Good afternoon, ladies and gentlemen, and welcome to the Premier Miton Global Renewables Trust plc post AGM update. Throughout this recorded meeting, attendees will be in listen-only mode. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen.
Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish those responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, I would just like to submit the following poll, and if you'd give that your kind attention, I'm sure the company would be most grateful. I would now like to hand you over to Head of Investment Trusts, Claire Long. Claire, good afternoon.
Good afternoon, everybody. Thank you for joining us. Just to reiterate what Jake said, this is the post Annual General Meeting update. The trust, the Premier Miton Global Renewables Trust held its physical AGM at lunchtime today, and we thought it would be helpful for those investors and would-be investors who weren't able to attend that meeting to see what we had to say there. James Smith, as Manager of the Trust, will be giving the presentation. Just before I hand over to James, if I could just draw your attention to the following risk warnings, which we're obliged to show before starting the presentation. I'll now hand over to James to start the presentation.
Thank you, Claire. Thank you again, everyone for joining us today. In brief, 2023 was another quite a difficult year for the trust and for renewable energy investment. The net asset value total return. There's an error there, actually. That should be the total assets total return. That is measuring the portfolio return, so, -7.5%. Just to reiterate, that is not the net asset value total return as shown on screen. That is the total assets total return. Looking at our gross assets, the portfolio, and that was -7.5%, pretty much the same as 2022. That compares to the index return. We use the S&P Global Clean Energy Index, and that was -20.1%.
Although the portfolio was negative in the year, it was substantially better than the index. Now just to reiterate that the trust has a relatively low level of commonality to the index. You know, we do expect divergence over time and within any one given year. The revenue return for ordinary shares, so taking all the income received into the trust at less costs charged to revenue and divided by the number of ordinary shares was GBP 0.0811 . That was an increase of 11.2% above the GBP 0.0729 recorded in 2022. That allowed the Directors to pay a higher dividend for the year. Full year dividend was GBP 0.074 , and that was at 5.7% on prior year.
What we can see there is a slight divergence between the revenue and earnings performance and the capital performance. I guess the message is quite simple and really that the underlying performance of the companies held within the trust in terms of their profits and their dividends was very good and actually increased nicely in the year over 2022.
Despite that, share prices fell, and we'll come on to the reasons for that shortly. We're continuing to see companies declaring higher dividends, so we're hopeful that our own income in the trust can continue to grow and the directors can pay a higher dividend in the future. Again, just to reiterate that the underlying performance of the trust is robust.
Company profitability, earnings and dividends continue to grow for the most part. The operating environment is attractive. Governments remain supportive of the sector. Having said that, offsetting those things are short-term macroeconomic headwinds from things like commodity prices and interest rates. Let's just go on the next slide and look at that in slightly more detail.
The big thing that's been with us really for the past 18 months is of course increasing interest rates. Slightly disappointingly, the market had been expecting to start seeing falling interest rates in 2024. Given higher inflation prints, we're seeing interest rate reductions being pushed back more in toward the end of the year. That's been taken quite negatively by the market.
Just to reiterate, when we talk about interest rates and the sector, and the impact it has on share prices. If interest rates are high, the market effectively discounts future cash flows of companies back to current day values, and it uses prevailing rates of interest to do that. The higher the interest rate in the economy, assuming no change in your future cash flows and profits, the lower in theory your share price should be. The market's view, renewable energy is having rather fixed long-term cash flows, similar to that of a bond, for instance. Therefore, when interest rates go up, the market tends to mark down share price of renewable energy companies.
We don't necessarily think that's right because there's a number of other things that influence the trend of future cash flows, not least growth in the sector, power prices, and inflation linkages. The market does seem to have been rather overly fixated on interest rates over the past 12 months. Coming on to power and gas prices. They've been moderating, particularly in Europe, over the past 12 months. They're almost now back to the level that we saw pre the Russian invasion of Ukraine. We have rather a global glut of LNG. Europe has managed to quite successfully reconfigure its gas importation infrastructure away from Russia, and orient it more toward LNG.
Coupled with the continuing very weak industrial demand for gas and power in continental Europe, and that's had a rather moderating effect on power prices. Of course, you know, the companies that we own will sell power in advance. To an extent, they'll be shielded from short-term falls in power prices. In the long term, their business is to sell power. If power is falling, that tends to be viewed quite negatively by the market. Thirdly, inflation. Inflation continues above targets in both Europe and the U.S.
