A Renewable IPO Market - When will we see it?
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Transcript of A Renewable IPO Market - When will we see it?
Renewables IPO Seminar
A changing climate for IPOs?
4th April 2011
Neil Matthews
What we will cover today:
• Market conditions and outlook
• Current trends in the markets
• Choice of markets – influencing factors
• Preparing for the IPO – particular issues facing the clean energy sector
• Practical tips for a successful IPO
The IPO Voyage
Climatic conditions
• IPOs - Total 89 IPOs raising £10bn (2009 = 22 / £1.7bn)
– Main Market = 46 IPOs raising £9bn (2009 = 9 / £0.9bn)
– AIM = 43 IPOs raising £1bn (2009 = 13 / £0.6bn)
• 2010 highlights include:
– Main Market – Essar, Ocado, Betfair, SuperGroup, Flybe, AZE
– AIM – EMIS Group, Halosource Inc, Ncondezi Coal
– Natural resouces / energy still dominate (esp. AIM)
• AIM generally out of favour; lack of good UK candidates
• Slow start to 2011. Funds flow out of bonds into equities continues but recent volatility threatens IPO chances
London markets - 2010 in review
Outlook:
• Market sentiment improving for IPOs after sole focus on secondary issues in 2008/9
• Investor preference remaining for Main Market IPOs
• Our experience:
– Flybe Group plc, AZ Electronics etc
• AIM = will remain tough but some successes (e.g. Ilika plc)
• Increasing competition from other stock markets
Climatic conditions
Current Trends (1) – favoured listing locations?
• Hong Kong
New York London
• Key determinants
– Sizeable capital raising?
– Valuation / rating?
– Creation of liquidity?
– Exposure/ profile raising in local
jurisdiction?
• Cleantech/energy …………?? …still up for grabs !!
Emerging markets companies in London:
– Russia – active again (particularly GDR offerings)
– China – difficult and looking elsewhere (e.g. Frankfurt?)
– India – a little patchy
– Other jurisdictions
Current Trends (2) – emerging markets
Choice of Markets: London
• AIM:
– still reputational challenges although fundamentally a robust and appropriately regulated environment.
– needs more fiscal incentives / liquidity drivers to kick start it again
– Nomad concerns over increasing burden on them
• Main Market: Premium listing:
– back in favour although highly regulated and thus compliance is expensive
• Main Market: Standard listing:
– limited regulation although voluntary compliance with higher standards not uncommon. Used in specific circumstances.
What is required to join the UK’s markets?
Investor expectations of an applicant are:
strong management
team
viable business plan
market appetite for the sector
transparency of ownership
and accountinggood corporate
governance
long term commitment from
directors/key shareholders
Preparing for the IPO (1)
• Creating the IPO structure
• For UK companies:
– converting to / re-registering as a PLC
– …or establish Newco and effect share exchange
– careful handing – a clear steps-plan
– early involvement/implementation is key
• For overseas entities:
– Choice of Holdco jurisdiction (drivers = tax, investor protection, settlement issues, reputation etc)
– Again, early stage planning
Key issues – corporate structuring
Preparing for the IPO (2)
• capture your assets
– make sure you own them
• protect your assets
– eg patents/design rights etc
– confidential information
• exploit your assets
– jvs/sale of IPR/licensing
• remove non-core assets
Due diligence issues - protecting your assets
Preparing for the IPO (3)
• optimise financing structures
• pre-IPO housekeeping (e.g. any disputes, claims, litigation etc)
• corporate governance – strengthening the board – this takes time
• financial systems/ reporting procedures?
• new share/ incentive schemes.
NB: identify issues at an early stage!!
Other issues
The process
• selecting the advisory team
• legal & financial due diligence
• pre-IPO restructuring
• preparing the Prospectus / Admission Document
• verification
• marketing - the roadshow
• placing and pricing
• Admission and dealings commence
Typically -6 - 12 months
Why does it take so long?
