Annual Financial Report
07/03/2024 07:00
PREMIER MITON GLOBAL RENEWABLES TRUST PLC
Annual Financial Report for the year ended to 31 December 2023
The Directors present the Annual Financial Report of Premier Miton Global
Renewables Trust PLC (the "Company") for the year ended 31 December 2023 (the
"Annual Report").
It has also been submitted in full unedited text to the Financial Conduct
Authority's National Storage Mechanism and is available for inspection
at data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) in accordance with
DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules. The Annual Report is also available to view and download
from the Company's website, www.globalrenewablestrust.com/documents.
References to page numbers are to those in the Annual Report and Accounts,
available to view at the link above. Neither the contents of the Company's
website nor the contents of any website accessible from hyperlinks on the
Company's website (or any other website) is incorporated into or forms part of
this announcement.
The information set out below does not constitute the Company's statutory
accounts for the year ended 31 December 2023 but is derived from those
accounts. Statutory accounts for the year ended 31 December 2023 will be
delivered to the Registrar of Companies in due course. The Auditors have
reported on those accounts: their report was (i) unqualified, (ii) did not
include a reference to any matters to which the Auditors drew attention by way
of emphasis without qualifying their report, and (iii) did not contain a
statement under Section 498 (2) or (3) of the Companies Act 2006.
The following text is copied from the Annual Report & Accounts:
Investment Objectives
The investment objectives of the Premier Miton Global Renewables Trust PLC are
to achieve a high income from, and to realise long term growth in the capital
value of its portfolio. The Company seeks to achieve these objectives by
investing principally in the equity and equity-related securities of companies
operating primarily in the renewable energy sector, as well as other
sustainable infrastructure investments.
Company Summary
Group
Premier Miton Global Renewables Trust PLC (the “Company”) (formerly Premier Global Infrastructure Trust PLC), and its wholly-owned subsidiary, PMGR Securities 2025 PLC.
Capital Structure
Ordinary Shares (1p each) 18,238,480
The Ordinary Shares are entitled to all of the Company’s net income available for distribution by way of dividends. On a winding-up, they will be entitled to any undistributed revenue reserves and any surplus assets of the Company after the Zero Dividend Preference Shares’ (“ZDPs”/“ZDP Shares”) accrued capital entitlement and payment of all liabilities. The Ordinary Shareholders have the right to receive notice of, to attend and to vote at all general meetings of the Company. The Ordinary Shares are
qualifying investments for ISAs.
Zero Dividend Preference Shares (1p each)
Issued by PMGR Securities 2025 PLC 14,217,339
The 2025 ZDP Shares (“2025 ZDPs”) will have a final capital entitlement of 127.6111p on 28 November 2025, equivalent to a gross redemption yield (#)from the date of issue of 5.0% per annum, subject to there being sufficient capital in the Company. The 2025 ZDPs are qualifying investments for ISAs.
Company Details
Investment Manager
Premier Fund Managers Limited (“PFM Limited”), is a subsidiary of Premier Miton Group plc (“PMI Group”). PMI Group had £10.1 billion of funds under management at 31 December 2023. PFM Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). The Company’s portfolio is managed by James Smith with support from PFM Limited’s global equity team. Premier Portfolio Managers Limited (“PPM”) is the Company’s Alternative Investment Fund Manager. PPM has delegated the portfolio management of the
Company’s portfolio of assets to PFM Limited.
Management Fee
0.75% per annum of the gross assets under management, charged 40% to revenue and 60% to capital.
# See Glossary of Terms for definitions and Alternative Performance Measures within the full Annual Report and Accounts.
Company Highlights
for the year to 31 December 2023
31 December 2023 31 December 2022 % change
Total Return Performance
Total Assets Total Return ((1)#) (7.5%) (7.3%)
S&P Global Clean Energy Index ((2))(GBP) (20.1%) 6.6%
Ongoing charges ((3)#) 1.81% 1.70%
Ordinary Share Returns
Net Asset Value per Ordinary Share (cum income) ((4)#) 146.86p 178.44p (17.7%)
Mid-market price per Ordinary Share ((2)) 118.50p 155.50p (23.8%)
Discount to Net Asset Value (#) (19.3%) (12.9%)
Revenue return per Ordinary Share 8.11p 7.29p 11.2%
Net dividends declared per Ordinary Share 7.40p 7.00p 5.7%
Net Asset Value Total Return ((5)#) (13.5%) (12.1%)
Share Price Total Return ((2)#) (19.2%) (17.7%)
2025 Zero Dividend Preference Share Returns
Net Asset Value per Zero Dividend Preference Share ((4)) 116.24p 110.71p 5.0%
Mid-market Price per Zero Dividend Preference Share ((2)) 110.00p 108.50p 1.4%
Discount 6.2% 2.0%
Hurdle Rates ((6)#)
Ordinary Shares
Hurdle rate to return the share price of 118.50p (2022: 155.50p) at 28 November 2025 ((2)) (3.9%) (0.8%)
Zero Dividend Preference Shares
Hurdle rate to return the redemption share price for the 2025 ZDPs of 127.6111p at 28 November 2025 (35.9%) (27.7%)
Balance Sheet
Gross Assets less Current Liabilities £43.3m £48.3m (10.3%)
Zero Dividend Preference Shares (£16.5m) (£15.7m) (5.0%)
Equity Shareholders’ Funds £26.8m £32.5m (17.7%)
Gearing ((7)#) 61.7% 48.4%
Zero Dividend Preference Share Cover (non-cumulative) ((8)#) 2.26x 2.51x
# Alternative Performance Measure (“APM”). See Glossary of Terms for definitions and Alternative Performance Measures within the full Annual Report and Accounts.
(1) Source: PFM Limited. Based on opening and closing total assets plus dividends marked “ex-dividend” within the period.
(2) Source: Bloomberg.
(3) Ongoing charges have been based on the Company’s management fees and other operating expenses as a percentage of average gross assets less current liabilities over the year (excluding the ZDPs accrued capital entitlement).
