the company including its investment in SEEIT Holdco Limited.
● All of our audit work was conducted in the UK by the company audit team
Key audit matters
● Valuation of Investments at fair value through profit or loss
Materiality
● Overall materiality: £10,746,000 (2021: £6,950,000) based on 1% of total assets.
● Performance materiality: £8,059,500 (2021: £5,200,000).
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The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any
comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Impact of Covid-19, which was a key audit matter last year, is no longer included because of limited continued impact of
the pandemic on the operations and cashflows of the company. Otherwise, the key audit matters below are consistent with
last year.
Key audit matter
How our audit addressed the key audit matter
Valuation of Investments at fair value through profit or loss
The company has £928.2 million of investments recorded at
fair value and these are significant in the context of the
overall balance sheet of the company. See note 11 for
details.
We planned our audit to critically assess management’s
assumptions and the investment valuation model in which they
are applied;
The company invests through a holding company which in
turn holds debt and equity interests in project companies
(the “underlying investment portfolio”) for which there is no
liquid market.
We have evaluated the design and implementation of relevant
controls over the preparation of the portfolio valuation;
The fair value of the underlying investment portfolio has
principally been valued on a discounted cash flow basis,
which necessitates significant estimates in respect of the
forecasted cash flows and discount rates applied.
We assessed the reasonableness of the assumptions made by
management in the applicable valuation models; We tested the
mathematical accuracy of the valuation models;
The directors’ assessment of those fair values involves
estimates about the future results of the underlying
businesses, in particular around future revenues, growth
rates and discount rates applied to future cash flow
forecasts where there is a higher degree of sensitivity.
Based on the historical performance of investments and
best estimates of future assumptions, the directors believe
that these fair values are reasonable.
We performed detailed testing over a sample of models and
significant inputs for the selected sample of investments. This
testing entailed challenging key inputs in the models and
obtaining appropriate supporting documentation and evidence;
Determining the valuation methodology and the inputs and
assumptions within the valuation is subjective and complex.
This, combined with the significance of the unlisted
investments balance in the statement of financial position,
meant that this was a key audit matter for our current year
audit.
We specifically considered management’s assessment of the
valuation impact of Covid-19 and climate change on the future
cashflows assumed in the models and obtained further evidence
to support management’s assumptions;
We used our internal valuation specialists in the United Kingdom
and Spain to provide audit support in reviewing and concluding
on the fair valuation of the underlying investment portfolio. They
(a) reviewed the appropriateness of the valuation methodology
and approach and (b) reviewed and commented on the
computation of the discounted cash flow valuation models,
including comparing the discount rate and certain other key
assumptions against those used by comparable market
participants, where appropriate and/or other macroeconomic
data and (c) concluded that the overall valuation is within a
reasonable range; and
We have concluded that the overall valuation of the portfolio as a
whole is reasonable.
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How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the company, the accounting processes and controls, and the
industry in which it operates.
As part of designing our audit approach, we determined materiality and assessed the risks of material misstatement in the
financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of
significant accounting estimates that involved making assumptions and considering future events that are inherently
uncertain.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall company
materiality
£10,746,000 (2021: £6,950,000).
How we determined
it
Based on 1% of total assets
Rationale for
benchmark applied
We believe that total assets is the most appropriate benchmark because this is the key metric of
interest to investors, and is a generally accepted measure used for companies in this industry.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope
of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example
in determining sample sizes. Our performance materiality was 75% (2021: 75%) of overall materiality, amounting to
£8,059,500 (2021: £5,200,000) for the company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range
was appropriate.
We agreed with the Audit and Risk Committee that we would report to them misstatements identified during our audit above
£537,300 (2021: £347,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative
reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis of
accounting included:
● Testing the mathematical integrity of the cash flow forecasts and the models and reconciled these to Board approved
budgets;
● We challenged management on the appropriateness of key assumptions and considered their reasonableness in the
context of other supporting evidence gained from our audit work;
● Reviewing the debt agreements to confirm the terms and conditions, including covenants. The covenants were consistent
with those used in management’s going concern assessment;
● Agreeing all cash balances as at 31 March 2022 to third-party evidence and considered the available financing. This
supported the directors’ conclusion that sufficient liquidity headroom remained throughout the assessment period;
● Testing the mathematical accuracy of the covenant calculations. We concluded that covenant compliance remained
throughout the assessment period; and
● We also reviewed the severe downside scenario to assess the viability of the company in such circumstances which
included an assessment of the company’s ability to meet its debt covenants where appropriate.
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Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the company’s ability to continue as a going concern for a period of
at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the company's
ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the AIC Code of Corporate Governance (the ‘Code’), we have
nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether
the directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in
the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic report and the Report of the Directors, we also considered whether the disclosures required by
the UK Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions
and matters as described below.
Strategic report and Report of the Directors
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and the
Report of the Directors for the year ended 31 March 2022 is consistent with the financial statements and has been prepared
in accordance with applicable legal requirements.
In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did
not identify any material misstatements in the Strategic report and the Report of the Directors.
Directors’ Remuneration
In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that
part of the corporate governance statement relating to the company’s compliance with the provisions of the AIC Code of
Corporate Governance specified for our review. Our additional responsibilities with respect to the corporate governance
statement as other information are described in the Reporting on other information section of this report.
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Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial statements and our knowledge obtained during the audit,
and we have nothing material to add or draw attention to in relation to:
● The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
● The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify
emerging risks and an explanation of how these are being managed or mitigated;
● The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the company’s
ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;
● The directors’ explanation as to their assessment of the company’s prospects, the period this assessment covers and
why the period is appropriate; and
● The directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in
operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the group was substantially less in scope than an
audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that
the statement is in alignment with the relevant provisions of the AIC Code of Corporate Governance; and considering whether
the statement is consistent with the financial statements and our knowledge and understanding of the company and its
environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of
the corporate governance statement is materially consistent with the financial statements and our knowledge obtained
during the audit:
● The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable,
and provides the information necessary for the members to assess the company's position, performance, business
model and strategy;
● The section of the Annual Report that describes the review of effectiveness of risk management and internal control
systems; and
● The section of the Annual Report describing the work of the Audit and Risk Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s
compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the
Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of
the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair
view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.
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Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with
our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent
to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the company and industry, we identified that the principal risks of non-compliance with laws
and regulations related to environmental regulations, and we considered the extent to which non-compliance might have a
material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the
financial statements such as the Companies Act 2006 and UK tax legislation. We evaluated management’s incentives and
opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined
that the principal risks were related to the valuation of investments and posting inappropriate journal entries to achieve desired
financial results. Audit procedures performed by the engagement team included:
● Discussions with management, including consideration of known or suspected instances of non-compliance with laws
and regulations and fraud;
● Evaluation of design and implementation of management's controls designed to prevent and detect irregularities.
However, we have not relied on controls as substantive procedures are determined to be more effective for this audit;
● Reviewing the minutes of meetings of the Board and its committees;
● Challenging the assumptions and judgments made by management in their significant accounting estimates relating to
the valuation of investments; and
● Identifying and testing journal entries, in particular certain journal entries posted with unusual account combinations.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial
statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations,
or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete
populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases,
we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
● we have not obtained all the information and explanations we require for our audit; or
● adequate accounting records have not been kept by the company, or returns adequate for our audit have not been
received from branches not visited by us; or
● certain disclosures of directors’ remuneration specified by law are not made; or
● the financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
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Appointment
Following the recommendation of the Audit and Risk Committee, we were appointed by the members on 10 December 2018
to audit the financial statements for the year ended 31 March 2019 and subsequent financial periods. The period of total
uninterrupted engagement is four years, covering the years ended 31 March 2019 to 31 March 2022.
Other matter
In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these
financial statements will form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of
the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’
report provides no assurance over whether the annual financial report will be prepared using the single electronic format
specified in the ESEF RTS.
Matthew Mullins (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Watford
30 June 2022
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Note
For the
year ended
31 March 2022
£’000
For the
year ended
31 March 2021
£’000
Investment income 5 88,763 37,834
Total operating income 88,763 37,834
Fund expenses 6 (9,005) (5,429)
Profit for the year before tax 79,758 32,405
Tax on profit on ordinary activities 7 – –
Profit for the year 79,758 32,405
Total comprehensive income for the year 79,758 32,405
Attributable to:
Equity holders of the Company 79,758 32,405
Earnings Per Ordinary Share (pence) 8 10.0 7.0
The accompanying Notes are an integral part of these financial statements.
All items in the above Statement derive from continuing operations.
Statement of Comprehensive Income
For the year ended 31 March 2022
5.2 Financial Statements
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Note
31 March 2022
£’000
31 March 2021
£’000
Non-current assets
Investment at fair value through profit or loss 11 928,229 572,574
928,229 572,574
Current assets
Trade and other receivables 363 401
Cash and cash equivalents 146,064 122,059
146,427 122,460
Current liabilities
Trade and other payables (1,538) (1,229)
Net current assets 144,889 121,231
Net assets 1,073,118 693,805
Capital and reserves
Share capital 12 9,903 6,771
Share premium 12 925,067 584,437
Other distributable reserves 12 39,342 58,165
Retained earnings 98,806 44,432
Total equity 1,073,118 693,805
Net assets per share (pence) 10 108.4 102.5
The accompanying Notes are an integral part of these financial statements.