Smoothing the way for a successful IPO
• Don’t under-estimate the time commitment needed
• Plan ahead – don’t leave issues until the last minute
• Ensure you have adequate internal & external resource available
• Pick the right advisory team
• Expect some highs and lows along the way
Top tips
Neil Matthews
Tel: +44 (0) 845 497 4880
Mobile: +44 (0) 776 786 3390
E-mail: [email protected]
Address: One Wood Street
London EC2V 7WS
Head of equity capital markets group
Eversheds LLP
• One of the leading mid-market ECM practices
• 92 UK stock market clients (over 60 listed on Main Market)
• AIM Law Firm of the Year 2008/9 & 2009/10
• Member of LSE AIM Advisory Group
• Acted on approx 10% of all UK public company acquisitions in last 5 years
Equity Capital MarketsA selection of our recent deals
© EVERSHEDS LLP 2010. Eversheds LLP is a limited liability partnership.
Renewables IPO Seminar
4 April 2010
2
Global leader for capital raising
• World’s leading market in terms of access to international investors and capital
• World’s most diverse market in terms of international quoted companies
• 3rd largest global equity market by market capitalsiation
• Europe’s highly traded equity market by value traded
• Supported by one of the World’s most highly experienced advisory communities
3
Routes to market
• The London Stock Exchange offers a range offers different routes to raise capital from
the equity market, each designed to appeal to different companies and investors
• Three options for commercial companies:
– AIM
– growth market aimed at smaller and/or younger companies
– unique regulatory framework
– AIM focused indices available
– Main Market, Premium
– premium product weighted more towards established and/or larger companies
– highest level of regulation applies
– UK index inclusion
– Main Market, Standard
– lower level of regulation compared with Premium listing and AIM
– useful for special situations (special acquisition vehicle, nearly eligible for Premium)
– no index inclusion
• Specialist Fund Market also available to funds focused at sophisticated investors
4
Cleantech companies at a glance
39 80
£34m £36m
£4,702m £4,589m
£5,292.75m £5,060.42m
£59,513,685m £51,742,221m
38 62
Main Market
Source: London Stock Exchange statistics and ProQuote data 31.03.2011
AIM
Number of cleantech companies
Average amount raised at admission
Total amount raised at admission
Total raised in further issues
Total market capitalisation
Number of UK companies
5
Cleantech sectors represented on AIM & MM
Source: London Stock Exchange Statistics 31.03.11, FTSE Environmental Markets Classification System
definitions used where relevant
1
3
2
12
11
20
20
37
34
Alternative Energy
Electricity
Financial Services
Water Infrastructure & Technologies
Pollution Control
Environmental Support Services
Waste Management & Technologies
Energy Efficiency
Renewable & Alternative Energy
6
Number of Cleantech companies (AIM & MM) by
market capitalisation (£m)
Source: London Stock Exchange Statistic, and ProQuote 31.03.2011
25
8
5
8
4 4
16
1
0-25 25-75 75-125 125-200 200- 350 350-700 700-1,000 1,000-
10,000
10,000+
47
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IPO activity – Q1 2011
Date Company Market Sector
Mkt cap
(£m)
Funds
raised (£m)
10 Jan-11 Hazel Renewable Energy VCT 1 Premium Equity Investment Instruments 5.4 5.4
10 Jan-11 Hazel Renewable Energy VCT 2 Premium Equity Investment Instruments 5.4 5.4
12 Jan-11 Marwyn Mngt Partners Plc Standard General Financial 6 6
20 Jan-11 Farglory Land Development Co Standard Real Estate Investments & Serv 131.6 131.6
31 Jan-11 Frontier IP Group Plc AIM Support Services 3.4 1
17 Feb-11 Justice Holdings Limited Standard Special Purpose Acquisition Co 900 900
1 Mar-11 Octopus Titan VCT 5 PLC Premium Equity Investment Instruments 5.5 5.5
14 Mar-11 Duet Real Estate Finance Limited Premium Equity Investment Instruments 50 50
