TIDMPMGR
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 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 31 December % change
2022 2021
Total Return Performance
Total Assets Total (7.3%) 19.8%
Return(1)#
S&P Global Clean 6.6% (22.5%)
Energy Index(2)
(GBP)
Ongoing charges(3)# 1.70% 1.65%
Ordinary Share Returns
Net Asset Value per 178.44p 210.60p (15.3%)
Ordinary Share (cum
income)(4)#
Mid-market price 155.50p 196.50p (20.9%)
per Ordinary Share
(2)
Discount to Net (12.9%) (6.7%)
Asset Value#
Revenue return per 7.29p 7.43p (1.9%)
Ordinary Share
Net dividends 7.00p 7.00p 0.0%
declared per
Ordinary Share
Net Asset Value (12.1%) 26.5%
Total Return(5)#
Share Price Total (17.7%) 30.7%
Return(2)#
2025 Zero Dividend Preference Share Returns
Net Asset Value per 110.71p 105.44p 5.0%
Zero Dividend
Preference Share(4)
Mid-market Price 108.50p 107.50p 0.9%
per Zero Dividend
Preference Share(2)
(Discount)/Premium (2.0%) 2.0%
Hurdle Rates(6)#
Ordinary Shares
Hurdle rate to (0.8%) 0.7%
return the share
price of 155.50p
(2021: 196.50p) at
28 November 2025(2)
Zero Dividend
Preference Shares
Hurdle rate to (27.7%) (23.1%)
return the
redemption share
price for the 2025
ZDPs of 127.6111p
at 28 November 2025
Balance Sheet
Gross Assets less £48.3m £53.4m (9.6%)
Current Liabilities
(excluding Zero
Dividend Preference
Shares)
Zero Dividend (£15.7m) (£15.0m) (5.0%)
Preference Shares
Equity £32.5m £38.4m (15.2%)
Shareholders' Funds
Gearing(7)# 48.4% 39.0%
Zero Dividend 2.51x 2.74x
Preference Share
Cover
(non-cumulative)(8)
#
# 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 Value % total Ranking Ranking
operation £000 investments 2022 2021
Drax Group Biomass United Kingdom 3,295 6.8 1 3
generation
and
production
Greencoat UK Yieldcos & United Kingdom 3,059 6.4 2 6
Wind funds
NextEnergy Yieldcos & United Kingdom 2,969 6.2 3 7
Solar Fund funds
RWE Renewable Europe (ex. 2,952 6.1 4 4
energy UK)
developers
Octopus Yieldcos & Europe (ex. 2,550 5.3 5 -
Renewable funds UK)
Infrastructure
Aquila European Yieldcos & Europe (ex. 2,273 4.7 6 -
Renewables funds UK)
Atlantica Yieldcos & Global 2,150 4.5 7 10
Sustainable funds
Infrastructure
Iberdrola Renewable Global 1,939 4.0 8 19
focused
utilities
Harmony Energy Energy United Kingdom 1,899 3.9 9 21
Income Trust storage
(incl. 'C'
Shares)
Clearway Energy Yieldcos & North America 1,865 3.9 10 13
'A' funds
Grenergy Renewable Global 1,845 3.8 11 16
Renovables energy
developers
Foresight Solar Yieldcos & United Kingdom 1,820 3.8 12 18
Fund funds
Gresham House Energy United Kingdom 1,777 3.7 13 12
Energy Storage storage
Fund
Corp. Acciona Renewable Europe (ex. 1,603 3.3 14 -
Energias energy UK)
Renovables developers
SSE Renewable United Kingdom 1,540 3.2 15 15
focused
utilities
Bonheur Renewable Europe (ex. 1,211 2.5 16 41
energy UK)
developers
Northland Power Renewable Global 1,135 2.4 17 20
energy
developers
National Grid Electricity Global 1,097 2.3 18 5
networks
Algonquin Power Renewable North America 1,080 2.2 19 9
and Utilities focused
utilities
China Suntien Renewable China 863 1.8 20 1
Green Energy energy
developers
TransAlta Yieldcos & North America 742 1.5 21 17
Renewables funds
Gore Street Energy United Kingdom 666 1.4 22 24
Energy Storage storage
Fund
China Waste to China 632 1.3 23 2
Everbright energy
Environment
Greencoat Yieldcos & Europe (ex. 604 1.3 24 27
Renewables funds UK)
7C Solarparken Renewable Europe (ex. 596 1.2 25 30
energy UK)
developers
US Solar Fund Yieldcos & North America 571 1.2 26 -
funds
Enefit Green Renewable Europe (ex. 562 1.2 27 35
energy UK)
developers
MPC Energy Renewable Latin America 539 1.1 28 23
Solutions energy
developers
Cloudberry Renewable Europe (ex. 523 1.1 29 -
Clean Energy energy UK)
developers
Opdenergy Renewable Europe (ex. 504 1.0 30 -
energy UK)
developers
Omega Energia Renewable Latin America 377 0.8 31 32
(1) energy
developers
Eneti Renewable Global 292 0.6 32 29
technology
and service
Atrato Onsite Renewable United Kingdom 287 0.6 33 39
Energy energy
developers
Fusion Fuel Renewable Europe (ex. 285 0.6 34 33
Green (incl. technology UK)
warrants) and service
Orsted Renewable Europe (ex. 264 0.5 35 -
energy UK)
developers
Seaway 7 Renewable Global 258 0.5 36 31
technology
and service
Boralex Renewable Global 245 0.5 37 -
energy
developers
Cadeler Renewable Europe (ex. 227 0.5 38 -
technology UK)
and service
Solaria Energía Renewable Europe (ex. 213 0.5 39 38
y Medio energy UK)
Ambiente developers
GreenVolt Renewable Europe (ex. 160 0.3 40 -
energy UK)
developers
Innergex Renewable North America 148 0.3 41 44
Renewable energy
developers
Tion Renewables Renewable Europe (ex. 145 0.3 42 42
(2) energy UK)
developers
Bluefield Solar Yieldcos & United Kingdom 136 0.3 43 -
Income Fund funds
Scatec Renewable Global 113 0.2 44 40
energy
developers
Clearvise Renewable Europe (ex. 106 0.2 45 -
energy UK)
developers
48,117 99.9
Unquoteds Activity Country Value % total
£000 investments
PMGR Securities ZDP United Kingdom 50 0.1
2025 PLC subsidiary
Total 48,167 100.0%
investments
(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
END
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