We do have a number of companies within the portfolio that have very positive inflation linkages, either through power sales contracts, or directly through government incentive or subsidy-type mechanisms, historic mechanisms. Inflation has been a benefit, but unfortunately, the market doesn't really seem to have picked up on that too much. Although we've got companies increasing their dividends by inflation, which they're able to do because their revenues are very inflation linked, the market doesn't seem to have given those companies much credit for that.
Lastly, renewable construction costs we've seen higher costs in the wind sector, but solar continues to fall. Now, particularly things like offshore wind has increased, and again, that's been taken quite negatively by the market. We have seen governments, for instance, flexing their systems of bidding for new offshore wind, so flexing those available prices upwards to compensate for higher capital costs. Again, the market doesn't really seem to have given the sector much credit for that.
In terms of individual companies and specific sub-sectors, the things that helped performance last year, we did quite well in some of the Spanish companies. Spanish renewable energy developers had a good year. Opdenergy was a company that we owned and received a bid at quite a significant premium. Grenergy is another Spanish-listed company, with assets both in Spain, but also with quite a sizable project portfolio that it's building out in Chile, and that was well received in the year. Secondly, a company that we've been adding to recently, Cadeler, and this is a company that owns offshore wind turbine installation vessels. And this is a market that we believe is relatively undersupplied.
In particular, if we can imagine that the average size of an offshore wind turbine has gone from 7.5 MW to more like 15 MW, there are relatively few vessels available that are capable of installing those larger turbines. That plays well into the hands of Cadeler, which is the market leader and has several new vessels on order, and will be available to meet that demand at quite attractive rates of return. Last year, we also had some opportunistic exposures such as Hannon Armstrong, which is a U.S. renewable energy financing business, which had been sold down on the basis of higher interest rates. We managed to pick up that share and then sell it three or four months later at about an 80% return.
Turning to the more negative side of the balance, the things that hurt performance. Well, the U.K. Iisted renewable energy companies had a very tough year. Now we are overweight in the U.K., for want of a better term, and we'll come on to our geographic exposures later. Now, the reason we were overweight in the U.K. is that we took the view that to the extent that interest rates are high, that's only because inflation is high. For most renewable energy companies, if you have strong inflation linkages, the benefits of that inflation will offset the negatives of the higher interest rates. If we turn to the U.K. renewable energy investment companies, and we look at their net asset values, which they publish, those NAVs didn't really move that much last year.
To the extent they fell, they were down maybe 1% or 2%, and that was mainly because of power prices. For them, the positives of inflation offset the negatives of higher interest rates. However, they moved as a sector from roughly small premiums to NAV to now trading on anywhere between 20%-35% discounts to NAV as the market became purely fixated on interest rates and rather ignored the benefits of higher inflation. We're hopeful that, given where discounts are, those shares will recover over time. By and large, the companies have continued to pay higher dividends, and they're now trading on rather high and attractive yields. Secondly, Drax had a difficult year. It wasn't anything that the company had done. The company continued to produce very strong earnings figures.
There was a lot of negative media and political pressure on the company. Throughout the year, we believe that was misplaced, and we are confident in the future of the company and are expecting positive resolution to the current consultation which is ongoing for a transition mechanism, to take them from the 2027 revenues, where their existing revenue schemes expire through to the start of biomass energy and carbon capture in the early 2030s.
I think that will be well received by the market should it happen. A third negative was the battery storage companies. There's been rather a fall off in revenues for battery storage over the past few months, as the frequency market has become saturated and power prices have fallen, which have reduced trading spreads available to the sector.
Recent announcements by the companies indicate that the market is now improving again and that the underlying volatility caused by renewable energy on the system is actually now beginning to expand trading spreads. Furthermore, the National Grid's balancing market, which for a long time has been closed off to batteries and has really focused on thermal power, is now being opened up to battery storage, which should, in theory, be able to outcompete gas-fired power stations in that market.
The last negative was U.S. renewables, which we were underweight on with only a low teens percentage exposure. As I've mentioned in the past, renewable energy in the U.S. tends to be sold on long-term fixed price contracts, which while offering good visibility for investors, tend to underperform in an environment of rising interest rates. Because unlike the U.K. ones, which are largely index linked, or have power price exposures, the U.S. ones, U.S. revenues really are quite bond-like.