17 Mar-11 Trap Oil Group plc AIM Oil and Gas 78.3 60
23 Mar-11 Hoang Anh Gia Lai JSC PSM Diversified 38 38
31 Mar-11 Top Creation Investments Ltd AIM Equity Investment Instruments 3 3
8
IPO activity – live Intention to Floats
Date
announced Company Market
Country
of origin Sector
Mkt cap
(£m)
28 Feb-11 Skrill Group plc Premium UK Financial Services 415
3 Mar-11 Diverse Income Trust Premium UK Equity Investment Instrument 50
10 Mar-11 Perform Group plc Premium UK Media 700
14 Mar-11 Edwards Group Premium UK Industrial Engineering 1,300
23 Mar-11 Etalon Group Limited Standard Russia Real Estate 310
23 Mar 11 Nomos Bank Standard Russia Banks 370
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IPO Outlook
• Economic growth slow in developed countries, higher in emerging
• IPO activity increased during Q4 2010
• Moderate Q1, anticipate stronger Q2 2011
• “Operating companies” return to IPO
• M&A activity underpinning valuations and recycling cash for investors
• Institutional investors long on cash / low interest rates / appetite for
risk to deliver returns
• Lack of debt / trade sales and PE secondary sales still slow
• Geo-political uncertainty & oil prices
Eversheds IPO SeminarPresentation by Novusmodus
1
Novusmodus is a VC/Development Capital investment firm
in the renewable and cleantech sector
We are the adviser to ESB Novusmodus Fund LP, a
€200m fund established in August 2009 where ESB is the
only investor
ESB provides a unique perspective on the utility market, and direct
access to engineering and sector specialist expertise
The team is based in London, Dublin, and Munich
a European focus, a global mandate
2
All things to do with clean, low-carbon generation, and
the efficient delivery and usage of electricity and heat
€3m - €20m equity investments
Significant minority positions and board representation
5-6 year investment horizon
Open to consider co-investments with other funds
3
Albeit independent, we have a deep relationship with
ESB Leverage expertise within dedicated ESB teams
Provide expert skills and management support to
investee companiesUtility Expertise and Engineering
International Reach
Cornerstone Investor
• Carbon neutral by 2035
• c.€20bn investment program
• €6.5bn asset value
• International presence in over 50
countries
• 1,100 consulting engineers out of 7,000
staff
4
Bridging the Financing GapBetween the VC and PE stages
5
€200 billion per major economy
DECC spending = 1/3 of defence spending by 2020
DECC will be spending more than police + justice +
prisons
Focusing on large projects e.g. Offshore or nuclear
Don’t really buy the green story... Will governments
really do something economically irrational?
EU 20:20:20 Targets $$$$$$$$$ Huge investment
Utilities $$ Cash constrained
Investment in renewable infrastructure companies is a must
6
Debt
Venture Capital
Private Equity
Infrastructure Funds
Retail Investors
Institutional investors
7
20
40
60
80
100
120
140
Dec-06 Aug-07 Apr-08 Dec-08 Aug-09 Apr-10 Dec-10
Sh
are
Pri
ce (
£p
)
EDF Energies NouvellesRenewable Energy
Generation
Iberdrola Renovable EDP Renováveis
10
20
30
40
50
60
Nov-06 Jul-07 Mar-08 Nov-08 Jul-09 Mar-10 Nov-10
Sh
are
Pri
ce (€
)
1
2
3
4
5
6
7
Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10
Sh
are
Pri
ce (€
)
2
4
6
8
10
Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10
Sh
are
Pri
ce (€
)
8
0.0%
2.0%
4.0%
6.0%
8.0%
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
3-m
th L
IBO
R (
UK
)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
Ch
an
ge o
ver
LT
M
Interest Rates* at all time low
Inflation** high and rising
FTSE 100 – Same level as 5 years ago
* 3-month UK BBA LIBOR
* *All items excluding mortgage interest payments and indirect taxes
3,000
4,000
5,000
6,000
7,000
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
9
Proven technology
Strong levels of government support
Grandfathering
Long dated
Predictable
Inflation-linked
The perfect investment!