The financial statements for the year ended 31 March 2022 of SDCL Energy Efficiency Income Trust plc, were approved and authorised for
issue by the Board of Directors on 30 June 2022.
Signed on behalf of the Board of Directors:
Sarika Patel Tony Roper
Director Director
Company number: 11620959
Statement of Financial Position
as at 31 March 2022
5.2 Financial Statements
continued
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Note
Share
Capital
£’000
Share
Premium
£’000
Other
distributable
reserves
£’000
Retained
earnings
£’000
Total
Equity
£’000
Balance at 1 April 2021 6,771 584,437 58,165 44,432 693,805
Shares issued 12 3,132 346,868 – – 350,000
Share issue costs 12 – (6,238) – – (6,238)
Dividends paid 9 – – (18,823) (25,384) (44,207)
Profit and total comprehensive
income for the year – – – 79,758 79,758
Balance at 31 March 2022 9,903 925,067 39,342
98,806
1,073,118
Note
Share
Capital
£’000
Share
Premium
£’000
Other
distributable
reserves
£’000
Retained
earnings
£’000
Total
Equity
£’000
Balance at 1 April 2020 3,204 219,721 88,578 12,027 323,530
Shares issued 3,567 371,433 – – 375,000
Share issue costs – (6,717) – – (6,717)
Dividends paid
9
– – (30,413) – (30,413)
Profit and total comprehensive
income for the year – – – 32,405 32,405
Balance at 31 March 2021 6,771 584,437 58,165 44,432 693,805
The accompanying Notes are an integral part of these financial statements.
Statement of Changes in Shareholders’ Equity
For the year ended 31 March 2022
5.2 Financial Statements
continued
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Note
For the
year ended
31 March 2022
£’000
For the
year ended
31 March 2021
£’000
Cash flows from operating activities
Operating profit for the year 79,758 32,405
Adjustments for:
Gain on investment at fair value through profit or loss (47,792) (15,021)
Loan interest income 5 (7,299) (2,684)
Operating cash flows before movements in working capital 24,667 14,700
Changes in working capital
Decrease in trade and other receivables 37 1,440
Increase in trade and other payables 309 645
Net cash generated from operating activities 25,013 16,785
Cash flows from investing activities
Additional investment in Holdco 11 (319,863) (316,479)
Loan principal repayment received 12,000 13,021
Loan interest income received 7,300 2,684
Net cash used in investing activities (300,563) (300,774)
Cash flows from financing activities
Proceeds from the issue of shares 350,000 375,000
Payment of share issue costs (6,238) (6,718)
Dividends paid 12 (44,207) (30,413)
Net cash generated from financing activities 299,555 337,869
Net movement in cash and cash equivalents during the year 24,005 53,880
Cash and cash equivalents at the beginning of the year 2 122,059 68,179
Cash and cash equivalents at the end of the year 2 146,064 122,059
The accompanying Notes are an integral part of these financial statements.
Statement of Cash Flows
For the year ended 31 March 2022
5.2 Financial Statements
continued
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5.3 Notes to the Financial Statements
1. General Information
The Company is incorporated in the United Kingdom under number
11620959 pursuant to the Companies Act 2006 and is domiciled in
the England, United Kingdom. The Company’s registered office and
principal place of business is 6th Floor, 125 London Wall, London,
EC2Y 5AS. The Company was incorporated on 12October2018 and
is a Public Company limited by shares and the ultimate controlling
party of the group.
The Company’s ordinary shares were first admitted to the premium
segment of the UK Listing Authority’s Official List and to trading on
the Main Market of the London Stock Exchange under the ticker
SEIT on 11 December 2018.
The Company’s objective is to generate an attractive total return
for investors comprising stable dividend income and capital
preservation, with the opportunity for capital growth through the
acquiring and realising of a diverse portfolio of energy efficiency
infrastructure projects.
The Company currently makes its investments through its principal
holding company and single subsidiary, SEEIT Holdco Limited
(“Holdco”), and intermediate holding companies which are directly
owned by the Holdco. The Company controls the investment policy
of each of the Holdco and its intermediate holding companies in
order to ensure that each will act in a manner consistent with the
investment policy of the Company.
The Company has appointed Sustainable Development Capital
LLP as its Investment Manager (the “Investment Manager”)
pursuant to the Investment Management Agreement dated
22November 2018. The Investment Manager is registered in
England and Wales under number OC330266 pursuant to the
Companies Act 2006. The Investment Manager is regulated by the
FCA, number 471124.
The financial statements are presented in Pounds Sterling because
that is the currency of the primary economic environment in which
the Company operates.
2. Significant Accounting Policies
a) Basis of Accounting
On 31 December 2020, IFRS as adopted by the European
Union at that date brought into UK law and became UK-adopted
International Accounting Standards, with future changes being
subject to endorsement by the UK Endorsement Board. The
Company transitioned to UK-adopted International Accounting
Standards in its Company financial statements on 1 April 2021.
This change constitutes a change in accounting framework.
However, there is no impact on recognition, measurement or
disclosure in the year reported as a result of the change in
framework.
The financial statements of the Company have been prepared
in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006,
as applicable to companies reporting under those standards.
The financial statements are prepared under the historical
cost convention, except for certain investments and financial
instruments measured at fair value through the Statement of
Comprehensive Income.
Fair value is the price that would be received on sale of an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date, regardless of whether that
price is directly observable or estimated using another valuation
technique. In estimating the fair value of an asset or liability, the
Company takes into account the characteristics of the asset or
liability if market participants would take those characteristics into
account when pricing the asset or liability at the measurement
date. Fair value for measurement and/or disclosure purposes in
these financial statements is determined on such a basis.
The principal accounting policies adopted are set out below and
consistently applied, subject to changes in accordance with any
amendments in IFRS.
(i) New Accounting Standards, amendments to existing
Accounting Standards and/or interpretations of existing
Accounting Standards (separately or together, “New
Accounting Requirement”) adopted during the current year
There are no standards, amendments to standards or
interpretations that are effective for annual periods beginning on
1 April 2021 that have a material effect on the financial statements
of the Company nor the value of investments. This includes the
following standards which the Company adopted during the year:
■ Amendments to IFRS 16 Leases: Covid-19 – Related rent
concessions beyond 30 June 2021
■ Amendments to IFRS 7, IFRS 4 and IFRS 16 Interest rate
benchmark reform – phase 2
b) IFRS 10 – Basis of Consolidation and
Investment Entities Exemption
The Company applies IFRS 10 Consolidated Financial Statements.
As in the previous year, the Directors have concluded that in
accordance with IFRS 10, the Company continues to meet the
definition of an investment entity having re-evaluated the criteria
(see below) that need to be met. The financial statements therefore
comprise the results of the Company only and no subsidiaries are
consolidated on a line by line basis.
The Company invests its investable cash into SEEIT Holdco
Limited (the “Holdco”) when a targeted investment has been
approved by the Investment Manager’s Investment Committee.
The sole objective of the Holdco is to enter into several energy
efficiency projects, via individual corporate entities. The Holdco
issues equity and loans to finance the projects. Holdco also
incurs overheads and borrowings on behalf of the group. As a
result, the Directors have provided an alternative presentation of
the Company’s results in the Strategic Report which includes a
consolidation of Holdco.
Under IFRS 10 investment entities are required to hold subsidiaries
at fair value through the Statement of Comprehensive Income
Notes to the Financial Statements
For the year ended 31 March 2022
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5.3 Notes to the Financial Statements
continued
rather than consolidate them. There are three key conditions to be
met by the Company for it to meet the definition of an investment
entity. For each reporting period, the Directors assess whether the
Company continues to meet these conditions:
(i) The Company has obtained funds for the purpose of providing
investors with investment management services;
(ii) The business purpose of the Company, which was
communicated directly to investors, is investing solely for
risk-adjusted returns (including having an exit strategy for
investments); and
(iii) The performance of substantially all investments is measured
and evaluated on a fair value basis.
The Company is an investment company, providing investors
exposure to a diversified portfolio of energy efficiency infrastructure
projects that are managed for investment purposes.
During the year ended 31 March 2022, the Company, via Holdco,
made significant new investments, notably in the USA, and as
a result the size of the Company significantly increased. These
investments are described in Note 11. These investments were
made in line with the stated objective of the Company to generate
returns from capital appreciation and investment income in
accordance with the strategy that has been set by the Directors.
The Directors assessed each new investment carefully in order
to determine whether the Company as a whole still meets the
definition of an investment entity.
As part of the assessments the Directors had regard for the
nature of the underlying business and operations and the exit
strategy of each new investment and how that compared to the
already existing portfolio. The Company’s exit of investments
may be at the time each investment reaches its current assumed
end of economic life. At this point it could be possible for the
Company to remain invested subject to contractual negotiations,
economic viability and investment policy of the Company at
the time. The Company is investing in a sector for which there
is an active secondary market and therefore the Company may
also exit investments at an earlier stage for profit or for portfolio
rationalisation purposes.
