Premier Miton Global: Annual Financial Report
15/03/2023 07:00
PREMIER MITON GLOBAL RENEWABLES TRUST PLC
Annual Financial Report for the year ended to 31 December 2022
The Directors present the Annual Financial Report of Premier Miton Global
Renewables Trust PLC (the "Company") for the year ended 31 December 2022 (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 2022 but is derived from those
accounts. Statutory accounts for the year ended 31 December 2022 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 (as at 14 March 2023)
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 £13.9 billion of funds under management at 31 December 2022. 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.
Company Highlights
for the year to 31 December 2022
31 December 2022 31 December 2021 % change
Total Return Performance
Total Assets Total Return(1)# (7.3%) 19.8%
S&P Global Clean Energy Index(2) (GBP) 6.6% (22.5%)
Ongoing charges(3)# 1.70% 1.65%
Ordinary Share Returns
Net Asset Value per Ordinary Share (cum income)(4)# 178.44p 210.60p (15.3%)
Mid-market price per Ordinary Share(2) 155.50p 196.50p (20.9%)
Discount to Net Asset Value# (12.9%) (6.7%)
Revenue return per Ordinary Share 7.29p 7.43p (1.9%)
Net dividends declared per Ordinary Share 7.00p 7.00p 0.0%
Net Asset Value Total Return(5)# (12.1%) 26.5%
Share Price Total Return(2)# (17.7%) 30.7%
2025 Zero Dividend Preference Share Returns
Net Asset Value per Zero Dividend Preference Share(4) 110.71p 105.44p 5.0%
Mid-market Price per Zero Dividend Preference Share(2) 108.50p 107.50p 0.9%
(Discount)/Premium (2.0%) 2.0%
Hurdle Rates(6)#
Ordinary Shares
Hurdle rate to return the share price of 155.50p (2021: 196.50p) at 28 November 2025(2) (0.8%) 0.7%
Zero Dividend Preference Shares
Hurdle rate to return the redemption share price for the 2025 ZDPs of 127.6111p at 28 November 2025 (27.7%) (23.1%)
Balance Sheet
Gross Assets less Current Liabilities (excluding Zero Dividend Preference Shares) £48.3m £53.4m (9.6%)
Zero Dividend Preference Shares (£15.7m) (£15.0m) (5.0%)
Equity Shareholders’ Funds £32.5m £38.4m (15.2%)
Gearing(7)# 48.4% 39.0%
Zero Dividend Preference Share Cover (non-cumulative)(8)# 2.51x 2.74x
# Alternative Performance Measure (“APM”). See Glossary of Terms for definitions and Alternative Performance Measures on page 76.
(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 on page 77.
(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.
Chairman’s Statement
for the year to 31 December 2022
Introduction
Following strong performances over recent years, 2022 saw a reversal of
fortunes for the portfolio with the Trust experiencing a fall in asset values
and a negative investment return to shareholders. The underlying portfolio
return, while approximately in line with global equity markets, lagged the
global clean energy sector.
In my letter in last year’s report, I noted that markets appeared to be
relatively sanguine over the prospects for higher inflation. In the event,
inflation in the advanced economies reached higher levels than expected,
necessitating a steeper path of interest rate increases.
There are several underlying reasons for higher inflation. Energy costs have
remained at elevated levels, exacerbated by the war in Ukraine. Supply chains
have taken longer to return to normal post Covid-19 lockdowns, and China’s
retention of lockdown policies over most of 2022 has been a headwind to global
supply.
On top of these issues, has been the exceptionally loose monetary policy over
recent years, which has created an environment where inflation has been
allowed to take root. The risk now is that central banks over-tighten, causing
a sharp recession.
Higher interest rates have been a headwind for equity markets, as markets
discount future corporate earnings to current values at higher rates. However,
the Trust is fortunate that most of its underlying earnings, the revenues
earned by portfolio companies, are generated from selling electricity.
Electricity prices have been substantially higher in 2022 than in 2021,
particularly in the UK and Europe. However, as yet this has not been fully
reflected in market valuations.
Performance
The Trust’s performance over 2022 was disappointing. The total assets total
return, measuring the return on the portfolio including all income and costs,
was a negative 7.3% (2021: positive 19.8%). This was consistent with returns
seen in the leading global equity indices. The Trust’s gearing, through the
fixed return Zero Dividend Preference Shares (“ZDP”), means that returns
to Ordinary Shareholders are amplified, with the net asset value (“NAV”)
total return being negative 12.1% (2021: positive 26.5%). The NAV per ordinary
share fell by 15.3% to close the year at 178.44p.
Further, and in common with other investment trusts, the discount at which the
shares trade compared to the published NAV increased in the year, closing 2022
at 12.9% (2021: 6.7%). For this reason, the share price total return, based on
share price movement plus dividends received, was negative 17.7% (2021:
positive 30.7%).
