By Ian Thomas, Turquoise International
Businesses across the globe are increasingly acknowledging the strong potential offered by the clean energy and environmental sector, which has a critical role to play in boosting economic growth. Taking the UK as an example, at a time of recession when investment generally has been in decline, the environmental sector has been much more resilient. Employment across the industry and its supply chains continues to develop in sharp contrast to many more established business activities.
Of course, the picture is not entirely positive. A number of big investment projects have suffered due to inconsistencies in policy-making and a perceived lack of regulatory momentum. The size and diversity of the sector is both a blessing and a challenge, with focus shifting between technologies as they follow the political popularity cycle. For the clean energy and environment sectors to continue to make a consistent contribution to global recovery, it is important to provide a robust context for even greater investment decisions.
Internationally, parts of the renewables sector, for example Spanish wind and solar, are struggling whereas China continues to deploy huge amounts of capital as part of its long term economic planning. Political uncertainty in the US was reduced following the presidential election but has increased again as a result of the uncertainty over fiscal policy. Private sector investment in new technologies continues but at a reduced rate and investors’ appetite for risk has been curtailed.
There has been a move away from renewable energy generation towards energy and materials efficiency. Technologies and projects that do not rely on public subsidy and instead generate payback from savings in fossil energy consumption are seen as lower risk. Investors are also avoiding technologies that have high capital intensity. The almost total lack of availability of bank debt for projects is a major issue, as well as reduced levels of risk capital for early stage investments from both financial and industrial investors.
Uncertainty over government support for renewable energy has had a significant effect on the direction of investment.Government indecision, for example the UK approach to solar and biomass, and changing regulation, such as the EU stance on biofuels, has delayed private sector investment.
Investors around the world continue to increase their exposure to companies that rate higher on environmental factors. At the same time, there is a common perception that many sustainable businesses have solutions to problems that either do not exist or which no-one will pay to solve. So what can businesses needing capital do to improve their chances of securing investment?
There is no one-size-fits-all approach. Clean energy and environment is not a uniform sector, more a series of overlapping industry segments of which only some are of interest to any individual investor. It is essential, therefore, to allow six months to get to a commitment (not the actual cash), which is why maintaining up to 12 months of operating runway is critical because of the time-consuming fundraising process.
Being realistic on valuation and allowing scope for new investors to achieve their (reasonable) return requirements is a price worth paying to avoid the risk of running out of funds.
Company owners should be mindful of the level of reward they are looking for. The risk they are prepared to assume in return will have a significant impact on strategy, fundraising and exit timing. At any point in time, shareholders should be able to answer the question: how much would I sell this company for right now or what will the position be in one or two years’ time? This is an issue often ignored.
Many companies do not have the luxury of choosing investors, but experience suggests small syndicates with diversity of approach, experience and connections work better than sole investors or large groups. Each will have an industry view and early understanding of their agenda will predict their behaviour once they are a part of the business. Experienced and pro-active investor board members can have a valuable role to play in this regard.
Investment structure (voting rights, liquidation preferences, etc.) should be appropriate to the particular circumstances of each investment but erring on the side of simplicity is often advisable. Agreements that constrain a business from taking normal commercial decisions without requiring board or shareholder input, or which allow individual shareholders disproportionate influence can lead to stalemate, often with disastrous consequences.
It is always prudent to engage an experienced adviser with a relevant track record who will add value across the board, including conducting due diligence, highlighting strengths and weaknesses and positing the questions investors will ask around projections and valuations. They can also improve business plan and investor presentation materials, reduce the burden on management and bring structure to the fundraising process, as well as play a significant role in reaching an acceptable deal.
Size matters – undersized businesses are often regarded as having unproven management teams, over reliance on fewer customers and insufficient market presence to withstand competition. In such circumstances, a company should consider opportunities to acquire or merge with other relevant businesses to rapidly scale up.
In the right circumstances, ‘playing hard to get’ can create competitive tension, a powerful means of achieving best value. This does not necessarily require the company to be put up for a public auction; instead not to jump into exclusivity with any investor until they have provided a detailed set of terms. Equally, don’t overplay your hand as that can result in a failed deal.
Finally, put yourself in the investor’s shoes; don’t assume that they have prior knowledge of your business and answer the questions they are asking, not those you think they should ask. Remember, they see lots of deals and you need to stand out from the crowd.
The future needs for energy supply can only grow, the question is how quickly. However, the potential for surprising new developments, like shale oil and gas in the US, can have a significant impact on the supply/demand equation. There are a number of clean/renewable energy technologies, such as waste-to-energy, renewable chemistry/materials and automotive energy efficiency, that will reach maturity in the coming five to ten years and these may have a greater-than-expected positive impact.