The assessments concluded that the new investments shared
similar characteristics to the existing investments, are in line
with the business purpose of the Company and that each has an
appropriate exit strategy. In particular, the Directors noted that:
■ the underlying businesses and the structure of the new
investments are in keeping with the existing portfolio through
the provision of energy efficiency services to clients, or host
counterparties, predominantly through long-term contracted
agreements
■ The underlying businesses are set up as Special Purpose
Vehicles (SPV’s) and although each SPV can have an indefinite
life, the equipment associated with providing such services
have finite lives, are capable of being upgraded or sold and the
contracts can be renewed
■ As part of the exit strategy for each new investment, the
structure of that investment is such that it could be readily
made available for sale (further information on exit strategy
for new investments can be found in Investment Manager’s
Report in Section 2.4)
■ Each new investment is measured at fair value.
After assessing whether the Company meets the definition of an
investment entity set out in IFRS 10 the Directors concluded that
as a whole:
(i) the Company has multiple investors with shares issued
publicly on London Stock Exchange and obtains funds from a
diverse group of shareholders who would otherwise not have
access individually to investing in energy efficiency projects;
(ii) the Company’s purpose is to invest funds for both investment
income and capital appreciation. The Holdco and its SPVs
have indefinite lives however the underlying assets have
minimal residual value because they do not have unlimited
lives, are not to be held indefinitely and have appropriate exit
strategies in place; 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. The Directors 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 believe the
treatment outlined above provides the most relevant information to
investors.
b) Going concern
COVID-19
During the year to 31 March 2022 and up to the date of this
report, the outbreak of the COVID-19 pandemic has slowed down
somewhat compared to a year ago. However, the pandemic still
has a negative impact on the global economy and therefore the
uncertainties and additional risks for the Company raised in prior
periods remain under review. The Directors of the Company and
the Investment Manager continue to follow government guidelines
in relation to the COVID-19 pandemic in all the jurisdictions where
its investments operate to ensure best practices are followed.
There has not been a material impact to the Company, to its
investment in Holdco and to its indirect subsidiaries to carry out its
operations and receive the expected return from its investments,
therefore the Directors are confident that there should not be a
material financial impact on the performance of the Company
in the future if subsequent lockdowns or similar restrictions are
introduced. The Directors do not believe there is a significant risk
to the Company from COVID-19 pandemic but, along with the
Investment Manager, continue to monitor the portfolio for material
impact from the COVID-19 pandemic
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Investment diversification and cash
The Company, through its investment in Holdco, benefits from a
portfolio of investments that have a range of long-term contracts
with a diversified set of counterparties across multiple sectors and
jurisdictions. A key risk facing the Company is that counterparties to
the investments may not be able to make their contractual payments.
The Company has prepared, and the Directors have reviewed a cash
flow forecast covering the minimum period of twelve months from
the date of approval of this report, taking into consideration potential
changes in investment and trading performance and applying a
10% reduction in revenues to test the resilience of cash flows in the
near term. The forecast demonstrates an expectation to continue
to generate positive cash flows for the foreseeable future that as a
minimum will meet liabilities as they fall due. The Directors reviewed
a severe downside scenario where the Company would not receive
any further income from its investment for the next 12 months
from signing of the financial statements and taking into account all
committed payments for running the Company, the Company would
have sufficient cash reserves to continue as a going concern. As at
31 March 2022, the Company’s net current assets were £144.9m,
including cash balances of £146.1 million. Further amounts of cash
are held by the Company’s direct and indirect subsidiaries, which
are sufficient to meet current obligations as they fall due. The major
cash outflows of the Company are the payment of dividends and
payments relating to the acquisition of new assets, both of which are
discretionary.
Credit Facility
The Company’s single subsidiary, Holdco, has a RCF that has
adequate headroom in its covenants that have been tested for
historic and forward interest cover and group loan to value limits.
As at 31 March 2022, the facility was undrawn and £145m is
available to meet future working capital and pipeline requirements.
The Company is a guarantor to the RCF (see Note 17) but has no
other guarantees or commitments.
Ukraine conflict
In light of the events in Ukraine in the first quarter of 2022, the
Board and the Investment Manager have been monitoring its
continual development and performed an assessment of the
current exposure to Ukraine, Russia and Belarus (the “Region”) and
the potential impact to the Company’s and the portfolio companies’
operations.
The Company is a UK registered public company. Currently neither
the Company nor the Investment Manager conducts business and
operations in the Region; therefore the Company is not subject to
any direct impact by this event.
With regards to the Company’s investments, none of the portfolio
companies have business operations or client / supplier
relationships in the Region. Through this assessment, the Board
and the Investment Manager duly considered any restriction
imposed by the relevant sanctions, and its impact on the
portfolio companies. The effects on the global economy are still
emerging and the full impact on the portfolio remains uncertain
at this point and continues to be closely monitored by the Board
and Investment Manager. The Board and Investment Manager
continues to actively monitor the Partnership’s investment and
operating activities.
Inflation
The global impact of the Russian invasion of Ukraine on the oil
and gas prices is a significant contributor to rises globally in at
present. The Company has carried out assessment of the impact
of the global rise in inflation on its portfolio and have concluded
that overall there is a positive correlation to inflation and there is no
adverse impact.
The Directors are satisfied that the Company has sufficient
resources to continue in operation for the foreseeable future, a
period of not less than 12 months from the date of approval of the
financial statements. The Directors have reviewed the Company’s
financial projections and cash flow forecasts, including the
potential impact from COVID-19 and believe, based upon those
projections and forecasts and various risk mitigation measures in
place, that it is appropriate to prepare the financial statements on a
going concern basis.
c) Segmental Reporting
The Chief Operating Decision Maker (“CODM”) being the Board
of Directors, is of the opinion that the Company is engaged in a
single segment of business, being investment in energy efficiency
projects 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.
d) Foreign Currency Translation
Foreign currency and presentation currency
Items included in the financial statements of the Company
are measured using the currency of the primary economic
environment in which the entity operates, the Company’s
functional currency. The financial statements are presented
in Pounds Sterling which is the Company’s functional and
presentation currency.
Transactions and balances
Foreign currency transactions are translated into Pounds
Sterling using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation
at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Statement
of Comprehensive Income.
5.3 Notes to the Financial Statements
continued
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e) Income
Dividend income and investment income from financial assets
at fair value through profit or loss is recognised in the Statement
of Comprehensive Income within investment income when the
Company’s right to receive payments is established.
Fair value gains on financial assets at fair value through profit or
loss are recognised in the Statement of Comprehensive Income at
each valuation point.
Finance income comprises interest earned on cash held on
deposit. Finance income is recognised on an accruals basis. Loan
interest income is accounted for on an accruals basis using the
effective interest method.
f) Dividends Payable
Dividends to the Company’s shareholders are recognised when
they become legally payable. In the case of interim dividends, this
is when they are paid. In the case of final dividends, this is when
they are approved by the shareholders at the AGM.
g) Fund Expenses
All expenses including investment management fees, transaction
costs, non-executive directors’ fees are accounted for on an
accruals basis. Share issue expenses of the Company directly
attributable to the issue and listing of shares are charged to the
share premium account.
h) Acquisition Costs
Acquisition costs are expensed to the Income Statement as they
are incurred.
i) Taxation
The Company is liable to UK corporation tax on its income. 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. Fair
value movements and dividends received by the Company are
exempt from UK corporation tax.
j) Cash and Cash Equivalents
Cash and cash equivalents include deposits held at call with
banks and other short-term deposits with original maturities
of three months or less. The majority of cash is held at the
Money market fund managed by JP Morgan. It is highly liquid
investment and readily convertible to a known amount of cash.
There is no expected credit loss as the bank institutions have
credit ratings of at least BBB+ and all cash is held at call from
the banks.
k) Financial Instruments
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 are derecognised when the contractual rights
to the cash flows from the instrument expire or the asset is
transferred and the transfer qualifies for derecognition in
accordance with IFRS 9 Financial instruments.
Investments are recognised when the Company has control of the
asset. Control is assessed considering the purpose and design of
the investments including any options to acquire the investments
where these options are substantive. The options are assessed for
factors including the exercise price and the incentives for exercise.
The Company classifies its financial assets in the following
measurement categories:
■ those to be measured subsequently at fair value
through profit or loss; and
■ those to be measured at amortised cost.
At initial recognition, the Company measures investments in
energy efficiency projects at its transaction price net of transaction
costs that are directly attributable to the acquisition of the financial
asset. The Company subsequently measures all investments at
fair value and changes in the fair value are recognised as gains/
(losses) on investments at fair value through profit or loss within
investment income.
l) Trade and Other Receivables
Trade and other receivables are non-derivative financial assets with
fixed or determinable payments that not quoted in an active market.
Those includes Prepayments, VAT Receivable and other receivables
which are intercompany balances due from subsidiary. Receivables
are initially recognised at fair value. They are subsequently
measured at amortised cost, less any expected credit loss.
The Company has assessed IFRS 9’s expected credit loss model
and does not consider any impact on these financial statements.
m) Trade and Other Payables
Trade and other payables include accruals and other payables and
initially are recognised at fair value, and subsequently re-measured
at amortised cost using the effective interest method.
n) Share Capital and Share Premium
The Company’s ordinary shares are not redeemable and are
classified as equity. Incremental costs directly attributable to the
issue of ordinary shares and share options are recognised as a
deduction in equity and are charged from the share premium
account. The costs incurred in relation to the IPO and subsequent
fundraisings of the Company were charged from the share
premium account.
3. Critical Accounting Estimates and
Judgements
The preparation of financial statements in accordance with
IFRS requires the Directors to make judgements, estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
5.3 Notes to the Financial Statements
continued
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income and expense during the year. Actual results could differ
from those estimates. The estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate
is revised if the revision only affects that period or in the period
and future periods if the revision affects both current and future
periods.