Since the Trust’s change of investment policy in October 2020, the S&P
Global Clean Energy Index (the “Index”) has been used as its performance
comparator. However, as has been pointed out before, the Trust’s portfolio
is substantially different to the composition of the index, with a far greater
weighting to renewable energy generators than the index which has higher
exposure to technology, renewable equipment manufacturers and utilities. Also,
the Trust’s portfolio is currently more focussed on the UK and Europe,
whereas the Index has a higher weighting to North America. PMGR’s
performance can, therefore, be expected to be materially different from that
of the Index in any given year.
In 2022, the Index returned a positive 6.6% (GBP adjusted), substantially
better than the Trust. However, since the policy change on 9 October 2020,
shareholders have seen a return, measured on share price plus dividends, of
25.3%, or an average of 10.7% per year. The index has returned 3.7%, or 1.7%
per year on average. Despite the difficult year, the Trust’s recent
performance remains well ahead of its performance comparator.
There were some specific negative performance factors, discussed in more
detail in the Investment Manager’s report, which require mention here.
Firstly, the Trust’s Chinese investments, which performed so well in 2021,
were very poor in 2022. This was mainly for macro-economic and political
reasons rather than any fundamental issues with the companies themselves. A
combination of negative performance and sales of holdings means that the
weighting to China is now substantially reduced. Secondly, Finnish hydro and
nuclear generator Fortum, a 4.3% weighting at the start of the year, was
caught out by the Russian invasion of Ukraine. Fortum had substantial
investments in Russia, representing about 20% of its total profits, and its
share price fell sharply in response. We sold this investment because of its
Russian exposure with a resulting loss. Thirdly, holdings owning operational
North American renewable energy assets were relatively weak. Renewable energy
tends to be sold on long term pre-determined prices in North America, with
relatively little inflation linkage. Share prices therefore fell in response
to higher interest rates.
Offsetting this was a generally positive performance in the UK, although the
modest gains look set to lag well behind the growth in underlying earnings
driven by high power prices, even considering the new windfall tax, or
“energy generation levy”. Likewise, aside from Fortum as noted above,
there were some good performances among European investments, with the high
power price environment being a performance driver.
The US dollar was strong in the year, and the Trust saw a translation gain on
dollar holdings as a result.
Despite the difficult year, the prospects for long term performance remain
encouraging. For instance, the EU is committed to expanding its renewable
energy production, aiming for renewables to represent at least 45% of the
overall energy mix by 2030 (from 22.1% in 2020). Likewise, the US Inflation
Reduction Act has set clear targets and incentives for renewable investment in
the US and should stimulate and reward investment for the foreseeable future.
Portfolio positioning
The Trust invests in renewable energy companies, and also other sustainable
infrastructure companies, being those that are essential to the construction
of renewable assets and delivery of renewable energy to customers. These
currently include electricity networks, energy storage facilities, and
offshore wind turbine installation vessels.
The most significant portfolio change during the year has been the reduction
in weighting to China, from 19% to 3%. We are concerned about China’s
economic and political situation, and China is likely to remain at a low level
within the portfolio while this uncertainty persists. The funds released have
been reinvested into Europe and the UK to take advantage of the favourable
electricity pricing environment.
In this period of high inflation, it is important to be exposed to revenue
streams that reflect inflation, such as some government tariff and subsidy
schemes. UK renewable assets score well in this regard. As noted above, US
renewable companies have less inflation linkage, so are currently held at a
relatively low portfolio weighting.
In terms of sectors, the weighting to yield companies (renewable companies
which buy operational assets and then hold them for the long term, paying out
the majority of cash-flow to investors), has risen as the Manager increases
exposure to core UK and European operational assets benefitting from higher
power prices and inflation.
Weightings in the waste to energy sector and renewable-focussed utilities
sector (i.e. utilities having substantial renewable energy businesses) have
fallen on poor relative performance and the Manager focussing on core
“pure-play” renewable energy generators.
Capital structure, Gearing, and ZDP Shares
Following the weaker performance in the year, gearing increased from 39.0% at
December 2021 to 48.4% at December 2022 (gearing being calculated as the ZDP
share liability over the equity attributable to Ordinary Shareholders). The
nature of the ZDP shares means that the gearing is, for the time being,
“semi-permanent”. The Board will review the Company’s capital structure
on the maturity of the ZDP shares in 2025.
The share price of the ZDP Shares rose only slightly in the year, from 107.50p
at the start of the year to 108.50p by the close of 2022. Their NAV increased
at their accrual rate of 5%, to reach 110.71p at the close of the year. As
such the ZDP Shares stood at a modest discount to their accrued value. The ZDP
Share Cover fell to 2.51x from 2.74x reflecting the fall in assets. Note that
“Gearing” and “Zero Dividend Preference Share Cover” are Alternative
Performance Measures; please see pages 76 to 80 for definitions and
calculations.
No Ordinary or ZDP shares were either issued or redeemed in the year.
Income and dividends
Net revenue return per Ordinary Share in 2022 was 7.24p, a reduction of 2.6%
on the 7.43p recorded in 2021. Underlying revenue generation remained
healthy, with dividends paid to Ordinary Shareholders being fully covered by
net revenue earnings.