Hopefully those companies will pick up again if we then see later in the year U.S. interest rates beginning to come down a little. Turning to the underlying performance. Looking at the total assets, total returns versus the index. Again, this is the performance of the portfolio, including all costs. Now if you'll recall that in October 2020, the trust prior to that date had an investment mandate that was an infrastructure mandate. In October 2020, the shareholders voted to change the investment strategy to one of investing purely in renewable energy.
Looking at the three full calendar years post that change, so in 2021, we strongly outperformed the index by about 40%, which really was quite good going. 2022, we underperformed, and in 2023, we have again outperformed, albeit with a negative performance. Versus the index, it's doing okay, although, of course, the last two years haven't been great for the sector. Now looking at the share price total return, so this is the return to ordinary shareholders including dividends. You can see that the effect of the gearing within the trust, so this is, as shareholders will be aware, this is a geared split capital investment trust with two classes of share, ordinary shares and ZDP shares.
The effect of that split capital structure magnifies the movement in the net asset value compared to the total assets. That's because of the gearing. The 7.5% negative total assets total return in 2023 translated into a 19.2% negative share price total return. That was also partly because the discount increased as well slightly. You can see looking back, this is every full year since I was appointed investment manager in the end of May 2012. We've had more good years than bad, I should say. You know, and I think largely because of the you know, to a large extent because of the capital structure, it is by its nature, we're either doing very well or pretty badly.
Although after two negative years, I'm hopeful that we should start going into a more positive period. Of course, after two negative years, particularly when we take into account the fact that companies by and large have managed to increase their earnings and underlying dividend, that just means that the underlying companies, the portfolio is trading on a more favorable valuation than it was a couple of years ago. Now turning to the balance sheet and just continuing on that theme. At the end of 2023, we had GBP 43 million of gross assets, of which the ZDP shares, so they are a fixed return instrument. They just compound over time. If you're an ordinary shareholder, effectively they're a liability. GBP 16.5 million, leaving GBP 26.8 million of ordinary shareholders' capital.
You can see the step down in ZDP shares at the end of 2020, where we repaid about GBP 15 or GBP 16, I can't remember, GBP 16 million of ZDP shares and went forward with a smaller ZDP share issue. ZDPs remain well covered. They're on an attractive yield to maturity. They will repay in November next year, the end of November next year, just over GBP 1.27 per share. They're currently trading in the market at about GBP 1.10 or GBP 1.11, something like that. Okay. That's fine. We are obliged to show performance to the most recent month end, going back over 12-month periods. That is there between both the index and also ordinary shares and the NAV.
Now turning to reconciliation of the net asset value, which we always show between the start and the end of the year. We finished 2022 with net assets of GBP 178 and closed on GBP 146. Of course, the big reconciling item there is losses on investments just shy of GBP 0.30. You can see we recorded net revenue income of GBP 0.0811, of which the dividends that were ex-dividend in the year, GBP 0.073. Dividends remain well covered. ZDP finance costs, of course, they come off the value of the ordinary shares every year. That was GBP 0.0432. Then a few other smaller reconciling items like some currency gains, management fees, etc . Turning now to dividends.
You can see the step down in 2021, and that was a result of refinancing the ZDPs in a lower amount. Now of course, that had to be funded by sales of assets from the portfolio, which meant that the net revenue income coming into the company was lower. We have now begun to increase the dividend again. Given that our dividend receipts coming into the trust from the portfolio continue to increase, I'd be hopeful to be able to increase dividends over the next year or so, in continuation with what we've seen recently. Turning to the geographic allocation, as we saw on the first slide, we did outperform the sector quite considerably last year with a -7.5% total return versus 20% for the index.
One reason for that is the relatively low exposure to North America. North American renewables were very poor last year. They didn't cope well with the higher interest rate environment. We remain well weighted to the U.K., which is a very mature, renewable energy market, but one with high levels of inflation linkage, and also we believe an attractive power market.
The U.K. is undersupplied with electricity and remains a very large net importer of power from continental Europe, principally from France. Pressures on European electricity should therefore be reflected in U.K. electricity prices as well over time. As we see carbon prices increasing, LNG prices being higher than imported gas from Russia, we believe underlying pressures on electricity should be upwards.
The key message is that we haven't made that much change in the portfolio over the past 12 months. Quite happy with the allocation as it is. I'm quite happy with the way the companies are performing on a fundamental basis. One update actually for the first quarter of this year, that we are now totally out of China, so China is now zero.
