profit with purpose: sustainable value creation report...

Profit with Purpose: Sustainable Value CreationReport 2013

INSPIRED

Investment ManagementEVOLUTION

Evolution One Fund Portfolio Investments September 2013

About Inspired Evolution

INSPIRED


Board of Directors

• MichaelBrooks,FoundingPartner&CEO• ChristopherClarke,FoundingPartner• WayneKeast,FoundingPartner• GuyBaxter,FoundingPartner• SandileSokhela,Partner

Publication Editorial Team

Editor and publisherChristopherClarkeLead: Sustainability Strategy, Evolution One Fund, Founding Partner and Executive Director, Inspired Evolution

Additional editorial and research contributionsJuliaWakelingEnvironmental Business Strategies

Sub-editorMarleneRoseText editor, translator, proofreader and indexer

Design, layout and media production assistanceJanineElskeEnvironmental Business Strategies

1stfloor,AmdecHouse|SilverwoodCloseSteenbergOfficePark|Tokai7945|CapeTownSouthAfricaTel:+27217021290|Fax:+27217021483Web:www.inspiredevolution.co.zaContact:[email protected]

Inspired Evolution Investment Management Proprietary Limited (‘Inspired Evolution’)was established in 2007 as a specialised investment business and authorised financialservicesproviderlocatedprincipallyinSouthAfrica.InspiredEvolutionoffersfirst-moveradvantage with proprietary market intelligence and is positioned to lead sustainableclean energy and resource efficiency investments across sub-Saharan Africa. Thecompany’sdedicated,multidisciplinary,professional investmentteamhasadeeptrackrecordandtargetssuperiorreturnswithmeasureddevelopmentoutcomes.

InspiredEvolutionmanagestheEvolutionOneFund–itsfirstspecialisedinvestmentfundofc.USD100million–capitalisedthroughcommitmentsfrominternational,regionalandlocalinvestors.TheEvolutionOneFundmakespredominantlyearly-stageandexpansionequity and equity-related investments, with limited later-stage investments, primarilyfor control or significant minority positions in market-leading growth businesses andinfrastructureprojectslocatedprincipallyinsub-SaharanAfrica.

Inspired Evolution has demonstrated that capital deployment to investments in thisspecialised asset class can generate superior returns at the nexus of social equity,ecologicalintegrityandresponsibleeconomicgrowth.Thisliesattheheartofsustainableinvesting.

In Inspired Evolution’s view sustainability is not only the responsibility of all citizensinarapidlyglobalisingworldbutalsodefinesthefutureofallsuccessfulbusinessandinvestmentdecisions.

Inspired Evolution is an active investment partner, offering investee companies andprojects a compelling post-investment value proposition as a result of our strongcommercialandtechnologyplatformandfinancialandsustainabilitycredentials:

• We offer global experience and specialised knowledge across clean energy andresource-efficiencyinvestments.

• Ourexpertiseenablesus to functionasaportal forappropriate,best-of-breedandproven technologies, which include skill in structuring clean energy and resource-efficiencyventures.

• We have a range of global networks to enhance the export of local and regionaltechnologies,goodsandservices.

• We hold strong black economic empowerment (BEE) credentials and broad-basedblack economic empowerment (BBBEE) deal-structuring expertise, which is aparticularlyattractiveofferingforSouthAfricaninvesteecompanies.

• We offer flexible, rapid decision making, including customised, packaged financialsolutions(equityandquasi-equity)andalsofacilitatedebtstructuring.

• We have in-house sustainability expertise to guide environmental, social andgovernance(ESG)riskmanagementandimplementstrongsustainabilitystrategies.

Asanactiveinvestor,InspiredEvolutionparticipatesontheboardofdirectorsofinvesteecompanies and offers guidance on best-practice governance.We bring to the marketa global network of leading venture capital and private equity firms, universities andbusinessesthatprovideuswithvaluablemarketinsights,relationshipsandchannelstomarket.

Investment Management

Inspired Evolution Investment Management Proprietary Limited Profit with Purpose: Sustainable Value Creation Report 2013


Contents

AboutInspiredEvolutionInvestmentManagement i

Acknowledgements 2

LetterfromtheEnvironmentalOfficer,EvolutionOneFund 3

Glossary,AbbreviationsandCurrency 4

InspiredEvolutionInvestmentPhilosophyandStrategy 5

SocialandEnvironmentalManagementSystem 6

LocationsofPortfolioInvestments 7

CapitalMarketDevelopmentandFinancialSector

IndicatorsatFundLevel 8

Portfolio Investments: Growth Capital Businesses

Abagold:Afropulse496ProprietaryLimited 11

EnviroServWasteManagementProprietaryLimited 14

Portfolio Investments: Infrastructure Projects

Agribusiness / Waste Management

AcapulcoTradeandInvest162ProprietaryLimited 17

Renewable Energy

Introduction 20

MapembasiHydropowerCompanyLimited 21

RustMo1SolarFarm(RF)ProprietaryLimited 24

SlimSun(RF)ProprietaryLimited:SwartlandSolarPark,Phase1 27

AFPOCLimited 30

RedCapKougaWindDevelopmentCompanyProprietaryLimited

(DEVCO),KougaWindFarm(RF)ProprietaryLimited(KWF) 33

Composite Portfolio Indicators 36

Profit with Purpose: Sustainable Value CreationReport 2013

Evolution One Fund Portfolio Investments

1

2 Inspired Evolution Investment Management Proprietary Limited Profit with Purpose: Sustainable Value Creation Report 2013

Acknowledgements

Inspired Evolution is grateful for the generous support we received from our investee companieswhoprovidedtherelevantinputscontainedandevaluatedinthisreport.WewouldliketoextendaspecialwordofthankstoJuliaWakelingwhoassisteduswithourapproachandcontentinputsandwiththeresearchanddraftingofportfolioinvesteecasestudies.Inaddition,wewouldliketothankEnvironmentalBusinessStrategiesforcoordinating,designingandfinalisingthematerial,layoutandgraphics.Finally,thankstoMarleneRoseforherfinaleditingcontributions.

Thiscompendiumof InspiredEvolution’sportfolio investmentcasestudieshighlightsourfocusonsustainablevaluecreationandtheintegrationofbest-practiceenvironmental,socialandgovernanceprinciplesandguidelinestodriveimprovementsintheoperatingperformanceofvariouscompaniesandprojectsinordertodeliverenhancedfinancialreturnswithmeasureddevelopmentimpact.

Wewouldliketothankthefollowingcompaniesfortheirparticipationinthisinitiative:

Wewouldalsoliketothankourinvestorsfortheirongoingsupportandparticipation:

Disclaimer:InspiredEvolutionhasmadebestendeavourstovalidatetheinformationcontainedinthisreportbutcannotguaranteetheultimateaccuracyorcompletenessofthedataprovided.InspiredEvolutionisnotresponsibleforanydecisionmadeoractiontakenbasedoninformationdrawnfromthisreport.

RustMo1Solar Farm

3Inspired Evolution Investment Management Proprietary Limited Profit with Purpose: Sustainable Value Creation Report 2013

Dear Reader

We are pleased to introduce the Evolution One Fund: Sustainable ValueCreation Report 2013. Each portfolio case study emphasises the investee’sperspectiveonthedecisiontopursueprivateequityfinancingandtopartnerwith InspiredEvolution.Theeightcasestudiesprofilea rangeofcompaniesandprojectsoperatingacrossavarietyofsectorsintwocountrieswithinthesouthern African growth markets. The case studies highlight the same keythemes noted by the Emerging Markets Private Equity Association (EMPEA)intheircompendiumofsustainabilityandimpactcasestudiesconductedin2011.Therearealsoseveralsubthemesofspecificinterest,whicharecapturedinthedetailedcontentundereachcasestudy.ThekeythemesaspreviouslycapturedbyEMPEAarereiteratedhere:

First, venture capital and private equity’s critical role in closing the ‘finance gap’ and providing capital to entrepreneurs, greenfields infrastructure projects and promising growth businesses. In emerging market countries, many businesses are constrained by an inability to access early-stage risk capital and/or growth capital, and as a result they often face limited prospects. As a source of financing, private equity investors are critical drivers of entrepreneurial growth, development and job creation.

Second, the portfolio case studies demonstrate the suite of skills and innovative financing mechanisms that private equity investors employ to create value in portfolio companies. To mention a few, these include improving corporate governance, transforming the finance function through professionalized controls and reporting, leveraging a regional and/or global network to grow through cross-border acquisitions, and rationalizing cost structures through receivables and supply chain management.

Third, each of the portfolio case studies highlights the positive externalities the asset class can deliver to the local and global communities in which investees operate. These broader impacts include environmental sustainability, direct local community equity ownership, enhanced job creation, reducing social risks and prioritizing positive development outcomes through improvements to local labour practices (e.g., employee health and safety, gender equity) and proactive engagement with local stakeholders.

This report re-emphasises the unique and catalytic role venture capital andprivateequitycanplaytocreatevalue.AtInspiredEvolutionwebelievethatconcreteexamplesdemonstratingventurecapitalandprivateequity’sabilitytodrivethesustainabilityagendathroughresponsiblegrowthandoptimisedpositivecommunityimpactswillhelpkeyconstituenciestobetterunderstandthe asset class on the basis of the factual, measured demonstration ofsustainablevaluecreationwithitssuiteofassociatedbenefits.

AsanintegralpartofitsDNAandinvestmentphilosophy,InspiredEvolutionembraces sustainability as a key strategic driver for enhancing shareholdervalueinitsinvestmentportfolio.The4–7-year(average)timeframeheldoveritsprivateequityinvestmentsbeforeexitingisgenerallylongenoughforInspiredEvolution to make considerable progress on sustainability initiatives. Simple

operational and/or behavioural changes canoften deliver a payback in 2–3 years, althoughlarge sustainability projects with heavy upfrontinvestment sometimes appear challenging interms of their ability to achieve an acceptablereturn on investment (ROI) – and may need alongertimehorizon.

WeemphasisethatourSocialandEnvironmentalManagement System (SEMS) is a rigorous anddisciplinedefforttoidentify,implementandtracktheresultsofdevelopmentimpacts, but that it is the responsibility of each portfolio company toimplementthemostappropriateactionsforitsparticulartypeofbusiness.Wefocusoncreatingsharedvaluethroughtheformationofpartnershipsbetweenourvariousportfoliocompaniesandthroughstrategiesdesignedtointegratesustainabilityintoday-to-dayoperations.Ourportfolioalsoincludesanumberof investments in projects and companies offering low-carbon solutionsto some of society’s climate change challenges. These solutions includerenewableenergy,energyefficiency,sustainableagribusinessandsustainablewastemanagementtechnologiesandservices.

Insummary,InspiredEvolutionclearlyunderstandsthattheleadingcompaniesof the future will be those that grasp the climate change and resourcescarcity challenges the world is facing and that demonstrate leadershipand commitment to integrating sustainability strategies that enhance theircompetitivemarketpositionsandshareholdervalue.Thesemarketleadersareincreasingproductivitywhilereducingtheintensityoftheecologicalfootprintoftheirbusinesses.Theyaredemonstratinggenuinecommitmentstoresourceefficiency targets through the ongoing application of next-generationtechnologiescombinedwithbusinessmodelinnovation.

In this report, we offer some compelling insights into a variety of greeninfrastructure projects and growth companies that, each in their own way,impart important contributions and lessons learned. These lessons offerdemonstrableinvestmentexamplesofsustainablevaluecreation.Weremaincommitted to continually improving our investment performance in thisregard.

[email protected].

YourssincerelyChristopherClarke

Lead:SustainabilityStrategy,EvolutionOneFund,FoundingPartnerandExecutiveDirector,InspiredEvolution


Glossary, Abbreviations and Currency

Bankability

Directemployment

Femaleemployment

Financialclose

HistoricallyDisadvantagedPersons(HDP)

Indirectemployment

Mezzaninefinance

Off-take

Seniordebt

Referstotheeligibilityofaninvestmentpropositiontomeetcustomarybankingstandardsandcriteriaforsuccessfulfunding.

Totalnumberofdirectemployeesintheclientcompanyasoftheendoftheclientcompany’sfiscalyear.Theunitofaccountisapermanentfull-timeequivalentpaidjob.Tobetreatedaspermanent,thejobshouldhavealifeexpectancyofatleastoneyearatthetimeofforecast.TemporaryjobsareequivalentjobscalculatedaspersonmonthsforthepurposesoftherenewableenergyprojectsundertheREIPPPP.Seasonaljobsareincidentaltotheoperation.However,iftheprojectreliesheavilyonseasonaljobs,asintheagribusinesssector,forexample,theyshouldbeincludedonaproratabasis,a3-monthjobbecoming0.25ofafull-timeequivalentjob(i.e.fourjobsforthreemonthsequalsonejobonanannualbasis).‘Clientcompany’forthispurposeshouldbedefinedasnarrowlyaspossibleastherecipientoftheFund’sequityfinance.

Totalnumberofdirectfemaleemployeesinclientcompany.Femaleemploymentshouldbecalculatedfromthetotaldirectemployees,notfromtheadditionofnewjobs.Definitionfordirectemployeesapplies.

Referstotheeventwheninfrastructureprojectshavesecuredallrequiredpermits,authorisationsandlicences,andallconditionsprecedenttoalldebtand/orequityfinancingagreementsforthatprojecthavebecomeunconditional.

ThedefinitionusedtoevaluateblackempowermentinSouthAfrica–thegrouphavingbeenthemosteconomicallydisadvantagedbyapartheidpolicies.

Employeeshiredbyathirdpartywithdirectcontractualrelationstotheclientcompany.Third-partyemploymentshouldonlybecountedwhereatleast50%ofaspecificcompany’ssalesaredependentontheFund’sclient,orwherespecificemployeesaredirectlyassociatedwiththeoperationsoftheFund’sclientcompany.Thedefinitionfordirectemploymentapplies,withthethird-partycompanybeingtheclientcompanyinthiscase.

Ahybridofdebtandequityfinancingthatistypicallyusedtofinancetheexpansionofexistingcompaniesoraportionoftheprojectfinanceininfrastructure-typeprojects.Mezzaninefinancingisbasicallydebtcapitalthatgivesthelendertherightstoconverttoanownershiporequityinterestinthecompanyiftheloanisnotpaidbackintimeandinfull.Itisgenerallysubordinatedtodebtprovidedbyseniorlenderssuchasbanksandventurecapitalcompanies.

Referstotherelevantlegalcontractswiththirdpartiesforthepurchaseofgoodsand/orservicesfromaprojectorbusinessonagreedtermsandconditions,andusuallyforafixedterm(insomecases,renewable).

Seniordebt,frequentlyissuedintheformofseniornotesorreferredtoasseniorloans,isdebtthattakespriorityoverotherunsecuredorotherwisemore‘junior’debtowedbytheissuer.Seniordebthasgreaterseniorityintheissuer’scapitalstructurethansubordinateddebt.Iftheissuergoesbankrupt,seniordebttheoreticallymustberepaidbeforeothercreditorsreceiveanypayment.Seniordebtisoftensecuredbycollateralonwhichthelenderhasputinplaceafirstlien.Usuallythiscoversalltheassetsofacorporationandisoftenusedforrevolvingcreditlines.Itisthedebtthathaspriorityforrepaymentinaliquidation.

Glossary

Abbreviations

BBBEE Broad-basedblackeconomicempowermentasdefinedinSouthAfricanlegislation

BBBEESPV Broad-basedblackeconomicempowermentspecial-purposevehicle

BEE BlackeconomicempowermentasdefinedinSouthAfricanlegislation

CDM CleanDevelopmentMechanismCER CertifiedEmissionReductionsCITES ConventiononInternationalTradeinEndangeredSpeciesofWild

FaunaandFloraCOD CommercialOperationsDateCSI CorporateSocialInvestmentEBITDA Earningsbeforeinterest,tax,depreciationandamortisationEHS EnvironmentalHealth&SafetyEIA EnvironmentalImpactAssessmentEIR EnvironmentalImpactReportEMPEA EmergingMarketsPrivateEquityAssociationEPC Engineering,ProcurementandConstructionERPA EmissionReductionPurchaseAgreementESG Environmental,SocialandGovernanceESIA EnvironmentalandSocialImpactAssessmentFAT FrancoAfriqueTechnologiesGHG GreenhouseGasEmissionsHDSA HistoricallyDisadvantagedSouthAfricanIDC IndustrialDevelopmentCorporation

IDFC InternationalFertiliserDevelopmentCentreIDZ IndustrialDevelopmentZoneIFC InternationalFinanceCorporationIFRS InternationalFinancialReportingStandardsIPP IndependentPowerProducerLBO LeveragedBuy-outNEMA NationalEnvironmentManagementAct,SouthAfricaNRD NjombeResourceDevelopmentCompanyLimitedO&M OperationsandMaintenanceOECD OrganisationofEconomicCooperationandDevelopmentREIPPPP TheSouthAfricanRenewableEnergyIndependentPower

ProducerProcurementProgrammeS&E SocialandEnvironmentalSADC SouthernAfricanDevelopmentCommunitySEMS SocialandEnvironmentalManagementSystemSHEQ Safety,HealthandEnvironmentalQualitySME SmallMediumEnterpriseSPPA StandardisedPowerPurchaseAgreementSPV Special-purposeVehicleTanesco TanzaniaElectricSupplyCompanyLimitedTSH TanzanianshillingUSD UnitedStatesdollarWULA WaterUseLicenceApplicationZAR SouthAfricanrand

Currency

Tosimplifyforeigncurrencycomparisonsforthereader,aforeigncurrencyexchangerateof1USD=10ZARhasbeenusedastheaverageforallSouthAfricanrand(ZAR)amountsinvestedbytheFundintoportfoliocompaniesandprojects,asatthetimeofwritingthisreport.