(4) Articles of Association basis.
(5) Source: PFM Limited. Based on opening and closing NAVs with dividends marked “ex-dividend”.
(6) Source: PFM Limited. Hurdle rate definition can be found in the Glossary of Terms and Alternative Performance Measures within the full Annual Report and Accounts.
(7) Source: PFM Ltd. Based on Zero Dividend Preference Shares divided by Equity attributable to Ordinary Shareholders at the end of each year.
(8) Source: PFM Limited. Non-cumulative cover = Gross assets at year end divided by final repayment of ZDPs plus management charges to capital.
Chair’s Statement
for the year to 31 December 2023
Introduction
2023 has seen a continuation of the difficult markets experienced in 2022,
with the Company’s portfolio recording another fall in underlying share
prices despite good business performance. In this sense, markets have again
focussed on the global economic backdrop while seeming to give little weight
to fundamental results at the company level.
Many of the Company’s holdings showed a high degree of correlation to bond
prices, with their share prices falling as interest rates and bond yields
increased. The market often views cash flows from renewable energy companies
as relatively static, and thereby assumes valuations are particularly
sensitive to higher discount rates (in market parlance, they are a
“bond-proxy”).
This analysis ignores the other factors which should influence the share price
of a renewable energy company, and from which the portfolio benefitted during
the year. These include business growth, power prices, the benefits of
inflation on various incentive schemes or tariffs, and exogenous factors such
as government policy. I believe this has resulted in the types of investments
held by the Company trading below what many would consider to be fair value.
Given this perception, the economic backdrop was generally unfavourable for
renewable energy companies. Bond yields rose steadily over the first 10 months
of the year as markets realised that inflation was less transient than
originally thought, with expectations of the eventual commencement of interest
rate cuts being further pushed back into 2024. However, over November and
December bond yields fell back sharply, to such an extent that, for the most
part, they ended the year slightly lower than they started. Likewise, the
portfolio staged a sharp recovery over the final two months, albeit not
sufficient to recover fully the falls seen over January to October.
Looking longer-term however, the continued switch to renewable power
generation within the global electricity sector will have benefits not only
for the environment, but also for energy security, by generating more of the
energy we need through domestic sources. The scale of the opportunity is
illustrated by the agreement at COP 28 held in early December in Dubai, that
participants will work to treble global installed renewable energy capacity by
2030.
Trading environment
European power prices moderated during 2023; a largely healthy development
when seen against the very high and exceptionally volatile conditions of 2022.
European gas and power prices have, however, settled at levels materially
above their “pre-Ukraine” prices as markets adjust to higher volumes of
seaborne Liquified Natural Gas (“LNG”) and much lower volumes of piped gas
from Russia.
The situation in Ukraine appears no closer to being resolved than when I wrote
my letter for the 2022 annual report. In addition, the situation in the Middle
East is very worrying and could have important ramifications for energy
markets in 2024.
What concerned markets in 2023, however, is that the long-term decline in
renewable energy costs largely came to a stop as a result of higher project
financing and capital goods costs. While the capital costs for solar projects
have continued to fall on manufacturing over-capacity, the cost of wind
turbines increased due to higher commodity costs (steel, copper etc) and the
efforts by manufacturers to restore their financial health through improved
margins.
High profile project cancellations, such as those by market-leading offshore
wind developer Orsted (not owned in PMGR’s portfolio during 2023), acted to
“spook” the markets, and the share prices of those companies in the
portfolio with substantial offshore development businesses fell in sympathy.
Likewise, the UK’s 2023 renewable energy auction failed to attract bidders
for new offshore wind installations, as the maximum permitted price was viewed
as too low in the current environment, this also being seen as a negative
development by the market.
Against this, it appears that governments have now recognised the issue, with
higher prices being achieved in German onshore and US offshore renewable
energy auctions toward the end of the year, and the UK government now having
indicated a far more realistic maximum bid price for the upcoming auction in
2024 for new offshore wind contracts. In addition, commercial power sales
contracts are being struck at levels reflecting the current cost environment.
This demonstrates that realism is starting to prevail in the renewable energy
market. Importantly, renewable energy remains cost competitive against other
forms of electricity generation.
Performance
Performance was disappointing, particularly given the fact that, generally
speaking, holdings in the Trust recorded good business growth and financial
results, with many paying higher dividends.
The total assets total return, measuring the return on the portfolio including
all income and costs, was a negative 7.5%. This was, however, substantially
better than the Company’s performance comparator, the S&P Global Clean
Energy Index, which recorded a negative total return of 20.1% in sterling
terms.
The extent of the sector’s under-performance can be illustrated by the fact
that equities in general enjoyed a good year with positive performances seen
in the major markets of the US and Europe.
The Company’s gearing, through the fixed return Zero Dividend Preference
(“ZDP”) Shares, means that returns to Ordinary Shareholders are amplified,
(or “geared”), with the net asset value (“NAV”) total return,
including dividends paid to shareholders, being a negative 13.5%. The NAV per
ordinary share fell by 17.7% to close the year at 146.86p.
In common with 2022, investment trust discounts, being the difference between
the share price and the reported NAV per share, generally widened, and PMGR
was no exception with the share price standing at a 19.3% discount to the NAV
at the end of the year (2022: 12.9% discount). For this reason, the share
price total return, based on share price movement plus dividends received, was
negative 19.2%.
As mentioned above, the year finished well, with a gain in the ordinary share
NAV of 28.4% over the final two months of the year. However, the Company has
seen a difficult start to 2024 on weakening energy markets, combined with an
uptick in bond yields.
Portfolio positioning
Both the geographical and sectorial composition of your Company’s portfolio
remained largely unchanged.
The portfolio continues to be highly weighted to the UK and Europe to benefit
from the fundamental and structural shift in those energy markets away from
gas and toward renewables. Power prices remain strong historically and
corporate buyers are keen to source their energy requirements responsibly. As
a result, there has also been a substantial increase in the price of
“renewable certificates of origin”, a useful addition to renewable energy
companies’ revenues.