It should be noted that 2021 saw the recovery of a historic tax reclaim of
£104,000, or 0.57p per Ordinary share, a receipt not repeated in 2022.
During the year, the Board declared three interim dividends in respect of the
2022 financial year, each of 1.75p per Ordinary Share. The Board has now
declared a fourth interim dividend of 1.75p, to bring the total dividend for
the year to 7.00p, fully covered by revenue earnings, and in line with
dividends paid in respect of 2021. The fourth interim dividend will be paid on
31 March 2023 with the shares to be marked ex-dividend on 9 March 2023.
Shareholder relations
The Company’s AGM will be held on Wednesday, 26 April 2023, at the offices
of Stephenson Harwood LLP, 1 Finsbury Circus, London EC2M 7SH, at 12.15p.m.
when 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 renewables sector and
the Company, on the Company’s website, www.globalrenewablestrust.com.
Environmental, Social and Governance (‘ESG’)
Given the change of investment policy in 2020, ESG measures are an integral
part of the Manager’s approach to running the portfolio. Further, Premier
Miton is a signatory to the Principles for Responsible Investment, an
organisation which assists signatory firms to develop and maintain responsible
investment practices.
The Trust’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 Trust’s portfolio has strong environmental credentials.
The portfolio mainly consists of companies generating renewable electricity in
the form of wind, solar, biomass, and hydro, together with other technologies
which have positive environmental outcomes, such as waste to energy. It also
contains companies operating infrastructure such as electricity transmission
and battery storage, essential for the delivery and management of
renewably-generated power.
The Trust’s Manager engages with investee companies to promote good
governance and encourage responsible social policies. The Manager always votes
at shareholder meetings of investee companies.
I am pleased to report that the one remaining holding not consistent with the
renewable energy investment policy adopted in October 2020, the Indian
coal-fired power generator OPG Power Ventures, was sold during the year. This
completed the portfolio’s transition from a generalist infrastructure
investor to specialist renewable energy.
Change of brokership
Following a review of the Company’s brokership arrangements, in March the
directors appointed finnCap Capital Markets (“finnCap”) as the Company’s
stockbroker, replacing Singer Capital Markets. The Directors are pleased with
finnCap’s performance since appointment.
The Board and the Manager remain committed to increasing the size of the Trust
and have been active in marketing the Trust’s shares to potential new
investors during the year. I hope that this will help to achieve a lower
discount to NAV, and consequent improved share price, during 2023.
Outlook
The macro-economic environment has been against the Company over the past
year, and equity markets have been weak. While developed market interest rates
are expected to reach their peaks in 2023, financial markets are likely to
remain turbulent as historic monetary stimulus is withdrawn.
China faces a difficult situation as Covid-19 runs through the country. As a
result, its government could see its domestic popularity fall, and it may be
tempted into ill-advised actions both at home and abroad, which have the
potential to destabilise its economy and the region. Further, it is at this
stage difficult to envisage a near term resolution to the conflict in Ukraine.
However, despite this troubling backdrop, the underlying earnings performance
of the majority of the portfolio’s holdings has been strong, and we expect
this to continue in the short to medium term. We expect European power prices
should remain elevated as the EU withdraws from its dependence on Russian
natural gas.
The implementation of European windfall taxes has been a notable headwind over
the year. However, with the relevant taxes now published and in operation, the
market again hopefully has some clarity. Generally speaking, windfall taxes
have been set at a level which, while providing some compensation to
governments that can be used to subsidise tariffs, still allow generators to
make good returns from the high pricing environment.
Over the long term, the issues of natural gas supply and high commodity prices
further reinforce the benefits of moving to renewable energy. In addition to
being much more environmentally friendly than traditional power sources,
renewables have the advantage of generating electricity closer to where it is
consumed, together with the potential for a less volatile pricing environment.
The Board believes that the Company’s investment policy remains very
relevant and is one from which attractive long term investment returns can
continue to be made.
Gillian Nott OBE
Chairman
14 March 2023
Investment Manager’s Report
for the year to 31 December 2022
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 7.3%. The
performance was below that of the Trust’s comparator benchmark, but
performance does remain comfortably ahead of that index since the investment
policy change in October 2020.
Under normal conditions, I would have hoped for another good year for PMGR.
The build out of renewable energy continues apace, power prices are strong,
and there is a considerable level of political goodwill.
However, higher interest rates, political intervention, additional taxes, the
ongoing uncertainty from the war in Ukraine, and economic and political risks
in China meant that it turned out to be a rather difficult year. In addition,
there have been some stock-specific losses, detailed below.
Higher power prices have been a double-edged sword in that they have driven
greater political intervention through windfall taxes. Asymmetric taxes,
whereby Governments help themselves to gains in good times without committing
to helping companies should the situation reverse, may make for good politics
but have caused investor uncertainty and are likely to increase companies’
required future returns to compensate for greater political risks.