Coal and gas will continue to supply a large proportion of primary energy generation because of growth in developing economies, like China and India, and the shale revolution. The role of nuclear is harder to predict but it is difficult to see how supply can be maintained without it. Renewables will grow but cannot make much of an impact globally in the near term. Achieving demand-side efficiencies is key.
The past decade has seen a transformation in how investment in businesses operating across these industries is viewed. Globally, commitment to funding these sectors is strengthening, driven by climate change and energy security concerns, the push for resource efficiency and the pure commercial benefits generated by new technologies. The next ten years are expected to offer genuinely exciting opportunities in many areas, particularly as investors extend their focus beyond wind and solar to other areas of energy and environment.
About Turquoise International
Turquoise International is a merchant bank specialising in Energy and the Environment. Established in 2002, Turquoise offers in-depth industry knowledge and extensive capital raising, transaction advisory, and investment management expertise and track record.
For capital raising, our advisory clients are predominantly private companies or listed companies seeking funding via private placements across a range of business segments including technology, project development, manufacturing and services. Turquoise assists clients in raising funds across the capital structure including equity and debt. We source funds for our clients from a diverse range of investors located in Europe and internationally.
Turquoise advises corporate clients and their shareholders on transactions such as mergers, acquisitions, disposals and joint ventures assisting in areas such as strategy, identification of opportunities, valuation and transaction execution.
In fund management, Turquoise provides a range of services to investors, ranging from advice in relation to individual investments to discretionary investment management for a portfolio of investments. Turquoise invests directly through Turquoise Capital (seed stage proprietary investments) and manages the Low Carbon Innovation Fund.
Sterling rises above $1.37 for first time since 2018; UK inflation rises
By Elizabeth Howcroft
LONDON (Reuters) – A combination of heightened risk appetite in global markets and UK-specific optimism lifted the pound on Wednesday, as it strengthened to its highest in nearly three years against the dollar and five-month highs against the euro.
The dollar weakened against major currencies for the third straight session, helped by U.S. Treasury Secretary nominee Janet Yellen’s urging lawmakers to “act big” on spending and worry about debt later.
The pound rose above $1.37, hitting $1.3720 — its highest since May 2018 — at 1045 GMT. By 1136 GMT it had eased some gains and changed hands at $1.3687, up 0.4% on the day and up 0.2% so far this year.
Versus the euro, the pound hit a five-month high of 88.38 pence per euro, before easing to 88.51 at 1137 GMT, up around 0.5% on the day.
The pound’s recent strengthening can be attributed in part to relief among investors that the impact of Brexit has not caused the chaos some feared, as well as a lessening of negative rates expectations, said Neil Jones, head of FX sales at Mizuho.
“Going into early 2021, there was a bearish sentiment building into the pound on the Brexit deal, in terms of maybe it had a limited reach, and then secondly an expectation of negative rates and so to some extent the market has been cutting down on sterling shorts because neither of those things have been quite so apparent as they were,” he said.
Bank of England Governor Andrew Bailey said last week that there were “lots of issues” with cutting interest rates below zero – a comment which caused sterling to jump.
The UK’s progress in rolling out vaccines is also seen as a positive for investors, Jones said.
Currently, the United Kingdom has vaccinated 4.27 million people with a first dose of the vaccine, among the best in the world per head of population.
“Further progress in vaccinations (a pick-up in the daily rate) by the time the BoE MPC meeting takes place on 4th February may prove enough to hold off on any additional monetary easing,” wrote Derek Halpenny, head of research for global markets at MUFG.
Inflation data for December showed that prices in the UK picked up by more than expected in December, to a 0.6% annual rate.0.6
Inflation has been below the Bank of England’s 2% target since mid-2019 and the COVID-19 pandemic pushed it close to zero as the economy tanked.
(Graphic: CFTC: https://fingfx.thomsonreuters.com/gfx/mkt/oakpeyayxpr/CFTC.png)
(Reporting by Elizabeth Howcroft, editing by Larry King)
Euro sinks amid broader risk rally against dollar
By Ritvik Carvalho
LONDON (Reuters) – The euro struggled to join a broader risk rally against the dollar on Wednesday as analysts said the risk of extended lockdowns in Europe to combat the spread of COVID-19 and the continent’s lag in a vaccine rollout were weighing on the currency.
Down 0.1% against the dollar at $1.2117 by 1130 GMT, Europe’s shared currency had only the safe-haven Swiss franc and Sweden’s crown for company in resisting a broad rally against the greenback by the G-10 group of currencies.