PleasenotehoweverthatactualUSDamountsrecordedatthetimeofindividualinvestmentsweredifferentduetothevaryingforeignexchangeconversionratesatthosetimes.


Inspired Evolution Investment Philosophy and Strategy

InspiredEvolution’sinvestmentphilosophycentresonlong-termequityandequity-relatedinvestingbasedonrigoroussustainabilityresearch.Sustainabilityanalysisthereforerepresentsacoreprincipleof our pre- and post-investment cycle.The performance enhancement or turnaround to long-runperformanceismeasuredaccordingtoasuiteofsustainabilityindicatorsdefiningInspiredEvolution’sdifferentiatedinvestmentstrategyandaddedvalue.

Rapid global economic expansion and escalating population growth combined with finite naturalresources are leading to mounting environmental challenges and rising prices for materials andenergy, all of which call for innovative technological solutions, efficient production processes andbusinessmodelinnovation.ThisisthemotivationforInspiredEvolution’scleangrowthinvestmentplatform.The opportunity for growth and expansion lies in the sectors and industry focus areas that offer technologies which improve the efficiency and responsible use of natural resources and reduce ecological impact.

Our key investment criteria are commercially driven and applied to prioritise green infrastructureprojectsandcompanies that require late-stageventurecapital foradvancedprojectdevelopmentand/or project equity, as well as growth capital for enterprise development and expansion.TheseformthemajorityoftheEvolutionOneFund’smandate.Thenominalbalanceofourmandateincludesalimitedappetiteforchangeinownership,leveragedbuy-outopportunities.

Theprinciplesofsustainabilityarecentral to InspiredEvolution’s investmentdecisionmaking.Ourapproachtosustainabilitycentresonthenotionof‘beyondcompliance’(i.e.exceedingcompliancecriteria) where compliance is the systematic application of criteria such as exclusion, relevantEnvironmentalHealthandSafety(EHS)legislation,andadoptionoftheIFCPerformanceStandardsandEquatorPrinciples.However,‘beyondcompliance’alsoembracesourmoreactiveapproachtounlockingvalue;buildinglocalbusinesseswhileofferingaregionalorglobalplatformandtechnologyportal complete with specialised structuring skills; value enhancement, and risk managementthroughfullintegrationwiththerelevantenvironmental,socialandgovernance(ESG)issues.

TheEvolutionOneFundalsoprovidesfinancetobusinesssegmentsandfrontierregionsthathavebeeninsufficientlyservicedbyexistingfinancialinstitutionsbecausethecleanenergyandresourceefficiency/environmental market segment has often been categorised as unbankable withoutsubsidies and long-term supply and product/service off-take agreements. State interventions toprovideacredible,publicresults-basedincentiveschemesuchastheRenewableEnergyIndependentPower Producer Procurement Programme (REIPPPP) in South Africa has provided a bankable caseforinvestmentadviserslikeInspiredEvolution.Similarly,thenascentnewenergyandenvironmentalmarkets in many other sub-Saharan African countries are experiencing rapid growth. Enablingconditionsarematuringandbankablepublicprocurementprogrammesareemerging.

The portfolio of investments outlined in this report provides the Evolution One Fund with anopportunity to deliver tangible impacts to mitigating climate change and resource scarcity, whilesimultaneouslyprovidingbenefitstopreviouslydisadvantagedmembersofsocietybyempoweringlocal community groups who often live in underdeveloped regions. To ensure this, investmentagreements incorporate stringent compliance criteria as well as other impact-related aspects ofInspiredEvolution’s investmentphilosophyandstrategysuchastheprincipleof‘limitedeconomicleakage’. In addition, the deployment of capital to cleaner technology roll-out simultaneouslygenerates a net ecological benefit through environmental remediation and the abatement ofgreenhousegases.

‘Ourlegacyistodemonstratetruevaluecreationbyreturningsuperiorreturnstoourinvestorsfroma portfolio of businesses which continually improve their measured development outcomes andsustainabletrajectory,beyondourinvestmentterm.’

Christopher Clarke, Lead: Sustainability Strategy, Evolution One Fund.


Integrated Investment Process: Social and Environmental Management System (SEMS)

Inspired Evolution aims to avoid, reduce and/or mitigate environmental and social riskswithintheoperationalprocesses,supplychainsandwastestreamsofportfoliocompanies.To achieve this, Inspired Evolution has developed a tailored Social and EnvironmentalManagementSystem(SEMS)forapplicationtoallinvestmentsatallstagesoftheinvestmentcycle,frompre-investmentduediligencethroughtoportfoliomanagementanddivestment.The objective of the SEMS is to ensure that the Fund’s investment focus remains thedevelopment and deployment of appropriate and proven clean technology, underpinnedbyinnovationandresponsiblepractices.TheSEMSismanagedandoverseenbyadedicatedenvironmentalcoordinator,responsibleforensuringthatinvestmentdecisionsareinformedbyappropriateSEMSduediligence,andongoingenvironmentalandsocialoversightoncethe deal is concluded. Legal counsel ensures that appropriate environmental warrantiesand covenants are incorporated into each investment agreement and, where necessary,correctiveactionplansareannexedwithdedicatedresourcecommitmentsandtiming.

TheFund’sinvestmentsarelocatedinSouthAfricaandtheSouthernAfricanDevelopmentCommunity(SADC).Socio-economicchallengesinherentwithinthisregionthereforeneedtobeconsidered,bothfromacorporateresponsibilityperspectiveandtosustaincommercialsuccessoftheinvestments.Thepromotionoflocalsocio-economicdevelopmentisintegraltoInspiredEvolution’sinvestmentpractice,andtheFundactivelyassistsinidentifyingandrealising social opportunities with investee companies. The focus is on generating localemployment opportunities and empowering communities, while addressing local needssuch as training, access to education and health, and economic diversification. InspiredEvolution helps to develop black economic empowerment shareholding structures andenhancedevelopmentimpactmultipliers.Italsoassistswithenvironmentalaspectssuchasthereductionofgreenhousegasemissionsandobtainingassociatedcreditcertification.

SEMS Reporting System

TheFundreportstoinvestmentpartnersonESGaspects of investments both quarterly and onanadhocbasis.Reportsareindividuallytailoredaccording to the prescribed formats, indicatorsandprioritiesoftheFund’svariousinvestors.

Inspired Evolution ensures that systematic,annual sustainability reporting occurs aftereach year-end. This reporting includes a set ofdevelopment impact indicators. As a result, adatabase of development impact indicators ismaintained for the Fund’s entire portfolio ofinvestments. Lastly, investee companies supplyannual letters thatassurecompliancewiththeirsocialandenvironmentalcovenants.

STAGE 1STOP/GO

STAGE 2STOP/GO

STAGE 3STOP/GO

STAGE 4STOP/GO

EXIT

SEMS OUTPUTS

INVESTMENT OUTPUTS

Deal intro and assessment

Internal due diligence External due diligence Investment agreement Portfolio management and value add

Exclusionofprojectswith

activitieslistedonEvolution

OneFund’sexclusionlist

Ensurecomplianceto

nationallegislationandIFC

PerformanceStandards

Categoriseprojects:

A –highimpact*

B–mediumimpact

C –lowimpact

Initialreportonvalue

proposition,investment

strategyandexit

Category A:

DetermineEIAScopeorAudit

Category B:

Verifylegalcompliance,resolve

issues,andengagewiththird

parties

Category C:

Verifylegalcompliance

PreliminaryInvestment

Memorandumwithpreliminary

TermSheet

ContractEIAorAudit

UndertakeinternalS&Edue

diligenceifrequired

Nospecificactions

Financial,andlegaldue

diligenceandprobitychecks

onaspectssuchasmarketand

technology

IncludeS&Eclauses

EnsureS&Ecovenants,

agreementsandcorrective

actionplans(whereapplicable)

FinalInvestmentMemorandum

andTermSheets

Finalinvestment

committeedecision

EnsureS&EisontheBoard

agenda

MonitorannualS&Ereports

andcorrectiveactionplans

(whereapplicable)

Activepost-dealvaluecreation

*Higher-impact activities are guided by an additional screening mechanism, whereby certain technical thresholds or additional guidelines must be adhered to (e.g. hydro-electric projects shouldpreferablyberun-of-riverandlessthan20MW,andbiofuelprojectsshouldcomplywiththecriteriasetoutinArticle17ofDirective2009/08/EContheuseofenergyfromrenewablesources).


Locations of Portfolio Investments

Cape TownCape Town

South Africa

Cape Town

Bloemfontein

Pretoria

Johannesburg

SlimSun (p 28)22MW solar photovoltaic farm

Port Elizabeth

Abagold (p 12)Abalone aquaculture

Red Cap (p 34)80MW Kouga Wind Farm

EnviroServ (p 15)Head OfficeIntegrated waste management

East London

Durban

Acapulco (p 18)Organic urea fertilizer plant

AFPOC Limited (p 31)138.6MW Renewables Cookhouse 1 Windfarm

RustMo1 Solar Farm (p 25)7MW solar photovoltaic farm

Dar es Salaam

Tanzania

Mbeya

Dodoma

Mapembasi (p 22)10.7MW hydro-power generation

Southh

Durban

10.7MW hydro-power generation

South Africa

Tanzania

Mauritius


Indicative Forecast IRRs - gross, nominal internal rate of return (ZAR)

Aggregateprojectedpartiallyrealisedfundreturn:IRR25%and3xMoI.

Mobilisation of local capital

Mobilisation of capital/investments by local investors

AcrossmostoftheFund’sportfolio,equityandinmanyinstancesseniorandmezzaninedebtweremobilisedbyvirtueoftheFund’scapitalcommitments.The Fund was instrumental in early-stage mobilisation of counterparty riskcapitaltoacceleratedevelopmentanddeploymentofcleantechnologyroll-out, predominantly to greenfields and early-stage infrastructure projects.The amended fund mandate to ring-fence a ZAR50 million (USD5 million)developmentcapitalenvelopeforuseinearly-stage,proventechnologydealshas contributed significantly to performance under this indicator.The SADCregionstillsuffersfromasevereshortageofearly-stageriskcapitalandthelackofaccesstothistypeofcapitalbyentrepreneursordevelopersinhibitstherateofnewenergygrowth.

Mobilisation/organisation of other local private capital (e.g. debt for an investee company)

OntherenewableinfrastructureinvestmentssuchastheRedCapKougaWindFarm,SlimSunSwartlandSolarPark,RustMo1SolarFarmandAFPOCLimited/ACED Renewables Cookhouse 1 Wind Farm projects, approximately 10–20xmobilisationorleveragehasbeenachievedontheFund’sequitycommitments– predominantly from local investors and debt institutions. Debt-to-equityratios achieved for the above portfolio investments are in the range 70:30to80:20.ZAR412.13million(c.USD41.2million)wasapprovedfortheFund’sportfolioinvestmentstodate.ThishasleveragedapproximatelyZAR15billionin total investment (includingprojectdebt),confirming36x leverageontheFund’scapitalcommittedtodate.

Diversification of the financial sector

TheFundcontributestothediversificationofthefinancialsectorinthecountryof investmentandtheSADCregion.Thisarises froman improvementoftheregulatoryframeworkandaccelerationofmarketdriversthatcollectivelygrowthecleanenergyandenvironmentalmarketsintheSADCregion.Whilesomecountriesarestillgettinguptospeedonpublic-privateprocurementregimesand subsidies such as feed-in tariffs, South Africa has taken the lead in theregion on grid-connected projects.The flow of private funds from the Fundand similar counterparties that take equity risk in these specialised sectorsandsubsectorshelpstodeepennewtypesofinstrumentsinlocalmarkets.Forexample, the Fund is southern Africa’s first dedicated clean technology SMEfundthatsupportspredominantlySMEsinnewresponsibleinvestmentareassuchasnewenergyandenvironmentalclimate-relatedinvestments.Thishasbrought innovation and diversity to the financial sector in these emergingmarkets.Examplesofthisduringthepastyearare:

• blended capital approaches using grant and concessionary finance forspecificdeals,e.g.theuseofUNEP’sSeedCapitalAssistanceFacility(SCAF);

• sector/industry-specificpublicandprivatefinancingmechanismsinvolvingcleaner-generationinfrastructurefunds,energyefficiencyfundsandsharedsavingsmodelsoroperationalleaserevolvingcreditfacilities,technologyincubatorsandmezzaninefunds;

• specialised insurance products linked to financial instruments for energysavingsorgreenertransport.

Novel/innovative type of institution/financing instrument for the country

Inmanyrespects,theFundisanovel,flexibletypeofinstitutionthat,throughitsearly-stageandspecialisedcleantechnologymandates,hasbeenabletodemonstrate investment advisory leadership. While private equity per se ismatureinSouthAfrica,themajorityofprivatefundshavefocused,andcontinueto focus, on leveraged buy-outs (LBOs) and growth capital investments.TheFundhaspioneeredexpansionordevelopmentcapitalacrossthenascentnewenergyandenvironmentalmarkets,takingfirst-moveradvantage.

Innovationhasalsobeendemonstrated in theFund’sability tosecuregrantcapital and other patient lower-cost capital to complement its early-stagemandate, allowing early access into deals at lower pricing and optimisingfollow-onrightstounderlyingprojectsastheymature.Thisblendedapproachhas provided the Fund with higher-than-usual modelled equity return,specifically in its clean energy infrastructure investments where returns areoften in the range of 17–22% nominal in ZAR.The Fund expects aggregateblendedreturnsontheseprojectsofapproximately25–35%nominalinZAR.

The Fund has also partnered with strategic investment institutions such asthe Industrial Development Corporation (IDC) to pioneer new financinginstruments offered to energy efficiency industries. Options currently beingexplored involve positioning the Fund’s equity as first default on a blendedstructurewiththeIDCorbyusingitsequityascollateralonalimitedrecoursebasis to provide a revolving credit facility to an energy efficiency operatingleasebusinessthatwillinturngeneratehealthyannuityincome.

Improvement of regulatory frameworks and/or other investment activities

Iterativeengagementswithgovernmentpolicymakersandregulators,relevantindustry stakeholders, industry associations and active NGOs over the pastfewyearshaveresultedinarapidshiftintheregulatoryframeworkinSouthAfricaspecifically.OthercountriesintheSADCregionarefollowingsuit,suchasBotswana,NamibiaandMauritius.ThiscoversbothregulatoryreformsintheinvestmentsectorsoftheFundaswellasreformsinthepensionfundthresholdallocationstoalternateinvestmentcategoriesthatincludeventurecapitalandprivateequity funds.Examplesof regulatory reforms inSouthAfricaare thedecisionsbytheCabinettoallowupto30%ofnewelectricitygenerationtocome from independent power producers (IPPs) and the release of the IPPProcurement Programme for renewable energy allocations with its variousregulatory changes.The relaxation of pension fund threshold allocations toalternateinvestmentsinSouthAfricanowenjoysasignificantupwardrevisioncompared to previous thresholds. Pension funds are now capped at 15% oftheirtotal investmentportfolioforalternateinvestments,witha10%caponventurecapitalandprivateequityallocations.

Capital Market Development and Financial Sector Indicators at Fund Level


Diversification of equity allocation

The Fund provides finance to business segments and frontier regions that have beeninsufficiently serviced by the existing financial institutions because the clean energy andenvironmentalmarketsegmenthasoftenbeencategorisedasunbankablewithoutsubsidiesandlong-termsupplyandoff-takes.Stateinterventionstoprovideacrediblepublicresults-based incentive scheme, such as the Renewable Energy IPP Procurement Programme inSouthAfrica,hasprovidedabankablecaseforinvestorsliketheFund.

The various portfolio investments have also provided an opportunity for the Fund tosimultaneouslyaddresstheempowermentofdisadvantagedlocalcommunitygroups,ofteninunderdevelopedregions(theprincipleof‘limitedeconomic leakage’).Thisresults inthebroadeningofthefinancialsectoranddemonstratestheFund’sinvestmentphilosophyandstrategywherebyitscommitmenttoimpactinvestingdeliverstangiblebenefitstopreviouslydisadvantagedmembersofsociety.

In addition, diversity is also demonstrated in the abatement of greenhouse gases fromthevariousportfolio investmentstowhichtheFundhascommitted.This isanexampleofenvironmental value-add where the deployment of capital to cleaner technology roll-outsimultaneouslygeneratesanetecologicalbenefit.

Furtherdetailsoftheseexamplesofsocialandenvironmentaladdedvaluecanbereviewedinthecasestudiesinthisreport.

Institution building

Institutionbuildinghappensatboththeinvesteecompanyandthefundmanagerlevel.Attheinvesteelevel,theFundhasaddedsignificantvaluebydevelopingandbuildingthestructureof local companies (e.g. ‘added-value function’ by consultancy and technical support forinvesteecompaniestoadoptbest-practicegovernance,includingtheintegrationinbusinessactivitiesoftheInternationalFinanceCorporation(IFC)socialandenvironmentalguidelines).Thefollowingaresomeofthekeyareaswhereinstitutionbuildinghastakenplace:

• Consulting and technical support for company upgrading: technical support for cleandevelopment mechanism (CDM) project registration and Emission Reduction PurchaseAgreement(ERPA)negotiations;guidanceonprocurementsystemstoensurecompetitive,transparentprocurementprocesses.

• Improvement of company development (corporate governance, strategic guidance):board-level interventions to establish delegations of authority for senior executivemanagers; creation of board subcommittees to handle specific issues such as auditoversight; introduction of guidelines to procurement; corporate governance policyalignment.