Reversing the trend of recent years, capital costs of renewable projects were
increased by higher logistics and component costs, although these are now
showing signs of moderating. Finance costs within the sector are largely
fixed, but higher interest rates will contribute to higher financing costs for
new projects. Fortunately, the power price environment is such that available
investment returns remain healthy.
Market review
Perhaps the most significant market development during the year has been the
unprecedented increase in European power prices. Prices began to increase in
mid-2021 on the back of higher prices for carbon emission permits (which make
fossil fuel generation more expensive), increasing further over the early part
of 2022 on concerns over low European gas storage levels, followed by a surge
in both price and volatility on the Russian invasion of Ukraine in February.
Approximately one third of European gas is sourced from Russia, and although
trade has not completely stopped, volumes are much reduced. Further, in
September, both Nord Stream 1 and 2 pipelines, which connect Germany to
Russian supplies through the Baltic Sea, were damaged by explosions. Although
those responsible and their motivations are unconfirmed, neither pipeline will
be in use for the foreseeable future. Gas is an important component of the
European electricity generation mix, and the resulting higher gas prices have
fed directly into higher electricity prices.
With the aim of ending its dependence on Russian fossil fuels, the EU through
its “REPowerEU” plan, aims to expand renewable energy generation capacity
substantially with streamlined approval processes, diversify its gas supplies
including new investments in LNG capacity, and improve energy efficiency.
Newer technologies that directly substitute gas usage, such as biomethane,
hydrogen, and heat pumps will also be encouraged.
Adding to the European energy shortage has been the decline in output from
French nuclear reactors, expected to be over 20% lower in 2022 than in 2021.
France went from a position of being an electricity exporter, to being an
importer, with a consequent tightening of neighbouring power markets such as
Germany and the UK.
Power prices in the US have increased, although to a lesser extent than seen
in Europe. In any case, renewable energy companies in the US tend to be less
exposed to merchant power pricing than their European counterparts, with
renewable power usually being sold on long term contracts at relatively fixed
prices. This has made them vulnerable to higher inflation and interest rates.
On the plus side, the passing of the of the Inflation Reduction Act aims to
stimulate almost $370 billion of clean energy investment over the next 10
years, and gives the sector an improved growth outlook.
Portfolio segmentation and allocation
The Trust seeks to offer investors a diversified global exposure to renewable
energy and sustainable infrastructure. This differentiates PMGR from many
other clean energy investment funds, including exchange-traded funds, which
often have a more technology-oriented profile. I believe that focussing on
mainly contracted and regulated infrastructure investments offers an
attractive risk / reward dynamic for long term investment, offering high
visibility of earnings and dividends.
The portfolio has a wide exposure to differing sub-sectors, aiming to invest
not just in wind and solar assets, but in the full energy production and
delivery value chain, including energy storage, electricity transmission
networks and utilities that own high quality renewable energy businesses.
One important distinction we make is to segment renewable energy companies
into two broad categories. Renewable energy developers plan, construct, and
then own and operate renewable assets. Alternatively, yield companies
(“yieldcos”), usually acquire existing renewable assets. Developers
typically pay a modest dividend, retaining a high portion of cash flows for
reinvestment, sometimes recycling capital through asset sales. Yieldcos by
contrast, pay out the majority of cash flows, raising new capital to acquire
assets as required.
Renewable energy developers offer potentially higher returns as they take on
development and construction risk. Yieldcos prefer to remove these by
acquiring recently constructed projects (or occasionally at the
“pre-construction” stage) and then financing and operating them as
efficiently as possible. They forego developer profits in return for greater
visibility and the benefit of having a higher proportion of their capital
invested in productive assets.
It is notable this year that the weighting to small cap companies, which we
define as companies with a market capitalisation between £250 million and
£2.0 billion, has increased at the expense of the midcaps, being companies
capitalised between £2.0 and £10.0 billion. This is a result of the sell
down of midcap Chinese holdings, and reinvestment into smaller European and UK
companies. At the year end, the simple average market capitalisation of
portfolio was £4.9 billion (2021: £5.4 billion).
Renewable Energy Developers
The performance of the Trust’s renewable energy developers was mixed in
2022. Going into the year, two Chinese developers, China Suntien Green Energy
and China Longyuan Power represented a combined 11.5% of the portfolio, both
having performed exceptionally well in 2021, with share price increases of
155.5% and 134.2% respectively. I am concerned about both the economic and
political situation in China, and therefore cut the Suntien holding back
sharply over the year (to 1.8% by the year end) and sold Longyuan in its
entirety. Despite both companies performing perfectly well on a fundamental
basis, Suntien’s share price fell 46.5% and Longyuan 47.6% in 2022 as
investors divested from Chinese stocks. With hindsight, it would have been
better to have reduced exposure at an earlier stage.
European renewable developers fared better. RWE remained at the top end of the
portfolio and performed well on excellent financial results through the year,
helped by high power prices and an excellent result in its trading division.
