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John Laing Environmental held back by adverse weather

John Laing Environmental Assets has published its half-year results to 30 September 2016. The NAV was 98.3p at 30 September 2016 (31 March 2016: 96.7p) with the positive movement in the period reflecting primarily an increase in forecast electricity prices. The portfolio valuation as at 30 September 2016 was GBP320.7m (31 March 2016: GBP264.5m). Total dividends were declared of 3.07 pence per ordinary share for the six months to 30 September 2016, in line with target set out in the 2016 Annual Report and reflecting an inflation uplift from 1 April 2016. The share price total return for the period was 7%. Net cash inflows from the investment portfolio (after operating and finance costs) of GBP9.0 million covered the declared interim dividends by approximately 1.07 times.

During the period generation from the wind assets was in line with budget, but the solar assets achieved overall generation 12% below budget. 5% of the shortfall was due to low solar irradiation and 7% due to two asset–specific issues.

For the solar portfolio as a whole, generation was approximately 5% below budget due to lower than the long-term average irradiation levels during the period and particularly in the key summer months, despite the assets themselves operating at or above expected availability and performance levels. This is in line with other solar asset owners who have also reported lower than forecast solar resource over similar periods.

The main asset-specific issue was on the Branden project, which experienced a number of technical issues with inverters and string connectors over the summer. This led to periods of unavailability and lower than expected generation intermittently for several months. Replacement parts were sourced and installed under warranty, and whilst improvements in performance have been seen, we continue to monitor progress with the EPC contractor.

Monksham experienced a lightning strike in late August that initially rendered the whole solar park offline following damage to switchgear. The asset manager in conjunction with the operations and maintenance provider managed to bring 75% of the park back to generation for September pending delivery of replacement components, and the park continues to operate at 75% capacity at the current time while the parts are on order. Insurance is expected to cover substantially all of the costs and losses associated with the lightning strike.

The results from the renewable energy assets within the portfolio are dependent in part on the weather, which can be predicted with some degree of confidence over the long term but may vary over the short term. The exposure to both solar and wind assets provides a degree of protection against variability and seasonality in resource as solar tends to be more productive at times when wind is less productive and vice versa.

The results from our renewable energy assets are also dependent in part on the level of electricity prices, which have trended noticeably lower since the IPO in March 2014 although have shown some recovery in recent months from the very low levels experienced during the winter of 2015/16.

The impact of any prolonged period of low prices continues to be mitigated by the fact that they have a relatively low exposure to electricity prices in its ROC and FiT operating projects compared to other portfolios held by peer funds and that short–term fixed prices have been put in place for a significant proportion of the assets to lock in improved pricing to future cash flows. The waste and wastewater processing assets are not affected by the level of electricity prices.

For the waste and wastewater processing assets, financial performance has been in line with expectations and volumes have been at or above expected levels. The facilities at the Frog Island facility (part of the ELWA project) which were affected by a fire in August 2014 returned to full operations in August 2016.

JLEN : John Laing Environmental held back by adverse weather

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