Judgements
Investment entity
As disclosed in Note 2, the Directors have concluded that the
Company continues to meet 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.
Estimates
Investment valuations
The key area where estimates may be significant to the financial
statements is the valuation of the Company’s single subsidiary,
SEEIT Holdco, which in turns holds investments in a portfolio of
investments that are held at fair value (the “Portfolio Valuation”).
IFRS 13 establishes a single source of guidance for fair value
measurements and disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
The Board of Directors has appointed the Investment Manager to
produce the Portfolio Valuation at 31 March 2022, which includes
estimates of future cash flows that have the potential to have a
material effect on the measurement of fair value.
The key estimates made include:
Discount rate
The weighted average unlevered discount rate (post tax) applied in
the 31 March 2022 valuation was 7.0% (2021: 7.0%). The discount
rate is considered one of the most unobservable inputs through
which an increase or decrease would have a material impact on
the fair value of investment at fair value through profit or loss. An
appropriate discount rate is applied to each underlying asset. The
range of discount rates applied and its sensitivity to movements in
discount rates is shown in note 4.
Macroeconomic assumptions
Further estimates have been made on the key macroeconomic
assumptions that are likely to have a material effect on the
measurement of fair value being inflation, corporation tax and
foreign exchange which are further described in Note 4.
Investment specific cash flow assumptions
For the investments in Primary Energy, estimates have been made
to determine the demand for generation by the offtakers and the
cash flows that can be generated through renewal of contract
terms with the counterparty after the expiry of the existing contract
terms. The most material estimate is in relation to Cokenergy. If the
actual increase in contractual terms assumed for the Cokenergy
investment is 50% less than estimated, the Portfolio Valuation at
31March 2022 could be reduced by approx. £14 million, assuming
no other mitigants are available.
Although the investment in Onyx has been adversely affected by
delays in the development and construction of new assets, an
increased estimate has been made for the amount of Megawatts
that can be deployed from the development pipeline which are
valued on an EV multiple per MW. If only 50% of the increased
estimate is achieved, the Portfolio Valuation at 31 March 2022
would be reduced by approx. £8 million.
At the start of 2021 the Investment Manager worked with the
management team of Oliva Spanish Cogeneration to establish
an inhouse gas procurement company to target savings against
the spot price for procuring natural gas for the five investments in
Oliva Spanish Cogeneration that use natural gas as a fuel supply.
Key estimates are made in the future cash flows of the savings that
can be achieved, however, if the margin of estimated savings is
5% less, then the Portfolio Valuation at 31 March 2022 would be
reduced by approx. £13.8 million.
In the investment in Vartan Gas, the future cashflows includes
an assumption that the management team will target a decline
in customer numbers at a year on year rate that is lower than the
historic average decline. If the rate from the last 12 months is
assumed for the following two years, the adverse impact on the
Portfolio Valuation at 31 March 2022 would be £1.7 million.
5.3 Notes to the Financial Statements
continued
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108 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
4. Financial Instruments
Valuation Methodology
As detailed in Note 1 and Note 11, the Company has a single investment directly wholly owned holding company (Holdco). It recognises
this investment at fair value. To derive the fair value of Holdco, the Company determines the fair value of investment held directly or
indirectly by Holdco and adjusts for any other assets and liabilities. See Note 11 for a reconciliation of this fair value. The valuation
methodology applied by Holdco to determine the fair value of its investments is described below.
Portfolio
company
5
Portfolio
company
1
Portfolio
company
3
Portfolio
company
2
Portfolio
company
4
Holding
company
1
THE
HOLDCO
THE
COMPANY
The Directors have satisfied themselves as to the methodology used and the discount rates and key assumptions applied in producing the
valuations. All investments are at fair value through profit or loss.
For non-market traded investments (being all the investments in the current portfolio), the valuation is based on a discounted cash flow
methodology and adjusted in accordance with the IPEV (International Private Equity and Venture Capital) valuation guidelines where
appropriate to comply with IFRS 13 and IFRS 9, given the special nature of infrastructure investments. Where an investment is traded in an
open market, a market quote is used.
The Investment Manager exercises its judgement in assessing the expected future cash flows from each investment based on the project’s
expected life and the financial models produced for each project company and adjusts the cash flows where necessary to take into account
key external macroeconomic assumptions and specific operating assumptions.
The fair value for each investment is then derived from the application of an appropriate market discount rate for that investment to reflect
the perceived risk to the investment’s future cash flows and the relevant period end foreign currency exchange rate to give the present
value of those cash flows. The discount rate takes into account risks associated with the financing of an investment such as investment
risks (e.g. liquidity, currency risks, market appetite), any risks to the investment’s earnings (e.g. predictability and covenant of the income)
and a thorough assessment of counterparty credit risk, all of which may be differentiated by the phase of the investment. Specific
risks related to each asset that can be attributed to climate change and to the COVID-19 pandemic are assessed and where required,
adjustments are made to expected future cash flows or reflected in the asset specific discount rate that is applied.
5.3 Notes to the Financial Statements
continued
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Fair value measurement by level
IFRS 13 requires disclosure of fair value measurement by level. Fair value measurements are categorised into Level 1, 2 or 3 based on the
degree to which inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its
entirety which are described as follows:
■ Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement
date;
■ Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or
indirectly; and
■ Level 3 inputs are unobservable inputs for the asset or liability.
The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments.
Investment at fair value through profit or loss Level 1
£’000
Level 2
£’000
Level 3
£’000
31 March 2022 – – 928,229
31 March 2021 – – 572,574
The Company’s indirect investments have been classified as level 3 as the investments are not traded and contain unobservable inputs.
Asthe fair value of the Company’s equity and loan investments in the Holdco is ultimately determined by the underlying fair values of the
SPV investments or debt schedules, the Company’s sensitivity analysis of reasonably possible alternative input assumptions is the same
across all its investments. The reconciliation of Level 3 fair value is disclosed in Note 11.
Valuation Assumptions
31 March 2022 30 September 2021 31 March 2021
Inflation rates UK (RPI)
7.9% declining to 3.5%
by 2024, 2.75% p.a.
long-term
2.75% p.a. 2.75% p.a.
UK (CPI)
6.0% declining to 2.3%
by 2024, 2.00% p.a.
long-term
2.00% p.a. 2.00% p.a.
Spain (CPI)
5.8% declining to 1.7%
by 2024, 2.00% p.a.
long-term
1.3% to 1.4% until 2023,
2.00% p.a. long-term
1.0% to 1.4% until 2023,
2.0% long-term
Sweden (CPI)
3.4% declining to 2.0%
by 2024, 2.00% p.a.
long-term
1.7% to 1.8% until 2023,
2.00% p.a. long-term
1.4% to 1.7% until 2023,
2.0% long-term
Singapore (CPI)
3.2% declining to 2.0%
by 2024, 2.00% p.a.
long-term
2.00% p.a. 2.00% p.a.
Ireland (CPI)
4.8% declining to 2.0%
by 2024, 2.00% p.a.
long-term
n/a n/a
USA (CPI)
6.3% declining to 2.0%
by 2024, 2.00% p.a.
long-term
2.00% p.a. 2.00% p.a.
5.3 Notes to the Financial Statements
continued
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110 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
31 March 2022 30 September 2021 31 March 2021
Tax rates UK
19% to 2023, 25%
thereafter
19% to 2023, 25%
thereafter
19% to 2023, 25%
thereafter
Spain 25% 25% 25%
Sweden 21.4% 20.6% 21.4%
Singapore 17% 17% 17%
Ireland 17% 17% n/a
USA
21% Federal & 3-9%
State rates
21% Federal & 3-9%
State rates
21% Federal & 3-9%
State rates
Foreign exchange rates EUR/GBP 0.84 0.86 0.85
SEK/GBP 0.08 0.08 0.08
SGD/GBP 0.56 0.55 0.54
USD/GBP 0.76 0.74 0.73
Discount rates
The discount rates used for valuing each investment are described in the Valuation Methodology section above.
The discount rates used for valuing the investments in the portfolio are as follows:
31 March 2022 31 March 2021
Weighted Average discount rate (on unlevered basis) 7.0% 7.0%
Discount rates 4.0% to 10.0% 4.5% to 10.0%
Sensitivities
The sensitivities below show the effect on Net asset value of assuming a different range for each key input assumption, in each case
applying a range that is considered to be a reasonable and plausible outcome for the market in which the Company has invested.
Discount rates
A change to the weighted average discount rate by plus or minus 0.5% has the following effect on the NAV.
Discount rate NAV/share
impact
-0.5%
change
Net asset
value
+0.5%
change
NAV/share
impact
31 March 2022 4.5p £44,079k £1,073,118k (£40,648k) (4.1p)
31 March 2021 4.4p £29,854k £693,805k (£27,553k) (4.1p)
Inflation rates
The Portfolio Valuation assumes long-term inflation as indicated above in the UK, USA and Spain. A change in the inflation rate by plus or
minus 0.5% has the following effect on the NAV, with all other variables held constant.