Its proposed acquisition of the Con Edison renewables business in the US
represents a step change in RWE’s international renewables business. RWE’s
share price increased by 16.4% over the year.
The position in Spanish listed solar developer, Grenergy, was increased during
the year. Grenergy has made good progress with its development portfolio, and
2023 looks set to be a milestone year for the company as it completes several
large solar projects in Spain, Chile and Peru. Grenergy’s shares fell by
4.4% in the year.
Despite sometimes excellent financial results, smaller companies were often
out of favour. A good example would be Norwegian listed Bonheur, better known
for its ownership of Fred Olsen Renewables. It has targeted an almost 30%
increase in renewable production for 2022 and reported sharply higher
financial results through the year. Bonheur has ambitious plans for offshore
wind development, and the position was increased steadily over the year.
However, despite the strong business fundamentals, its shares fell by 19.2% in
the year.
Northland Power’s shares were relatively flat. This was disappointing given
strong financial results and continued progress with their development
portfolio.
We sold the holding in Acciona, re-investing in the newly listed Acciona
Energias, which owns the group’s renewable energy activities and was spun
out as a separately listed company to improve visibility for the group.
Acciona Energias’s shares gained 10.9% in 2022.
Further down the portfolio, the position in Enefit Green was increased. Enefit
develops renewable projects in the Baltic states and recorded strong results
during the year. It was rewarded with a share price increase of 8.3%. 7C
Solarparken, which focusses on German and Belgian solar, also saw strong
figures driven by power pricing. Its shares fell by 1.4% however.
Yieldcos and Funds
The exposure to yieldcos increased in the year, from 25.7% at December 2021,
to 38.9% by the end of 2022. Some new positions were added, taking advantage
of share price weakness in the second half of the year. I believe that UK and
European yieldcos could benefit from a “higher for longer” power price
environment.
Greencoat UK Wind remains a key holding for the Trust. Its strategy to sell
power at market rates served it well as UK power prices increased. Its
published NAV per share has increased over the year, and given the
conservative basis on which it had been calculated, the UK windfall tax was
absorbed without a significant detriment to the NAV. Greencoat’s share price
increased by 8.3% in 2022.
NextEnergy Solar Fund’s shares gained 9.5% as it made good progress in its
diversification strategy, with new battery storage developments acquired
during the year. The position in Foresight Solar was increased, and its shares
rose by 16.2%.
In the second half of the year, the Trust took advantage of share price falls
to increase the position in Octopus Renewable Infrastructure and start a new
holding in Aquilla European Renewables. Both these companies should benefit
from higher power pricing and the completion of assets currently in
construction (acquired at the pre-construction stage). They both trade at
attractive discounts to their published NAVs.
North American positions were less successful than those in the UK. We
attribute this to the lack of power price and inflation linkages in their
revenues, with power tending to be sold on pre-determined long term prices. In
a rising interest rate environment, their shares were marked down accordingly.
Clearway Energy (A) shares fell by 10.6%, Atlantica Sustainable Infrastructure
by 27.6%, and Transalta Renewables by 40.0%. Transalta fell sharply in the
final quarter as it gave lower cash flow guidance on the back of expected
higher tax payments and higher maintenance expenditure. On the plus side,
following another year of largely negative performance, North American
yieldcos now offer very attractive yields, and operate in what should be a
high growth environment.
Renewable focussed utilities
As mentioned in the Chairman’s letter, the holding in Fortum was sold
following the Russian invasion of Ukraine. Fortum had not only some direct
Russian power generation investments, but also a far larger liability through
its ownership of German power and gas business Uniper. With Uniper’s
upstream gas purchases from Russia severely curtailed, they were forced to buy
more expensive gas elsewhere to fulfil sales contracts. The Fortum stake was
sold over the second quarter, at an average price approximately 40% below the
price at which it closed 2021.
The other major disappointment within this segment was Algonquin Power &
Utilities, whose shares fell by 51.5% over the year. The fall took place
almost entirely in the final quarter in response to a poor third quarter
financial result. The company has now released a new strategy based on
internally funded growth, with a rebased dividend. We believe that the
company’s business of North American renewable energy and smaller utilities
is fundamentally sound, and that there is scope for the shares to recover well
in 2023.
The two other constituents of this category, SSE and Iberdrola both performed
well, their shares increasing over the year by 3.8% and 5.0% respectively.
Both have sizable and growing renewable businesses.
Other segments
Drax Group, Biomass generation and production sector has remained at the top
end of the portfolio and delivered excellent financial results. 2023 should
see a decision from the UK Government on whether to approve the company’s
carbon capture plans. Drax’s shares gained 16.2% in 2022.
Also in the UK, the portfolio’s exposure to energy storage companies
increased. Batteries are a key component in grid balancing and managing short
term power volatility. Following additional investment and a 24.1% increase in
share price, Harmony Energy Income Trust became the Trust’s largest battery
storage investment. Likewise, Gresham House Energy Storage Fund also performed
well, its share price recording an increase of 24.7%.
