Good morning, everyone, and welcome to TRIG's Annual Results for the year ended 31st of December 2024. Before we get started, just a couple of points to let you know that there are no fire alarms planned, so if you do hear a fire alarm, please head through to reception, and a fire marshal will lead you out of the building. It's the usual setup, so we expect the presentation to last approximately 30 minutes, and will be followed by Q&A. We'll take questions from the room, but also those watching online, please do submit questions through your browser. With that, I'll hand over to TRIG's Chairman, Richard Morse, for an introduction.
Thank you very much, and a warm welcome to TRIG's 2024 Annual Results Presentation. The managers are going to present to you a pleasingly resilient set of results against an operational and market backdrop that have been challenging. The portfolio has delivered healthy cash flow generation, enabling the continued reduction of portfolio debt, the execution of the share buyback program, and increasing dividends to shareholders. In addition to the accretive sales the company has already announced, the manager is pursuing further asset sales and financings in 2025 in order to reduce short-term debt further and to fund the tripling of the company's share buyback program. The Board is highly cognizant of the disappointing share price performance for company shareholders, and it's our priority that the company should execute its capital allocation priorities to drive greater shareholder returns.
In this spirit, we have also reached an agreement with the company's managers to change the basis of the management remuneration to one that secures better value and that is also appropriate for the long-term success of the company. With that, thank you, and I'm going to hand over to Minesh to lead the presentation.
Thank you, Richard. Welcome to TRIG's 2024 Results Presentation. 2024 saw continued dislocation between TRIG's underlying performance and its share price performance. The fundamentals that underpin TRIG's investment proposition remain favorable. We have a large, diversified portfolio of renewable generation and energy storage assets that spans six power markets and four technologies that support both energy security and energy transition across the U.K. and Europe. Over 50% of our revenues projected over the next 10 years are directly linked to inflation indices. Our revenues have good inflation linkage, which is particularly relevant in a macro climate where the prospect of protectionism from governments could lead to inflationary pressures.
TRIG continues to benefit from the expert management team that brings together InfraRed's investment pedigree with RES's operational excellence, with over 30 individuals dedicated to the day-to-day management of TRIG, as well as the ability to draw on the wider InfraRed and RES businesses as needed. This positions TRIG well in a shifting macro and geopolitical environment. Now, turning to TRIG's financials, our net asset value at the balance sheet date was GBP 115.90 per share, and Phil will go into more detail on this shortly.
The ongoing strength of the company's business model has given the Board confidence to increase the dividend per share to GBP 7.55 per share, as well as project increasing dividend cover. Now, EBITDA was down year- on- year, and most of this was expected due to lower power prices, but it was also impacted by transmission grid outages previously reported.
With the associated third-party cables now fixed, we see EBITDA improving in 2025. The portfolio value is underscored by over GBP 200 million of disposals at a 10% premium to carrying value, and this is in stark contrast to the prevailing share price, which therefore implies over 10% dividend yield and a base case 12% annualized return, with the opportunity to outperform this through the manager's initiatives to enhance value through disposals, development activities, as well as commercial and technical enhancements, which Chris will cover later in the presentation.
Now, these market conditions have been prevalent for the last two years now, and on this slide, we highlight our response and the progress we've made over the last 24 months to enhance returns for shareholders and the long-term prospects of TRIG. We also look forward to 2025, so over the past two years, we've continued to strengthen TRIG's position.
We have delivered GBP 210 million disposals at over a 10% premium to carrying value, and this has contributed to over GBP 500 million reduction in debt over the same period, and the underlying return expectations from the portfolio have increased, which has underpinned a 10% increase in the dividend since the February 2023 results. The strength of TRIG has enabled the Board to triple the size of the buyback program to GBP 150 million, or approximately 8% of the shares in issue at the current share price, and the company remains on a very strong footing, with high levels of cash flow visibility, the average cost of debt being only 3.5%, and 80% of revenues projected for 2025 at a fixed price per unit generated.
Capital allocation has been in the spotlight. It is a topic that we have been consistently vocal over the past 24 months. We are pleased to have delivered on our 2024 capital allocation priorities for reducing gearing while increasing shareholder income and capital returns, demonstrating the resilience of the portfolio as a whole and the benefits of diversification. With nearly GBP 200 million sales delivered in 2024, ample debt capacity across the group, and the more significant operational issues now fixed, TRIG is well positioned to increase dividend cover and further increase capital allocation to shareholder returns in 2025. Phil will go into more detail on TRIG's debt capacity later in the presentation. Current capital allocation to investment activity in 2025 remains minimal, relating to the build-out of the Ryton Battery Storage project.