• Introductionofenvironmentalandsocialstandardsmonitoringatcompanies:adoptionoftheIFCPerformanceStandardsbyallinvesteecompanies;mandatorycompliancewiththeEquatorPrinciplesforlargeenergyinfrastructureprojects.

• Financingofexpansion/modernisationinvestments(includingtechnologytransfer):oftenthe Fund’s most value-added benefit for underlying businesses is its ability to act as acleantechnologyportal.ThisiswelldemonstratedinthejointcollaborationagreementwithEnviroServwheretheFund’srolewastoeffectandevaluateappropriatetechnologytransfersforapplicationviatheEnviroServwastemanagementbusinessplatform.

• Risk financing for start-up companies: because a portion of the Fund’s investmentmandateisallocatedtoearly-stage(lateventurecapital) investments, ithastheuniqueabilitytoprovideriskfinanceaswellasassistcompaniestoleverageadditionalriskcapital.Thislowersthebarriertoaccessingearly-stagecapitalforstart-upSMEs.

• Improvement of accounting and reporting: the Fund has introduced financialadministration/accounting and credit control systems and new financial controllers forearly-stagebusinessesinseveralofitsportfolioinvestments.

Capital Market Development and Financial Sector Indicators at Fund Level (continued)


(Direct) Employment Creation at Inspired Evolution

NumberofjobsexistingandsustainedinInspiredEvolutionasfundmanagementcompany,includingjobtype,racegroupandgender:

Capital Market Development and Financial Sector Indicators at Fund Level (continued)

Comparative Position Titles

CEOandFoundingPartners/PartnersandDirectors

SeniorAssociatesandAnalysts

Analysts

Supportstaff

Number of Investment Professional Employees

6

3

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10

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S3

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6

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Blackfemale

Whitemale

Whitefemale

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S4 S5

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InspiredEvolutionteam


Abagold: Afropulse 496 Proprietary Limited

About the company

This successful abalone aquaculture production facility originatedfromresearchandexperimentationbyalocalHermanusveterinarian,DrPierreHugo(nowanon-executivedirectorofthecompany)inthemid-1980s.ApilotprojectwasinitiatedtobreedabaloneincaptivityattheOldHarbourinHermanus.OperationsexpandedincrementallyandHermanusAbaloneProprietaryLimitedcommencedexportingliveabalonetotheFarEastin1999.

By2003,facilitieswereexpandedtolandadjacenttoindustriallandadjacent to theNewHarbourandthefirstof1000breedingtankswere constructed. With expansion and rescaling, the companyname was changed to Abagold Proprietary Limited. A world-classprocessing facility was commissioned in 2006, producing cannedanddriedproductforsaletotheFarEast,inparticulardriedabaloneto China. Farming operations entail breeding abalone larvae fromselectedbroodstock,nursingthemthroughinfantdevelopmentandrearingthem,overaperiodof4,5years,tothemarketablesizeof250g.

In2008Abagoldlistedasanover-the-counter(OTC)publiccompany.By this stage, the staff complement had grown from 120 (in 2004)to240employees.TomeetthegrowingdemandinChina,Abagoldinitiated the raising of capital in 2010 through the issue of newshares. Capital was utilised to purchase land adjoining the existingproperty, expand its hatchery capacity and for the installation ofgrowthtanksandproductionfacilities.Shareissueandprivateequityinvestments placed in June 2010 by the Fund (via an SPV namedAfropulse496ProprietaryLimited)securedtheventure.Constructionof thenewhatcheryand integratedaquaculture facility (SulamanziFarm)commencedin2011.Thefirstabalonewereplacedonthefarmin 2012 and by March 2013 more than 34 tonnes of abalone werehoused.

Investment impact highlights

• The Fund’s investment facilitated the establishment of the AbagoldDevelopmentTrustandtheuptakeof10%equityownershipinAbagoldforpreviouslydisadvantagedmembersfromthelocalcommunity.TheTrust’sobjectivesincludeactivitiesintheareasofeducation,communityupliftmentandskillsenhancementinthegreaterHermanusregion.

• The expansion capital from the Fund has resulted in the creation of89 additional jobs (195 target jobs), resulting in a total of 323 jobs atpresent.

• SincetheFund’sinvestment,Abagold’sstrongtrackrecordinsocialandenvironmental management has been further strengthened by theformaladoptionofahumancapitalstrategyandarangeoftechnologyimprovements.

• The installation of the integrated aquaculture facility that uses newhybridtankstogrowabaloneandseaweed(asfeedstockfortheabalone)back-to-back,alongwithupgrades toexisting facilities resulted in theimproved management of inputs such as energy, seaweed feedstockand sea water, as well as improved effluent quality and an associatedreductioninenvironmentalfootprintperunitofproduction.

• The abalone feed mix has been improved to reduce the fishmealcontent tobelow10%(this isongoing)bybiotechnologysubstitutionwith alternative protein sources from sustainable agriculture.This is asignificantfocusforaquaculturebusinessesbecausethefeedisusuallythe most unsustainable component of aquaculture business activitiesduetoitshighfishmealorotherhigh-footprintproductcontent.

• The unveiling of alternative energy plans, including the design of aworld-firstwaveenergyconverter tosupply thebusinesswithcleanerpowergeneration.

• Aformalboardcharterwasadopted;theauditcommitteewasexpandedto include the risk committee; a nominations committee was elected,andadirectorinductionprocessisnowinplace.

• The level of detail in the annual report meets International FinancialReporting Standards (IFRS) and the King III Code of CorporateGovernancewasadopted.

Website: http://www.abagold.co.zaLocation of operations: Hermanus,WesternCape,SouthAfricaSector: Agribusiness:AquacultureBusiness focus: AbalonecultivationforsaletoEastAsian

markets,primarilyChinaSize (2013): Revenue:ZAR72.7million(USD7.27millionJob creation: Employees:323Investment stage: ExpansionorGrowthCapitalEvolution One Fund investment: TheFundinvestedon29June2010,

providingcriticalexpansioncapitaltothecompany.TheFundowns15%ofAbagoldLimitedindirectlythroughitssharesinaspecial-purposevehicle(SPV)calledAfropulse496ProprietaryLimited.SandileSokhelarepresentstheEvolutionOneFundontheAbagoldandAfropulse568boards

Status: Fullyinvested.Expansionprojectscomplete.

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Inspired Evolution Investment Management Proprietary Limited Profit with Purpose: Sustainable Value Creation Report 2013 POR

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Abagold: Afropulse 496 Proprietary Limited(continued)

The company as an investment opportunity

The business case

Abagold is an established post-revenue, post-profit businesswith attractive gross profit margins. The company’s expansiondecisionshavealwaysbeenunderpinnedbystrongmarketinganddevelopment of commercially viable marketing and distributionchains. The product enjoys strong brand support and marketrecognitioninChina,where100%oftheproductisnowdistributed.Abagold’s containment of cost of sales continues to perform wellonthebackofactualgrowthandtonnageonfarms.AbagoldisthelargestabaloneproducerinSouthAfrica,witharecordharvestof234tonnesin2013,andrevenueofZAR72.7million(USD7.27million).Theexpansion programme that is currently under way aims to doubleoutput,withaproductiontargetof475tonnesperannumby2017.

A legal and sustainable source of Abalone

AbalonewasonceabundantalongtheCapecoast,butthisresourcehas been increasingly over-harvested by recreational divers,commercialharvestersandpoachers.Inspiteofregulations,restrictedquotas and the ultimate banning of its wild harvest, wild abalonestocks continue to decline to worrying levels. Poaching has turnedintoafull-scale industry,drivenbycomplexsocio-economic issues,limitedemploymentopportunitiesintheWesternCapeanddemandfrommarketsintheFarEast.ItisnowestimatedthatvasttonnagesofAbalonearepoachedillegallyfromtheWesternCapewaterseveryyear.In2012,theNationalDepartmentofFisheriesannouncedthatillegalpoachingbysyndicateshadbroughtthespeciestothebrinkofextinctioninthewatersoftheIndianandAtlanticoceansaroundtheCapecoast.

Byfarmingabalonesustainably,Abagoldhelpstomeetthedemandforthisendangeredspeciesbysubstituting illegallywild-harvestedsupply.Throughaquaculturescienceandbest-practicemanagementstandards Abagold has demonstrated that it is able to contributepositivelytoprotectingandregeneratingthisincreasinglyfragileandendangeredmarinespecies.

Social impact

Thecompanyoperatesinanareawhereunemploymentandpovertyare rife, exacerbated by poor education and a lack of a skilledlabour pool. The Fund’s investment in Abagold creates additionalemployment,helpstodevelopthepracticalskillsofemployeesandimproveseducationinthecommunity.

The Role Played by Inspired Evolution’s Private The The role played by Inspired Evolution’s private equity

Helping to grow a company with sustainable development principles at its core

ThepurposeoftheFund’sinvestmentwastoenableAbagoldtoscaleupitsoperations,withconcomitantjobcreation,andallowthedevelopmentofimprovedefficienciesandsustainablepractices.

Promoting local ownership and development

The Fund’s investment facilitated the establishment of the AbagoldDevelopment Trust, a trust with beneficiaries who are previouslydisadvantaged members of the greater Hermanus area with a 10%shareholding in Abagold. The Trust focuses on education, developmentprogrammes and job creation in the greater Hermanus area with theaimsofcommunityupliftmentandthedevelopmentofpoorandneedypersons in informal settlements in Hermanus. During the last year thesecommunities were engaged in and collaborated towards reaching thesesharedobjectives.Oncedebt from itssharepurchase is repaid, theTrustwill enjoy annual dividends from Abagold. In the meantime, Abagold ischannellingitscorporatesocialinvestment(CSI)spendthroughtheTrustto facilitate the continued strengthening of theTrust’s objectives in thetargetedcommunities.

Sustainable energy

Over the past few years Abagold has delivered strong energy efficiencyachievements in a number of areas such as power factor correction andreplacinginefficientequipment.WithassistancefromtheFund’sin-houseexpertise and guidance on technology options, Abagold is currentlypursuing renewable wave energy generation to supplement its 2.5MWpowercapacityrequirement.Approvalhasbeenobtainedfora4MWslot-slopewaveenergyproductionfacilityattheNewHarbour.Thebenefitofthisdesignisthatvirtuallyallwaves,regardlessoftheirsizeandspeed,canbe used for energy generation.The substitution of power supplied fromtheEskomgridwiththisalternativecleanerenergyimpliesgreatercontroloverfutureenergycosts,areducedriskofexposuretogridpoweroutagesandasignificantlyreducedcarbonfootprint.

Thebusinesscontinuestolookfornewinternationalandlocalopportunitiesin the form of distribution, acquisition or new development.The Fund’sin-house team was instrumental in providing an expansion platform byintroduction Abagold to new international markets. The Fund’s teamfacilitatedaprocessofengagementwithpartnerstoexporttheAbagoldbusinesstechnology,know-howandmanagementstrategy.


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Abagold: Afropulse 496 Proprietary Limited(continued)

Results of the partnership

Finance for expansion of operations and sustainable business practices

Taking aquaculture beyond best practice

TheFund’sinvestmenthasfacilitatedtheinstallationofanintegratedaquaculturefacility,whichallowsthecompanytotakeresponsibilityfortheentirefarmingchain,includingthecultivationofseaweedinhybridtanks.Theseaweedtakesupnutrientsreleasedaseffluentbythe abalone, thus enabling the re-use of water to grow seaweedswithin the tanks. It also reduces the sea water abstracted forproductionandimprovesthequalityofwaterthatisfinallyreturnedto the sea. Abagold pumps 7 million litres of sea water per hourthroughitsvariousgrowingfacilities.

To maintain the highest standards of animal managementtechniquesandworld-classfood-processingstandards,stafftrainingin occupational health and safety awareness is ongoing. TheprocessingfacilityadherestoaHazardAnalysisandCriticalControlPoints(HACCP)system.ProductsaremeasuredagainsttheFoodandAgriculturalOrganisation’s(FAO)guidelinesandtestedandapprovedbytheNationalRegulatorforCompanySpecifications(NRCS).

Sustainable feedstock

Abalone is fed a combination of natural seaweeds and formulatedfeeds. Since 2011, Abagold has produced its own formulated feed.Thefishmealcomponentwasreducedand issourcedentirely froma supplier who conforms to WWF’s ‘fish-in-fish-out’ sustainablestandards.Bothcultivatedandwildkelpareusedasafeedstock.Wildkelp harvesting is monitored using satellite imagery and the totalallowablecatchisadjustedtoensuresustainableharvestingandthelong-termhealthofthewildkelpbeds.

Sustainable employee relationships

AtpresentAbagoldemploys323people. Itwillalwaysbealabour-intensive operation, therefore employee relationships are critical.Much of Abagold’s employee development exceeds complianceandaims to foster long-termsustainable relationships.Thesuccessofemployeeengagementisreflectedinthelowemployeeturnover(2.3%),whichiswellbelowthenationalaverage(11.1%).

Basic adult education forms a component of staff development.This is a critical foundation for improved life skills and raised self-esteem, and also lays the foundation for more complex traininginvolving aquaculture, technical and supervisory skills. In 2012 thehuman resource programme was expanded to include an effectiveleadershipdevelopmentprogramme.

TheAbagoldemployeeprogrammegoesbeyondotherprogrammesbybeingholisticandaddressingindividualdevelopmentandofferingcoaching in areas such as communication, stress management,relationship skills, self-esteem building and resisting peer pressure.The occupational health programme covers health education andtreatmentatthecompanyclinic.

We knew that expansion in the midst of aglobal recession would be challenging.It would take a unique investor to takeexposure in a relatively new primaryaquaculture industry like abalone farming.Inspired Evolution not only supplied thecapital fundingbutactivelycontributedtodecisionmakingatboardlevel.Thisresultedin a renewed awareness of our corporate responsibility towardssustainableandresponsibledevelopment.

This focus fits elegantly with Abagold’s values of innovationand responsibility, not only in our business operations but inthe interactions with the environment and society. Besides theenvisaged additional 200 direct jobs, social upliftment will beachievedthroughthebroad-basedblackeconomicempowermentstructuringof their investment.Partof thisstructure includes thefruitionoftheAbagoldDevelopmentTrustowning10%ofAbagoldandwiththeobjectiveofsocialupliftmentamongthepreviouslydisadvantagedcommunitiesofHermanus.

JohanHugo,FinancialManager,Abagold


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About the company

Thecompanystarted in1979asWadeRefuse,providingadoor-to-door waste collection and disposal service. It was the only privatecompany in South Africa willing to undertake waste contracts intownships such as Kwa-Thema, Tsakane and Soweto in Gautengduring the mid-1980s, an extremely volatile and unstable periodin South Africa. EnviroServ took its identity from this startingpoint, priding itself on providing high-quality responsible wastemanagementservicesunderallandanyconditions.EnviroServisthepremierprivatewastemanagementcompanyinAfrica.

Thenaturalgrowthopportunityforthecompanylaywithindustrialwaste disposal to fulfil the requirements of South Africa’s growingeconomy.In1990EnviroServcommissioneditsfirsthazardouswastedisposal site at Holfontein in the Gauteng Province and developedanencapsulationfacilitydesignedtomeetinternationallyacceptedstandardsforthedisposalofhazardouswaste.By1995thesitehadsufficient capacity developed in encapsulation cells to handle theentireindustrialwastestreamgeneratedinGauteng.

Through its specialist divisions, EnviroServ currently offers a rangeof specialist services, including the analysis and classificationof waste; collection, transportation and disposal of general andhazardous waste; emergency response services (i.e. clean-up ofspillages); transfer stations and recycling facilities; the operationandmanagementoflandfillsites;incinerationofhealth-carewaste,andon-sitewastemanagementat industrialandcommercialclientpremises.

EnviroServ’scoreoperationsarehazardouswastemanagementanditownsandoperatesfiveofthesixprivatehazardouslandfillsinSouthAfrica. Each landfill is licensed under the National EnvironmentalManagement Act (NEMA) and operates to the highest level ofresponsible landfill management. EnviroServ has also developedlong-term working relationships with multinational and largecorporate customers, offering attractive customer-specific wastemanagementsolutionsdesignedtominimisewastetolandfill(withaprovenrecordtodosoby20%perannum).

In1996thecompanylistedasthefirstwastemanagementcompanyon the Johannesburg Stock Exchange (JSE). In November 2008 aconsortiumofinvestors,ledbyABSACapitalPrivateEquity,acquiredtheentireissuedsharecapitalofEnviroServ,resultinginEnviroServdelistingfromtheJSE.Thisallowed20%ofEnviroServ’ssharestobeavailableforaBBBEEownershiptransaction,whichwasfacilitatedbytheFund.

EnviroServ Waste Management Proprietary Limited

Website: www.enviroserv.co.zaLocation of operations: TheEnviroServheadofficeislocatedin

Johannesburg,SouthAfrica.ThecompanyhasfacilitiesthroughoutSouthAfricaandhasbusinessoperationsandserviceprovisioninanumberofSADCcountries,includingAngola,Botswana,DemocraticRepublicoftheCongo(DRC),Lesotho,Mauritius,Mozambique,Namibia,SwazilandandZambia

Sector: IntegratedwastemanagementBusiness focus: Environmentallyresponsiblewaste

managementacrosssouthernAfricaJob creation: Employees:3539(2010);3852(2012)Investment stage: ExpansionorGrowthCapitalEvolution One Fund investment: TheFundinvestmentdealwasconcluded

inJune2010andtheFundexitedinApril2013.EnviroServmotivatedforanexitfromallstakeholdersonthebasisthatitplannedtocompletelyrestructureitsbalancesheetinadvanceofapossiblerelisting.TheFundhassoughttomaintainacloseandhealthyworkingrelationshipwithEnviroServandinfuturewilllooktocollaboratewithEnviroServonwastetechnologyjointventuresandco-investmentopportunitiesinSouthAfricaandtheSADCregion.