5.3 Notes to the Financial Statements
continued
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Inflation rate NAV/share
impact
-0.5%
change
Net asset
value
+0.5%
change
NAV/share
impact
31 March 2022 (1.1p) (£10,540k) £1,073,118k £11,936k 1.2p
31 March 2021 (0.7p) (£5,069k) £693,805k £5,560k 0.8p
Corporation tax rates
The Portfolio Valuation assumes tax rates based on the relevant jurisdiction. A change in the corporation tax rate by plus or minus 5% has
the following effect on the NAV, with all other variables held constant.
Corporation tax rate NAV/share
impact
-5%
change
Net asset
value
+5%
change
NAV/share
impact
31 March 2022 3.2p £31,706k £1,073,118k (£33,005k) (3.3p)
31 March 2021 3.0p £20,025k £693,805k (£20,003k) (3.0p)
Foreign exchange rates
The Portfolio Valuation assumes foreign exchange rates based on the relevant foreign exchange rates against GBP at the reporting date.
A change in the foreign exchange rate by plus or minus 10% (GBP against Euro, Swedish Krona, Singapore Dollar and US Dollar) has the
following effect on the NAV, with all other variables held constant. The effect is shown after the effect of current level of hedging which
reduces the impact of foreign exchange movements on the Company’s NAV.
Foreign exchange rate NAV/share
impact
-10%
Change
Net asset
value
+10%
change
NAV/share
impact
31 March 2022 0.8p £8,329k £1,073,118k (£7,649k) (0.8p)
31 March 2021 0.8p £5,342k £693,805k (£4,621k) (0.7p)
5. Investment Income
Year ended
31 March 2022
£’000
Year ended
31 March 2021
£’000
Dividend income 33,656 20,100
Gain on investment at fair value through profit or loss (Note 11) 47,792 15,021
Interest income 7,315 2,713
Investment income 88,763 37,834
Interest income is mainly in respect of coupon bearing loan notes issued to the Company by Holdco (Note 15) but includes bank interest
of£16k for the year ended 31 March 2022 (2021: £29k). The loan notes accrue interest at 6%, are unsecured and repayable in full
on 18April 2039. Loan Interest income is recognised on the Statement of Comprehensive Income on an accruals basis. The gain on
investment is unrealised.
5.3 Notes to the Financial Statements
continued
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6. Fund Expenses
Year ended
31 March 2022
£’000
Year ended
31 March 2021
£’000
Investment management fees (Note 15) 7,211 4,042
Non-executive directors’ fees (Note 16) 275 156
Other expenses 1,076 913
Fees to the Company’s independent auditors:
– for the audit of the statutory financial statements 398 263
– for audit-related assurance services 45 55
Fund Expenses 9,005 5,429
As at 31 March 2022, the Company had no employees (31 March 2021: nil) apart from Directors in office. The Company confirms that it has
no key management personnel, apart from the Directors disclosed in Directors’ Remuneration Report in Section 4.6 of the Annual Report.
There is no other compensation apart from those disclosed. Other expenses include professional fees, administration fees, irrecoverable
VAT and other fees in relation to the running of the Company.
7. Tax
The tax for the year shown in the Statement of Comprehensive Income is as follows.
Year ended
31 March 2022
£’000
Year ended
31 March 2021
£’000
Profit for the year before taxation 79,758 32,405
Profit for the year multiplied by the standard rate of corporation tax of 19% (2021: 19%) 15,154 6,157
Fair value movements (not subject to taxation) (9,080) (2,854)
Dividends received (not subject to taxation) (6,395) (3,819)
Surrendering of tax losses to unconsolidated subsidiaries 321 516
Total tax charge – –
The corporation tax rate will increase from 19% to 25% with effect from 1 April 2023. No deferred tax were recognised in the periods.
8. Earnings Per Ordinary Share
Year ended
31 March 2022
Year ended
31 March 2021
Profit and comprehensive income for the year (£’000) 79,758 32,405
Weighted average number of ordinary shares (‘000) 795,954 463,389
Earnings per ordinary share (pence) 10.0 7.0
There is no dilutive element during the financial year and subsequent to the financial year.
5.3 Notes to the Financial Statements
continued
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5.3 Notes to the Financial Statements
continued
9. Dividends
Year ended
31 March 2022
£’000
Year ended
31 March 2021
£’000
Amounts recognised as distributions to equity holders during the year:
Second Interim dividend for the year ended 31 March 2020 of 2.5p per share – 8,010
First quarterly interim dividend for the year ended 31 March 2021 of 1.375p per share – 5,859
Second quarterly interim dividend for the year ended 31 March 2021 of 1.375p per share – 7,234
Third quarterly interim dividend for the year ended 31 March 2021 of 1.375p per share – 9,310
Fourth quarterly interim dividend for the year ended 31 March 2021 of 1.375p per share 9,310 –
First quarterly interim dividend for the year ended 31 March 2022 of 1.405p per share 9,513 –
Second quarterly interim dividend for the year ended 31 March 2022 of 1.405p per share 12,692 –
Third quarterly interim dividend for the year ended 31 March 2022 of 1.405p per share 12,692 –
All dividends have been paid out of distributable reserves. Further information on distributable reserves can be found in Note 12.
On 16 June 2022, the Company declared a fourth interim dividend for the year ended 31 March 2022 of 1.405p per share which is expected
to result in a cash payment of approximately £13.9 million on 30 June 2022.
10. Net Assets Per Share
31 March 2022 31 March 2021
Shareholders’ equity (£’000) 1,073,118 693,805
Number of ordinary shares (‘000) 990,288 677,087
Net assets per ordinary share (pence) 108.4 102.5
11. Investment at Fair Value Through Profit or Loss
The Company recognises the investment in Holdco, its single directly owned holding company, at fair value. Holdco’s fair value includes the
fair value of each of the individual project companies and holding companies in which the Holdco holds a direct or an indirect investment,
along with the working capital of Holdco.
Year ended
31 March 2022
£’000
Year ended
31 March 2021
£’000
Brought forward investment at fair value through profit or loss 572,574 254,095
Loan investments in year 96,801 42,000
Equity investments in year 223,062 274,479
Loan Principal repaid in year (12,000) (13,021)
Movement in fair value 47,792 15,021
Closing investment at fair value through profit or loss 928,229 572,574
Movement in fair value is recognised through Investment Income in the Statement of Comprehensive Income (see Note 5).
Of the closing investment at fair value through profit and loss balance, £149,980k (March 2021: £65,179k) relates to loan investment (also
see Note 5) and £778,249k (March 2021: £507,395k) relates to equity investment.
A reconciliation between the Portfolio Valuation (as described in Section 3.2), being the valuation of the Investment Portfolio held by
Holdco, and the Investment at fair value through profit or loss per the Statement of Financial Position is provided below. The principal
differences are the balances in Holdco for cash and working capital.
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31 March 2022
£’000
31 March 2021
£’000
Portfolio Valuation (see Section 3.1 for details) 912,714 552,672
Holdco cash 24,880 4,141
Holdco debt – –
Holdco net working capital (9,365) 15,761
Investment at fair value per Statement of Financial Position 928,229 572,574
Investments by the Company
During the year ended 31 March 2022, the Company invested £319.9 million into Holdco for new portfolio investments and repayment of debt.
Holdco used £67.8 million of this funding to repay its Revolving Credit Facility (“RCF”) in September 2021 and £30.6 million in March 2022.
Portfolio Investments, via Holdco
During the year ended 31 March 2022, Holdco invested c. £300.2 million in new portfolio investments.
The Company announced the following investment activity in the year:
■ In April 2021, the Company acquired a 100% equity interest in a commercial district energy system, RED-Rochester, LLC for a cash
consideration of c. £139 million.
■ In April 2021, the Company invested in a 4.5MWp portfolio of operational commercial and industrial rooftop solar systems and a
20MWp pipeline of late development stage and ready to build assets at multiple sites in Vietnam (via a Singapore developer) for a cash
consideration of c. £2.4 million.
■ Following on from the initial investment in Onyx in the year ended 31 March 2021, the Company invested additional amounts of c.
£6million in April 2021, c. £2 million in September 2021, c. £13 million in November 2021 and c. £2 million in March 2022 to fund
further construction.
■ Following on from the initial investment in Spark US Energy Efficiency II in the year ended 31 March 2021, the Company invested via
Holdco an additional c. £4.5 million July 2021, c. £6 million in November 2021 and c. £2 million in March 2022.
■ Following on from the initial investment in Oliva in the year ended 31 March 2021, the Company invested additional amounts of c.
£10million in December 2021 and c. £3 million in March 2022 to fund further construction.
■ In July 2021, the Company announced it had agreed to invest approximately c. £22 million in a large-scale green gas-to-grid project in
Indiana, US. The initial investment was c. £11 million with incremental amounts expected to be deployed over time to fund expansion
activity. The Company invested a further c. £2 million in November 2021 and c. £0.3 million in March 2022.
■ In August 2021, the Company invested c. £1 million into Holdco to facilitate the retrofit project of energy efficient measures in Tallaght
Hospital, one of Ireland’s largest hospitals.
■ In September 2021, the Company invested £34 million to acquire the remaining 35% equity interest in Primary Energy.
■ In September 2021, the Company announced it had agreed to invest c. £3 million to develop, implement, finance and own the
replacement of a chiller system at Lycra Singapore’s facility.
■ In September 2021, the Company invested £8 million to facilitate the drawdown of capital to EV Network for the purchase of the first
tranche of rapid and ultra-fast EV charging stations.