The key message on this slide is that we are very mindful of TRIG's recent share price performance and the impact on shareholder returns, and are able to report that the strong foundations that we have laid have enabled the Board to significantly increase capital allocation to shareholder returns in 2025, and finally, before I hand over to Phil, I've mentioned a couple of times the benefit diversification brings to the resilience of TRIG and its dividend. On this slide, a brief reminder of TRIG's portfolio. We have a 60/40 split between the U.K. and the rest of Europe, and our technology split remains 80% wind, 14% solar, and 6% battery storage, and you've heard from me in the recent past that we have an ambition to increase solar and batteries in the portfolio.
Mindful of the market conditions and adhering to our capital allocation priorities means this is currently being met through the sale of wind projects. And at this time, buybacks present a high hurdle rate for cash transactions to acquire further solar and battery positions. I'll now hand over to Phil, TRIG's CFO, to take us through the financials.
Thank you, Minesh. I'll take you through the financial highlights and the valuation movements for 2024. The valuation of the investments, and therefore the net asset value, has declined in the year, mostly driven by macroeconomic factors, including increasing our UK discount rates, and external impacts on the portfolio, including third-party transmission cable failures and grid outages, and also adjustments to operating assumptions, including reduced project energy yields. Now, with that, 31st of December 2024 is GBP 115.90 per share of a portfolio value of GBP 3.1 billion. And over the last 24 months, we've agreed the disposal of seven wind farms, all at good premium to our valuation. And the disposals above NAV provide good confidence in the company's portfolio valuation.
Being an investment company, the valuation movement reduces earnings, which in the year are minus GBP 4.70, which means after dividends paid in the year 7.4p and with the benefit of share buybacks, that NAV has reduced by GBP11.80 per share. Dividend cover before project-level debt repayments in the year of GBP 206 million was 2.1 times, and dividend cover after those repayments was 1.0 times. The dividend cover has been tighter than usual this year, the most significant cause being the offshore cable failures. These are now fixed and both wind farms are back to full generation. We expect this level of dividend cover to improve to more normal levels of 1.1 to 1.2 times from 2025. And the target dividend for 2025 is GBP 7.55, which is a 1.1% increase from the level paid for 2024.
We report an EBITDA for 2024 of GBP 493 million, which cover debt amortization and the dividend. Stepping through the valuation bridge shows the trail from the opening valuation of GBP 3,509 million to the closing valuation of GBP 3,116 million. Starting from the left, investments of GBP 48 million have been made in the year funding the construction of the Ranasjö and Salsjö wind farm in Sweden, the Ryton Battery project in the UK, and our investment into Fig Power.
GBP 104 million of cash proceeds were received from the sale of two Scottish wind farms and one Irish wind farm, and the EUR 100 million proceeds from the partial sale of Gode that was announced in August will be received in the next few days. Cash flows up from the investments in the year of GBP 228 million, which takes us to the rebase valuation of GBP 3,226 million.
The rest of the bridge represents the operating income shown in the profit and loss account, and I'll be going into more detail on each of these items in the following slides, but briefly, on the bridge, we show the impact of the movement in FX on our euro-denominated assets. Sterling has strengthened five% against the euro, resulting in a loss before the hedge offset of GBP 66 million, as shown on the bridge. The company hedges FX outside of the portfolio, and the gains on these hedges mostly offset this impact, resulting in net FX loss to the company for the year of GBP 13 million.
Power price forecasts have declined in the front end of the power curve, which has reduced now slightly. We have increased discount rates for our U.K. assets in the final quarter of the year by 0.3%, reflecting recent increases in U.K. government bond yields.
Lower outturn inflation in the UK and Europe in 2024 reduced now slightly. The final item on the bridge, portfolio return for the period is GBP 65 million, and that represents a 2.6% annualized increase, which is behind the expected return represented by the opening portfolio discount rate of 8.1%. This predominantly reflects impacts in relation to external grid and transmission infrastructure outages, the impact of lower than forecast actual generation and power price, and the annual review of operating assumptions, including asset-level energy yields and operating costs. The next slide provides more detail on power price forecasts. Power price forecasts have declined in the near term following the recent mild and wet winters of 2023 and 2024. As a reminder, our approach is to take it in the average of three forecasters' cannibalized power curves.