Less successful was the holding in waste to energy company China Everbright,
which lost value in line with the other Chinese positions. The position was
cut back sharply in the year to reduce exposure to China.
Currency and hedging
The Trust made currency hedging losses of £0.7 million (2021: gains of
£0.4m) over the year, offsetting equivalent currency gains made on
investments held in those currencies. Currency hedge contracts are undertaken
to mitigate against currency volatility and to offset potential losses from
adverse currency movements.
Outlook
Following a strong period of returns, it is disappointing to record an
investment loss in 2022. However, this was concentrated in a limited number of
positions, which experienced outsized losses. The majority of other holdings
performed relatively well, although share price gains were typically some way
behind earnings growth.
While there is much uncertainty in the global economy, and political risk
remains an ongoing issue, 2023 should see a peak in inflation and therefore
also in interest rates. As such, some of the negative macro headwinds should,
I hope, abate.
While recent weeks have seen a welcome moderation in the high fuel commodity
price environment, those driving the electricity price, such as natural gas
and carbon permits, remain at elevated levels in comparison to recent history.
The phase out of both coal and older nuclear capacity in coming years should
keep the margin of supply over demand relatively tight in the European
electricity market. I therefore believe that European electricity prices could
stay higher for longer than anticipated by the market, sustaining a positive
backdrop for the portfolio.
James Smith
Premier Fund Managers Limited
14 March 2023
Investment Portfolio
at 31 December 2022
Company Activity Country of operation Value £000 % total investments Ranking 2022 Ranking 2021
Drax Group Biomass generation and production United Kingdom 3,295 6.8 1 3
Greencoat UK Wind Yieldcos & funds United Kingdom 3,059 6.4 2 6
NextEnergy Solar Fund Yieldcos & funds United Kingdom 2,969 6.2 3 7
RWE Renewable energy developers Europe (ex. UK) 2,952 6.1 4 4
Octopus Renewable Infrastructure Yieldcos & funds Europe (ex. UK) 2,550 5.3 5 –
Aquila European Renewables Yieldcos & funds Europe (ex. UK) 2,273 4.7 6 –
Atlantica Sustainable Infrastructure Yieldcos & funds Global 2,150 4.5 7 10
Iberdrola Renewable focused utilities Global 1,939 4.0 8 19
Harmony Energy Income Trust (incl. ‘C’ Shares) Energy storage United Kingdom 1,899 3.9 9 21
Clearway Energy ‘A’ Yieldcos & funds North America 1,865 3.9 10 13
Grenergy Renovables Renewable energy developers Global 1,845 3.8 11 16
Foresight Solar Fund Yieldcos & funds United Kingdom 1,820 3.8 12 18
Gresham House Energy Storage Fund Energy storage United Kingdom 1,777 3.7 13 12
Corp. Acciona Energias Renovables Renewable energy developers Europe (ex. UK) 1,603 3.3 14 –
SSE Renewable focused utilities United Kingdom 1,540 3.2 15 15
Bonheur Renewable energy developers Europe (ex. UK) 1,211 2.5 16 41
Northland Power Renewable energy developers Global 1,135 2.4 17 20
National Grid Electricity networks Global 1,097 2.3 18 5
Algonquin Power and Utilities Renewable focused utilities North America 1,080 2.2 19 9
China Suntien Green Energy Renewable energy developers China 863 1.8 20 1
TransAlta Renewables Yieldcos & funds North America 742 1.5 21 17
Gore Street Energy Storage Fund Energy storage United Kingdom 666 1.4 22 24
China Everbright Environment Waste to energy China 632 1.3 23 2
Greencoat Renewables Yieldcos & funds Europe (ex. UK) 604 1.3 24 27
7C Solarparken Renewable energy developers Europe (ex. UK) 596 1.2 25 30
US Solar Fund Yieldcos & funds North America 571 1.2 26 –
Enefit Green Renewable energy developers Europe (ex. UK) 562 1.2 27 35
MPC Energy Solutions Renewable energy developers Latin America 539 1.1 28 23
Cloudberry Clean Energy Renewable energy developers Europe (ex. UK) 523 1.1 29 –
Opdenergy Renewable energy developers Europe (ex. UK) 504 1.0 30 –
Omega Energia(1) Renewable energy developers Latin America 377 0.8 31 32
Eneti Renewable technology and service Global 292 0.6 32 29
Atrato Onsite Energy Renewable energy developers United Kingdom 287 0.6 33 39
Fusion Fuel Green (incl. warrants) Renewable technology and service Europe (ex. UK) 285 0.6 34 33
Orsted Renewable energy developers Europe (ex. UK) 264 0.5 35 –
Seaway 7 Renewable technology and service Global 258 0.5 36 31
Boralex Renewable energy developers Global 245 0.5 37 –
Cadeler Renewable technology and service Europe (ex. UK) 227 0.5 38 –
Solaria Energía y Medio Ambiente Renewable energy developers Europe (ex. UK) 213 0.5 39 38
GreenVolt Renewable energy developers Europe (ex. UK) 160 0.3 40 –
Innergex Renewable Renewable energy developers North America 148 0.3 41 44
Tion Renewables(2) Renewable energy developers Europe (ex. UK) 145 0.3 42 42
Bluefield Solar Income Fund Yieldcos & funds United Kingdom 136 0.3 43 –
Scatec Renewable energy developers Global 113 0.2 44 40
Clearvise Renewable energy developers Europe (ex. UK) 106 0.2 45 –
48,117 99.9
Unquoteds Activity Country Value £000 % total investments
PMGR Securities 2025 PLC ZDP subsidiary United Kingdom 50 0.1
Total investments 48,167 100.0%
(1) Omega Energia (formerly Omega Geracao).