“We’re getting more headlines that the current lockdowns will be extended further, which could mean that the euro zone would be flirting with a double-dip recession before long,” said Valentin Marinov, head of G10 FX research at Credit Agricole, noting Europe’s lag in rolling out a coronavirus vaccine compared to the United States and Britain.
“So all of that plays into the story that tomorrow’s ECB meeting, while uneventful in terms of policy announcements, could convey a relatively dovish message to the market. On top of that, President Lagarde could once again jawbone the euro, so the euro is kind of lagging behind.”
Marinov also noted price action in the pound, which hit $1.3720 – a 2-1/2-year high – and 88.38 pence – its highest since May 2020 against the euro – as a contributing factor to euro weakness. [GBP/]
There was also focus on a story by Bloomberg News, which reported the European Central Bank was conducting its bond purchases with specific yield spreads in mind, a strategy that would be reminiscent of yield curve control.
Elsewhere, the risk-sensitive Australian dollar gained 0.4% to $0.7727. The New Zealand dollar, also a commodity currency like the Aussie, gained 0.25% to $0.7133.
While the world will be watching Joe Biden’s inauguration as U.S. president at noon in Washington (1700 GMT), traders were more focused on his policies than the ceremony.
U.S. Treasury Secretary nominee Janet Yellen urged lawmakers at her confirmation hearing to “act big” on stimulus spending and said she believes in market-determined exchange rates, without expressing a view on the dollar’s direction.
The index that measures the dollar’s strength against a basket of peers was up almost 0.1% at 90.510. The euro forms nearly 60% of the dollar index by weight.
It also fell 0.1% against the Japanese yen to 103.81 yen per dollar.
While the dollar has perked up in recent weeks on the back of a rise in U.S. Treasury yields, investors still expect the currency to weaken.
“We remain bearish U.S. dollar, and expect the downtrend to resume as U.S. real yields top out,” said Ebrahim Rahbari, FX strategist at CitiFX.
“Continued Fed dovishness remains important for our view, in addition to global recovery, so we’ll watch upcoming Fed-speak closely.”
Positioning data shows investors are overwhelmingly short dollars as they figure that budget and current account deficits will weigh on the greenback.
(Graphic: Dollar positioning: https://fingfx.thomsonreuters.com/gfx/mkt/oakveyombvr/Pasted%20image%201611132945366.png)
UBS Global Wealth Management’s chief investment officer Mark Haefele reiterated a bearish view on the dollar, saying that pro-cyclical currencies such as the euro, commodity-producer currencies, and the pound would benefit “from a broadening economic recovery supported by vaccine rollouts”.
The cryptocurrency Bitcoin fell 4%, trading at $34,468.
(Reporting by Ritvik Carvalho; Editing by Angus MacSwan)
England soccer star Rashford nets younger buyers for Burberry
By Sarah Young
LONDON (Reuters) – Burberry stuck to its full-year goals on Wednesday after a media campaign fronted by high-profile English soccer star and social justice advocate Marcus Rashford drew a younger clientele to the British luxury brand.
Higher full-price sales would boost annual margins and Asian demand remained strong, Burberry said, while warning that it could suffer more sales disruption from COVID-19 lockdowns.
Manchester United striker Rashford, 23, has won plaudits for his campaign to help ensure that poorer children do not go hungry with schools closed during the pandemic.
A first coronavirus wave last year cut Burberry’s sales by as much as 45% before a bounce back on strong demand in mainland China and South Korea, which continued in the last few months.
Shares in Burberry were up 5% to 1,825 pence at 0905 GMT, with Citi analysts saying that improved sales quality from fewer markdowns would drive full-year consensus upgrades.
Burberry’s 9% sales decline in its third quarter was worse than the 6% fall in the second, and the company said that 15% of stores were currently closed and 36% operating with restrictions as a result of measures to curb COVID-19’s spread.
“We expect trading will remain susceptible to regional disruptions as we close the financial year,” Burberry said, adding that it was confident of rebounding when the pandemic eases given the brand’s resonance with customers.
In the third quarter, comparable store sales in Europe, the Middle East, India and Africa declined 37%, hit by shops shut in lockdowns and a lack of tourists visiting Europe, but in the same period, it posted sales growth of 11% in Asia Pacific.
Burberry said that Britain’s new relationship with the European Union would cause headwinds, warning of a modest increase in costs to comply with new rules and also the impact of an end to a scheme for VAT refunds for non-EU tourists.
This would make Britain a less attractive destination for luxury shopping when tourism returns after the pandemic, Burberry said, adding that it would try to mitigate the effect.
(Reporting by Sarah Young; Editing by Kate Holton, James Davey and Alexander Smith)
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