In the medium to longer term, forecasts are a touch higher than before, albeit the overall impact is slightly negative to NAV. Near-term forwards are higher off the back of increases in gas prices in recent months, and they're above our December 2024 valuation assumptions. On the top right of the slide, we continue to provide data on our average assumed wholesale power prices, and in the bottom right, the donut shows the proportion of our forecast revenues that are fixed per megawatt hour and exposed to merchant pricing.
The point to note is the high proportion which is fixed, 80% for 2025, 70% over the next 10 years, providing protection against variation in power prices and good inflation linkage, and with recent inflation data coming in higher than expected, this inflation linkage is important. Discount rates and inflation are addressed on the next slide.
For discount rates, the slide shows the risk-free rates or benchmark government bond yields relative to the portfolio discount rate. The overall portfolio weighted average discount rate has increased by 0.5% during the year to 8.6%, which implies a 4.7% risk premium over the UK-EU blended risk-free rate. We have increased the valuation discount rates applied to UK assets by 0.3% in the final quarter of 2024, recognizing rising UK government gilt rates. UK gilt rates are now a little above the levels at Q3 2023 when we last increased the valuation discount rates applied. European government bond rates have also increased in recent months, but are not at the levels of Q3 2023 and are significantly lower than UK rates, and so we've not amended the valuation discount rates applied for our European investments.
The increase in portfolio discount rate also recognizes the addition of Fig Power at a materially higher discount rate than the average of the portfolio, the disposal of lower returning projects, and a small impact from the movement through time nearer to more merchant flows for projects with subsidies. The company carries out an independent valuation exercise each year and also commissions a review of the valuation discount rates. The independent valuer has again confirmed that the valuation discount rates are appropriate.
This slide also contains the inflation assumptions. Outturn inflation for 2024 came in a little lower than the level forecast at the December 2023 valuation, and our forecast inflation assumptions remain unchanged. The next slide covers the items included in the balance of portfolio return. Impacts in relation to external grid and transmission infrastructure adversely affected NAV by GBP 2.40 per share.
This item includes the third-party cable failures at the Hornsea One and East Anglia One U.K. offshore wind projects, greater uncompensated grid downtime in Germany, an increase in allowances for grid downtime, and increased grid loss factors applying to transmission-connected U.K. wind projects. RES undertakes an annual review of the operational assumptions, including asset-level energy yields and operating costs, and this adjustment adversely affected NAV per share by GBP 2.40, and a GBP 0.018 adverse impact of lower than forecast actual generation and power price during the year. As covered at the interim results, projections of Guarantee of Origin certificate pricing have declined due to higher supply of EU certificates from hydroelectric producers and lower demand for U.K. certificates from retail electricity suppliers.
REGO and Guarantee of Origin revenues in 2024 were strong, with an average achieved price of around GBP 4, with REGOs being higher than Guarantee of Origin certificates, earning the portfolio overall around GBP 15 million in the year. And we have successful disposal activity in the year of four projects against three countries, which has realized a gain of GBP 0.70 per share and also a further GBP 0.1p per share of value arising from active revenue fixing.
This slide bridges the NAV per share during the year and analyzes the movement between macro items and the impact of lower generation changes in energy yields and project budgets, including the impacts of grid and transmission losses, and then active management in the year, with NAV gains delivered principally from disposals, revenue management, and share buybacks. This slide shows our continued focus on reducing the short-term RCF debt balance.
During the year, we disposed of several projects that, including the Gode sale proceeds during the next few days, realized GBP 185 million. We invested GBP 48 million in construction projects and GBP 21 million in share buybacks in 2024. The RCF balance, once the Gode proceeds are received next week, will be around GBP 230 million. We aim to reduce the RCF balance further to GBP 100 million by the end of 2025 and are targeting GBP 300 million of disposals and financings to fund this whilst meeting our capital commitments and the enlarged share buyback program.
This slide provides some new disclosure on TRIG's debt capacity. TRIG's conservative capital structure, with a vast majority of our debt at long-term fixed rate and amortizing during fixed revenue periods, provides us with the flexibility to take on more debt when it is right for the company and to improve shareholder returns.
The long-term debt is repaying at the rate of around GBP 190 million per year. And our gearing level at 37% is moderate, and we have gearing headroom in our structure with a good level of projects without gearing in place. And we expect to term out some of the existing RCF balance. The portfolio has a good level of gearing capacity that can be added whilst retaining a comfortable level of total debt.