(2) Tion Renewables (formerly Pacifico Renewables).
Review of Top Ten Holdings
at 31 December 2022
1. Drax Group
Market cap: £2.8 billion
www.drax.com
UK listed Drax Group operates the UK’s largest renewable energy facility, the Drax power station in Yorkshire, which it converted from coal to biomass pellets manufactured from sustainable wood waste. The facility benefits from UK subsidy schemes lasting through to 2027. Drax is also one of the world’s largest producers of biomass pellets from its facilities in the US and Canada. Future growth options include developing a carbon capture plant at the Drax power station, expanding their upstream pellet
business, adding additional capacity at their Cruachan pump storage hydro plant in Scotland, and developing new biomass power stations in the US. Drax recorded strong earnings for the first half of 2022, with adjusted earnings per share increasing 37.0%. The company has locked in high power prices for a large portion of their output for the next two years, ensuring earnings should remain healthy. Drax’s shares rose by 16.2% in 2022.
2. Greencoat UK Wind
Market cap: £3.5 billion
www.greencoat-ukwind.com
Greencoat UK Wind (“UKW”) is a UK listed renewable energy investment company, owning both on and offshore wind farms. It operates as a yield company, acquiring completed assets rather than taking development risk. UKW’s strategy is to sell power predominantly in the merchant markets rather than hedging output through commercial forward sales contracts or financial derivatives. Higher power prices meant that UKW’s dividend was 3.2x covered by available cash generation in 2022, as compared to 1.9x in 2021.
Over the course of 2022, UKW’s published NAV increased by 25.2% to 167.10p per share. The UK energy generator levy or “windfall tax”, applying to revenues from 2023, was incorporated into the December 2022 NAV. However, UKW’s NAV had assumed a substantial discount between forward electricity prices and those expected to be achieved by the company, and the levy was absorbed within this discount. In 2022, UKW’s share price increased by 8.3% to 152.10p, standing at a discount to the December 2022 asset value.
3. NextEnergy Solar Fund
Market cap: £655 million
www.nextenergysolarfund.com
NextEnergy (“NESF”) is a UK listed renewable energy investment company, owning large-scale UK solar assets. NESF has diversified from solar over recent years, and 2022 saw the acquisition, with a partner, of a large (250 MW) battery storage development project, expected to be operational in 2025. NESF’s solar business has continued to perform well, with the company’s most recent projects being awarded 15-year index linked contracts in the UK government’s August 2022 Contracts for Difference auction. NESF’s
NAV gained 15.8% over 2022 reaching 120.90p. In common with UKW above, the December 2022 NAV calculation incorporated the UK’s new windfall tax. Also in common with UKW, NESF’s share price failed to keep pace with the increasing NAV, gaining 9.6% over the year to reach 110.10p, and standing at a discount to the NAV at the year end therefore.
4. RWE
Market cap: £24.9 billion
www.rwe.com
RWE is a German listed multi-national energy company, which is transitioning from fossil fuels to renewable energy. It has expanded rapidly in renewables over recent years and has set out a capital programme to spend Euro 50 billion on green growth to 2030. RWE is in the process of transitioning away from fossil fuels, having closed 12 GW of coal-fired power stations since 2012. In 2022 RWE substantially expanded its US renewables business through the acquisition of Co Edison Clean Energy (“CEB”). CEB’s
primarily solar based portfolio complements well RWE’s wind focussed US business. Financial performance was strong in 2022, with adjusted earnings per share over the 9 months to September, increasing by 105.9%, and RWE’s share price gaining 16.4% over the year.
5. Octopus Renewables Infrastructure Trust
Market cap: £568 million
www.octopusrenewalesinfrastructure.com
Octopus Renewables Infrastructure (“ORIT”), a new holding acquired during the year, is a UK listed investment company with assets across Europe including the UK, France, Poland, Finland, Ireland, and Sweden. Its investments are approximately equally split between solar and wind. ORIT’s NAV per share increased by 6.9% to 109.40p over 2022. However, despite the higher asset value, its share price fell by 9.2% and trades at a discount to the NAV.