In the US, corporate demand to sign renewable energy purchase contracts is
also high. There is strong demand growth among environmentally conscious, but
power-hungry energy users, for example increased demand from datacentres. 2024
will see a presidential election, however, we believe that renewable energy
demand growth from the corporate sector will continue irrespective of its
outcome, and with much renewable energy policy being set at state level, we
expect renewable development to continue to be strong.
The Federal Government does have the major role in tax policy, however, and
there is potential for changes in the Inflation Reduction Act, which contains
several tax incentives for renewables and has positively influenced the US
renewables market.
Capital structure, gearing, and ZDP Shares
Following the weaker performance in the year, gearing increased from 48.4% at
December 2022 to 61.7% at December 2023 (gearing being calculated as the ZDP
Share liability divided by the equity attributable to Ordinary Shareholders).
The nature of the ZDP Shares means that the gearing is, for the time being,
relatively fixed. The Board will review the Company’s capital structure in
advance of both the Company’s upcoming continuation vote, due to be held at
the 2025 AGM, and the maturity of the ZDP Shares in November 2025.
The share price of the ZDP Shares rose only slightly in the year, from 108.50p
at the start of the year to 110.00p by the close of 2023. Their NAV increased
at their accrual rate of 5%, to reach 116.24p at the close of the year. As
such the ZDP Shares stood at a 5.4% discount to their accrued value. The ZDP
Share Cover fell to 2.26x from 2.51x reflecting the fall in assets. Note that
“Gearing” and “Zero Dividend Preference Share Cover” are Alternative
Performance Measures; please see within the full Annual Report and Accounts
for definitions and calculations.
No Ordinary or ZDP shares were either issued or redeemed in the year.
Income and dividends
The net revenue return per Ordinary Share in 2023 was 8.11p, an increase of
11.2% on the 7.29p achieved in 2022. Revenue generation improved, with many
holdings increasing their dividends in the year. Gross revenue received
increased by 5.7% to £2.15 million. Total operating costs charged through the
revenue account fell by 6.3% to £0.60 million, with lower gross assets
meaning reduced investment management fees, together with modest savings in
other operating costs.
Of particular note were the increased dividends received from UK renewable
energy investment companies, where larger asset bases and inflation linked
revenue streams generated improved cash-flows and enabled higher dividends to
be paid to shareholders (standing in sharp contrast to their lacklustre share
prices).
During the year, the Board declared three interim dividends in respect of the
2023 financial year, each of 1.85p per Ordinary Share. The Board has now
declared a fourth interim dividend of 1.85p, to bring the total dividend for
the year to 7.40p, fully covered by net revenue earnings. This represents an
increase of 5.7% on the dividends paid in respect of 2022. The fourth interim
dividend will be paid on 28 March 2024 with the shares to be marked
ex-dividend on 7 March 2024.
Shareholder relations
The Company’s AGM will be held on 25 April 2024 at the offices of Stephenson
Harwood LLP, 1 Finsbury Circus, London EC2M 7SH, at 12.30 p.m. where a
presentation will be given. Attending shareholders will have the opportunity
to meet the Board and Manager and ask questions.
Shareholders can find additional details regarding your Company, including
factsheets and articles on topics relating to both the renewable energy sector
and the Company, on the Company’s website, located at
www.globalrenewablestrust.com.
During the year, the Manager presented directly to investors via the
“Investor Meet Company” platform, and with further events planned for
2024, I encourage shareholders wishing to hear more from the Manager to sign
up to this free service. Please find further details at
www.investormeetcompany.com.
The Board and the Manager remain committed to increasing the size of the Trust
and were active in marketing the Trust’s shares to potential new investors
during the year.
Environmental, Social and Governance (‘ESG’)
Given the change of investment policy in 2020, adopting a policy dedicated to
renewable energy investment, consideration of ESG factors is an important part
of the Manager’s approach to running the portfolio and the Company is proud
to carry the London Stock Exchange’s “Green Economy” mark. Further,
Premier Miton is a signatory to the Principles for Responsible Investment, an
organisation which assists participating firms to develop and maintain
responsible investment practices.
The Company’s portfolio is given additional consideration by Premier
Miton’s Responsible Investing Oversight Committee, with the aim of ensuring
that investee companies adhere to high standards of governance, and that the
portfolio’s composition is consistent with its investment policy.
By its nature, the portfolio has strong environmental credentials, mainly
consisting of companies generating renewable electricity in the form of wind,
solar, biomass, and hydro. It also contains companies operating infrastructure
such as electricity transmission and battery storage, essential for the
delivery and management of renewably-generated power.
The Company’s Manager engages with investee companies to promote good
governance and encourage responsible social policies. The Manager always votes
at the shareholder meetings of investee companies.
Audit and broker relationships
Following a review of the Company’s audit provision, Haysmacintyre LLP was
appointed as the Company’s Auditor in July 2023 replacing KPMG LLP. I would
like to thank KPMG for their audit work over past years, and we welcome
Haysmacintyre as our new auditor.
In September, the Company’s broker, finnCap Capital Markets, joined with
Cenkos Securities, to form Cavendish. The merged group has increased resources
to service the Company and institutional shareholders. The Board looks forward
to working with Cavendish in 2024.
Outlook
It is disappointing to record successive years of a falling NAV. However,
there are several reasons to believe that 2024 will present a more positive
investment environment.
Firstly, the interest rate cycle looks to have peaked, and market interest
rates, or bond yields, are now heading lower. Higher rates have been a
headwind which has exerted downward pressure on valuation metrics, and by
implication, performance.
Secondly, the underlying operating performances of investee companies have
been robust, and the development of both asset bases and financial earnings
has been encouraging. The reduction in the valuation of the portfolio reflects
the divergence of share prices from individual company performance metrics, as
referred to in my opening remarks above.
Thirdly, the global political will to increase renewable energy volumes, has
been reaffirmed. Planning laws have been adjusted to encourage faster
development, tax incentives have been granted, and we expect various
government sponsored renewable energy tariff auctions in 2024 to be struck at
prices which account for the changed economics of new-build projects.