Our revenue management program and our development program will provide further debt capacity in addition to existing fixed revenues, and they will allow debt to be carried for longer to optimize the capital structure and grow shareholder returns. My final slide covers revenues and EBITDA for the portfolio. Revenues for 2024 were GBP 671 million and EBITDA of GBP 493 million. And revenues were lower in 2024 compared to 2023.
Most of the reduction was expected given the decline in power prices from elevated levels in 2023. Other causes of low revenue in 2024 were the impact of divestments and the external grid and transmission infrastructure outages. These revenue reductions flowed through to an EBITDA and to distributable cash flows. The movement in distributable cash flows from 2023 to 2024 is less than the reduction in revenues, and this is due to the taxes levied on high power prices during 2023, including windfall taxes, which led to higher taxes at project level in 2023 that did not apply in 2024.
This slide also provides some detail on average power prices achieved, fixed revenue levels for 2024, and the direction of travel for 2025, showing a high level of fixed revenue per megawatt hour in 2025 and a more positive power price outlook for 2025 than 2024, particularly in the U.K. and Spain. That brings me to the end of the financial items, and I shall now hand over to Chris, who will cover our operational performance.
Thanks, Phil. I'll now take you through the operational highlights in the year. In 2024, we generated almost six terawatt hours of clean renewable electricity. That's enough to power the equivalent of 1.6 million homes and to avoid two million tons of CO2. Underlying generation was 2% below budget. This is consistent with the wind and solar radiation in the year, which weighted across the TRIG portfolio in the U.K. and Western Europe was substantially on budget.
However, the export of electricity was impacted by grid outages, some of which were commercially well protected, but there remained an impact with exported electricity 5% below budget. The split of generation by region was shown in the table. Within France, the older southern projects suffered from downtime ahead of their repowering with new turbines over the next two to three years.
The U.K. and the portfolio as a whole both notably outperformed the wind-focused peer group in the year. On this next slide, you can see the wind and solar variation, sorry, wind and solar irradiation, weighted across TRIG's projects in each region. Variations are shown compared to the long-term average, which is striking.
For 2024, on the right-hand side is how the variability across every region, when weighted for the location and size of TRIG's assets, effectively saying that wind and solar levels were consistent with their budgets. It's important to note that for the TRIG portfolio, the weighted average wind and solar irradiation has been split an equal number of years above and below average compared to the much longer-term data set. This is consistent with our expectations. There are a number of ways that RES, as operations manager, preserves and adds value to TRIG.
RES has been at the forefront of the renewables industry for over 40 years, with extensive development, construction, and operational experience. In all of the technologies and geographies of TRIG the dedicated operations team supplements its own capabilities by drawing upon the specialists available in every area.
This makes us uniquely positioned to preserve value, manage risk, and to identify and deliver upon opportunities. Here we show the main areas of focus. In the top right, increased revenue, both through increasing the energy yield and the price you get paid for it, which then flows down through into the profit of the P&L. Moving round to increased project life, which is done safely and economically using RES's development expertise and our technical know-how of the equipment itself. Continue round to reduce operating costs, performed whilst focusing on long-term value and maintaining asset health, ensuring that we have the right contractual structures in place.
And then finally, development, focusing on new development opportunities as reflected in the one-gigawatt development portfolio I'll come to you shortly, with the Ryton storage project progressing well through construction and the forthcoming Cuxac repowering.
More generally, where RES acts as a site manager, which for TRIG is about a third of the sites, an independent study by a leading market advisor shows that RES outperforms the average, enabling an extra percent of energy yield to be secured, the RES 1%, delivering significant value to TRIG. RES is also an active participant as a senior or Board member on a wide range of renewable and associated industry bodies, helping to ensure that TRIG's position is well represented within the electricity industry. Turning now to energy yield enhancements. This slide shows some of the activities that we're currently focused on, progressing through trial phases and into deployment across multiple sites, with indicative energy yield increases shown on the right-hand side.
I won't step through each of them, but a couple of highlights would be the installation of the first wave of blade hardware at eight U.K. and French onshore wind sites, and at two offshore wind farms where we're doing power curve upgrades. These increase the energy extracted for a given wind speed, all now progressing well in their trial phases ahead of a wider rollout. Some of these activities are seasonal. You clearly wouldn't want to perform rope access down to a wind turbine blade in the middle of winter. But we've got some great plans ahead for the summer, so more to come in all of these areas, which I'll update you on in future periods.