10
Renewable infrastructure assets =
higher return for same given level of risk
Return
RiskToll
Road
Airport
Water
PFI
Solar
Wind
Biomas
s
Source: Richard Nourse
11
Strong yield
Low risk
Access to investors who focus on absolute low risk-return
8-10% nominal return is amazing compared to other investments
Deep pockets
Long arms
12
Just 1 GW /year of onshore wind consented in the
UK
No real track record
FIT row back not a shining example
Complex drivers
Government risk
Small sector
Sustainability issues
Offshore is risky
Biomass is risky
Each country has its own regulations / support
Developing thinking Green deal is massive but who takes the risk?
13
Government must be more thoughtful
Lower complexity
Mergers & acquisitions
Professionalise management
Private placement? Like USPP
© Nomura International plc
Nomura Code Securities Limited
What investors look for in an IPO
Eversheds Renewables IPO seminar4th April 2011
Ken Rumph
Nomura Code
0207 776 1242
Page 2
Important Notice
Disclaimer
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This presentation is confidential and has been furnished to the intended recipient solely for such recipient‟s information and private use and may not be referred to, disclosed, reproduced or redistributed, in whole or in part, to any other person.
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Page 2
Page 3
Focus on water and efficiency, as well as renewables
Most Cleantech investment banks are focussed on renewables, particularly
solar…
… but Nomura has a global focus on efficiency
Investors prefer the economic and regulatory drivers for efficiency, vs. the subsidy-
dependence of solar PV in particular
Process efficiency stocks in London and elsewhere have performed well
Smart grids (power and water) attracting attention from investors and corporates
Water is a growing theme for investors
Shortage of fresh water (desalination, recycling, efficiency/leaks)
Waste water treatment
Water purification
Overlap with agricultural/irrigation demand – another theme for investors
Fitting in with these trends is important for smaller/earlier stage companies to gain attention
from investors or attract premiums in M&A
Page 4
Nomura Code research on public companies …
Page 5
… and on private VC-backed companies
The ability to produce research from the same analysts and in the same format as listed company equity
research is a differentiating factor, adding credibility and familiarity for investors
Page 6Page 6
Nomura’s global coverage of water, renewables and the energy-
efficiency/climate change aspect is second to none
Page 7Page 7
Page 8
Cleantech – early stage companies
Many cleantech or environmental companies at IPO are early stage –
perhaps pre-revenue, often not yet profitable. In these circumstances,
investors will expect, and benefit from
Milestones, past and future
Provide a measure of performance, financial, operational or technical
Past progress provides a sense of development and momentum
Ideally future milestones should be well spaced (to provide regular indications
that the company is on schedule) and have room for (inevitable) delays
Management skills
A business may be young, but (some of) its management should display
experience of success in similar early stage businesses
Investors expect management to be enthusiastic but realistic
Funds raised for acquisitions
If you‟re raising funds to acquire assets or businesses
Why will you get a better deal than other buyers?
Why are the sellers selling?