We expect growth and financial returns within the renewables sector to
continue to be healthy, and we are optimistic that in time this will be
recognised by markets, to the benefit of the Trust.
Gillian Nott OBE
Chair
6 March 2024
Investment Manager’s Report
for the year to 31 December 2023
Performance overview
The Premier Miton Global Renewables Trust’s (“PMGR”) portfolio
experienced a fall in value over the year, with a negative total assets total
return performance, including all operating and trading costs, of 7.5%. The
performance was, however, ahead of the Trust’s comparator benchmark, the S&P
Global Clean Energy Index, which returned a negative 20.1% in GBP terms.
Central banks responded to persistently high inflation with higher interest
rates, and this had a dampening effect on the renewable sector. There is a
debate as to whether central banks have over-tightened monetary policy,
possibly leading to a recessionary environment in 2024, but markets are
currently assuming a “soft-landing” with major equity indices recording a
positive performance. Large US technology companies, or the so called
“magnificent seven”, continue to drive the performance of the US market
upwards.
As outlined in the Chair’s statement, the unfavourable macro-economic
environment had a negative effect on valuations in the renewable and clean
energy sector, together with other sectors viewed as “bond-proxies”, such
as property. While there were some positive performances within the portfolio,
there were a larger number of companies where positive business development
was rewarded with a falling share price.
This has led to many companies trading at low valuations. Perhaps
uncoincidentally, the year saw two companies in the portfolio receive takeover
offers, although this was not sufficient to offset wider share price falls.
Further details on these can be read below, and I would not be surprised to
see further corporate activity in 2024.
Market review
For the generalist investor, and this was certainly the market’s take for
the year, the sector presented an unattractive proposition in 2023. European
power prices fell, while capital costs for new projects increased, so in
theory, returns on new projects should be lower at a time when increased
interest rates meant investors demanded higher returns. In addition, higher
interest rates could be expected to have a negative effect on the net earnings
of renewable energy companies which tend to have higher than average levels of
financial gearing.
Looking more closely however, an alternative narrative can be presented. Power
prices did indeed fall from their exceptional levels in 2022. However, they
remain well above their “pre-Ukraine” levels, and a pull back to a more
rational environment can only be viewed as healthy.
Capital costs increased for wind projects (although remain on a downward trend
for solar), to the benefit of the long-term health of the turbine
manufacturing sector, which has experienced widely reported trading
difficulties over recent years. In response, PPA prices (power purchase
agreements, where corporate energy buyers purchase long term power at a
pre-agreed price) have flexed upwards to account for the higher costs.
Further, government sponsored renewable energy auctions have cleared at higher
levels and this should continue into 2024. In short, there is no evidence that
returns on new projects have suffered a permanent reduction, and companies
should be able to continue to invest at or above their cost of capital.
Despite the movements in capital costs, it is worth noting that renewable
energy remains cost competitive against fossil fuel technologies.
Finally, renewable projects are, for the most part, financed with long term
fixed price debt, protecting returns on existing projects from higher rates.
Higher financing costs for new projects will, all else equal, be accounted for
in the pricing of the power produced.
Gas prices remain the key price determinant in European power markets, and the
gas market has undergone what is likely to be a permanent structural shift.
Russia’s invasion of Ukraine has led to Europe switching from piped Russian
gas - previously satisfying approximately one third of Europe’s gas demand -
to liquified natural gas, (“LNG”).
European gas prices averaged Euro 41.2/MWh in 2023, well below the Euro
132.4/MWh average in 2022. However, these prices remain high by historical
standards, at over twice the level seen in 2019 and 2020 (these prices being
for a one-month forward contract traded at the Netherlands Title Transfer
Facility, source Bloomberg).
European gas prices were held in check by lower demand, about 15% below
“pre-Ukraine” levels, on the higher prices and warmer weather. Improved
LNG availability, combined with weak Asian demand, particularly from China,
allowed Europe to replace Russian gas while also filling storage for winter
2023/2024.
As such it was no surprise to see lower power prices, with German baseload
prices averaging Euro 104.3/MWh, down from Euro 284.6/MWh in 2022, with the UK
showing a similar trend. Mirroring the gas price, European 2023 wholesale
electricity prices were approximately double their historic levels although
were well below the exceptional levels of 2022 (prices quoted being for
one-month forward baseload futures contracts, source Bloomberg). A recovery in
French nuclear output also put downward pressure on power prices. With the
exception of the UK, this has enabled European windfall taxes, imposed in 2022
to be removed.
The US energy market is relatively stable in comparison to Europe, with the US
being largely self-sufficient in fossil fuels. Neither does it have a
functioning nationwide carbon market, with only the state of California
introducing one so far. Fortunately, the US has the space to construct very
large-scale renewable energy projects benefiting from economies of scale,
without having to resort to higher-cost options such as offshore wind
development. Renewable energy is cost competitive despite the low costs of
fossil fuel energy.
To speed up development, the US has implemented a series of incentives through
the “Inflation Reduction Act”, which extended the life of existing tax
credits while also offering several new valuable benefits to incentivise local
supply chains.
In common with the past few years, North American renewable output per unit of
capacity, was again below its long-term average, and there is some evidence
that investors are beginning to price this into shares as a permanent
reduction. Furthermore, renewable energy output tends to be sold on relatively
long duration, fixed price contracts, which while reducing risk, do not
protect the investor from movements in inflation. A return of both inflation
and wind speeds to more normal levels in 2024 would be of benefit to the
sector in North America.
Portfolio segmentation and allocation
The Trust seeks to offer investors diversified global exposure to renewable
energy and sustainable infrastructure. Focussing on highly contracted and
regulated listed infrastructure offers an attractive risk / reward dynamic for
long-term investment, with high visibility of earnings and dividends.
