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


• 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


• 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

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

7

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

9

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

[email protected]

0207 776 1242

Important Notice

Disclaimer

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Page 2

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

Nomura Code research on public companies …

… 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 6

Nomura’s global coverage of water, renewables and the energy-

efficiency/climate change aspect is second to none

Page 7

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?

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

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

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

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)

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

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‟)

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?

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

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.

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

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%

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

[email protected]

Tel +44 (0)11 7981 2325

Mob: +44 (0)7799 072523

mailto:[email protected]

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

[email protected]

Tel +44 (0)207 951 2335

Mob: +44 (0)7774 741 277

mailto:[email protected]

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

Thank you

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