■ In October 2021, the Company invested c. £4 million to provide funding for the new-build, highly energy efficient multi-family residential
buildings designed and constructed by Sustainable Living Innovations (“SLI”) in the United States.
■ In November 2021, the Company invested c. £16 million in Future Energy Solutions Holdings LLP, a portfolio of 1,800+ LED lighting
projects across 1,700+ sites and 1,000+ counterparties in the USA.
■ In March 2022, the Company invested c. £31 million to acquire an 80% interest in Sociedade de Iniciativa e Aproveitamentos
Florestais- Energia, S.A. (“SIAF”), a high-efficiency and operational biomass plant. The Company funded the intermediatory company
on 31 March 2022 with the deal completing in April 2022.
The Company made further portfolio investments after 31 March 2022, of c. £43 million – see Note 18 for details:
5.3 Notes to the Financial Statements
continued
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12. Share Capital and Share Premium
Ordinary Shares of £0.01
Year ended
31 March 2022
‘000
Year ended
31 March 2021
‘000
Authorised and issued at the beginning of the year 677,087 320,374
Shares Issued – during the year 313,201 356,713
Authorised and issued at the end of year 990,288 677,087
Share capital
£’000
Share Premium
£‘000
Total as at 1 April 2021 6,771 584,436
Issue of Ordinary shares 3,132 346,868
Costs of issue of Ordinary shares – (6,238)
Total as at 31 March 2022 9,903 925,067
In September 2021, the Company issued 226,244,343 new ordinary shares at a price of 110.5p per share raising gross proceeds of £250m.
In March 2022, the Company issued 86,956,522 new ordinary shares at a price of 115p per share raising gross proceeds of £100m.
The Company currently has one class of ordinary share in issue. All the holders of the £0.01 ordinary shares, which total 990,288k
(2021:677,087k) and are fully paid (2021: fully paid), are entitled to receive dividends as declared from time to time and are entitled to
onevote per share at general meetings of the Company.
Other distributable reserves were created through the cancellation of the Share Premium account on 12 March 2019. This amount is
capable of being applied in any manner in which the Company’s profits available for distribution, as determined in accordance with the
Companies Act 2006, are able to be applied.
Other distributable reserves and Retained Earnings are detailed in the Statement of Changes in Shareholders’ Equity.
13. Financial Risk Management
Financial Risk Management Objectives
The objective of the Company’s financial risk is to manage and control risk exposure of the underlying investment portfolio held by Holdco.
The Board is responsible for overseeing the management of financial risks, however the review and management of financial risks is
delegated to the Investment Manager. The Investment Manager monitors and manages the financial risks relating to the operations of the
Company through internal procedures and policies designed to identify, monitor and manage the financial risks to which the Company is
exposed.
These risks include market risk (including price risk, currency risk and interest rate risk), credit risk and liquidity risk.
5.3 Notes to the Financial Statements
continued
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Price Risk
The value of the investments directly and indirectly held by the
Company is affected by the discount rate applied to the expected
future cash flows and as such may vary with movements in interest
rates, inflation, power prices, market prices host demand for
energy services and competition for these assets.
Currency Risk
Currency risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
foreign exchange rates. The Company receives loan interest, loan
principal and dividends from its single investment, Holdco, in
sterling. However, the Company is indirectly exposed to currency
risk through its Holdco as its investments include non-sterling
investments are held in Euro, US Dollar, Singapore Dollar and
Swedish Krona.
The Company monitors its foreign exchange rate exposures using
its near-term and long-term cash flow forecasts. Its policy is to
use foreign exchange hedging to provide protection to the level
of sterling distributions that the Company aims to pay over the
medium-term, where considered appropriate. This may involve the
use of forward exchange.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of
a financial instrument will fluctuate because of changes in market
interest rates.
The Company, via Holdco, invests indirectly in loans in project
companies, usually with fixed interest rate coupons. Where floating
rate debt is owned, the primary risk is that the portfolio’s cash flow
will be subject to variation depending on changes to base interest
rates. Theportfolio’s cash flows are continually monitored and re-
forecasted to analyse the cash flow returns from investments.
The Company’s policy is to ensure that interest rates are
sufficiently hedged, when entering into material medium/long-term
borrowings, to protect the Company and portfolio companies’ net
interest margins from significant fluctuations in interest rates. This
may include engaging in interest rate swaps or other rate derivative
contracts at the subsidiary level under direction of the Company.
The Company’s financial assets and financial liabilities are at a
pre-determined interest rate, as a result the Company is subject to
limited exposure to risk due to fluctuations in the prevailing levels
of market interest rates.
The Investment Manager has carried out an assessment on the
accounting implications of the IBOR reform directly affecting
the Company. There is no direct impact from the reform as the
Company and its UK subsidiaries do not have exposure to LIBOR.
There is currently no exposure at project level in all locations other
than the US where analysis is ongoing. However the reform is not
expected to have a material impact on these projects or SEEIT as
a whole.
Credit Risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in a financial loss to the Company
through a reduction in future expected cash receipts.
The key counterparties are the project companies in which the
Company makes indirect investments via Holdco. The projects
companies’ near-term cash flows forecasts are used to monitor
the timing of cash receipts from project counterparties and are
reviewed regularly to demonstrate the projects’ ability to pay
interest and dividends when they fall due.
The Company does not have any significant credit risk exposure to
any single counterparty in relation to trade and other receivables.
On-going credit evaluation is performed on the financial condition
of accounts receivable.
As at 31 March 2022, there were no receivables considered
impaired. At an investment level, the credit risk relating to
significant counterparties is reviewed on a regular basis and
potential adjustments to the discount rate are considered to
recognise changes to these risks where applicable.
The Company maintains its cash and cash equivalents across
various banks to diversify credit risk. These are subject to the
Company’s credit monitoring policies including the monitoring of
the credit ratings issued by recognized credit rating agencies. The
Company’s cash and deposits are held with counterparties that
meet strict investment rating criteria per the Company’s treasury
policy.
The Company is at risk of credit loss on its loans, receivables,
cash and deposits. Underlying investments are held by Holdco at
fair value using discounted cash flows. Receivables are primarily
intercompany and taxation. While cash and cash equivalents are
subject to the impairment requirements of IFRS 9, there was no
identified credit loss.
The Company’s maximum exposure to credit risk over financial
assets is the carrying value of those assets in the Statement of
Financial Position.
5.3 Notes to the Financial Statements
continued
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Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Board of Directors has
established an appropriate liquidity risk management framework for the management of the Company’s short-, medium- and long-term
funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves by monitoring
forecast and actual cash flows and by matching the maturity profiles of assets and liabilities.
The Company also ensures that Holdco has sufficient banking facilities by continuously monitoring forecast and actual cash flows and
matching the maturity profiles of financial assets and liabilities.
Unconsolidated project companies are subject to contractual agreements that may impose temporary restrictions on their ability to
distribute cash. Such restrictions are not deemed significant in the context of the overall liquidity.
The table below shows the maturity of the Company’s non-derivative financial assets and liabilities. The amounts disclosed are contractual,
undiscounted cash flows and may differ from the actual cash flows received or paid in the future as a result of early repayments. Balances
due within 12 months equal their carrying balances as the impact of discounting is not significant.
As at 31 March 2022
Up to
3 months
£’000
Between
3 and
12 months
£’000
Between
1 and
5 years
£’000
Total
£’000
Assets
Cash and cash equivalents 146,064 – – 146,064
Trade and other receivables – – – –
Liabilities
Trade and other payables (1,538) – – (1,538)
Total 144,526 – – 144,526
As at 31 March 2021
Up to
3 months
£’000
Between
3 and
12 months
£’000
Between
1 and
5 years
£’000
Total
£’000
Assets
Cash and cash equivalents 122,059 – – 122,059
Trade and other receivables 1 – – 1
Liabilities
Trade and other payables (1,229) – – (1,229)
Total 120,831 – – 120,831
Capital Management
The Company manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to shareholders.
In accordance with the Company’s investment policy, the Company’s principal use of cash (including the proceeds of the IPO) has been to
fund investments via Holdco as well as ongoing operational expenses.
The Board, with the assistance of the Investment Manager, monitors and reviews the broad structure of the Company’s capital on an
ongoing basis. The capital structure of the Company consists entirely of equity (comprising issued capital, distributable reserves and
retained earnings).
The Company is not subject to any externally imposed capital requirements.
5.3 Notes to the Financial Statements
continued
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14. Related Undertakings
The following table shows the Company’s single direct subsidiary (SEEIT Holdco Limited) and indirect subsidiaries and related
undertakings of the Company. As the Company applies IFRS 10 and Investment Entities (Amendments to IFRS 10) (see Note 2), these
entities have not been consolidated in the preparation of these financial statements.
Investment
Country of
incorporation &
Place of Business
Shareholding at
31 March 2022
SEEIT Holdco Limited
United Kingdom 100%
EECo Kingscourt Limited
United Kingdom 100%
SEEIT Europe Limited
United Kingdom 100%
EECo Data Centres No. 1 Limited
United Kingdom 100%
SEEIT US Limited
United Kingdom 100%
EECo Biomass No 1 Limited
United Kingdom 60%
EECo Evergreen Limited
United Kingdom 100%
EECo Wilton No. 1 Limited
United Kingdom 100%
SmartEnergy Finance Two Limited
United Kingdom 49%
Combined Heat and Power Investments Limited
United Kingdom 100%
Energy Efficient Global UK Project Limited
United Kingdom 100%
EECo Smithfield Limited
United Kingdom 100%
SDCL Solar Edge Limited
United Kingdom 100%
SEEIT UK 1 Limited
United Kingdom 100%
SEEIT Asia Limited
United Kingdom 100%
SEEIT Europe 2 Limited
United Kingdom 100%
SEEIT US Two Limited
United Kingdom 100%
Zood Infrastructure Limited
United Kingdom 100%
Walworth Invest S.L.