Page 9
Cleantech – valuation
Peers, real and apparent
Investors will tend to draw comparisons with similar companies, UK and
elsewhere
Your broker should identify the types of company investors will compare your
company with – not necessarily by industry sector, but by stage of development
Some sub-sectors are well defined and have many peers – eg solar – in which
case you will meet more experienced investors and tend to define yourself
versus that peer group
Other companies will find themselves „alone‟ – Modern Water, Zenergy and
SeaEnergy are all examples (tomorrow) – more general comparisons are made,
and more work is needed in educating investors about the sector
Investors may identify peers that you don‟t accept – explain why
Your competitors are not your (investment) competitors
Past funding sets a benchmark
Previous share transactions or funding rounds set a benchmark
If investors see that a private funding round occurred recently at a given price,
they will generally be reluctant to pay a much higher price
Page 10
Cleantech – pros and cons
Pros
A strong theme, with specialist and generalist investors‟ attention
But specialists want the same things as generalists – a good investment
case
Generalists are wary of (past) hype and overvaluation
„Saving the world‟ alone will not be a sufficient case for investment
Making money alone will also not be sufficient (in the environmental,
cleantech space)
Cons
„Cleantech‟ or environment is not a well-defined sector
Investors will want to understand the specific drivers for a business
Most investors in small- and mid-sized IPOs are generalists, so education
about the drivers and the business is always needed
Is this a regulation-driven business, supported by subsidies, or influenced
by market prices (carbon, fossil fuels) – each will have its specifics and
vulnerabilities
Page 11
Investors want: the perfect company
They know they won‟t get a perfect company, but each defect will have a
price. Common defects are:
Existing shareholders are selling
For entrepreneurs, this is understandable
Investors will expect the entrepreneur to retain a stake
And sales at IPO are better than later – a lock-in would be normal
VCs are also expected to sell in time
Willingness to accept PE LBO-type exits is limited (currently)
Funds raised to reduce debt
Investors will accept some debt reduction, but prefer companies to raise
funds to grow the value of the business
Lack of a complete or conforming management/board
Investors expect a CEO, CFO, Chairman, independent directors
The roadshow team should involve operations and finance
Page 12
Know your investors
Before the IPO – find the right investors
What sort of investor should be buying into your IPO?
It might seem desirable to take anyone‟s money, but the consequences of
having the wrong kind of investor, or investors with the wrong expectations
will be bad for your company‟s strategy and share price
Many large institutions have many different potential buyers of your shares
– different fund managers, different funds, different locations and business
units – expect to meet more than one individual in many firms
Your broker should help you navigate this terrain (before and after the IPO),
describing the type of fund manager, providing feedback
Shareholders will sell
As fund managers change their views, the company changes, individuals
change, the fund needs to raise cash, or the holding becomes too large (or
small) – don‟t be surprised or hold grudges
Continue to market your company to new (and previous) shareholders – the
best recipe for a good share price is new buyers to take stock from
inevitable sellers (insiders included)
Page 13
After the IPO – when things go wrong
• Not the rating, but the earnings
What ever the valuation basis, investors know from experience with small-
and mid-cap companies, that disappointing performance after IPO comes
far more often from failure to meet forecasts than from paying the wrong
valuation of those forecasts (larger mature companies may differ)
What is the basis of the earnings forecasts investors have read in broker
research (which will determine „consensus‟ expectations) and what are
the risks
• When things go wrong
Investors are realistic
But they want to know as early as possible when things go wrong
Handle inevitable problems well and you will benefit
Early disclosure builds confidence and support
Missing expectations significantly on the upside also gives an
impression of riskiness
Page 14
After the IPO
Keep communicating
You became a public company for a reason – be public
Even if you don‟t need to raise capital now, a languishing share price can be a
vulnerability or present an image of decline
Be aware of what „peers‟ are doing, saying, how they are performing
Communication is not just results, or even „news‟
Expect to visit UK investors twice a year at least, in person
Visits to sites, conference presentations, etc also count
Investors like to support successful companies with more money
In general, small- and mid-cap managers want small companies to grow – both
organically, but often via secondary equity issues, provided the business is
going to plan
Investors generally like to invest more money for the right reasons (growth) but
not for the wrong reasons („we used up the first lot‟)
Page 15
IPO companies – questions that need answers
Why isn‟t someone else doing this already (if its so great)? Or, who are
your competitors, and how do they compare?
Why will customers buy your product/service? Explain the economic value
proposition!
How do you (and hence the investors) make money? Explain your
business model!
Why are you selling (part of) your company? How long are VCs, directors
locked up for?
What policies, subsidies, prices affect your business? With what sensitivity
What worries you? What could go wrong? What are the upside/downside
risks?