Status: Divested


• Careful investigations into the waste sector in southern AfricadeterminedthatEnviroServwasaclearmarket leaderfromarevenue,technologyandsustainablebest-practicesperspective.This,combinedwithlegislativereformsonwastemanagement,placedEnviroServinafavourablepositionforfuturegrowth.

• The Fund’s investment was a positive contribution to the financialrestructuring of EnviroServ in order to facilitate 20% of EnviroServ’ssharestobeavailableforabroad-basedblackeconomicempowerment(BBBEE)ownershiptransaction.

• TheFund’scapitalinjection,alongsideothers,repositionedthebusinessforsustainedgrowthof itswastemanagementservices intotheSADCregionandresultedinthecreationof313additionaljobsbetween2010and2012.

• EnviroServ’s strong track record in social and environmental riskmanagement has been further strengthened since the Fund’sinvestment by the formal adoption of a Social and Environmental(S&E)CorrectiveActionPlanthatwasincludedintheFund’sDebentureAgreement. This ensured that EnviroServ was obliged to implementcorrectiveactions(identifiedasaresultofthecomprehensiveS&EduediligenceconductedbyMarshEnvironmentalServices,ascommissionedby Inspired Evolution) and that these were adequately resourced andexecutedagainstagreedtimelines.

• The simultaneous execution of a strategic Collaboration AgreementbetweentheFundandEnviroServoptimisedthepotentialfortheFundtoactasa‘portal’tobringbest-of-breedcleantechnologiestomarket,whereEnviroServprovidedtheplatform,clientbaseandlogisticstorolloutfavourablewastetechnologieswhenandwhereappropriate.


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EnviroServ Waste Management Proprietary Limited (continued)

The role played by Inspired Evolution’s private equity

Supporting the growth of clean technology solutions and offering sustainable business practices

Environmental solutions and effective environmental management practices

EnviroServ’s environmental management practices include measures toensurethepreventionofground-andsurfacewatercontaminationfromeffluentandleachateandemissionsfromlandfills,andtheefficientuseofresourcessuchasenergyandwater.Thecompany implementspollutionprevention and control technologies and practices that are best suitedto avoid, minimise or reduce adverse impacts on human health and theenvironment,whileremainingtechnicallyandfinanciallyfeasibleandcosteffective. Air, noise, illumination, ventilation and water quality at landfillsitesaremonitoredtodeterminethehealthrisksposedtobothworkersandthesurroundingcommunitiesassociatedwithlandfillsites.Emissionsaregenerallybelowthereferencestandards.

Health and safety improvements

Primary health care is provided and staff medical examinations areperformedannuallyandonentryandexit.Occupationalhealthincidentsare compensated and mitigation measures are implemented to preventfurtherincidentsinfuture.Inresponsetofatalitiesin2010and2011,aduediligenceandrecommendationswereprovidedbyMarshEnvironmentalServices.Theserecommendationsstrengthenedexistingsystemssoastomakeeveryeffortpossibletoavoidinjuryandlossoflifetoemployeesandcontractors during the course of operations. EnviroServ prioritised thesecorrective actions and HR procedures were brought in line with IFC andInternational Labour Organisation (ILO) guidelines. A 2012 health assetreviewconfirmedthatEnviroServprovidesworld-classoccupationalhealthmanagementthatexceedsindustrybenchmarks.

Climate change mitigation

EnviroServ’sLandfillGas (LFG)project isanextractionsystemwithflaresthatburnthefuelproduced,therebyconvertingmethaneintolessharmfulcarbondioxide.TheCertifiedEmissionReductions(CERs)thatareclaimedare sold to the Japanese Carbon Fund. A total of 850 000–900 000 CERswereestimatedforthelifespanoftheproject(2007to2013).

Responsible employers

EnviroServgeneratessignificantemployment,witharound3852employeesasat2012/13.SHEQtrainingisprovidedinlocallanguages.Toaddress the high unemployment at Holfontein, local community labouris used where possible, and emerging contractors receive training andcapacitybuilding.

SUSTAINABILITY REVIEW | 45

dti targets 2010 2011 2012 2013

Ownership 20 20,9 21,1 21,1 21,1

Management control 10 1,8 2,2 2,5 2,5

Employment equity 15 5,2 4,7 6 7

Skills development 15 4,9 6,6 7.2 8,5

Preferential procurement 20 12,9 16 17 17


The leading company in a sector with strong growth opportunity

This investment was integrated with the Inspired Evolutionphilosophyoffacilitatingexpansionandgrowthcapitaltoacompanythat isamarket leaderandoffersahigh-growthplatformforcleantechnologydeploymentintheintegratedwastemanagementsector.Theinvestmentdecisionalsoallowedassociatedstrategicobjectivesto be met through a collaboration agreement between EnviroServand the Fund.This resulted in synergistic opportunities for furtherclean technology roll-out, potentially benefiting both parties.The decision to invest in the company was undertaken only afterextensive independent due diligence investigations. On the basisof these investigations, the Fund made clear recommendation forimprovementsandthestrengtheningofsystems in thehealthandsafetyarea.

InApril2013,theFundconcludedasuccessfulexitfromEnviroServ.

Waste beneficiation and energy production

EnviroServMineralBeneficiation(EMB)specialisesintherecoveryandbeneficiationofwastestreamsfromthemetallurgicalandsmeltingindustry.Anumberofthesewastestreamsincluderawmaterialfines,bag-house dust, slags and spent refractory material from currentarisingsorlegacydumps.EMBisdifferentiatedfromitscompetitorsin that it isabletodevelopandsecuremarkets foreachandeveryrecoveredproductratherthanforhigh-valuecommoditiesonly.

The EnviroServ Waste-2-Energy (EW2E) division addresses thegrowingdemandforgreenenergyandthesignificantrolewastecanplayasanenergysource.ChangesinwastemanagementregulationswilllimitthelandfillofcalorificwastestreamsandEW2Eisuniquelypoisedtotakeadvantageofthis.During2013,EW2Ewillcommissionthe Chloorkop Landfill Gas project in the Ekurhuleni MetropolitanArea located in the Gauteng Province, which will produce 3MW ofelectricity.Thesaleofelectricityfromthisprojectwillbeoneofthefirstofitskindinthecountry.

Risk management beyond legal compliance

While EnviroServ is exposed to environmental, health and safetyrisks associated with the disposal of hazardous and general waste,the company has a strong ethic of responsible practice and legalcompliance.EnviroServholdscertificationsinseveralinternationallyrecognised management systems (for example ISO 14000, OHSAS18000, ISO 9000, the Chemical and Allied Industries Association’sResponsible Care and SQAS Programme, and the InternationalSolid Waste Association, amongst others). The SHEQ IntegratedManagement System has been implemented for the majoroperations. The company is audited both internally and externallyto ensure that management systems bring about compliance andeffectiveresults.

Managingillegalreclaimersatwastesites isachallengingareaandrequires ongoing engagement. However, relationships with legalwastereclaimersaregoodandthecompanydoesmuchtofacilitatelivelihoodsintheareaofwasterecycling.


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EnviroServ Waste Management Proprietary Limited (continued)


Sustainability impact of the investment

The investment contributed to support for the entire EnviroServplatform, rather than only a particular section. The Fund’s capitalinjection,alongsideothers, repositionedthebusiness forsustainedgrowth of its waste management services into the SADC region.EnviroServ‘s strong track record in social and environmental riskmanagement was further strengthened by the Fund’s investmentby way of the formal adoption of an S&E Corrective Action Plan,whichwasincludedintheFund’slegalagreements.ThisensuredthatEnviroServwasobligedtoappropriatecorrectiveactions(identifiedas a result of the comprehensive S&E due diligence conductedby Marsh Environmental Services, as commissioned by InspiredEvolution) which were adequately resourced and executed againstagreedtimelines.

Black economic empowerment

The Fund’s investment was a positive contribution to the financialrestructuring of EnviroServ in order to facilitate 20% of its sharesto be available for a broad-based black economic empowerment(BBBEE)ownershiptransaction.Thiswasanimportantachievementfor the business to align itself with national policy and legislationandsopositionitselfoptimallyforgrowththroughofferingbroaderownershiptopreviouslydisadvantagedindividuals.

Localised social and economic benefits

The indirect employment generated by the company’s activities issubstantial and relates to a range of small and medium enterprise(SME)supportinitiatives,procurementpractices,trainingandskillingwithin local communities, and corporate social investment (CSI)initiatives.Atmunicipalwastesites,SMEsaresupportedandnurturedassubcontractors.EnviroServ’ssuccessfulowner-driverprogrammeis an empowerment initiative that goes to the absolute essence oftransformationandempowermentbytakingsalariedemployeesandtransformingthemintoasmall-businessowners.

Corporate social investment (CSI)

EnviroServ has a strong CSI programme. A key project supportedby EnviroServ is the Intuthuko Sewing Project which involves 30women.EnviroServprovidessponsorship,salaries,sewingmachinesas well as personnel management and liaison with communityleaders.ThecompanyhasanexcellenttrackrecordofworkingwithSMEs,facilitatingtrainingandemployingunskilledpeoplefromlocalcommunitiesadjacenttooperations.EnviroServhasalso facilitatedbusiness development and the employment of 250 people byproviding facilities and capacity for an SME recycling enterprise,MamaShe’s,atChloorkop.

AspartofEnviroServWasteManagement’sstrategytoprovideholisticwastesolutions,it was approached by a number of itscustomers in regards to waste tyres. ThedisposalofwastetyreshashistoricallybeenachallengetoSouthAfricancompanies.

EnviroServinvestigatednumeroussolutionsfor the effective disposal of waste tyres and was considering theacquisitionofa tyrepyrolysisbusinessasamethodof treatment.Inspired Evolution offered to assist in compiling internationalresearchonthesuccessofthetyrepyrolysismethodologyanditssuitability to the South African context. Within a short period oftimeInspiredEvolutionwasabletoconcludeandadviseEnviroServthattyrepyrolysishadanumberofshortcomings.Afterconsideringtheevidence,EnviroServchosenottousethepyrolysismethodoftreating waste tyres but to pursue an alternative tyre treatmentprocess as a solution to its customer’s needs. The timely advicereceived from Inspired Evolution proved valuable in assistingEnviroServ in efficiently securing the correct waste tyre solutionprocess.

DesGordon,CEO,EnviroServ


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AGRIBUSINESS / WASTE MANAGEMENT Acapulco Trade and Invest 162 Proprietary Limited

About the company

Acapulco entered into a technology transfer and exclusive licenceagreement with Unity Fertilizer (SA) for the construction of a330000tonnecapacityfertiliserplantintheRichardsBayIndustrialDevelopment Zone (IDZ). The technology, licensed by UnityEnvirotech,useshumansludgetomanufactureorganicallyenhancednitrogen-basedfertiliser.AcapulcowillbeestablishingthefirstUnityplant in Africa, with the intention to roll out further plants in theSADCregion.Thefertiliserwillbesoldbothlocallyandglobally.

The proposed facility has the potential to use a significant portionofthesoliddomesticsewagegeneratedinRichardsBay.Additionalsludge, pre-treated, stable, sterile and within pollutant limits, willbe transported in from Durban and Johannesburg. The primarychemicalingredients,anhydrousammoniaandsulphuricacid,willbesuppliedattheIDZunderlong-termagreements.

Measures have been and continue to be put in place to mitigateany environmental and social risks. The Environmental ImpactAssessment (EIA) Scoping Report has already been approved.Acapulco will comply with the relevant South African guidelinesgoverningthetreatmentanduseofhumansludge,whicharebasedon the United States Environmental Protection Agency (EPA) 503BiosolidsRule.Acapulcowillalsoadopttheprinciplescontained inthe OECD Guidelines for Multinational Enterprises and the SouthAfricanLabourStandards.

The plant requires the use of ammonia and sulphuric acid, bothclassifiedashazardousmaterials.AsthesiteisadjacenttoaresidentialsuburbandtheTuziGaziWaterfront,healthandsafetyisofprimaryconcern. A Major Hazard Industry (MHI) Risk Assessment will beconductedandbulkammoniawillbestoredoff-site inacontainedareaatIslandView.Asofthedateofthisreport,theprojectcontinuestofacematerialchallengestoconcludethekeyagreementsthatarecrucialforbankability.Thesemilestonesarecriticaltoreachagreedperformance milestones that will unlock further capital from theFund.

Website: noneLocation of operations: RichardsBay,KwaZulu-Natal,SouthAfricaSector: FertilisermanufacturingBusiness focus: Productionoffertiliserfromhuman

sewerage(solid-wasterecycling),forsaletointernationalmarkets

Size: Pre-revenue,start-upcompany.Job creation: Employees: 2atpresentDevelopment stage: Phase1–Start-up;Phase2–Infrastructure

ProjectFinanceEvolution One Fund investment: TheFundinvestedinPhase1–start-up

venturecapitalintoAcapulcofortheacquisitionofthetechnologylicencerightsinsouthernAfricaanddevelopmentofthepermittinganddesignofa300000tonneperannumurea-wastefertiliserplantinRichardsBay.TheFundholds49%ofthecompany,andSandileSokhelasitsontheboardastheFund’srepresentative.TheFundhasrightstoinvestinprojectequityatfinancialcloseofthefertiliserplant.

Status: Phase1–start-upseedcapitalinvested.Pre-permittedstage


• The Fund provided access to early stage venture capital that isfacilitatingthepotentialroll-outofcleanertechnologyforaurea-basedfertiliserplant,substitutingconventionalindustryby-productfertilisersthathaveamuchlargerenvironmentalfootprint.

• S&E approach and reduced environmental impact of Richards Bay/Durban Metro solid waste facilitated by Inspired Evolution throughthe application of the IFC Performance Standards and guidelines,contributingtotheEnvironmentalScopingReportconductedonthenew-buildfertiliserplant.

• Whiletheinvestmentremainsatanearly-stage,havingincurreddelaysin permitting, plant development and technology roll-out, InspiredEvolution’s commitment to its ‘beyond compliance’ philosophy willensurethatshouldtheAcapulcoplantproceed,itwilladheretobest-practiceS&Eguidelinesandgovernancepolicies.


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AGRIBUSINESS / WASTE MANAGEMENT Acapulco Trade and Invest 162 Proprietary Limited(continued)


Inspired Evolution seeks equity investments with early-stage andhigh-growth companies that offer innovative solutions to energy,industrial, and environmental challenges. In Acapulco’s case, thetechnology provides an environmentally friendly product and atthe same time mitigates the problems associated with humanwaste sludge being dumped into landfill sites and/or pumped outto sea.The solid waste content of waste water will be significantlyreduced,andthewastewaterbeingdisposedofviaseaoutfallwillbeofsignificantly improvedqualitycomparedtowhat iscurrentlythecase.This opportunity will also reduce local municipality spend onthedisposalofhumansludge.

The demand for fertiliser is linked to the demand for food, whichin turn is directly correlated to population growth. Acapulco aimsto offer to the market a sustainable fertiliser product which isenvironmentally superior to conventional fertiliser products. Thefacility will provide a regional solution for the off-site conversionof municipal solid waste residuals into a fertiliser that is sterile,odour-free and ultimately a beneficial reuse product. Independentlaboratorytestshaveproventhattheproductisnotcombustibleandthatitsphysicalpropertiesmatchorexceedindustrystandards.TheprojecthasthepotentialtouseasignificantportionofthedomesticsewagecurrentlybeinggeneratedinRichardsBay,therebyreducingthe need for sewage disposal into the ocean. Acapulco is securingagreements with Ameropa (a privately owned Swiss internationalgrain and fertiliser trader, founded in 1948) for purchase of theproductoncemanufacturingcommences.

TheUnityfertiliserproductiontechnologywasdevelopedintheUSAandispatentprotectedandvalidatedbytheInternationalFertilizerDevelopmentCentre(IFDC).TheuniquepropertiesofUnityfertilisers,compared to traditional chemical fertilisers, come from the use ofbiosolids.Thespecificinnovationcombinesabaseandanacidwithcomposted waste water residuals to produce a completely sterile,pathogen-free organic fertiliser. The advantages over syntheticfertilisersarethatthefertiliserhasslow-releaseproperties,hencelessnitrogen leachesandvolatises intotheenvironmentand increasednitrogenisavailableintheplantrootzone.Thissignificantlyenhancescrop yield and biomass, while promoting sustainable agriculture.Conventional fertilisers commonly release high levels of nitrogen,whichmayleadtoalgalandpestblooms,oceanicdeadzonesandanincreaseingreenhousegasemissions.


TheFundcommittedstart-upventurecapitalinthetechnologycompany(Acapulco), which is positioned to roll out the technology in the SADCregion and sublicense to companies such as Unity Fertilizer. Phase 2will allow the Fund rights to invest directly in the project asset holdingcompany(UnityFertilizer(SA))fora49%equitystake.Themainconditionsare: signed off-take agreement for the full output; signed supplyagreements;technologyvalidation,andsecuredfunding.

The Fund provided this small first tranche of venture capital to assistAcapulcoincommencingtheBankableFeasibilityStudy,applyingforEIAapproval,securingfeedstocksupplyagreements,negotiatinganoff-takeagreementwithAmeropa,andadvancingpermittingonthesecuredsitefor the project. One of the Fund directors, Sandile Sokhela, sits on theboardofAcapulcoandhasgivenguidanceonthestrategicdirectionofthestart-upcompany.TheInspiredEvolutionteamfacilitateddiscussionsbetween the promoters and various banks with which the Fund has acloserelationship inordertosecurethedebtcomponentoftheprojectfinancerequirementsatfinancialclose.