In addition to electricity generation assets, the portfolio invests in related
infrastructure such as energy storage, electricity transmission networks and
utilities with large renewable energy businesses. The portfolio’s segmental
allocation was almost unchanged over the year, as, on a fundamental basis at
least, most holdings performed in line with our expectation. Additionally, the
relative attractions of regional markets remained largely consistent with the
previous year.
PORTFOLIO SECTOR CLASSIFICATION 2023
2023 2022
Yieldcos and Investment Companies 40.7% 38.9%
Renewable energy developers 33.7% 29.9%
Renewable focused utilities 7.8% 9.5%
Energy storage 5.9% 9.0%
Biomass generation and production 5.1% 6.8%
Electricity networks 2.8% 2.3%
Renewable technology and service 2.0% 2.2%
Waste to energy 0.0% 1.3%
Renewable Energy Developers
As noted above, the share prices of many of the Trust’s renewable energy
developer holdings, companies that develop projects from inception, fell
during 2023, although, business wise, most investments performed well.
Starting with the positives, in Europe, Spanish listed Grenergy recorded a
share price gain of 23.5%. Grenergy is primarily a solar developer, having a
strategy to “sell some, keep some”. The company sold several Spanish
projects at very attractive prices, which was well received by the market.
Profits from asset sales are being utilised to build sizable new
solar-plus-battery storage assets in the attractive Chilean market.
As referred to above, some holdings were subject to corporate activity during
the year. One such was another Spanish-listed developer, OPD Energy which
received a takeover offer from a private equity buyer. While the offer process
had not completed by the end of the year, the holding was sold into the higher
post-offer market price, realising a price 48.2% higher than the level at
which the shares started the year. Further down the portfolio, another Iberian
developer to receive a bid was Portuguese listed Greenvolt, although the
holding was still held in the portfolio as at December 2023, its shares having
risen by 4.9% in 2023.
Sentiment towards the offshore wind sector soured in the year due to problems
at sector leader, Orsted (not held in the portfolio during the year), which
was caught out by increased costs on development projects in the US.
This may be part of the reason why offshore wind specialist, Northland Power
performed poorly, its shares losing 35.2% over the year despite good business
development and solid financial results.
Another company whose share price did not match its fundamental performance
was Bonheur. It operates a wind energy business (Fred Olsen Renewables) in the
UK and Scandinavia, together with offshore wind installation vessels, plus a
cruise line (Fred Olsen Cruises). The renewable energy business recorded
reduced earnings on lower power pricing, but its cruise business experienced a
sharp rebound from the COVID induced losses of 2021 and 2022. Its shares fell
by 15.7% in the year.
RWE is now one of the world’s largest renewable companies. It undertook a
large US acquisition in the year, and substantially increased its long-term
growth forecasts at its Capital Markets Day held in November. Its financial
results have been exceptionally strong through the year, benefitting from its
ownership of flexible electricity generation (such as gas turbines and
hydro-electricity) plus a very profitable trading business. Despite this, its
share price fell by 1.0% in the year.
The share price of the other large cap developer held, Acciona Energias, lost
22.3% as very high 2022 earnings presented a difficult comparator.
Other smaller European developers, held further down the portfolio, generally
performed well operationally. These tend to be held more for growth than
yield. Across many investments, high power prices in 2022 gave a difficult
financial comparator for 2023, disguising underling growth.
7C Solarparken, which owns smaller solar projects including commercial rooftop
generation in Germany and Belgium, is a good example. Despite growing its
operational portfolio capacity by over 10%, its shares fell by 15.1%. Likewise
Baltic renewable developer Enefit Green, recorded a share price fall of 18.8%.
It is on track to grow its operating capacity fourfold by 2026 and
commissioned several new solar and wind assets in the year.
PORTFOLIO GEOGRAPHICAL ALLOCATION
2023 2022
United Kingdom 35.49% 36.26%
Europe (excluding UK) 33.78% 30.72%
Global 14.71% 18.86%
North America 11.48% 9.16%
China 1.36% 3.11%
Latin America 3.18% 1.90%
PORTFOLIO MARKET CAPITALISATION PROFILE
2023 2022
Large Cap (> £10bn) 14.0% 19.5%
Medium Cap (£2bn to £10bn) 23.2% 30.1%
Small Cap (£250m to £2bn) 57.4% 46.4%
Micro Cap (< £250m) 5.5% 4.0%
Yieldcos and Investment Companies
2023 was a difficult year for the Trust’s holdings in renewable energy
investment companies, many of which traded with a high degree of correlation
to government bonds.
In terms of the portfolio’s larger London-listed holdings, Greencoat UK
Wind, NextEnergy Solar, Octopus Renewables Infrastructure, Aquila European
Renewables, Foresight Solar Fund and Greencoat Renewables saw share price
declines of 0.4%, 17.1%, 10.5%, 14.9%, 13.5%, and 12.2% respectively.
Published NAVs held up relatively well, with the negative effect of higher
discount rates used in valuation calculations being mainly offset through
higher inflation assumptions, the acquisition or commissioning of new assets,
and solid operational performance.
Shares traded at higher discounts to their NAVs as markets focussed on the
interest rate environment (despite this already being considered in the NAV
calculation). While discounts persist, it is impossible for funds to issue new
equity to acquire further renewable projects. Instead, cash flows generated in
excess of dividend payments are being directed to buying back shares and the
repayment of debt.
Longer term, I expect to see some consolidation in the sector, and in
December, Octopus revealed it has approached Aquila with a view to a
consolidation. The logic of a tie up between the two seems strong.
US-listed holdings fared no better, hampered by low wind speeds and higher
interest rates. Clearway Energy (A Shares) and Atlantica Sustainable
Infrastructure’s shares fell by 14.5% and 17.0% respectively. The holding
size of the latter was cut back as Atlantica appears to be struggling to
identify a long-term growth strategy.
PORTFOLIO CONCENTRATION
2023 2022
10 largest investments 55.95% 51.74%
11th to 20th 25.23% 28.08%
21st to 30th 13.20% 12.37%
30th onwards 5.63% 7.81%
Other segments
Drax Group’s (biomass generation and production) share price fell by 30.3%
despite excellent financial results as Drax locked into the high 2022 power
price environment through forward sales at high prices. The weak share price
may be partly attributable to continued scepticism regarding biomass, much of
the commentary being ill-informed in my view.