Spain 100%
EE CO Ireland Hospitals TUH Ltd
Ireland 100%
SDCL TG Cogen LLC
USA 71%
SEEIT BTB LLC
USA 100%
SEEIT Net Zero LLC
USA 100%
SEEIT PE 1 LLC
USA 100%
SEEIT PE 2 LLC
USA 100%
PERC Midco LLC
USA 100%
SEEIT Capital LLC
USA 100%
SEEIT Capital II LLC
USA 100%
SEEIT Hemisphere Holdco, LLC
USA 100%
SEEIT Red Holdco, LLC
USA 100%
SEEIT US Lighting Holdings LLC
USA 100%
FE Energy Efficiency INV PTE. Limited
Singapore 100%
SEEIPL 1 PTE. Limited
Singapore 100%
SEEIPL 3 PTE. Limited
Singapore 100%
SEEIPL 4 PTE. Limited
Singapore 100%
Shire Oak Green Asia Portfolio 2 Pte
Singapore 100%
SEEIT EUROPE 2 SWEDEN HOLDING AB
Sweden 100%
5.3 Notes to the Financial Statements
continued
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All subsidiaries that have a place of business in the United
Kingdom are registered in the United Kingdom and their principal
place of business and registered office is 5th Floor, 1 Vine Street,
London, W1J 0AH.
SDCL TG Cogen LLC, SEEIT Capital LLC, SEEIT Capital II LLC,
PERC Midco LLC, SEEIT Hemisphere I LLC, SEEIT Red Holdco
LLC, SEEIT US Lighting Holdings LLC, SEEIT BTB LLC and SEEIT
Net Zero LLC are registered in Delaware, USA and their registered
office is 1209 Orange Street, Wilmington, Delaware, USA with their
principal place of business is 1120 Avenue of the Americas, New
York, New York 10036, USA.
Walworth Invest S.L. is registered in Spain and its principal place
of business and registered office is Calle Príncipe de Vergara 112,
Planta Cuarta, 28002 Madrid, Spain.
EE CO Ireland Hospitals TUH Ltd is registered in Ireland and its
principal place of business and registered office is 55 Merrion
Square South, Dublin, DO2 YD65.
FE Energy Efficiency PTE. Limited, SEEIPL 1 PTE. Limited, SEEIPL
3 PTE. Limited, SEEIPL 4 PTE. Limited and Shire Oak Green Asia
Portfolio 2 PTE Ltd is registered in Singapore and their principal
place of business and registered office is 6 Eu Tong Sen Street
#11-09, TheCentral, Singapore 059817.
SEEIT EUROPE 2 SWEDEN HOLDING AB is registered in Sweden
and its principal place of business and registered office is
RÅSUNDAVÄGEN 12, 16967 Solna, Stockholm County, Sweden.
15. Related Parties
The Company and Sustainable Development Capital LLP
(the “Investment Manager”) have entered into the Investment
Management Agreement pursuant to which the Investment
Manager has been given responsibility, subject to the overall
supervision of the Board, for active discretionary investment
management of the Company’s portfolio in accordance with the
Company’s investment objective and policy.
As the entity appointed to be responsible for risk management and
portfolio management, the Investment Manager is the Company’s
AIFM. The Investment Manager has full discretion under the
Investment Management Agreement to make investments in
accordance with the Company’s investment policy from time to
time. This discretion is, however, subject to: (i) the Board’s ability to
give instructions to the Investment Manager from time to time; and
(ii) the requirement of the Board to approve certain investments
where the Investment Manager has a conflict of interest in
accordance with the terms of the Investment Management
Agreement. The Investment Manager also has responsibility
for financial administration and investor relations, advising the
Company and its group in relation to the strategic management of
the portfolio, advising the Company in relation to any significant
acquisitions or investments and monitoring the Company’s funding
requirements.
Under the terms of the Investment Management Agreement, the
Investment Manager will be entitled to a fee calculated at the rate
of:
■ 0.9%, per annum of the adjusted NAV in respect of the Net
Asset Value of up to, and including, £750 million; and
■ 0.8%, per annum of the adjusted NAV in respect of the Net
Asset Value in excess of £750 million.
The management fee is calculated using an adjusted NAV which
is the latest published NAV at the relevant time, less uncommitted
cash and adjusted on a daily basis for new acquisitions, new cash
committed to investments, disposals and changes in amounts of
debt drawn.
The management fee accrues monthly and is invoiced monthly in
arrears. During the year ended 31 March 2022, management fees
of £7,211k (2021: £4,042k) were incurred of which £708k (2021:
£919k) was payable at the year-end.
During the year ended 31 March 2022, £319.9m (2021: £316.5m) of
funding was provided by the Company to the Holdco for investment
acquisitions and the repayment of the RCF utilised by Holdco.
During the year ended 31 March 2022, coupon bearing loan notes
of £96.8 million (2021: £42.0 million) were issued which accrue
interestat 6%. During the year ended 31 March 2022, Holdco had
repaid coupon bearing loan notes of £12.0 million (2021: £13.0
million). In the year to 31 March 2022, £7,299k interest had accrued
on the loan notes (2021: £2,684k) of which nothing is outstanding
at the year-end (2021: £1,300k).
All of the above transactions were undertaken on an arm’s length
basis and there have been no changes in material related party
transactions since the last annual report.
16. Key Management Personnel
Transactions
The Directors of the Company, who are considered to be key
management, received fees for their services. Their fees were
£275k (disclosed as Non-executive directors’ fees in Note 6) in
the year (2021: £156k) which included £254k for Director salaries
(2021: £148k), £18k for national insurance contributions (2021: £8k)
and £3k for the reimbursement of expenses (2021: £nil).
17. Guarantees and Other Commitments
The Company is the guarantor of the RCF between Holdco and
Investec Bank plc.
Across two phases in June 2021 and August 2021, the Company
renewed and increased the RCF that it holds through its wholly
owned subsidiary, SEEIT Holdco, from £40 million to £145 million.
The RCF, which is SONIA linked and has a margin of 2.65%, expires
in June 2024 with options to extend for a further two years and
includes an accordion function for a further £55 million increase on
an uncommitted basis.
5.3 Notes to the Financial Statements
continued
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120 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
18. Events After the Reporting Period
The Directors have evaluated subsequent events from the date
of the financial statements through to the date the financial
statements were available to be issued.
Between April and June 2022, the Company made the following
investments, via SEEIT Holdco:
■ A further c. £3 million in Spark US Energy Efficiency II.
■ A further c. £1 million in Biotown.
■ A further c. £18 million in Onyx.
■ A further c. £2 million in Tallaght Hospital.
■ A financing round of c. £8 million in Turntide Technologies, Inc.
a provider of smart motor systems across several jurisdictions,
headquartered in the US with operations in Canada, Europe
and India.
■ A c.£21 million debt investment commitment to Baseload
Capital, a portfolio of small scale geothermal projects which
utilise existing heat sources which has not yet been drawn.
■ A further c. £6 million in EV Network.
■ A further c. £2 million in FES Lighting.
■ A c. £3 million in Iceotope, a company that provides energy
efficient cooling systems for data centres.