More than 50% of applied nitrogen worldwide is in the form of UREA

Benefits of the Unity Solution (100 lbs applied)

33%

Urea 46 lbs N

41%

Volatilization(losstoatmosphere)

33%

Urea 46 lbs N

41%Leaching

(losstogroundwater)

TotalNitrogenLoss(totheenvironment)74% 15%

RootZoneAvailableN

14.45 lbs N11.96 lbs N*2.2lbs=1kg


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AGRIBUSINESS / WASTE MANAGEMENT Acapulco Trade and Invest 162 Proprietary Limited(continued)


Acapulco is in the process of obtaining EIA authorisation, a wastemanagementlicenceandawaterusagelicence.

Adjustments to the business model and investment

Due to the start-up nature of Acapulco, the staged investmentapproachstructuredby InspiredEvolutiontodealwith incrementalamounts drawn down against achieved business milestones wasdesigned to mitigate the risk of underperformance. Due to delaysindeliveryofagreedtargetsbythecompanyin2012,anadditionalbusinessanalysiswasundertakenbyInspiredEvolution.Thisanalysisdetermined that there were several weaknesses in Acapulco’smanagement approach. On this basis, future funding trancheshavebeenplacedonholduntilcontractuallyagreedmilestonesareachieved.

During the course of 2012, Inspired Evolution also brought tothe attention of the board of the company a number of strategicinterventions that needed urgent attention. Essentially the primaryoff-take agreement offers a long-term purchase arrangement butwithaminimumpricingofferthatisinsufficienttomaketheprojectviable. Inspired Evolution insisted that off-take agreements besecuredwithabiastowardslocalcustomers.OnthisbasistherehasbeenconstructiveengagementwithSAGrainandotherswhohavemade in-principle commitments to purchase the product, pendinglocalcroptrial results.TheAcapulcomanagementteamiscurrentlymovingaheadwithcroptrialsinSouthAfricatodemonstrateproductefficacythroughsimulatedtestresults.

Markets

Unity Fertiliser (SA) has negotiated an off-take agreement whichwill seesubstantiallyallof itsannualproductionof330000 tonnesbeingpurchasedbyAmeropa.Theintentionistomarketandsellthemajority of Acapulco’s organic fertiliser product in Brazil, with 10%retentionforthelocalmarket.

Securing a high-development impact

The Unity fertiliser plant is designed to create 110 permanentjobs and 300 short-term temporary jobs during the constructionphase of the Richards Bay project. Once production commences,opportunities exist for SMEs to provide transport of input material.In addition, a rural development programme is being developedto enable the participation of rural communities in food securitytraining, empowerment and value creation. This is in line with theRuralDevelopmentPlanofthenationalDepartmentofLandAffairs,using the International Fertilizer Development Centre (IFDC) as thetrainingagency.AportionofproductionwillbesuppliedtotheIFDCto use in train-the-trainer projects where selected volunteers fromrural communities will go through monitored training sessions andbe trained as trainers to go back to their villages and pass on theprinciples learnt. The IFDC makes a special effort to reach womenwho often do not have the opportunity for training in agriculturaltechnologies,eventhoughtheyareusuallycriticaltothesuccessofasmallholderfarm.

AcapulcointendstoimplementtheKingIIIgovernanceprinciplesandadheretotheIFRSforSMEs.ThroughtheFund’sguidance,acorporategovernancepolicyandcodeofbusinessethicshavebeenputinplace.

Whenwefirstbeganourjourneytodevelopafull-scaleorganicenhancedfertiliserplant,based on the information provided by ourtechnology partner, the Inspired Evolutionteambelievedinourvisionoftransforminga hazardous biological waste into asustainable,high-performancefertiliser.

InspiredEvolution’searly-stagecapitalmadeitpossibletodevelopabusinessmodelthatwasabletoattractfunderswillingtoprovidemezzanine and senior debt finance into the project. Duringthis period, Inspired Evolution’s inputs at strategic level provedinvaluableincraftingasuccessfulbusinessplanandfinancialmodelthatisbothrobustandresilient.WilliamH.Butler,ManagingDirector,Acapulco

Natural Gas

0 200 400 600 800 1000 1200

Anhydrous Ammonia

Water

Sulphuric Acid

Biosolids (15% dewatered)

23

206

291

593

1040

Primary raw materials are Anhydrous Ammonia and Sulphuric Acid, along with 15% dewatered sludge. In addition to these inputs there are other, miscellaneous chemical inputs required in small quantities, as well as 115 kWh of electricity, per tonne produced.

Key raw materials inputsKg raw material per tonne unity

Nitrogen fertiliser products2010 = 105 million tonnes of nutrients

UreaOtherNPKAN/CAN

DAP/MAPUANAmmonia

Inspired Evolution Investment Management Proprietary Limited Profit with Purpose: Sustainable Value Creation Report 2013 Inspired Evolution Investment Management Proprietary Limited Profit with Purpose: Sustainable Value Creation Report 2013POR

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Inspired Evolution has advised and achieved the placement ofapproximately ZAR300 million (USD30 million) of equity investmentsfrom the Evolution One Fund into approximately 315MW of onshorewindandsolarphotovoltaic(PV)renewableenergygenerationprojects,holdingbothsignificantminorityaswellascontrollingstakesintheseprojects.The projects are predominantly located in South Africa withone10.7MWsmallhydropowerproject locatedinTanzania. Inclosingthese renewable energy projects, Inspired Evolution actively assistedwithsecuringthetotalfinancingrequirementofc.ZAR4.5billion(USD450million)fromdebtandequityproviders,contributingtoacleanerlow-carbon future through annual savings in aggregate of 830 000tCO2eofgreenhousegasemissionsovertheir20-yearpowerpurchaseagreement(PPA)term.

Most southern African countries suffer from unreliable distributionand an overall shortage of electricity. In South Africa this manifestedinpowercutsin2008whentheSouthAfricangovernmentwasforcedto admit that the growing energy crisis was a national emergency.Presently,theSouthAfricanenergyutilityEskom’sfleetofcoalplants,and the Koeberg nuclear plant near CapeTown in theWestern Cape,areexperiencinghighlevelsofunplannedoutagesduetobreakdownsor scheduled maintenance. Also, delays in the commissioning of thenew Medupi and Kusile coal-fired power stations in Limpopo andMpumalanga provinces respectively, and the Ingula pumped storagescheme in KwaZulu-Natal, all three of which are currently underconstruction, may result in further rolling black-outs in 2013/14 duetogenerationnotbeingavailableonthenationalgridtomeetsupply.South Africa is currently operating with a reserve margin as low as0.73%. This will be exacerbated by future economic and populationgrowth. By 2030, demand for energy in South Africa is expected toreachbetween341and454TWhwithpeaksbetween50and67.8GW.

The 2008 shortages had a negative effect on emergency services,farmingactivities,businesses,domesticconsumersandcitizenmorale.Itdirectlythreatenedthecountry’seconomicgrowthprospects,withalossofanestimatedZAR50billion(USD5billion),bringingthepower-hungryminingandindustrialsectorstoahaltandscaringoffpotentialforeign investment. General increases in electricity costs have broadimplications,includingalackofjobsecurityasbusinessesmaybeforcedtoretrenchworkerstomaintainprofits.Inaddition,theimplementationofcarbontaxesincountrieslikeSouthAfricain2015willhaveaneffectonelectricitycostsasEskomisexpectedtoinitiallypassonthecoststoconsumers.

By2009regulatoryguidelinesinSouthAfricahadsetthebasicstructurein place to accommodate renewable energy feed-in to the nationalgrid. The regulatory framework has taken several years to finalise astariff proposals were revised from one determined by the energyregulatorona feed-intariffbasistoacompetitivebiddingprocessorauctionbasedonpriceandeconomicdevelopmentcriteria.However,theobjectivesoftheregulatoryframeworkshaveremainedconsistent:promotingtheestablishmentofrenewableenergyindependentpowerproducers (IPPs) todevelop42%of theapprovednewcapacity tobebuilttotalling17.8GWofrenewableenergycapacityoverthenext20-yearperioduntil2030.

This,combinedwiththelow-carbonpolicycommitmentsadoptedbysouthernAfricanstates– inparticularSouthAfrica,whichcommittedtoa34%reductionofgreenhousegasemissionsby2020and42%by2025–providedacompellinginvestmentcasefortherapidroll-outofcleaner, lower-carbon renewable energy generation projects acrosssouthernAfrica.

The South African Renewable Energy Independent Power Producer Procurement Programme (REIPPPP)

Under the South African government’s flagship Renewable EnergyIndependent Power Producer Procurement Programme (REIPPPP),eight wind power and 18 solar power projects have already brokenground.Theseprojectsareallpartofwindow1ofthe5-windowREIPPPPProgramme.REIPPPPtargetstheprocurementofaninitial3625MWofpower to be generated from renewable energy IPPs by 2015. So far,biddingwindows1,2and3constituteall3625MWofthistarget.Thethirdbidsubmissiondatewas19August2013.Anadditionalallocationof3200MWunderREIPPPPhasbeenannouncedbytheDepartmentofEnergyforongoingprocurementfrom2014.

REIPPPP has been designed to contribute towards low-carbon,cleaner power production and socio-economic and environmentallysustainablegrowth.Ofthecurrent6725MWprocurementreleasedbytheSouthAfricangovernment, thegenerationcapacitiesallocatedtoonshore wind and solar PV technologies are 3 320MW and 2 525MWrespectively,greaterthanallotherrenewabletechnologiescombined.

The role of private equity

Renewable energy power generation projects are a central fit withInspired Evolution’s investment advisory objectives and offer acompellingopportunityfortheFundtoearnattractivereturnsthroughsecuringanearlyseatinrenewableenergyprojectdevelopments,whileenjoyingtherighttoplaceprojectequityfinanceintopermittedprojectsatfinancialclose.Eachtransactionisaugmentedbytheskillsandtrackrecordof thevariouspedigreeddevelopers.TheFundprovidesmuchsought-afterlate-stageventurecapitalorgreenfieldsinfrastructureriskcapitalonaperformancemilestonebasistosupplementdevelopmentbudgets, thus enabling projects to obtain all the necessary permitsand authorisations required for project eligibility under REIPPPP andotherprocurementregimesasspecifiedincertainotherSADCmembercountries.

Through their association with Inspired Evolution, the renewableenergycompaniesareguidedtofollowaprescribed,transparentandcompetitive procurement standard which reflects international bestpractice.InspiredEvolutionalsoensuresthatbaselinestudiesonsocialand environmental issues are completed appropriately accordingto national legislation, the IFC Performance Standards and theEquator Principles. Comprehensive EIAs are conducted with relevantexpert inputs and the necessary relevant authorisations are sought,municipalitiesareengaged,locallabourandlocalskillsareoptimised,andlocalownershipisentrenchedattheprojectleveltoensureaflow-throughoftangiblebenefitstocommunitiesbasedinandaroundtheprojectareasoverthe20-yearcontractedprojectlife.InspiredEvolutioniscommittedto this investmentphilosophy,which ithassuccessfullyimplemented as the principle of ‘limited economic leakage’. Thesocial and environmental benefits are therefore significant, tangibleand sustainable, and in aggregate over the portfolio amount to overZAR5 billion (USD500 million) in direct cash flows from distributionsownedandCSI revenues–all ring-fenced for localcommunitiesoverthe20-yearprojectlife.

Inconclusion,therenewableenergyportfoliocasestudiesthatfollowdemonstratethedeepcommitmentandthetangibledevelopmentandclimate change mitigation outcomes facilitated by Inspired Evolutionand the Evolution One Fund. As a dedicated provider of early-stagerisk capital and project equity, Inspired Evolution is contributing tothe burgeoning low-carbon energy infrastructure roll-out across itsinvestmentterritoryinsub-SaharanAfrican.

RENEWABLE ENERGY Introduction


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RENEWABLE ENERGY Mapembasi Hydropower Company Limited

Website: NoneLocation of operations: Njombe,TanzaniaSector: RenewableEnergy:HydropowerGenerationBusiness focus: 10.71MWrun-of-riverhydroelectricpower

generatedforinputintotheTANESCOgridSize: Pre-revenueJob creation: Employees: 1 atpresent;15jobsand100

temporarypositionswillbecreatedduringconstruction

Development stage: Early-stage|GreenfieldsInfrastructureProjectFinance

Evolution One Fund investment: Seedcapitalwasapprovedandcommitted

inQ22012.ThetotalprojectisUSD27million(ZAR270million).TheFundisreservingaprojectequityamounttobeplacedatfinancialclosein2013.

Status: Phase1:start-upseedcapitalinvested.Pre-permittedstage


• TheFundprovidedcriticalaccesstoearly-stageseedcapitalfacilitatedthrough a preferred agreement with UNEP’s Seed Capital AssistanceFacility (SCAF).This risk capital assists with the‘funding gap’ for earlyactivities and studies required to develop the hydropower projectthroughtopermittedstage.

• Mapembasiisacommunity-basedprojectwithfullbuy-inandsupportfromthelocalcommunity,withtrade-offsandbenefitsnegotiated.Theprojectwillcreatepositiveeconomicdevelopmentoutcomes throughlocaljobcreation.

• Supplyofcleanenergyto21000peoplein4856households,eliminatingthe use of fossil fuels with a saving on emissions of 29 151 tCO2e perannum.

• Limited environmental impact with best-practice run-of-riverdesign with a 7 m high weir wall at the deepest point. No sensitiveenvironmental areas are affected by the project. The system will notrequiretheconstructionofadam.

• Social and environmental (S&E) provisions integrated into the Fund’stransaction agreements ensure that Njombe as the promoter andMapembasi as the project company, are obliged to abide by the IFCPerformanceStandards.

About the company

The Mapembasi Hydro Power Company Limited (MHPCL) is aTanzanian-ownedprivatecompanywhichhasbeennurturedbytheWorld Bank through its capacity-building programme in Tanzania.Security is provided by the project developer, Njombe ResourceDevelopmentCompanyLimited(NRD),agroupcomprisingNjombeDioceseandlocalbusinessmen.

The company will develop a small 10.71MW capacity run-of-riverhydroelectric power plant situated on the Ruhudji River in theNjombedistrictofIringa,inthesouthernhighlandsofTanzania.Theproject plans to reach financial close during 2013/14 with powerproductioncommencingin2015/16.

UndertheTanzanianEnvironmentalManagementAct,EIAandAuditRegulations,theprojecthasanapprovedupdatedenvironmentalandsocialimpactassessment(ESIA)forupto10.71MWwithaprojectedannualpowerproductionof50GWh.Afinalsocialandenvironmentalduediligencewillbeconductedandawaterpermit remains tobeissued,priortofinancialclose.

The project lies upstream of a major hydro system that generatesabout20%ofthecountry’stotalcapacity.Extensivehydrologydatafromthelast50years,includingwaterflowandrainfall,areavailableand allow for high confidence in the projected plant capacity.Thesystem uses a run-of-river design, with a 7 m high weir wall at thedeepest point. A diversion including a 50 m long desilting bay,900 m long canal and a forebay structure will be constructedalong hilly slopes. A powerhouse will accommodate turbines andgenerators,acontrolroomandmeteringrooms.

Thegeneratedpowerwillbetransformedto33kVforinterconnectionto the TANESCO main grid under a Standardised Power PurchaseAgreement (SPPA). A further 11 kV will feed into a mini-griddistributionnetworkreachingfivelocalvillages.

Extensive consultation has ensured that the project has the fullbuy-inandsupport fromlocalcommunities.Landrequired forgridservitudes was thoroughly negotiated and trade-offs and benefitsdecided upon. A labour-intensive construction approach has beenundertaken, thereby promoting job creation at the start of theproject.

Asofthedateofthisreport,theprojecthasnotmetallmilestonesrequired to conclude financial close agreements.These milestonesare critical to reach agreed performance criteria that will unlockfurtherprojectequitycapital fromtheFund. Inaddition,advancednegotiations are underway that may result in rolling the projectintoanewprospectiveinvestmentfortheFund,locatingitunderaseasonedhydropowerdeveloperwithabroaderpipelineofadvancedhydropowerprojectsacrosstheEastAfricanregion.


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The project is a 100%Tanzanian-operated, commercially attractive,cleanenergygenerationprojectwithanestimatedenergyproductionof 50GWh per annum. The significant developmental componentof the project relates to the local distribution network, which willsupply electricity to about 21 000 people (4 856 households), 160SMEsand12ruralinstitutionsinfivevillages,whicharepresentlynotconnectedtothegrid.Theprojectwillcreate15permanentjobsand100temporaryjobsduringconstruction.

The supply of electricity will replace the current power sources ofkerosene, candles, firewood, charcoal, 12 V batteries, dry cells andpetrol and diesel generators, all with high environmental impacts.The calculated greenhouse gas emission reduction is 29 151 tCO2eperannum.Also,asnodamneedstobeconstructed,environmentalimpactsareminimised.

RENEWABLE ENERGY Mapembasi Hydropower Company Limited(continued)


InspiredEvolutionraisedseedcapitalfromUNEP’sSeedCapitalAssistanceFacility (SCAF) to assist with the ‘funding gap’ on early activities andstudiesrequiredtodevelopthehydropowerprojectthroughtopermittedstage.Aspartoftheduediligenceperformedin2011,InspiredEvolutionappointed an independent hydro specialist consultant to undertake atechno-economic due diligence for the project. This was completed bya Norwegian company, Norconsult, and included a sediment study, anexpanded geotechnical analysis and an additional hydrology evaluation.The due diligence was favourable and found the project to be suitablyrobustinitsabilitytogenerateelectricity,servicedebtandprovidereturnsto investors. Inspired Evolution included provisions in the transactionagreements, obliging the project to adhere to the IFC PerformanceStandardsonsocialandenvironmentalissues.