The UK battery storage funds also performed poorly, with available frequency
market revenues falling on higher capacity in the market. National Grid’s
system upgrades to allow batteries access to the balancing market should,
however, provide improved revenue potential. Gore Street Energy Storage Fund
has emerged as the Trust’s preferred holding as it benefits from
international diversification, including substantial growth projects in the
US. Despite good execution on its growth pipeline, its shares fell by 20.6% in
2023.
National Grid (electricity networks) and SSE (renewable focussed utilities)
both performed relatively well, with their shares gaining 6.1% and 8.4%
respectively. Both benefit from strong inflation linkages in their regulated
businesses, while SSE is set to see strong growth from its large North Sea
renewable projects over the coming years.
In the US, the portfolio gained a new holding in AES (renewable-focussed
utilities), which had a difficult year but looks set to see good long-term
growth in its renewable business. The position was showing a small gain at the
year end. Also in the US, the Trust added a modest position in renewable
finance company Hannon Armstrong in October, selling out in December with an
80.4% total return over the two months of ownership.
Currency and hedging
The Trust made currency hedging gains of £0.6 million over the year. Hedging
was carried out against the Euro and Hong Kong dollar, and mainly in the first
half of the year. There are no open currency hedging contracts at the year
end.
Outlook
Two successive years of share price falls have left many renewable energy
companies trading at what appear to be attractive levels. UK renewable
investment companies stand at discounts to their NAVs, which I believe are
conservatively calculated. The portfolio’s renewable developers have
continued to grow their businesses, and this has not been recognised by the
market.
The long-term outlook for the sector is undimmed, and I expect to see
continued strong underlying growth in 2024. I believe the economic environment
remains one in which well-run companies can develop new projects based on
unsubsidised market pricing, while making sensible commercial returns. Some
individual companies may over-reach themselves and experience trading
difficulties, but this does not mean the entire sector should be tarred with
the same brush. Renewable energy growth will continue for economic and
environmental reasons, irrespective of regulation and tax policy.
Encouragingly, Western governments remain committed to helping the process.
James Smith
Premier Fund Managers Limited
6 March 2024
Investment Portfolio
at 31 December 2023
Company Activity Principal location of operation Value £000 % total investments Ranking 2023 Ranking 2022
Greencoat UK Wind Yieldcos and Investment Companies United Kingdom 3,182 7.6 1 2
NextEnergy Solar Fund Yieldcos and Investment Companies United Kingdom 2,846 6.8 2 3
Clearway Energy ‘A’ Yieldcos and Investment Companies North America 2,808 6.7 3 10
Octopus Renewable Infrastructure Yieldcos and Investment Companies Europe (ex. UK) 2,425 5.8 4 5
Grenergy Renovables Renewable energy developers Global 2,369 5.6 5 11
Drax Group Biomass generation and production United Kingdom 2,155 5.1 6 1
Aquila European Renewables Yieldcos and Investment Companies Europe (ex. UK) 2,048 4.9 7 6
RWE Renewable energy developers Europe (ex. UK) 1,957 4.7 8 4
Bonheur Renewable energy developers Europe (ex. UK) 1,865 4.4 9 16
SSE Renewable focused utilities United Kingdom 1,856 4.4 10 15
Foresight Solar Fund Yieldcos and Investment Companies United Kingdom 1,734 4.1 11 12
Gore Street Energy Storage Fund Energy storage United Kingdom 1,326 3.2 12 22
Corp. Acciona Energias Renovables Renewable energy developers Europe (ex. UK) 1,216 2.9 13 14
National Grid Electricity networks Global 1,164 2.8 14 18
Northland Power Renewable energy developers Global 1,144 2.7 15 17
AES Corporation Renewable focused utilities North America 906 2.2 16 –
Atlantica Sustainable Infrastructure Yieldcos and Investment Companies Global 842 2.0 17 7
Greencoat Renewables Yieldcos and Investment Companies Europe (ex. UK) 769 1.8 18 24
Cadeler Renewable technology and service Europe (ex. UK) 761 1.8 19 38
Enefit Green Renewable energy developers Europe (ex. UK) 740 1.8 20 27
Cloudberry Clean Energy Renewable energy developers Europe (ex. UK) 714 1.7 21 29
Solaria Energía y Medio Ambiente Renewable energy developers Europe (ex. UK) 645 1.5 22 39
Harmony Energy Income Trust Energy storage United Kingdom 638 1.5 23 9
China Suntien Green Energy Renewable energy developers China 571 1.4 24 20
7C Solarparken Renewable energy developers Europe (ex. UK) 562 1.3 25 25
Gresham House Energy Storage Fund Energy storage United Kingdom 535 1.3 26 13
Polaris Renewable Energy Renewable energy developers Latin America 507 1.2 27 –
Algonquin Power and Utilities Renewable focused utilities North America 497 1.2 28 19
US Solar Fund Yieldcos and Investment Companies North America 449 1.1 29 26
GCP Infrastructure Renewable financing and energy efficiency United Kingdom 429 1.0 30 –
GreenVolt Renewable energy developers Europe (ex. UK) 425 1.0 31 40
MPC Energy Solutions Renewable energy developers Latin America 424 1.0 32 28
SDCL Energy Efficiency Income Trust Renewable financing and energy efficiency Global 423 1.0 33 –
Serena Energia (1) Renewable energy developers Latin America 408 1.0 34 31
Boralex Renewable energy developers Global 239 0.6 35 37
Atrato Onsite Energy Renewable energy developers United Kingdom 215 0.4 36 33
Innergex Renewable Renewable energy developers North America 163 0.3 37 41
Fusion Fuel Green (incl. warrants) Renewable technology and service Europe (ex. UK) 66 0.1 38 34
42,023 99.9
Unquoteds Activity Principal location of operation Value £000 % total investments
PMGR Securities 2025 PLC ZDP Shares Subsidiary United Kingdom 50 0.1
Total investments 42,073 100.0%
(1) Serena Energia (formerly Omega Energia).