5.3 Notes to the Financial Statements
continued
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Overview GovernanceStrategic Report Financial Statements Additional Information
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 121
Directors
Tony Roper (Chair)
Christopher Knowles
Helen Clarkson
Emma Griffin
Sarika Patel
Registered Office
6th Floor
125 London Wall
London
EC2Y 5AS
Company Secretary and Administrator
Sanne Group Secretaries (UK) Limited (Company Secretary)
Sanne Group Fiduciary Services (UK) Limited (Administrator)
6th Floor
125 London Wall
London
EC2Y 5AS
Investment Manager
Sustainable Development Capital LLP
5th Floor
1 Vine Street
London
W1J 0AH
Independent Auditors
PricewaterhouseCoopers LLP
40 Clarendon Road
Watford, Hertfordshire
WD17 1JJ
Public Relations
TB Cardew
5 Chancery Lane
Holborn, London EC4A 1BL
Sponsor, Broker and Placing Agent
Jefferies International Limited
100 Bishopsgate
London
EC2N 4JL
Legal Adviser
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London, EC2A 2EG
Depositary
Sanne Group Administration Limited
6th Floor
125 London Wall
London
EC2Y 5AS
Registrar
Computershare Investor Services plc
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Bankers
RBS International
280 Bishopsgate
London
EC2M 4RB
Company Information
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122 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
Company name SDCL ENERGY EFFICIENCY INCOME TRUST PLC
Registered address 6th Floor,
125 London Wall,
London, EC2Y 5AS
Listing London Stock Exchange – Premium Listing
Ticker symbol SEIT
SEDOL BGHVZM4
Index inclusion FTSE All-Share, FTSE 250
Company year-end 31st March
Dividend payments Quarterly
Investment Manager Sustainable Development Capital LLP
Company Secretary & Administrator Sanne Group Secretaries (UK) Limited and Sanne Group Fiduciary Services (UK) Limited
Shareholders’ funds £1.1 billion as at 31 March 2022 (31 March 2021: £0.7 billion)
Market capitalisation £1.2 billion as at 31 March 2022 (31 March 2021: £0.8 billion)
Management fees 0.9% p.a. of NAV (adjusted for uncommitted cash) up to £750 million, 0.8% p.a. thereafter
ISA, PEP and SIPP status The Ordinary Shares are eligible for inclusion in PEPs and ISAs (subject to applicable
subscription limits) provided that they have been acquired by purchase in the market, and
they are permissible assets for SIPPs
Website www.seeitplc.com
Key Company Data
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Overview GovernanceStrategic Report Financial Statements Additional Information
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 123
AIC the Association of Investment Companies
AIFM an alternative investment fund manager, within the meaning
of the AIFM Directive
AIFM Directive 2011/61/EU of the European Parliament and
of the Council of 8 June 2011 on Alternative Investment Fund
Managers and amending Directives 2003/41/EC and 2009/65/EC
and Regulations (EC) No 1060/2009 and (EU) No. 1095/2010;
the Commission Delegated Regulation (EU) No 231/2013 of
19December 2012 supplementing Directive 2011/61/EU of the
European Parliament and of the Council with regard to exemptions,
general operating conditions, depositaries, leverage, transparency
and supervision
Board the Board of Directors of the Company, who have overall
responsibility for the Company
BMS building management systems
CCHP combined cooling/heating and power
CHP combined heating and power
Company SDCL Energy Efficiency Income Trust plc, a limited
liability company incorporated under the Act in England and
Wales on 12 October 2018 with registered number 11620959,
whose registered office is at 6th Floor, 125 London Wall, London,
EC2Y5AS
Company SPV a Project SPV owned by the Company or one of its
Affiliates through which investments are made
Contractual payment the payments by the Counterparty to
the Company or relevant Project SPV under the contractual
arrangements governing an Energy Efficiency Project, whether
such payments take the form of a service charge, a fee, a loan
repayment or other forms of payments as may be appropriate from
time to time
Counterparty the host, beneficiary or procurer of the Energy
Efficiency Project s with whom the Company has entered into the
Energy Efficiency Project, either directly or indirectly through the
use of one or more Project SPVs
Decentralised energy is energy which is produced close to where
it will be used, rather than at a large, centralised plant elsewhere,
delivered through a centralised grid infrastructure
Energy efficiency using less energy to provide the same level
of energy. Efficient energy use is achieved primarily through
implementation of a more efficient technology or process
Energy Efficiency Equipment the equipment that is installed at
or near the premises of a Counterparty or a site directly associated
with an Energy Efficiency Project , including but not limited to solar,
storage, CHP units, CCHP plant schemes, heat pumps, HVAC
units, lighting equipment, motors, controls, biomass boilers and
steam raising boilers (including IP steam processors) and green
fuels for use in the built environment or transport produced at or
near the point of use or via a distribution network
Energy Efficiency Project a project, the objective of which is to
achieve one or more of the following criteria:
■ reduce energy consumed and/or related GHG emissions
arising from the existing and/or future supply, transmission,
distribution or consumption of energy;
■ reduce its Scope 1 GHG emissions (“Direct GHG emissions
occur from sources that are owned or controlled by the
Company”) and Scope 2 GHG emissions (“electricity indirect
GHG emissions from the generation of purchased, or
generated on-site, electricity consumed by the Company”) as
defined by the GHG Protocol, directly and/or in conjunction
with offsets that may be used to deliver additional net
emissions reduction benefits;
■ increase the supply of renewable energy generated on the
premises of a Counterparty or generated at a site directly
associated with the premises of a Counterparty
■ reduce emissions and energy consumption in non-domestic
sectors, which include:
– all forms of energy supply, conversion, distribution or
transmission not originating within a private domestic
dwelling, including district heating systems and CHP
systems;
– demand for energy in non-domestic buildings including
commercially owned or used property and public sector
owned buildings;
– demand for energy in industrial and light manufacturing
plant and machinery, operations and logistics;
– demand for energy in the transport sector; and
– through the deployment of energy efficiency measures
in public and private infrastructure, such as in utilities
(including the installation of smart metering equipment)
and street lighting, or
otherwise satisfy, in the Investment Manager’s reasonable
opinion, any other criteria or measurement of energy efficiency in
an industry or sector, or by using energy efficiency technologies
that are compatible with the Company’s investment objective and
policy
Energy Efficiency Technology technologies deployed to achieve
an improvement in energy efficiency
EPC Engineering, procurement and construction
ESA an energy saving agreement governing the terms on which
energy savings are apportioned between the counterparty and the
relevant Project
GHG greenhouse gases
Holdco is SEEIT Holdco Limited, the Company’s single wholly
owned subsidiary
Glossary
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124 | SEEIT Annual Report 2022 | SDCL Energy Efficiency Income Trust plc
HVAC heating, ventilation and air conditioning
Investment Manager Sustainable Development Capital LLP, a
limited liability partnership incorporated in England and Wales
under the Limited Liability Partnership Act 2000 with registered
number OC330266
Investment Portfolio is the portfolio of energy efficiency
investments held by the Company via its single wholly owned
subsidiary, SEEIT Holdco Limited
ISA individual savings account
KWh kilowatts used or generated per hour
Lighting equipment energy efficient lighting used in connection
with an Energy Efficiency Project, including but not limited to LEDs
and associated fittings
MWh megawatts used or generated per hour
NAV net asset value
Ordinary Shares an ordinary share of £0.01 in the capital of
the Company issued and designated as “Ordinary Shares” of
such class (denominated in such currency) as the Directors may
determine in accordance with the Articles and having such rights
and being subject to such restrictions as are contained in the
Articles
O&M Contractors operations and maintenance contractors.
the contractor appointed by the Company or the relevant Project
SPVto perform maintenance obligations in relation to the relevant
Energy Efficiency Project s
PEP personal equity plan
Portfolio Valuation the Investment Manager is responsible for
carrying out the fair market valuation of the SEEIT group’s portfolio
of investments
RCF is the revolving credit facility of SEEIT Holdco Limited, used by
SEEIT for capital efficiency in making new investments
RoRi the “Return on Operations” incentive payment and the
“Return on Investment” incentive payment under Spain’s Royal
Decree-Law 9/2013 under which qualifying energy generation
assets are compensated, in the medium to long-term, for
fluctuations in revenues and costs against an established base
case
September 2021 Prospectus is the prospectus issued by the
Company on 2 September 2021
SIPP self-invested personal pension
SDCL Group the Investment Manager and the SDCL Affiliates
SEEIT the Company
SEEIT Holdco see Holdco
SPV’s special purpose vehicles
Glossary
continued
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Overview GovernanceStrategic Report Financial Statements Additional Information
SDCL Energy Efficiency Income Trust plc | SEEIT Annual Report 2022 | 125
Glossary of financial Alternative Performance
Measures (“APM”)
The Company uses APM’s to provide shareholders and stakeholders with information it deems relevant to understand and
assess the Company’s historic performance and its ability to deliver on the stated investment objective.
Measure Calculation Why the Company uses the APM
Net Asset Value
(“NAV”)
Net assets attributable to Ordinary Shares by
deducting gross liabilities from gross assets.
It provides a metric that allows for useful
comparison to similar companies and that
allows for useful year on year comparisons of the
Company. See Section 3.1 Financial Review.
NAV per share NAV divided by total number of shares in issue at
the balance sheet date
This provides shareholders with a metric that
allows for tracking the Company’s performance
year on year. See Section 3.1 Financial Review.
Total NAV Return on
per share basis
Interim dividends paid in pence per share and
movement in NAV per share over the course
of the relevant period (e.g. in financial year or
since IPO). Dividends are not assumed to be
re-invested.
This provides shareholders with a metric that
allows for tracking the Company’s performance
year on year
Total Return on share
price basis
Interim dividends paid and share price uplift per
share over the course of the relevant period
This provides shareholders with a metric that
allows for tracking the Company’s performance
year on year
Portfolio Basis Portfolio Basis includes the impact if Holdco (the
Company’s only direct subsidiary) were to be
consolidated on a line-by-line basis
See Section 2.2 Investment Policy and Approach
for detailed description and reconciliation
Ongoing Charges
Ratio
In accordance with AIC guidance, defined as
annualised ongoing charges (i.e. excluding
investment costs and other non-recurring items)
divided by the average published undiluted NAV
in the year
Used as a metric in the investment company
industry to compare cost-effectiveness. See
Section 3.1 Financial Review.
Portfolio Valuation The fair value of all investments in aggregate that
are held directly or indirectly by Holdco
It provides relevant information of the value of
the underlying investments held indirectly by the
Company from which it is ultimately expected
to derive its future revenues. See Section 3.2
Valuation of the Portfolio.
Cash on Portfolio
Basis
Cash at bank of the Company and Holdco To provide relevant information to shareholders
of the Company’s ability for new investments,
working capital and payment of dividends. See
Section 3.1 Financial Review.
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6th Floor
125 London Wall
London
EC2Y 5AS
SDCL Energy Efficiency Income Trust plc
www.seeitplc.com