Given the experience and skills set of the Inspired Evolution team,Mapembasi was comfortable with the Fund signing on as a specialisedtechnicalinvestmentpartnerandshareholder.InspiredEvolutionreviewedMapembasi’s financial model, which was then submitted to local andforeignbanksfordebtraising.InspiredEvolutionalsoprovidedstrategiesforcreditenhancementbybanks,assisted instructuringtheprojectandexplained the required documentation (e.g. regarding engineering,procurement and construction). Inspired Evolution facilitated an equitypartnership between Mapembasi and the Sri-LankanVSHydro Companywith whom Mapembasi will enter into a fully wrapped engineering,procurement and construction (EPC) contract and a long-term oversightoperatingandmaintenance(O&M)contract.


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RENEWABLE ENERGY Mapembasi Hydropower Company Limited(continued)

Njombe District Office

Njombe Cattle Estate

Uwemba Tea Estate

Tanganyika Wattle No.11Tanganyika Wattle No.11

Kifanya Mission

Natembwe Mission

Annual rainfall distribution in Idonja subcatchment

1083-12761277-14291430-1698

mm/year


Itisexpectedthattheavailabilityofelectricitywillstimulatebusiness,improveeducationandprovideleisureandotherbenefitsassociatedwithacheaperandmorereliablesourceofcleanerenergy.Averagehouseholds are expected to save TSH5 000 (Tanzanian shillings)permonth,equivalentto20%ofthenationalpercapitaincome,inenergy costs.The project is expected to replace diesel usage at 42saworgrainmills,120smallbusinessesandshops,nineschools,fourhealth centres, public offices, a large seminary and three parishes.The switch would result in an estimated saving of more thanUSD100000(ZAR1million)inannualfuelexpenses.

Topromoteeffectivemanagementoftheproject,InspiredEvolutionproposed the establishment of a project steering committee (SC)consisting of representatives from each equity partner.The SC willmeeteverytwoweeksandreporttotheboardforthedurationofthetimetofinancialcloseandduringconstruction.

Risks identified in the EIA will continue to be addressed throughadherencetotheEnvironmentalManagementPlan(EMP).Thelocalcommunitywasemployedtoconstructtheinitial1kmchannelandaccess roads to allow for studies to be conducted. Going forward,these communities will receive electricity from the project and 15permanentemploymentpostsandabout100temporaryconstructionjobswillbecreatedinfivelocalvillages,thelatterforapproximately24 months. All civil materials will be purchased locally and a smallquarry will be established and run by the community to providethe building aggregate during construction. Staff received trainingon clean development mechanism (CDM) project development bythe Tanzanian Rural Energy Agency (REA) and the World Bank, onthe construction of small hydropower projects by REA, and on theRenewableEnergyFeed-InTariffbytheTanzaniaRenewableEnergyAssociation.

NjombeResourcesDevelopmentCompanyLimited has been working with InspiredEvolution to progress the MapembasiHydropower project to financial closure.Signingoftheletterofintentandlaterthefacilityagreementbetweenthetwopartieshas been fundamental in progressing theproject.

We really appreciate the manner in which the Inspired Evolutionteam has worked transparently and provided all the necessaryguidanceandassistancetoourteamtoensurefullunderstandingandcompliancewithvariousinternationalnormsandpracticesasenshrined in the IFC Performance Standards, as well as relevantlaws.Moreimportantly,InspiredEvolutionhasaddedvaluetotheprojectandrekindledhopethattheprojectwillbeimplementedinasustainableway.

DeoPhilip,CEO,NjombeResourcesDevelopmentCompanyLimited

24 Inspired Evolution Investment Management Proprietary Limited Profit with Purpose: Sustainable Value Creation Report 2013 POR

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RENEWABLE ENERGY RustMo1 Solar Farm (RF) Proprietary Limited

About the company

RustMo1SolarFarmisaspecial-purposeprivatecompanydedicatedto the renewable energy sector. The company is focused ondeveloping, constructing and owning a 7MW solar photovoltaic(PV) generation project based near Rustenburg in the North WestProvince, South Africa. RustMo1 will use project equity finance toconstruct, commission and operate the solar PV assets at projectfinancial close. MomentousTechnologies is the local South AfricansponsordevelopingthesolarPVplant.Theplantisbeingconstructedona19hafarmadjacenttoMarikanaPlatinumMinenearRustenburg.It will feed electricity into the national grid as part of the powerpurchaseagreementwithEskomandtheDepartmentofEnergy.A150mpowerlinewilllinktheplanttothenearestEskomsubstation.

Prior to selection the site was assessed for solar irradiation yield,grid proximity, local demand and plant feasibility. Benefits includeproximity to the substation, moderate temperatures, high localdemandforpower(mostminesintheareaoperateat90%capacitydue to a shortage of electricity supply from Eskom), a stabledistributiongrid,goodaccess(viatheN4highwayandtarredroads),and the land around the mine being of low agricultural value.Specialistassessments informedthefinalconfigurationofthesolarPVfarmtoensureanoptimalarrangementofarrayswithresponsetothesocialandbiophysicalattributesoftheenvironment.PositiveenvironmentalauthorisationfortheprojectwasreceivedinApril2011asaresultoftheenvironmentalimpactassessment(EIA)undertaken.Awaterlicencefortheminimalamountofwaterrequiredwasalsoobtainedfromtherelevantauthority.

Website: NoneLocation of operations: Rustenburg,SouthAfricaSector: RenewableEnergy:SolarPhotovoltaicPower

GenerationBusiness focus: 7MWfixed-axis,ground-mounted,grid-

connectedrenewableenergygenerationfacility

Size: Pre-revenue;totalprojectcostZAR234million(USD23.4million)

Job creation: Employees:26permanent;intotal83temporaryandpermanentjobsduringthe12-monthconstructionperiod


Evolution One Fund investment: InvestedinMarch2013witha51%equity

interest.TheFund’ssubscriptionpremiumincludedafreecarryequatingto9%oftotalequityforMomentousTechnologies(theprojectsponsor).ChristopherClarkerepresentstheEvolutionOneFundontheboardofRustMo1SolarFarm.

Status: Fullyinvested,projectunderconstructionwithscheduledcommercialoperationsdate(COD)15November2013


• WiththeFund’stechnical,contractualandfinancialsupport,MomentousTechnologies, a small independent and local South African developer,was able to ensure that the Rustmo1 Solar Farm could competesuccessfullyundertheRenewableEnergyIndependentPowerProducerProcurement Programme (REIPPPP) as a small emerging independentpowerproducer(IPP).

• TheRustmo1SolarFarmwillgenerateapproximately12.3GWhofcleanenergy per annum, thus mitigating approximately 12 500 tCO2e ofgreenhouse gases each year through the substitution of dirtier coal-poweredgenerationalternatives.

• Theprojectcomprises41%blackeconomicempowermentownership,ofwhich17%isownedbylocalbroad-based,previouslydisadvantagedcommunities.RevenuesofmorethanZAR114million(USD11.4million)willflowdirectlyfromtheprojecttotheselocalcommunitiesoverthe20-yearprojectlifecycle.

• Rustmo1SolarFarmadoptedanumberofenvironmentallysustainableguidelines and policies, including the IFC Performance Standards andthe Equator Principles. The project agreements include an EquatorPrinciple Action Plan that mitigates any potential negative social andenvironmental(S&E)impacts.

RustMo1Solar Farm

24


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RENEWABLE ENERGY RustMo1 Solar Farm (RF) Proprietary Limited(continued)


RustMo1 Solar Farm is an opportunity to earn an attractive returnthrough investing in a renewable energy generation facility thatis located in an area with favourable solar irradiation levels andsupporting infrastructure and logistics. RustMo1 is contracted via a20-yearinflation-linkedpowerpurchaseagreement(PPA)withEskom,whichinturnisunderwrittenbyasovereignguarantee.

The project is situated next to large mining facilities that couldprovideafutureexitopportunityfortheFundastheyarehighenergyusersandthecleanenergyprojectmayprovideafuturecarbontaxoffset option for them.The solar PV ceiling tariff announced undertheREIPPPPRound1wasZAR2.85/kWh,beingtherateatwhichtheRustmo1SolarFarmwascontracted.Theengineering,procurementand construction (EPC) and operating and maintenance (O&M)contractor is Juwi Renewables – a world-leading German solar PVdeveloper. The static-state technology characteristic of solar PVprovidesforcommerciallyattractive low-risk, long-termrobustcashflowstotheFund.

Aprocessisunderwaytoregistertheprojectasacleandevelopmentmechanism(CDM)projectthroughaprogrammeofapplication(POA)specificallyforsolarPVprojects.Thisincludesafullassessmentofthegreenhousegasemissionssavingsassociatedwiththegenerationofelectricity,estimatedtobeapproximately12500tCO2eperannum.

This project will generate 26 permanent and 83 temporary jobs.The company has committed to hire locally where possible with astrongskillsdevelopmentandtrainingcommitmentviaitsrevenuesofmorethanZAR114million(USD11.4million)thatwillflowtolocalhouseholdsovertheproject’slifespan.

FortyonepercentofRustMo1SolarFarmisblack-ownedwithlocalcommunity broad-based ownership via a bespoke trust called theMomentousFoundationCommunityTrust.Thistrustwasfundedbythe Industrial Development Corporation (IDC) through preferenceshares and owns 17% of the RustMo1 project. The Tsakane andLapologangcommunitieshaveelectedrepresentativesastrusteesintheTrust.

The directors of Momentous Technologies are experiencedrenewable industry players. GarethWarner and Pravin Semnarayan,who have previously worked and established a manufacturingbusinesstogether,setupMomentousTechnologiesbasedonsolarPVdevelopmentexperiencegainedintheUnitedKingdom.

The equity shareholders collectively contributed 30% of the totalproject capital at financial close. The balance of 70% of the totalprojectcapitalwasprovidedintheformofseniordebtbythelenders,NedbankandtheIDC.TheFundpaidadisproportionatesubscriptionpricetoacquiretherightstofundafullypermittedproject.Atypicallimitedrecourseprojectfinancestructureforprojectsofthisnaturewasnegotiatedassetoutintheprojectdocuments,withsecurityforthelendersbywayofapledgeofsharesfromtheequitysubscribers.


TheFundprovidedearlyapprovalandanirrevocablefundingcommitmentto finance the equity ‘funding gap’ for the project at financial closeundertheREIPPPPauctionprocessinordertoensurebidcompliance. Inaddition, the InspiredEvolutionteamplayedacrucial supportingrole inthenegotiationofdetailedEPCandO&Mcontractsthroughtobankability.With this support, Momentous Technologies, a small independent andlocal South African developer, was able to compete successfully underREIPPPP as a small emerging IPP to secure its first 7MW grid-connectedsolarPVpark.

Based on a comprehensive EIA, all environmental authorisations werereceivedpriortotheprojectbeingbidunderREIPPPPinNovember2011.AnEquatorPrincipleActionPlanwascompiledandisbeingadheredto,aswellasHRandlabourpoliciesandanEHSpolicy.


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InspiredEvolutionprovidedequityfundingtothe project, which filled a critical componentof the funding structure thus taking an earlyposition to underwrite the first bid roundof the untested Renewable Energy IPP withMomentousEnergy.

Inspired Evolution values, financial inputand governance processes added to the structure and operatingprinciplesviadirectandboardinputs.InspiredEvolutionalsoassistedwithadviceandinputduringtheprocessofbringingtheprojecttofruition.

GarethPWarner,CEO,MomentousEnergy


Together,MomentousTechnologyandInspiredEvolutionweatheredthe prolonged delays and resulting increased development coststo pioneer one of South Africa’s first 7MW grid-connected, solar PVenergy generation plants under the public procurement process ofREIPPPP. The plant is currently in the final construction stages, onbudget, and on track to reach scheduled commercial operations inNovember2013.

The RustMo1 Solar Farm will generate approximately 12.3GWh ofcleanenergyperannum,mitigatingapproximately12500tCO2eofgreenhouse gases through the substitution of dirtier coal-poweredgeneration alternatives. The project demonstrates the use of theFund’sprivateequitymandateinleveragingoptimiseddevelopmentoutcomes through securing 41% black economic empowermentownership,ofwhich17%isownedbylocalbroad-based,previouslydisadvantaged communities. In addition, the project will generaterevenuesofmorethanZAR114million(USD11.4million)thatwillflowdirectlytosurroundinglocalcommunitiesovertheproject’s20-yearlifespan.

The Momentous Foundation Community Trust will use thesedividendstosupportpovertyalleviation, includingsocio-economic,health and infrastructure programmes. Based on a socio-economicneedsassessment,otherinitiativesincludeapartnershipwithORBITFurther Education and Training College and with a local college,Computers and Careers Community Education and Training, withagreementcentredontechnicalsupportandcapacitydevelopmentforpreviouslydisadvantagedlocalcommunities.

RENEWABLE ENERGY RustMo1 Solar Farm (RF) Proprietary Limited(continued)


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RENEWABLE ENERGY SlimSun (RF) Proprietary Limited: Swartland Solar Park, Phase 1

About the company

TheFundandFrancoAfriqueTechnologies(FAT)arejointlydevelopingup to 22MW of solar photovoltaic (PV) projects in the MalmesburyregionoftheWesternCapeinSouthAfrica.Theseprojectsarebeingimplemented in phases. SlimSun (RF) Proprietary Limited (alsoknownastheSwartlandSolarPark,Phase1)isthebespokeprojectcompanythatdevelopedandiscurrentlyconstructingthe5MWsolarPVpark.The5MWPVfacilityreachedfinancialcloseon14November2012andiscurrentlyunderconstructionwithscheduledCODbeing1July2014.ThesecondphaseishousedinSlimSunTooProprietaryLimitedandconstitutesafurther5MWsolarPVparkwhichhasbeenbidundertheSmallProjectsRFP,partoftheREIPPPP.

The farmland on which the solar parks are located is currentlysuppliedviaa100kVAsupplypointon theMalmesburyFarmers1feeder. Eenboom farm extends over 700 ha comprising relativelyflatlandandtheprojecthasatotalfootprintofapproximately7ha.TheareawheretheprojectislocatedhasfavourablesolarirradiationlevelsandthereforegoodpotentialforthegenerationofelectricityusingsolarPVpanels.ApilotplanthasbeenoperatingattheprojectsitesinceAugust2010foryieldvalidation.

ApositiveenvironmentalauthorisationfortheprojectwasreceivedinApril2011asaresultoftheenvironmentalimpactassessment(EIA)undertaken.TheprojectmustcomplywiththemitigationmeasuressetoutintheBasicAssessmentReport(BAR)andtheEnvironmentalManagementProgramme(EMP).Constructioncommencedwiththerequisiteenvironmentalcontrolofficeronsite.Awaterlicencefortheminimalwaterthatwillberequiredwasalsoobtainfromtherelevantauthority.

Website: NoneLocation of operations: Malmesburyregion,WesternCape,South

AfricaSector: RenewableEnergy:SolarPhotovoltaic

PowerGenerationBusiness focus: 5MWfixed-axis,ground-mounted,grid-

connectedrenewableenergygenerationfacility

Size: Pre-revenue;totalprojectcost ZAR209million(USD20.9million)Job creation: Employees:2atpresent;5permanentjobs

and88temporaryjobsduringconstructionDevelopment stage: Early-stage|GreenfieldsInfrastructure

ProjectFinanceEvolution One Fund investment: InvestedinMarch2013witha40%equity

interest.Contingency/standbyequityalreadydrawndowninadedicatedprojectescrowaccount.ChristopherClarkerepresentstheEvolutionOneFundontheboardofSlimSun.

Status: Fullyinvested,projectunderconstructionwithscheduledcommercialoperationsdate(COD)1July2014


• With the Fund’s technical, contractual and financial support, FrancoAfrique Technologies (FAT), a small independent and local SouthAfricandeveloper,wasabletoensurethattheSlimSunSwartlandSolarPark,Phase1couldcompetesuccessfullyundertheRenewableEnergyIndependentPowerProducerProcurementProgramme(REIPPPP)asasmallemergingindependentpowerproducer(IPP).

• SlimSunSwartlandSolarParkwillgenerateapproximately8.76GWhofclean energy per annum, thus mitigating approximately 8 700 tCO2eofgreenhousegaseseachyearthroughthesubstitutionofdirtiercoal-poweredgenerationalternatives.

• Theprojectcomprises20%blackeconomicempowermentownership,allofwhich isownedbyabespoketrustwithtrustexpenditurering-fenced to local broad-based, previously disadvantaged communities.RevenuesofmorethanZAR47million(USD4.7million)willflowdirectlyfromtheproject to these localcommunitiesover the20-yearprojectlife.

• SlimSun Swartland Solar Park adopted a number of environmentallysustainable guidelines and policies, including the IFC PerformanceStandardsandtheEquatorPrinciples.Theprojectagreementsincludean Equator Principle Action Plan that will mitigate any potentialnegativesocialandenvironmental(S&E)impacts.

• SlimSunSwartlandSolarParkaimstobethelowestwateruserperunitofelectricitygenerated,amongallparticipantsinREIPPPP.