Review of Top Ten Holdings
at 31 December 2023
1. Greencoat UK Wind
Market cap: £3.5 billion
www.greencoat-ukwind.com
Greencoat UK Wind (“UKW”) is a UK focussed renewable energy investment company, its portfolio containing both onshore (56% at June 2023) and offshore (44%) wind farms. It operates as an investment company, acquiring newly completed assets rather than
developing projects in-house. High recent power prices and inflation have driven strong cash flows, with UKW’s 2022 dividend covered 3.2x in 2022 and by 2.1x in the first half of 2023. This has allowed the company to increase dividends by double digits
across 2023 and 2024. As is the case with other UK listed renewable investment companies, higher interest rates had a dampening effect on the published NAV per share, as the rate at which future assumed cash flows are “discounted” back to current values,
increased. However, a high level of exposure to inflation linked tariffs and uplifts on new investment acquisitions funded through cash flows, largely offset the higher discount rate such that UKW’s NAV per share of 167.1p at the start of the year fell by
1.8% to 164.10p by December 2023. Its share price also held up well, falling by 0.4% to 151.55p over the year, although remaining at a sizable discount to their NAV.
2. NextEnergy Solar Fund
Market cap: £544 million
www.nextenergysolarfund.com
NextEnergy Solar Fund (“NESF”) is a UK listed renewable energy investment company, owning large-scale UK solar assets, although has approximately 10% of its portfolio invested in solar assets in Italy. In addition, NESF is investing in battery storage, and
expects to commission its first project in the first half of 2024. It also intends to co-locate storage assets on individual solar farms, enabling the individual site to better profile its output and maximise revenues from power sales. In 2024, the company
aims to sell certain identified projects, to reinvest into new, ready to build, assets and repay short term borrowing. In this way, the company aims to gain additional returns, reduce financing risks, and demonstrate the robustness of its portfolio
valuation. Over the first 9 months of 2023, NESF’s published NAV fell by 11.6% from 120.90p at December 2022 to 108.30p at September 2023 as higher interest rates impacted the valuation. Its share price fell 17.1% to 92.10p, standing at a material discount
to NAV therefore.
3. Clearway Energy
Market cap: £2.5 billion
www.investor.clearwayenergy.com
Clearway Energy (“Clearway”) is a US listed yield, or investment, company (“yieldco”), operating 3.7 GW of US wind energy, 2.0 GW of solar, and 2.5 GW of gas capacity (gas generation operates under contract to utilities for system stability services). US
yieldcos usually operate with a sponsor which acts as both the company’s manager while also developing new projects which can be acquired by the yieldco, subject to the consent of independent directors. Clearway’s sponsor, Clearway Group, is also a major
investor in the yieldco, and is one of the largest renewable energy developers in North America. In total, Clearway Group is working on a renewable project pipeline totalling 29.1 GW, which will be made available to Clearway as it reaches commercial
operation. 2023 saw low wind speeds in North America, dampening Clearway’s financial results reported during the year. However, Clearway made several acquisitions of new assets from its sponsor, and at improved returns reflecting the higher interest rate
environment. Clearway’s A Shares held by PMGR fell by 14.5% in 2023.
4. Octopus Renewables Infrastructure Trust
Market cap: £568 million
www.octopusrenewalesinfrastructure.com
Octopus Renewables Infrastructure (“ORIT”) is a UK listed investment company with assets across Europe. It invests in a balanced portfolio of both wind and solar generation totalling 668 MW, while also having modest equity investments in renewable energy
development companies. It completed a 50 MW onshore wind farm in Scotland during the year, having acquired the project at pre-construction stage, and will sell the power produced on a long-term contract to Kimberley Clark, having signed a similar contract
on a UK solar asset with Iceland Foods earlier in the year. In October, aiming to demonstrate the robustness of its valuation, and to raise new capital for investment, ORIT sold its Polish wind farm assets at an indicated range of between 14% to 19% above
their valuation within the NAV. Over the course of 2023, ORIT’s NAV per share fell 3.1% from 109.40p at December 2022 to 106.04p at December 2023, although its share price fell further, by 10.5% to 89.95p over the year, standing at a 15.2% discount to
their NAV.
5. Grenergy Renovables
Market cap: £908 million
www.grenergy.eu
Grenergy is a Spain listed international solar developer, focussing on Spain and Chile. The company has grown steadily, now having 860 MW of operational capacity, 873 MW under construction, and 2.6 GW awaiting construction and in advanced development. Much
of the equity funding for new assets to be retained in the portfolio comes from selling selected completed projects, and the company managed to sell several Spanish solar farms in the period, generating sales proceeds approximately 50% above invested
capital. The company held a capital markets event in November, laying out plans for substantial investment in the Chilean market. Its shares gained 23.5% over 2023.
6. Drax Group
Market cap: £1.9 billion
www.drax.com
Drax Group operates the UK’s largest renewable energy facility, utilising biomass pellets manufactured from sustainable wood waste. The facility benefits from subsidy schemes to 2027. Drax is also one of the world’s largest producers of biomass pellets
from its facilities in North America. Growth options include adding carbon capture facilities at the Drax power station, expanding pellet manufacturing, adding additional capacity at their Cruachan pump storage hydro plant in Scotland, and developing new
biomass power stations with carbon capture in the US. Drax has benefitted from locking in high power pricing through its forward hedging programme, delivering improved financial results in 2023. Despite this, its shares fell by 30.3% during the year.
7. Aquila European Renewables Income Fund
Market cap: £333 million
www.aquila-european-renewables.com
Like ORIT, Aquila European Renewables (“AERI”) is an investment company, focussed on Europe, having a broad spread of both geographic and technology exposures. In December, ORIT announced that it had approached the board of AERI over the course of 2023
with a view to a combination of the two companies. This has logic given AERI’s sub-scale size, and complimentary portfolios with relatively little overlap. AERI’s NAV fell by 10.9% from Euro 110.60c to Euro 98.52c during 2023, partly as a result of tax
changes in Norway, with its share price falling by 14.9% to Euro 78.50c, despite the company actively buying back its shares over the year.