(When) will there be value-enhancing newsflow?
Page 16
Pitching: Less Greenery. More Greenbacks
Focus will tend to be on commercialisation – not technology or
green credentials.
Who is going to buy your product/service?
Why? At what price versus competition? What are the economics for
the customer?
How will you find and convert your customer? Do you understand the
distribution channels, and the motives of the participants? Why will they
buy from you, a small early stage company?
Market segmentation may be appropriate? Niche sales first, versus the
mass market?
Who is your head salesperson?
Timetables – enthusiastic but realistic
Page 17
What Investors like and don’t like…
• More than particular sectors, investors like/dislike characteristics
• Best of all, an economic case that doesn’t rely on external help
• Regulations preferred to subsidies: due to widespread public spending
cuts and bad experiences in Spain, investors are wary of reliance on
subsidies (eg renewable tariffs, etc) and turning towards regulation-driven
sectors
E.g. REACH, Landfill tax/targets, fuel efficiency, product bans
Or businesses where any subsidy is privately funded
• Global statistics on investment are often mis-leading:
‘VC’ investment is mixed with private equity/infrastructure finance –
investing in a new waste treatment technology company is pure
cleantech investment, financing a windfarm or a landfill gas or waste
treatment plant may be more utility/infrastructure
Sector is hard to define – more efficient coal fired power stations and
insulating lofts are cleantech in emissions reduction terms.
Page 18
Cleantech Funding and M&A conditions
Venture Capital & Private Equity flows are
large
But dominated by major corporate buyouts
VC-type funding is a small portion
VC/PE, IPOs and M&A all show similar
patterns, tentative signs of recovery during
2010
Figures often include utilities or general
industrials as cleantech
Trends in VC/PE, M&A and IPOs in Cleantech
VC vs. PE investment
Page 18
$0bn
$10bn
$20bn
$30bn
$40bn
$50bn
$60bn
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
ytd
PE - buy-outs, etc
PE - expansion capital
VC
$0bn
$20bn
$40bn
$60bn
$80bn
$100bn
$120bn
$140bn
$160bn
$180bn
$200bn
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
ytd
VC/PE
M&A
IPOs
Page 19
Cleantech Funding and M&A conditions
Although „Solar‟ has been a large part of VC funding, this has been dominated by solar PV
utilities/park developers, and by solar PV technology companies
Source: Bloomberg New Energy Finance
Share of 1996-2010 VC funding by sub-sector
Page 19
Solar
27%
EE transport
11%
Power
Storage
8%EE built
environment
10%
Fuel Cells
5%
EE digital
energy
8%
Other
6%
Biofuels
10%EE supply
side
5%
EE industry
2%
Wind
4%
Biomass &
Waste
4%
Page 20
Ken Rumph
Ken Rumph joined Nomura Code in September 2009 having built Clear Capital/Noble‟s climate
change coverage between 2007 - 2009.
Ken specialises in energy and resource efficiency, including water, waste and recycling.
Ken graduated in Natural Sciences from Trinity, Cambridge and had held roles as a fund
manager and buy-side analyst at Scottish Amicable and as a sell-side global building materials
analyst at UBS and Merrill Lynch.