And the reason for that is although the Chinese renewable energy companies look attractive at first glance, with reasonable valuations, and good growth, we believe that geopolitical events and potential geopolitical risks rather mean that the potential risk for a total loss is more than negligible and it isn't therefore worth running the risk of having investments in China at the current time. Turning to sector allocation.
Again, as with the geographical allocation, there hasn't really been a great deal of change over the past 12 months. So the core pure-play renewable energy companies are still around three-quarters of the portfolio in total. So the first category there, the Yieldcos and investment companies. Just to remind everyone, these are the companies that tend to buy ready-made, recently built, completed assets, and they then operate those assets for their expected lifetime, and they pay out the majority of cash flows to shareholders as a dividend stream.
So they are held really for income and yield rather than growth. The renewable energy developers, they are really the full cycle renewable energy companies that actually do the development. They find the location, they deal with the grid, the environmental permitting, finding an offtaker for the power. All that can take several years before you've got an operational wind farm or solar farm or whatever it is. Now, that business is higher risk, but it's also higher return.
Those companies typically pay out a lower percentage of earnings as dividend, because they have higher capital requirements to fund all this upfront development. The way they fund it is either through retained earnings, and occasionally they will sell assets to financial buyers such as the investment companies or insurance companies or financial buyers, whoever it is. Then we have you know, mixture of other types of companies such as the energy storage companies, sometimes renewable focused utilities, stocks such as SSE, for instance, pure-play electricity networks, which of course are benefiting greatly from the growth in renewables.
And then renewable technology and service. We no longer have any waste-to-energy companies. That was a Chinese company which we sold last year. That's the end of the formal presentation. Please do feel free to contact either of us at any point if you have any questions or would like any further information. I think we can go into Q&A, Claire.
Yes. Jake, back to you momentarily.
Perfect. Absolutely. James, Claire, thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab that's situated on the right-hand corner of your screen. Just while the company takes a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard.
James, Claire, as you can see, we have received a number of questions throughout your presentation this afternoon. Thank you to all of those on the call for taking the time to submit their questions. Claire, at this stage, if I may now hand over to you just to chair the Q&A with James. If I could just ask you to read out those questions and give your responses where it's appropriate to do so, and then I'll pick up from you at the end. Thank you.
Thank you very much. Okay. One question which I'll cover briefly. The question is, given the increase in gearing from 48%- 62% over the year, how does the board plan to manage the company's capital structure in light of the upcoming continuation vote in 2025 and the maturity of the ZDP shares in November 2025?
Now, as the questioner rightly alludes to, this is a question for the Board. I can't answer on their behalf, but what I would say is they are very conscious of that timescale and will be, and are already starting to have preliminary discussions amongst themselves and with the trust's advisors as to what will happen. 12 months from now, at the next AGM, there will be a continuation vote, and we will see what happens then.
Please rest assured that in the meantime, the Board is very aware of that timetable and working behind the scenes there. Turning to some questions, more specifically for James as a Portfolio Manager. James, can you say more about what battery storage assets you see most attractive and why? Do you consider that the current prices of Grid and others are an overreaction of recent problems?
Yes, that's a good question. What I would say is that all three are trading now at a discount to replacement cost. If you had to go out and build those assets, it would cost considerably more than their implied value, given their share prices. In terms of ones we own, we actually own all three. We were big sellers of Grid and Harmony, HEIT, toward the end of last year, so they were much smaller parts of the portfolio than Gore Street, which is GSF. The reason we did that was, I should say, we sold them at quite considerably higher prices than they're currently trading at today. The reason we did that is that revenues were actually falling off for quite a while over last year, as the frequency market became rather saturated.
Now, the key differentiator between these three companies is that Gore Street is a much more international business in terms of it has assets in Ireland and also in the U.S., and a small one in Germany as well. Now, if you take Gore Street's NAV, and you assume that its U.K. operations are totally worthless and just value the U.S., and the Irish, and the German assets, you still come out. I mean, I worked it out at GBP 0.72, so I'd encourage people to do their own calculations, but you know, it's easy enough to do. The shares are implying that the U.K. assets are worthless and there's a discount on the U.S. and the Irish assets, which have actually continued to perform very well.