8. RWE
Market cap: £26.6 billion
www.rwe.com
RWE is a German multi-national energy company, which is transitioning from fossil fuels to clean energy. It has expanded rapidly in renewables over recent years, and recent financial results have been exceptionally strong. In a capital markets event held
in November, RWE outlined plans to step up spending on renewable energy further still, the company now envisaging spending Euro 55 billion between 2024 and 2030 on clean technologies, having already invested Euro 20 billion over 2021 to 2023, including its
purchase of US renewables business, Con. Edison Clean Energy. RWE is particularly strong in offshore wind development. RWE’s share price fell by 1.0% over 2023.
9. Bonheur
Market cap: £794 million
www.bonheur.no
Bonheur is a Norway listed renewable energy company operating under the Fred Olsen Renewables brand. It also owns three offshore wind turbine installation vessels through the Fred Olsen Windcarrier business and operates four cruise ships through Fred Olsen
Cruises. At September 2023 the renewables business operated 788 MW of wind farms, mainly in Scotland, but also in Sweden and Norway, with 17 MW under construction and a further 530 MW consented and awaiting construction start. Its offshore installation
vessels are highly contracted for coming years, and the cruise business is recovering well from losses incurred during the Covid pandemic. Despite the encouraging outlook, its shares fell by 15.7% in 2023.
10. SSE
Market cap: £20.3 billion
www.sse.com
SSE is a vertically integrated utility owning power generation assets together with electricity network infrastructure. SSE’s electricity transmission business is experiencing high growth as it expands capacity to accommodate the growth in renewable
electricity. SSE’s thermal energy business primarily operates gas fired power stations, acting as essential flexible capacity to facilitate the energy transition. Finally, SSE is a major investor in UK renewable energy, aiming to double its renewable
energy capacity to 9 GW by 2027. It has a strong position in offshore wind, currently building Dogger Bank, the world’s largest offshore wind farm at 3.6 GW. SSE’s share price gained 8.4% in 2023.
Statement of Directors’ Responsibilities in Respect of the Annual Report and
the Financial Statements
The Directors are responsible for preparing the Annual Report and financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they are required to prepare the Group
financial statements in accordance with UK-adopted international accounting
standards and applicable law and have elected to prepare the Parent Company
financial statements on the same basis.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and Parent Company and of the Group’s profit or loss
for that period. In preparing each of the Group and Parent Company financial
statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant and reliable;
• state whether they have been prepared in accordance with UK-adopted international accounting standards;
• assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Parent Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the
Parent Company and enable them to ensure that its financial statements comply
with the Companies Act 2006. They are responsible for such internal control as
they determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error, and
have general responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors ‘Report, Directors’ Remuneration
Report and Corporate Governance Statement that complies with that law and
those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
In accordance with Disclosure Guidance and Transparency Rule 4.1.14R, the
financial statements will form part of the annual financial report prepared
using the single electronic reporting format under the TD ESEF Regulation. The
auditor’s report on these financial statements provides no assurance over
the ESEF format.
Responsibility of the Directors in respect of the annual financial report
We confirm to the best of our knowledge:
• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
• the strategic report includes a fair review of the development and performance of the business and the position of the issuer, and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
We consider the Annual Report and Accounts, taken as a whole, is fair,
balanced, and understandable and provides the information necessary for
shareholders to assess the Group’s position and performance, business model
and strategy.
For and on behalf of the Board
Gillian Nott OBE
Chair
6 March 2024
Directors and Advisers
Directors
Gillian Nott OBE – Chair
Melville Trimble – Chair of the Audit Committee
Victoria Muir – Chair of the Remuneration Committee
Alternative Investment Fund Manager (“AIFM”)
Premier Portfolio Managers Limited Eastgate Court High Street Guildford Surrey GU1 3DE
Telephone: 01483 306 090
www.premiermiton.com
Authorised and regulated by the Financial Conduct Authority
Investment Manager
Premier Fund Managers Limited Eastgate Court High Street Guildford Surrey GU1 3DE
Telephone: 01483 306 090
www.premiermiton.com
Authorised and regulated by the Financial Conduct Authority
Secretary and Registered Office
Link Company Matters Limited 6th floor 65 Gresham Street London EC2V 7NQ
Registrar
Link Group The Registry Central Square 29 Wellington Street Leeds LS1 4DL
Telephone: 0371 664 0300
Overseas: +44 (0) 371 664 0300
E-mail: shareholderenquiries@linkgroup.co.uk
www.signalshares.com
Depositary
Northern Trust Investor Services Limited 50 Bank Street Canary Wharf London E14 5NT
Authorised by the Prudential Regulation Authority (“PRA”) and regulated by the FCA and PRA
Custodian
The Northern Trust Company 50 Bank Street Canary Wharf London E14 5NT
Tax Advisor (Tax services are delegated by Premier Portfolio Managers Limited)
Northern Trust Global Services SE50 Bank Street Canary Wharf London E14 5NT
(appointed 28 December 2023)
Crowe U.K. LLP 55 Ludgate Hill London EC4M 7JW
(resigned 27 December 2023)
Auditor
Haysmacintyre LLP 10 Queen Street Place London EC4R 1AG
(appointed 13 July 2023)
KPMG LLP 15 Canada Square London E14 5GL
(resigned 3 July 2023)
Stockbroker
Cavendish Capital Markets Limited One Bartholomew Close London EC1A 7BL
Telephone: 0207 220 0500
Ordinary Shares
SEDOL 3353790GB
LSE PMGR
Zero Dividend Preference Shares
SEDOL BNG43G3GB
LSE PMGZ
Global Intermediary Identification Number
GIIN W6S9MG.00000.LE.826
LEI: 2138004SR19RBRGX6T68
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