Repenting his emissions-intensive ways, Ken undertook a masters in Environmental
Management at Cranfield in 2006/7 and is a member of the Institute of Environmental
Management and Assessment
Regulation and getting the finances rightAndrew Perkins and David Wilkinson
Agenda
► Introduction to Ernst & Young
► Renewable energy market outlook
► Diversifying global portfolios
► Accessing capital
Page 2
Andrew PerkinsPartner
Energy and Environmental Infrastructure Advisory
Ernst & Young
Tel +44 (0)11 7981 2325
Mob: +44 (0)7799 072523
Ernst & Young EU network of renewable energy specialists
Page 3
Tax Assurance
Transaction Advisory
Services
UK global
centre of
renewable
expertise
Investment Banking
The need for regulatory certainty
Short term market volatility
► The threat of cuts in European feed in tariff’s
have created uncertainty amongst the
investment community e.g. Spain, UK, Italy
► Arguably only Spanish Solar was retrospective
► Returns on sovereign risk often makes
renewables look expensive
► Uncertainty due to new legislative requirements
e.g. UK Electricity market reform
► Fluid planning regimes and long lead times
make feed in tariff allocation uncertain
► Lack of a universal carbon price to support
renewables investment
Page 4
Long term market outlook
► Fundamental drivers of renewable energy
investment still remain:
► Increasing energy requirements
► EU 2020 renewable energy targets
► Security of supply
► EU GHG emission limits
► Consumer demand
► Transparent, long term policies can stimulate
investment and the development of global
supply chains e.g. German feed in tariff regime
► Innovative policies to encourage domestic
supply chain growth e.g. Tariff premium in
Turkey
Diversifying global investments
Page 5
► Developing a balanced, global portfolio across multiple sectors can help reduce exposure to policy and
individual country market risk
► Investment risk decreases with market maturity as additional benefits are realised e.g. Jobs growth,
development of manufacturing bases
► Tailoring investment to resource availability may hedge against market volatility e.g. UK offshore wind
HighRisk Profile
Portfolio
diversification
Low
Low
High
Single
project
Single
country
Single
country
portfolio of
projects
Global
component
manufacturer
Global
project
portfolio
Manufacturing
investment
Likely funding gap
► Some estimates of capital expenditure required of UK PLC for energy efficiency of £230 billion
► This doubles the requirement to £450 billion
► Only £50-80 billion funding available from current sources:
► Utilities (£30 – 45 billion),
► Project finance debt and equity (£20 - £22 billion)
► Infrastructure funds (£7 – 15 billion)
► Funding gap of £330 - £360 billion
4 18
35
54
72
94 109
124 140
156 173
190 206
222 236
250
-
50
100
150
200
250
300
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
202
1
202
2
202
3
202
4
202
5
Capital expenditure
(£ b
illio
n)
Utilities funding
Bank debt
Pension funds and insurance
Funding gap
Funding requirements excluding energy efficiency investments of £230 billion
6
Green investments – the need for new funding
► Significant funding gap to reach targets
► Investment barriers in offshore wind generation, carbon capture (&) storage, energy efficiency and
micro-generation
► Capital needs to be mobilised through a variety of structures, risk and financial products
► Other issues for consideration in
► Flexibility of funds
► Competitiveness of green investment opportunities
► Risk of investments ie how proven is the technology
► Time taken to access funds
► Significant funds are needed for the large energy generating infrastructure and its enabling
components
7
Agenda
► What the market is looking for in volatile times
► Financial track record
► Financial reporting procedures
Page 8
David WilkinsonPartner
Domestic IPO Leader
Ernst & Young
Tel +44 (0)207 951 2335
Mob: +44 (0)7774 741 277
What the market is looking for in volatile times
► Equity growth story – risk and reward
► Depth and breadth of team to execute
► Financial track record to support the story
► Quality of governance and financial reporting procedures
9
Financial track record – cleantech issues
► Quality and period of track record
► Tracking and capitalisation of development costs
► Identifying components of infrastructure and impairment testing
► Accounting implications of funding structure
► Accounting for emissions allowances and incentive schemes
► Embedded derivatives in power sales and purchase contracts
► Accounting for complex investment structures
10
Financial reporting procedures – cleantech issues
25 March 2010 Financial Reporting in the IPO ProcessPage 11
► IFRS budgeting, forecasting
and working capital reporting
► Effective prospects
management
► Effective monitoring and
reporting on controls
► Appropriate corporate
governance architecture
► Process for disclosure of timely
key information to the market
► Forecasts dependent upon
project milestones
► Young businesses without
deeply embedded processes
► Sales and operational priorities
ahead of controls
► Remediation of FRP requires
time
► Underestimation of time and
effort to achieve goals
Expectations Challenges
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