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RENEWABLE ENERGY SlimSun (RF) Proprietary Limited: Swartland Solar Park, Phase 1(continued)


Renewable energy at grid scale is a new and developing marketin the South African context. SlimSun is one of the 28 successfulbidders in Round 1 of REIPPPP. Positive social and environmentalimpactsarekey forsuccessfulparticipation in thisprogrammeandSlimSun plans to exceed the threshold social and environmentalrequirements. Its target is to be the lowest water user per unitelectricitygeneratedamongall IPPparticipants.Also,bysupplyingaround 170GWh of solar PV-generated renewable energy over the20-yeardurationofthepowerpurchaseagreementbetweenSlimSunandEskom,theprojectwillcontributemeaningfullytoSouthAfrica’slow-carbon future. It is envisaged that emissions of approximately170 000 tCO2e will be avoided over the 20 years of commercialoperation of the project. A process is under way to register theprojectasacleandevelopmentmechanism(CDM)projectthroughaprogrammeofapplication(POA)specifically forsolarPVprojects,which includes a full assessment of the greenhouse gas emissionsavoidedwiththegenerationofcleanerelectricity.

Theengineering,procurementandconstruction(EPC)andoperatingand maintenance (O&M) contractor is Juwi Renewables – a world-leading German solar PV developer. The static-state technologycharacteristic of solar PV provides for commercially attractive low-risk,long-termrobustcashflowstotheFund.

The Fund, Franco Afrique Technologies and the Swartland SolarCommunityTrustcollectivelyasequityshareholderscontributed20%ofthetotalprojectcapitalatfinancialclosewiththebalancebeingpredominantly senior debt with a nominal amount of mezzaninefinance. A typical limited recourse project finance structure forprojectsofthisnaturehasbeennegotiatedassetoutintheprojectdocuments,withsecurityforthelendersbywayofapledgeofsharesfromtheequitysubscribers.

SlimSun contributes to the local economy by adhering to theeconomic development commitments made as part of theREIPPPP bid and detailed in the implementation agreement withthe Department of Energy. The project’s social benefits includejob creation and local economic development. Approximately 80permanentandtemporaryjobswillbecreatedduringthe12-monthconstructionperiod.Fivepermanentjobswillbecreatedforthe20-yeardurationoftheproject.Twentypercentequityparticipationhasbeen allocated to a bespoke broad-based community trust whichchannels all dividend flows to local community social upliftmentprojectsintheSwartlandarea.


SlimSun’sparticipationinREIPPPPwouldnothavebeenpossiblewithoutboththefinancialandtheresourceinvestmentmadebyInspiredEvolution.InspiredEvolutionwasintegrallyinvolvedfromprojectinceptionasadviserstodevelopthestrategy,systemsandproceduresrequiredtofully informthe business structure of SlimSun. The Fund, as an equity partner, andInspiredEvolution,asadviser,playedacriticalroleinfacilitatingSlimSun’sdevelopment of environmental, social and financial sustainability, whichmeets and in most cases exceeds the extensive requirements set downwithintheREIPPPPauctioncriteria.

InspiredEvolution’strackrecord,credibilityintheindustryandprofessionalnegotiation capability were key in structuring the full debt structure forSlimSun.Beingintegrallyinvolvedthroughoutthedevelopmentstageandthepathtofinancialclose,andbeinglinkedtoseverallocalandinternationalplayers in this nascent but growing energy sector, Inspired Evolutionfacilitated numerous introductions, engagements and negotiationsbetween SlimSun and various stakeholders/suppliers in the solar PVsector.Thismade itpossibleforSlimSuntobenchmarkandevaluatetherobustnessoftheirbusinessmodelthroughoutthedevelopmentprocess.

Inspired Evolution stimulated the development of a bankable businessmodelbyimposingstandardsandproceduressuchasfinancialmodellingandcorporategovernance,andenforcingadherencetotheIFCPerformanceStandardsandtheEquatorPrinciples.ThesekeystandardsandguidelinesassistedSlimSunindevelopingacompliantandprogressivemanagementframeworkfortheimplementationandoperationoftheSlimSunSwartlandSolarPark.


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RENEWABLE ENERGY SlimSun (RF) Proprietary Limited: Swartland Solar Park, Phase 1(continued)


Together, Franco Afrique Technologies and Inspired EvolutionweatheredtheprolongeddelaysandresultingincreaseddevelopmentcoststopioneeroneofSouthAfrica’sfirst5MWgrid-connected,solarPVenergygenerationplantsunderthepublicprocurementprocessofREIPPPP.Theplantiscurrentlyinthefinalconstructionstages,onbudget,andontracktoreachscheduledcommercialoperations inJuly 2014. Inspired Evolution entrenched the principle of ‘limitedeconomic leakage’ from the project area, ensuring that tangiblebenefits flow to local previously disadvantaged organisations andhouseholdsoverthelifeoftheproject.Approximately35%orZAR36millionof totalprojectspend(includinggridconnectioncosts)willbe deployed locally. During the 12-month construction period thisamountstoZAR106million(July2013toJune2014).

During construction, 80 permanent and temporary jobs are beingcreatedforunskilledandpoorlyskilledlabourerswholivewithinthe50kmradiusoftheprojectsite.Theinvestmentwillcreatefivedirectpermanentjobs.TechnologyandskillstransferformsakeypartoftheEPCprovider’sobligation.

Inspired Evolution advised on the structuring of a broad-basedblackeconomicempowermentspecial-purposevehicle(BBBEESPV)andsecuredpreferencesharefundingfromtheIDCtothevalueofapproximately ZAR7.642 million (USD0.764 million). Distributionsfrom the project are fed through the BBBEE SPV to the SwartlandSolarCommunityTrust.The trustcomprises trustees fromthe localcommunity,themajorityofwhomarefrompreviouslydisadvantagedcommunities and 50% of whom are previously disadvantagedfemales.

A fixed percentage (1%) of all revenue received by SlimSun hasbeencommitted forcorporatesocial investment (CSI)programmeswithin the local community, including but not limited to novelrural renewable energy technologies and other social upliftmentprojects.CSIinitiativeswillcontinuethroughbothconstructionandoperationalperiods.

Inspired Evolution insisted on formal governance procedures. Assuch, board policies on conflicts of interest, procurement, betterfinancial governance and the delegation of authority for seniorexecutivemanagementareinplace.Additionally,theboardisintheprocessofadoptingtheKingIIIguidelinesoncorporategovernance.The Equator Principles are incorporated into the Equator PrincipleActionPlanandHR,labourandEHSpoliciesarebeingimplemented.Risksassociatedwithoperationsareidentifiedonanongoingbasisthrough the Environmental Management Plan (EMP) and variousothersystems,andmethodstatementsarebeingdevelopedaspartoftheEquatorPrinciplecomplianceprogramme.

Sustainability Input by Evolution One in respect of SlimSun

SlimSun RF Proprietary Limited, throughits SlimSun Swartland Solar Park Project, asone of the successful first-round IPP bidders,is currently commencing construction of a5MW Solar PV generation unit. This projectfalls under the ambit of the DoE (South African Department ofEnergy) REIPPPP (Renewable Energy Independent Power ProducerProcurementProgramme).

EvolutionOneasequitypartnerand InspiredEvolution InvestmentManagement as managing partner have played a critical role infacilitating SlimSun’s development of environmental, social andsustainabilityprogrammeswhichmeetandinmostcasesexceedtheextensiverequirementssetdownwithintheREIPPPprogramme.

Key contributions made by Evolution One Fund thus far can besummarisedasfollows:

1. Besides the critical financial support required, Evolution OnehasraisedtheawarenessofSlimSunonsustainability,whichhasenabledSlimSuntodevelopasystemframeworkandmentalitywithin the company compatible with the highest industrystandardsinthisregard.

2. Through the Social and Environmental action plan andmonitoring system, developed jointly between SlimSunand Evolution One, SlimSun has been able to develop amanagement programme, that will fully inform the variousEnvironmental,SocialandSustainabilityobjectiveswhichformakeypartoftheSlimSunSwartlandSolarParkproject.

3. WorkingfromtheEquatorPrincipleframeworkwhichEvolutionOne adheres to throughout their investment portfolio, theirassistance and prioritisation of sustainability and socialobjectiveshavebeeninvaluableindevelopingtheSlimSunE&Splan.

4. Finally, Evolution One has assisted significantly in SlimSun’sdevelopment of communication and engagement skills withall relevant stakeholders to provide impetus to the successfulimplementation of SlimSun’s E&S obligations and socio-economicdevelopmentobjectives.EvolutionOneandInspiredEvolution Investment Management’s support and value-creation capabilities have been invaluable to SlimSun and itsotherequitypartners.

AnthonyCorin,CEO,SlimSunRFProprietaryLimited


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RENEWABLE ENERGY AFPOC Limited

About the company

AFPOC is a Mauritian private renewable energy holding companywith50%ownershipinarenewableenergydevelopmentcompany,AfricanCleanEnergyDevelopments(ACED),thelatterbeinglocatedin South Africa. AFPOC also owns 50% of the renewable energyproject pipeline under development by ACED. The shareholdingcounterparty in ACED is African Infrastructure InvestmentManagement (AIIM), owned equally by Old Mutual InvestmentGroupofSouthAfrica(OMIGSA)andtheMacquarieGroup.AIIMistheinvestmentmanagerforthevariousAfricanInfrastructureInvestmentFunds,withactiveinvestmentsinenergyandbroaderinfrastructuresectorsacrossAfrica.

ACEDisattheforefrontofrenewableenergydevelopmentinSouthAfrica. It has one of the most advanced onshore wind and solarPV portfolios in South Africa with 1 800MW in various stages ofdevelopmentintheWestern,EasternandNorthernCapeprovinces.ThemostadvancedoftheseisRenewablesCookhouse1WindFarm,a 138.6MW onshore wind farm located in the Eastern Cape, whichreachedfinancialcloseinDecember2012.Cookhousewasthelargestof28independentpowerproducer(IPP)projectsselectedinRound1oftheSouthAfricanRenewableEnergyIndependentPowerProducerProcurement Programme (REIPPPP). The Renewables Cookhouse 1WindFarmisintheconstructionphasewithcommercialoperationsdate (COD) scheduled as 31 May 2014.The wind farm will providea net 135.14MW of clean power capacity via a grid connection atPoseidon substation at 132 kV, located immediately adjacent tothesite.Theengineering,procurementandconstruction (EPC)andoperating and maintenance (O&M) contractor is Suzlon – a world-leadingIndianwindturbineprovider.Thefullywrappedwindprojectprovides for commercially attractive low-risk, long-term robustcashflowstoAFPOCaswellasdevelopmentfees,whichareinturndistributedtotheFund.

Anenergygenerationlicenceapplicationwasmadeon7December2011totheNationalEnergyRegulatorofSouthAfrica(NERSA)andthe licence was granted without objection. The project adheresto a list of mitigation measures, including heritage and bird/batmonitoringrequirements listedaspertheapprovedEnvironmentalImpact Assessment (EIA) for the project implementation phase.Constructioncommencedwithanenvironmentalcontrolofficeronsitetoensurecompliancewithallconditionsofapproval.

ACED submitted three Round 3 bids on 19 August 2013, totalling203MW.Thesebidscomprised:88MWCookhouseSouthWindFarm(toberenamedNojoliWindFarm);75MWDeAarSolarPVFarm(toberenamedDeAarPixleySolarFarm);and40MWGreatFishRiverWindFarm.Allprojectsbidforarefullypermittedandhaveenvironmentalauthorisationsinplace.


• The Fund acquired a 30% stake in AFPOC via a convertible loan,providing working capital and reducing preference share and loanfunding from other parties in order to progress the advanced ACEDrenewableenergypipeline.

• The Fund’s investment into AFPOC facilitated strategic partnershipswith key blue-chip renewable energy players in South Africa, inparticular Macquarie Group and Old Mutual Investment Group ofSouthAfrica(OMIGSA),toconcentratetrackrecordandknow-howandimproveprobabilityofpipelineconversion.

• TheRenewablesCookhouse1WindFarmcurrentlyunderconstructionwill generate approximately 425GWh of clean energy per annum,thus mitigating approximately 425 000 tCO2e of greenhouse gaseseachyearthroughthesubstitutionofdirtiercoal-poweredgenerationalternatives.

• The Renewables Cookhouse 1 Wind Farm comprises 25% blackeconomic empowerment ownership, all of which is owned by abespoketrustwithtrustexpenditurering-fencedtolocalbroad-based,previously disadvantaged communities. Post-tax revenues of morethanZAR240million(USD24million)willflowdirectlyfromtheprojecttotheselocalcommunitiesoverthe20-yearprojectlife.

Website: NoneLocation of operations: HeadOfficeisinPortLouis,MauritiusSector: RenewableEnergy:OnshoreWindandSolar

PhotovoltaicPowerGenerationBusiness focus: Holdingcompanywitha50%equityinterest

inAfricanCleanEnergyDevelopments(ACED)and50%equityinterestsinprojectspecial-purposevehicles(SPVs)totalling1.8GWofrenewableonshorewindandsolarPVgenerationinadvancedstages,predominantlylocatedinSouthAfrica

Size: 1.8GWofrenewableenergypipelineJob creation: Employees:5permanentjobsand318

temporaryjobsduringconstructionDevelopment stage: Early-stage|GreenfieldsInfrastructureProject

FinanceEvolution One Fund investment: Thefundprovidedcapitalforpipelineproject

developmentandtorestructureAFPOCLimited’sbalancesheet.ChristopherClarkerepresentstheEvolutionOneFundontheboardofACEDandisjoinedbyStevenFaureontheboardofAFPOCLimited.

Status: Partiallyinvested,138.6MWRenewablesCookhouse1WindFarmissuccessfullypermittedandunderconstructionwithscheduledcommercialoperationsdate(COD)31May2014.Threeprojectscomprising203MWwerebidunderRound3ofREIPPPP.


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AFPOCbringssignificantexposurefortheFundasaholdingentitytooneofSouthAfrica’smostadvancedrenewableenergypipelines,strategicallyplacingitalongsideblue-chippartnerssuchasOMIGSAand Macquarie Group. The ACED team and shareholder groupcollectivelyofferglobaltrackrecordandlocaldevelopmentexpertiseacross the wind and solar industry. The AFPOC managementcomprisesseasonedprofessionalsfromtherenewableenergysectorwho have developed and operated a total installed wind energycapacity of 508MW. Together, this translates into a compellingcommercial proposition with a strong probability of pipelineconversion.

ACED’spipelineofprojectsiswelladvancedintermsofkeyprojectdriversandfavourablesitecharacteristicssuchashighsolarandwindresource availability, proximity to grid connection substations withavailable connection capacity, proximity to major transport routes,andlowenvironmentalsensitivity.

The Renewables Cookhouse 1 Wind Farm strongly supports theSouth African government’s objective to achieve socio-economicdevelopment, particularly in rural areas in South Africa. The windfarmhasdevelopedacomprehensiveEconomicDevelopmentPlanthatsatisfiestheREIPPPPobjectives.ACEDhasprioritisedaddressingthesocio-economicconditionsinthelocalcommunitiessurroundingthe Cookhouse project through an integrated local economicdevelopmentprogramme.Cookhouseisexpectedtoprovideenoughenergytopowerabout145000low-incomehomesinthearea.

RENEWABLE ENERGY AFPOC Limited(continued)


The Fund provided additional finance to allow AFPOC to fund a portionof its working capital requirements of the underlying portfolio ofprojects as well as the opportunity to restructure its corporate financerequirements through repayment of a key disproportionate shareholderloan and accelerate a preference share redemption obligation. TheInspired Evolution team negotiated an agreeable structure and basis forthesevariousrequirementstobemetwithintheprescriptsoftheREIPPPPrestrictions.

Inspired Evolution also formalised the governance structures in AFPOC,ACEDandallprojectSPVs,andfocusedontheintroductionofbest-practicegovernancepoliciesandproceduresinsituationswherepotentialconflictsmayhavearisen.Inaddition,theInspiredEvolutionteamplayedacrucialsupportingroleinthenegotiationofnewequityentrantsanddetailedEPCandO&Mcontractsthroughtobankability.


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RENEWABLE ENERGY AFPOC Limited(continued)

Since investing in AFPOC Limited in early2012, Inspired Evolution has been focused onvalue creation through active involvement atBoard and executive level. Inspired Evolutionhave contributed significant expertise froma commercial and sustainability perspectivealong with deep local knowledge, which hashelped refine AFPOC Limited’s investmentstrategy. Inspired Evolution’s detailed understanding of the assetclass is evident through its contribution to technical and riskassessmentoftheprojectsbeingundertakenbyAFPOC.

ThomasDonnelly,Director,AFPOCLimited


AFPOCandACEDhaveallowedtheFundproprietaryaccesstooneof the most advanced renewable energy pipelines in South Africawhich, together with pedigreed counterparties who are industryleaders, improvestheconversionsuccessrateofprojectsunderthepublicprocurementauctionregimeinSouthAfrica.

ACEDhasbeenworkingwiththeBlueCraneDevelopmentAgencyforoverthreeyearsandwillbeakeypartnerinfacilitatingcommunitydevelopment through the project’s socio-economic developmentcontributions. ACED and its partners, the IDC and the Blue CraneDevelopment Agency, have established the Cookhouse WindFarm CommunityTrust, which holds 25% equity in the CookhouseWind Farm. The local communities located within a 50 km radiusof the Cookhouse Wind Farm, including Cookhouse, Bedford andSomersetEast,willbenefit fromthe fundsflowing intocommunitydevelopment programmes via the CommunityTrust.The trust willusethecommunitydevelopmentprogrammestodeliverrealchangeinthecommunity,withspecificfocusonhealthcare,educationandjobcreationthroughsupportingthelocalagriculturesector.

TheCookhouseWindFarmprojectwillcontributesignificantlytolocaleconomic development and job creation through the injection ofZAR240million(USD24million)ofdevelopmentfunding.Theprojectwillalsocontributetolocalindustryandprovidealocalandregionaleconomicstimulusthroughjobsandtrainingduringtheconstructionphaseandoverthe20-yearlifeoftheproject.Inaddition,theprojectwill actively invest in socio-economic development initiatives,focusingon initiatives that includeeducation,healthandHIV/AIDSawareness,skillsdevelopmentandenvironmentalconservation.