That's why we have quite a considerably higher holding in Gore Street than the other two. Now, one thing that's been happening recently which should work to the advantage of the predominantly U.K. ones, Gresham, Gore, and Harmony, HEIT, is that the U.K.'s or National Grid's balancing market system, whereby batteries will be full participants in the balancing market, which has taken a while to get off the ground, now does seem to be hitting its stride. Both those companies, Gore and Harmony, have recently reported improved revenues over March and into April.
Whereas the share prices don't seem to have reacted quite in the way that I would have imagined. Yeah. That's a kind of long, roundabout way of saying I'm not allowed to say whether they're expensive or cheap. Yeah. The market doesn't seem to have given them the credit they deserve, I think, and the market just seemed to be rather fixated on the very low revenue environment that we saw in January and February, and doesn't really attribute any improvement in revenues that we've actually seen coming through over the past month or two.
Okay. The next question. You alluded to the fact that discounts on renewable energy investment companies were very wide. What's your view as to whether they will close in, come in, and what are the companies doing about the discounts?
I mean, if we take our strategy in the U.K., we hold these companies because in a period of rising inflation and interest rates, if you look at the sensitivities that they publish for their NAVs, a 1% increase in both inflation and interest rates is largely net zero or, for want of a better word, largely. It's largely a pass through in terms of their NAV. The benefit from it, the 1% movement in inflation or the negative for a 1% increase in interest rates is kind of offset by the other. Now unfortunately, the way it turned out is the markets didn't see it that way. The markets have focused purely on interest rates and have forgotten about inflation. We've seen share prices go from a slight premium to quite sizable discounts of 25%-30%.
I think also at play here is just general movements in the market in terms of money coming out of the U.K. market, money coming out of the FTSE 250, through ETFs or whatever, of which many of those companies sit within that index. There's been a lot of sellers in the market that aren't particularly price sensitive, and I think that's also driven down share prices. Now, what do the companies do about it? Well, they all now, for the most part anyway, seem to be buying back shares. And of course, that's very accretive if they're buying back at 30% discount to NAV.
The cash flows remain good, so they have a steady stream of cash flows that they can use to continue those buybacks for the foreseeable future. They've also now started to sell assets, and the assets that they've sold tend to have been sold at quite a premium to NAV. Now in particular, for instance, we have a big shareholder, Octopus, that sold Polish assets, for instance, at a very, very attractive price. Looking at some of their other assets, they're all fairly new.
I believe the NAVs continue to be calculated on a very conservative basis, and there is this differential between traded prices on the public markets and the basically traded prices in the private markets that these assets could be sold at. I think there is an element of self-help that these companies will see, but it may take a while to play out. You know, it may take a couple of years for them to get their share prices back to where they should be. Does that answer the question?
I hope so. I hope the questioner will let us know if there's it gives rise to a further question. Just one more, conscious of time. Is the index you benchmark against the right one given the significant divergence of the trust's performance from that benchmark?
There is no available benchmark that really looks at renewable energy companies that purely operate on a generation basis. The benchmarks tend to be clean energy, including both companies generating electricity and also those companies manufacturing wind turbines or doing electrolyzer technology or whatever it is. I would say it's the best of a bad bunch. I think for some investors looking at the trust, the kind of opportunity cost will be holding in the iShares Clean Energy ETF, for instance, which tracks that benchmark. I think it's the best available, but yeah, it does have limitations.
Okay. I'll now just hand you back to Jake. Conscious of everyone's time. Thank you very much for joining today.
Perfect. James, Claire, thank you very much indeed for addressing all of those questions that came in from investors. Of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended, just for you to review to then add any additional responses of course, where it's appropriate to do so, and we'll publish all those responses on the platform. James, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that'd be great.
Yes. Thanks, Jake. I would say that, you know, I know it's been a tough time, and we appreciate shareholders' patience with the difficult markets that we've had to cope with over the past couple of years. If we look forward for the next couple of years, we would hope that the investing environment will be better, in the sense that interest rates should or more likely to fall rather than increase over the next 12 months, I would assume. And that we're in a position now following two years of negative performance whereby most companies within the portfolio look to be on very favorable valuations. Yeah, I would urge shareholders to stick with us.
Perfect, James. That's great. Thank you once again for updating attendees this afternoon. Could I please ask attendees not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of Premier Miton Global Renewables Trust plc, we would like to thank you for attending today's presentation. That now concludes today's session. Good afternoon to you all.