6. Aquila European Renewables Income Fund
Market cap: £333 million
www.aquila-european-renewables.com
Like ORIT, Aquila European Renewables (“AERI”) is another new UK listed yieldco holding, having been acquired in the year. Unlike ORIT, AERI is not present in the UK, with its assets located in Spain, Portugal, Norway, Denmark, Finland, and Greece. Its investments are approximately equally split between wind and solar, with a small amount of hydro capacity. AERI’s NAV per share increased by 7.8% over 2022 to reach Euro 110.64 cents. However, and in common with ORIT, AERI’s shares moved in the opposite
direction, falling by 9.6% during the year to close 2022 at a large discount to their NAV.
7. Atlantica Sustainable Infrastructure
Market cap: £2.5 billion
www.atlantica.com
Atlantica Yield is listed in the US and operates as a yield company, with 70% (by cashflow) of assets being renewable energy and the balance being natural gas generation, electricity transmission, and water treatment plants. Atlantica has a commitment to maintain at least 80% of gross earnings from low-carbon assets, and it sits in the first percentile of the Sustainalytics ESG rankings. Their assets are located in the US, Europe, South Africa and Latin America, have a weighted average remaining contract
length of 15 years, with 90% of revenues denominated in US dollars. Atlantica had another active year, including the acquisition of a large solar plant in Chile, to which it intends to add a battery storage facility. Despite reporting interim earnings consistent with the prior year, Atlantica’s share price fell by 27.6% in 2022 as it reacted to higher US interest rates.
8. Iberdrola
Market cap: £61.6 billion
www.iberdrola.com
Iberdrola is a large Spain listed international utility and renewable energy business. It operates in the UK through its Scottish Power subsidiary, in the US through Avangrid, in Brazil through Neoenergia, plus operations in Mexico and other European countries. Its renewables business is one of the world’s largest, with Iberdrola targeting renewable energy investment of Euro 17 billion over the three years of 2023 to 2025, almost half of which will be in offshore wind. Installed renewable capacity is
targeted to increase from 40 GW at the end of 2022, to 52 GW by the end of 2025. Results have been strong in 2022, with nine-month earnings per share to September increasing by 29.2%, and the shares gaining 5.0% over the year.
9. Harmony Energy Income Trust
Market cap: £296 million
www.heitp.co.uk
Harmony Energy Income Trust (“HEIT”) is a UK listed battery storage investor which undertook a £210m share listing in November 2021. HEIT’s sponsor and major investor, Harmony Energy, is a leading UK battery storage developer and is responsible for the management of HEIT. Its first project, a 98 MW, 2-hour duration project, was completed in November 2022, and has the distinction of being Europe’s largest battery storage project. A further four sites are expected to be completed over the course of 2023. In
October 2022, Harmony issued further new shares for cash proceeds of £15 million, enabling it to acquire a further three “ready to build” projects from its sponsor. HEIT’s shares increased by 24.1% in 2022.
10. Clearway Energy
Market cap: £3.0 billion
www.investor.clearwayenergy.com
Clearway Energy is a US listed yield company, operating solar and wind generation facilities together with gas generation plants which operate under system reliability contracts to provide peaking / standby capacity. Clearway also owned a thermal energy business providing steam and hot water to commercial and public sector clients. The thermal business was sold in 2021 at an excellent price, which has allowed the company to reinvest proceeds in expanding their renewable energy business, with several new
wind, solar, and storage assets acquired during 2022. Financial results reported during 2022 have been good. However, US renewable companies were weak on higher interest rates, with the company’s A shares held by PMGR falling by 10.6%.
Statement of Directors’ Responsibilities in Respect of the Annual Report and
the Financial Statements
The Directors are responsible for preparing the Annual Report and the Group
and Parent Company financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare Group and Parent Company
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
Chairman
14 March 2023
Directors and Advisers
Directors
Gillian Nott OBE – Chairman
Melville Trimble – Chairman of the Audit Committee
Victoria Muir – Chairman 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
10th Floor
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
Auditor
KPMG LLP
15 Canada Square
London E14 5GL
Tax Advisor
Crowe U.K. LLP
55 Ludgate Hill
London EC4M 7JW
Stockbroker
finnCap Capital Markets
One Bartholomew Close
London EC1A 7BL
Ordinary Shares
SEDOL 3353790GB
LSE PMGR
Zero Dividend Preference Shares
SEDOL BNG43G3GB
LSE PMGZ
Global Intermediary Identification Number
GIIN W6S9MG.00000.LE.826
*Calls are charged at the standard geographic rate and will vary by provider.
Calls outside the United Kingdom will be charged at the applicable
international rate. The Registrar is open between 09:00 - 17:30 Monday to
Friday excluding public holidays in England and Wales
For the purposes of complying with the Disclosure and Transparency Rules
("DTRs") and the requirements imposed on the Company through the DTRs, the
Annual Report, as will be submitted to the National Storage Mechanism,
contains the full text of the Directors’ Report at page 26, the Statement of
Corporate Governance at page 34, the Directors’ Remuneration Report at page
38, the Audit Committee Report at page 42, and the Auditors' Report at page
46, which are excluded from this announcement.
LEI Number: 2138004SR19RBRGX6T68
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