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RENEWABLE ENERGYRed Cap Kouga Wind Development Company Proprietary Limited (DEVCO), Kouga Wind Farm (RF) Proprietary Limited(KWF)

About the company and projects

Red Cap Kouga Wind Development Company Proprietary Limited(DEVCO) is a bespoke wind development company focused ondeveloping a portfolio of onshore wind energy projects in theKougaregion intheEasternCapeProvinceofSouthAfrica,anareaofexceptionalwindresource.TheFundholdsa30%equityinterestinDEVCO.DEVCOisdevelopingtwoonshorewindprojectsknownastheKougaWindFarm(KWF)andGibsonBayWindFarm(GibsonBay),whichhavean80MWand111MWgenerationcapacityrespectively.The Fund was initially joined by Africoast Engineers, EurocapeRenewables, Red Cap Investments, Standard Bank Equity and theIDC-fundedBBBEETrust,thelatterrepresentingtheinterestsoflocalcommunities in the region, all as equity counterparties in KWF. Arecent change in shareholding has seen the exit of Standard BankEquityandEurocapeRenewables,bothhavingbeensubstitutedbyFutureGrowth.Constructionhascommencedforthefirst80MWKWFproject in which the Fund holds a 26.6% equity interest, with thecommercialoperationsdate(COD)scheduledforNovember2014.

KWF is currently under construction with scheduled commercialoperations date (COD) being 15 December 2014. Gibson Bay wasbidunderround3oftheREIPPPPon19August2013andpreferredbiddersaretobeannouncedon29October2013.

Website: www.red-cap.co.zaLocation of operations: OysterBayandGibsonBay,KougaRegion,

EasternCape,SouthAfricaSector: RenewableEnergy:WindPowerGenerationBusiness focus: Development,constructionandoperationof

onshoregrid-connectedwindenergySize: Pre-revenue;totalDEVCOdevelopments

costsandKWFprojectcapexcostsZAR1.9billion(USD190million)

Job creation: Employees:30permanent;atotalof219temporaryandpermanentjobs


Evolution One Fund investment in DEVCO: Developmentriskcapitalinvestedwitha30%

equityinterestinDEVCO.ChristopherClarkerepresentstheEvolutionOneFundontheboardofDEVCO.

Evolution One Fund investment in KWF: Projectequityinvestedon12November

2012fora26.6%equityinterestinKWF.Contingency(standbyequityinadedicatedprojectescrowaccount).ChristopherClarkerepresentstheEvolutionOneFundontheboard’sofDEVCO,KWFandGibsonBay.

Status: Fullyinvested,KWFprojectunderconstructionwithscheduledcommercialoperationsdate(COD)inNovember2014.


• Inspired Evolution secured an agreement with UNEP’s Seed CapitalAssistance Facility (SCAF) to assist with co-funding early-developmentexpensesforeligibleDEVCOactivities.TheFundprovidedcritical,early-stagecapitaltofillthe‘fundinggap’andassisttheRedCapInvestmentsteamtoprogressthepre-permittedwindassetstopermittedstatus.

• WiththeFund’s technical,contractualandfinancialhands-onsupport,DEVCO,asmallindependentandlocalSouthAfricandeveloper,wasableto ensure that its first 80MW KougaWind Farm (KWF) could competesuccessfullyundertheRenewableEnergyIndependentPowerProducerProcurement Programme (REIPPPP) as a small emerging independentpowerproducer(IPP).

• KWFwillgenerateapproximately305.2GWhofcleanenergyperannum,thus mitigating approximately 305 220 tCO2e of greenhouse gasemissions each year through the substitution of dirtier coal-poweredgenerationalternatives.

• Theprojectcomprises26%blackeconomicempowermentownership,all of which is owned by a bespoke trust with trust expenditure ring-fenced to local broad-based, previously disadvantaged communities.RevenuesofmorethanZAR1billion(USD100million)willflowdirectlyfromtheprojecttotheselocalcommunitiesoverthe20-yearprojectlife.

• DEVCO and KWF adopted a number of environmentally sustainableguidelines and policies, including the IFC Performance Standards andthe Equator Principles. The project agreements include an EquatorPrincipleActionPlanthatwillmitigateanypotentialnegativesocialandenvironmental(S&E)impacts.


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RENEWABLE ENERGYRed Cap Kouga Wind Development Company Proprietary Limited (DEVCO), Kouga Wind Farm (RF) Proprietary Limited (KWF)(continued)

The companies as investment opportunities

TheRedCapportfolioofwindprojectsisanopportunityfortheFundtoearnattractivereturnsthroughhavingsecuredanearlyseatinthewindprojectdevelopmentcompanyDEVCOwiththerighttoprovideprojectequityfinanceintothepermittedassetsatfinancialclose.Theearlyentry,exceptionalwindresourceintheKougaregion,andthehigh tariff secured for KWF in Round 1 of the REIPPPP, combine tomake a compelling blended commercial return for the Fund. Thecompanies are further augmented by the skills and track record oftheRedCapteam,thepedigreedturbinesuppliers,Nordex,andtheelectricalandplantcontractorsontheproject.

Significant benefits for the local economy are expected during theconstructionandoperationofKWFandGibsonBay.Theprojectswillnotonlycontributetogreaterenergysecurityandpovertyalleviationbut also towards the South African government’s climate changeand renewable energy targets. It is anticipated that 85% of theoperationalcostswillbespentintheEasternCape,whichtranslatesinto an economic impact of approximately ZAR90 million (USD9million)peryear.

All environmental authorisations (EAs) are in place for the projectandanon-siteenvironmentalcomplianceofficerensurescompliancewith conditions of approval. The project is complying with anEquatorPrincipleActionPlan,aswellashumanresourcesandlabourpoliciesandanenvironmentalhealthandsafetypolicy.KWFisalsoa registered clean development mechanism (CDM) project with anexecutedEmissionsReductionPurchaseAgreement(ERPA).


TheFund’scapitalinvestmenthasprovidedbothprojectdevelopmentcapitaltodevelopthepre-permittedwindassetstopermittedstatus,andprojectequityfinancetoconstruct,commissionandoperatethewindassetsatprojectfinancialclose.

Inspired Evolution facilitated the development of a successfulrenewable energy start-up company that offers strong commercialreturns and focuses on the optimisation of positive social andenvironmental impacts. As such, Inspired Evolution enabled thedevelopment of the Kouga Wind Farm Community DevelopmentTrust, a broad-based ownership scheme which owns 26% of thewind farm.The trust benefits directly from more than ZAR1 billion(USD100 million) of revenue streams earned from the project overits20-yearlife,ring-fencedtolocalcommunitiesviasocio-economicdevelopment and enterprise development projects. The areas forwhichfinancingisring-fenced,weredeterminedincollaborationwiththeKougaLocalMunicipalityandextensivecommunityconsultation.

InspiredEvolutionwasalsoinstrumentalinsecuringpreferencesharefunding from the Industrial Development Corporation (IDC) to thevalueofapproximatelyZAR112million(USD11.2million)forthelocalcommunity ownership vehicle, Micawber 864 Proprietary Limited.InspiredEvolutionadvisedonstructuringMicawber864,whichholds26% equity in KWF, and wholly-owned by the Kouga Wind FarmCommunityDevelopmentTrust.

Inspired Evolution and the KWF lenders have ensured that thecompany and its activities are managed according to the EquatorPrinciples.TheDEVCOandKWFboardsareintheprocessofadoptingthe King III guidelines on corporate governance. Board policieson conflicts of interest, procurement, better financial governanceand delegation of authority for senior executive management arein place. After a software update and upgrade, a comprehensiveaccountingprogramandbusinesssystemsarenowinplacetomeetreporting standards. A chief financial officer was appointed andmaintainsmonthlymanagementaccountsandacashflowanalysis,andKPMGwasappointedasauditors.AseniorprojectmanagerwasalsorecruitedtoimplementtheprojectthroughconstructiontoCOD.

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The Fund’s capital investment has provided both project developmentcapitaltodevelopthepre-permittedwindassetstopermittedstatus,andproject equity finance to construct, commission and operate the windassetsatprojectfinancialclose.

InspiredEvolutionfacilitatedthedevelopmentofasuccessfulrenewableenergy start-up company that offers strong commercial returns andfocusesontheoptimisationofpositivesocialandenvironmentalimpacts.Assuch,InspiredEvolutionenabledthedevelopmentoftheKougaWindFarm Community DevelopmentTrust, a broad-based ownership schemewhichowns26%ofthewindfarm.Thetrustbenefitsdirectly frommorethan ZAR1 billion (USD100 million) of revenue streams earned from theproject over its 20-year life, ring-fenced to local communities via socio-economic development and enterprise development projects.The areasforwhichfinancingisring-fencedweredeterminedincollaborationwiththeKougaLocalMunicipalityandextensivecommunityconsultation.

Inspired Evolution was also instrumental in securing preference sharefunding from the IDC to the value of approximately ZAR112 million(USD11.2 million) for the local community ownership vehicle, Micawber864 Proprietary Limited. Inspired Evolution advised on structuringMicawber 864, which holds 26% equity in KWF and supports the KougaWindFarmCommunityDevelopmentTrust.

Inspired Evolution and the lenders have ensured that the company anditsactivitiesaremanagedaccordingtotheEquatorPrinciples.TheDEVCOand KWF boards are in the process of adopting the King III guidelineson corporate governance, and board policies on conflicts of interest,procurement,betterfinancialgovernanceanddelegationofauthorityforsenior executive management are in place. After a software update andupgrade, a comprehensive accounting program and business systemsare now in place to meet reporting standards. A financial controller wasappointedandmaintainsmonthlymanagementaccountsandacashflowanalysis,andKPMGwasappointedasauditors.


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Inspired Evolution empowered us todevelop the Kouga Wind Farm via theprovision of scarce early-stage financewith the added benefit of not having torelinquish control to large internationalmultinationals.As a renewable energy company, theprotectionoftheenvironmentisacauseclosetoourhearts.Whileourbusinessactivitiesneedtobefinanciallysustainable,theyalsoneedtohaveapositiveimpactonthecommunitiesinwhichweareactive.Webuildrelationshipswiththecommunity,facilitatingcommunityparticipationinourwindfarmsthroughbroad-basedempowermenttrustsandbyactivelyinvestinginthecommunitiesthemselves. Through our partnerships with DevelopmentalFunding Institutions (DFIs), we look to procure the finance tofund these structures, ensuring long-term benefits to the localcommunity.Byinvolvingallstakeholders,weareabletodevelopsuccessfulprojectsthatbenefitandsupportlocalcommunities.

This has enabled us to ensure a meaningful skills transfer intoSouth Africa, a critical ingredient for the long-term growth andsustainabilityofourbusinessaswindfarmdevelopers.MarkTanton,MD,RedCapKougaWindDevelopmentCompany


RedCapDEVCOisawareoftheneedtobalancethebenefitsofwindpower with the possible impacts on the local communities andthe environment. As such, all Red Cap’s wind energy projects aredeveloped in partnership with landowners, the local community,environmental groups and public stakeholders, with the aimof benefiting all parties involved. The EIA was accompanied bycomprehensive public participation. Monthly environmental andhealthandsafetyauditsensurethatconstruction is takingplace inlinewithenvironmental,healthandsafetystandards.

Inspired Evolution entrenched the principle of ‘limited economicleakage’ fromtheprojectarea,ensuringthattangiblebenefitsflowto local previously disadvantaged organisations and householdsover the life of the project. The KWF community trust will earnapproximately ZAR940 million (USD94 million) over the life of theproject.Bothcompaniesadheretotargetssetout intheeconomicdevelopment commitments regarding localisation of labour andsuppliers.Assuch,thepreferentialprocurementmodelmakesinitialprovisionfor0.5%oftotalprocurementduringtheoperationalphaseof the project to be spent on local woman-owned vendors, and afurther 1.35% on local SME vendors. This will be extended duringthe life of the project with the ultimate target being 5% and 10%respectively.

Overthelifeoftheproject,KWFhascommittedtospending1.086%of revenue (an estimated ZAR135 million) as its corporate socialresponsibility(CSI)spendforsocio-economicdevelopmentprojects.Acommunityneedsassessmenthas indicatedthatmorethan50%willbespentoneducation,withthebulkofthisaimedatprimaryandsecondaryschoolingforchildreninthelocalcommunity.Thisshouldbeimplementedfromtheendof2013.

Theprojectisexpectedtoemploy219people,predominantlyfromthe local community, during the construction phase of 26 monthsandapproximately30permanentemployeesduringtheoperationalphase.Skillsdevelopmentand localprocurementrequirementsareembedded in the deliverables of Nordex, the turbine supplier andengineering,procurementandconstruction(EPC)andoperatingandmaintenance(O&M)contractor.

KWFisawareoftheneedtobalancethebenefitsofwindpowerwiththepotentialimpactsontheenvironment.Tothisend,thewindfarmaims to avoid environmentally sensitive areas, and independentconsultants will be involved to ensure that the impact of the windfarm is kept to a minimum. The EIA confirmed that the project isnotexpectedtohaveasignificanteffectonnaturalvegetationandterrestrialanimallife.Riskstobatandbirdspecieshasbeenreducedbysettingtheturbinesbackfrommajorwatersourcesandadoptinga phased construction approach. The Endangered Wildlife Trust ismonitoringpotentialimpactsonkeybirdspecies.

The wind farm is also working with a local conservation NGO inthe area to identify and implement a conservation initiative in theKougaregion.RedCaphascommittedto implementingmitigationmeasuresrecommendedintheEIA,suchasmicro-siting,vegetationsearchandrescue,rehabilitation,andalienandfiremanagement,toreduce any negative impact on vegetation and wetlands.The low-carbonnatureofwindenergyrepresentsasignificantenvironmentalandsocialbenefit.

Through these developments, Red Cap DEVCO is consolidating itspositionasasuccessful, localwinddeveloperand IPP in theSouthAfricanmarket.

RENEWABLE ENERGYRed Cap Kouga Wind Development Company Proprietary Limited (DEVCO), Kouga Wind Farm (RF) Proprietary Limited (KWF)(continued)


Composite Portfolio Indicators

Itisnotpossibletomanagewhatisnotmeasured.Therefore,acriticalcomponentofsustainabilityperformance is the ability to measure development impacts and outcomes using appropriateenvironmental,socialandgovernance(ESG)sectororindustry-focusindicators.Theseareknownasdevelopmentindicators(DIs).To this end, a wide variety of indicators have been developed for use by international financeinstitutions(IFIs)tomoreeffectivelymeasuretheimpactsofprivateequityfunds(PEFs)inemergingmarketsanddevelopingcountries.ThethesisbeingtestedbyIFIsiswhetherPEFsmakelifebetterforpeopleinemergingmarkets,andifso,howmuchbetter?IFIsmoreandmoreoftenhearsuchquestionsfromtheirshareholders,boardmembersorstakeholders.ThequestionsareofobviousinteresttoIFIswhoinvestaslimitedpartners,oftenwithspecificsocio-economicdevelopmentmandates.Butthesequestionsarealsoincreasinglyimportantforemergingmarketgeneralpartnersandfundmanagers.MediacriticismandgovernmentoppositioninmanydevelopingcountriesillustratetherisksthatPEFmanagersfaceiftheiractivitiesarenotunderstood,measuredandshowntobenefitlocaleconomiesandpopulations.Globally,therearemorethan100indicatorswithvariousdefinitionsusedtoassessthedevelopmentimpacts of PEFs. Therefore, a global IFI working group (Private Equity Funds) was tasked withagreeing upon a set of development indicators that builds a library of core and optional DIs withcommondefinitionsandconsistenttrackingmethodologies.AsthereisabroaddiversityofPEFs(e.g.infrastructurefunds,SMEfundsorgeneralventurecapitalfunds),focusona‘onesizefitsall’principlewasnotdeemedpractical.Therefore,amodifiedanddistilledindicatorcategorylistcomprisingbothcoreandoptionalDIswasgleanedfromtheIFIlibraryandisabestattemptatamergedsetofDIsthat have been adopted and used by most of the Evolution One Fund’s limited partners. InspiredEvolution,asfundadvisertotheEvolutionOneFund,appliesthissetofDIstotheFund’sportfolioofinvestmentsonanannualreportingbasis.The Fund’s composite portfolio indicators that measure the fund’s development outcomes andimpactarereflectedannuallyinupdatedtablesthatcoverthefollowingkeycategoriesindetail:

• Financial• Governance• Societalandeconomicrelationships• Companysocietalresponsibilityandbestpractice• Environmentalimpacts,policiesandcompliance

ThesystematicevaluationofthesecompositeindicatorsillustratestherangeofmeasuredoutcomesthatareintegraltoInspiredEvolution’sESGcentricprinciples.

36 2013

Our TeamTheinvestmentteam,includingprincipals,seniorinvestmentmanagersandanalysts,isbasedinCapeTown

andJohannesburg,SouthAfricaandinLondon,UK.

Michael BrooksFounding Partner and

Christopher ClarkeFounding Partner and Principal

Sandile SokhelaPartner and Principal

Guy BaxterFounding Partner and Principal

Wayne KeastFounding Partner and Principal

Angela AntrobusFinancial Controller

Steven FaureInvestment Associate

and Transaction Analyst

Kholofelo MolewaPartner and Principal

Wade de JagerIndependent non- executive Chairman of the investment committee

INSPIRED


www.inspiredevolution.co.za

profit with purpose: sustainable value creation report...

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