RES has a strong track record of value delivered, with over GBP 70 million secured over the last five years through extending project lives, reducing operating costs and structures, and increasing revenues, such as through increasing energy yields and higher valued or new revenue streams. In the near term, we've already identified opportunities of a similar value to deliver in the next two years. But ultimately, we continue to identify new commercially attractive opportunities through our deep understanding of the technologies and markets to deliver value to TRIG. Looking further ahead at the one-gigawatt development pipeline, construction of the Ryton storage project is progressing nicely, groundwork's well progressed, and factory inspections performed, with this project ultimately expected to deliver higher returns than available elsewhere.
The Cuxac wind farm repowering in the south of France selected its new turbines, which would double the site capacity, alongside a new 20-year government revenue contract, which would allow it to be debt financed if considered appropriate. The Spennymoor storage project successfully accelerated its grid connection date from 2031, sorry, from 2031 to 2026, with underlying development work progressing too. Beyond these projects, we've got the brownfield development activities. This saves us like repowering sites with new wind turbines or PV panels or performing site extensions or such like. Also, greenfield activities of brand new sites, such as those being progressed by Fig Power, our storage development company. These development activities will continue to require modest investment to deliver attractive returns. I'll now hand back to Minesh.
Thank you, Chris. I'll conclude today's presentation with a brief recap of TRIG's key strategic drivers. Firstly, TRIG benefits from a large, diversified portfolio. This provides resilience to TRIG's cash flows and delivered a 2.1 times gross cash cover in 2024, which is expected to grow in 2025. We've also reduced debt by over GBP 500 million over the last two years. Together, this has enabled the Board to increase the dividend in 2025 and provides room for increasing investor returns going forward. Secondly, responsible investment. We are focused on prudent capital allocation and responsible investment decisions.
We've delivered over GBP 200 million of sales at over a 10% premium to carrying value, and this has enabled the Board to triple the share buyback program. We continue to take a conservative approach to the balance sheet, with over GBP 1 billion of debt projected to be repaid over the next five years, providing us with maximum flexibility going forward.
And finally, operational excellence is core to the management team's philosophy and mindset, seeking to achieve more with the portfolio that we have through commercial and technical enhancements. And you've heard about this extensively from Chris. So today, we've continued to highlight the strong underlying prospects for the TRIG portfolio, and that with a disciplined approach to investment management, we are optimizing the portfolio, reducing gearing, and delivering attractive shareholder returns concurrently. Thank you for your time. I'll now hand over to Mohammed to guide us through the Q&A session.
Thank you, Minesh. So we'll start with questions in the room before turning to those we've received submitted online. So we start with Ben.
Morning, guys. Thanks for the presentation. On the energy yield changes, which assets have you adjusted? Can you talk about the range of reductions, and is this something we should expect annually? And then secondly, the GBP 300 million earmarked for disposals and refinancing, the split between the two timeline, and is it intention to term out some of the RCF with the refinancing? And then I guess broadly, just talk about the market for selling assets.
So I'll take the energy yield one first. We look at energy yields every year. I mean, we look at it every quarter. We track against budget using the actual wind data that's or radiation that's occurred. So you start tracking against your budget to identify if there are any areas of interest. And then at the end of each year, we look back at that, having identified some projects to focus on, perform a fuller recalculation of budget, and then adjust the budgets up or down this year. They've been down. So it was across five assets of a variety of reasons.
Increased icing losses on one of the Swedish projects. Icing really varies enormously year- to- year. We just, having looked at recent history, have increased the allowance there. We have got some new data just with the passage of time on a couple of the other assets, which has led to adjustment. One site, there is a new wind farm being constructed nearby, which has a wake impact.
Sometimes we are compensated for wake impacts, and it will still lead to a change in energy yield, and sometimes it will not. We have adjusted for one like that. They tend to be very low single-digit %, but if they are on a larger asset, then we see it flowing through. I think that covers the energy yield question. Was he expecting more? Like I say, we look at it all the time. Inevitably, there are some projects which have higher risks, brand new projects, frankly. We've got a few of those at the moment. Obviously, we've got a couple added recently. We'll keep track on those. It can also vary how good your correlation has been with long-term reference data, but we've got none lined up, so none planned, absolutely.
I think we first said there are larger assets which were younger a few years ago and now out of their pre-construction yields onto their operating yields with some operating history. So I think we see the likelihood of significant adjustments being lower in the future.
Indeed.
And of course, the team at RES are working on activities to enhance the energy yields. Chris talked about this. I think the percentages you saw on the screen ranging from 1%-5% increase in energy yields, this is an increase in revenue that flows straight down to the bottom line. Currently, that's being rolled out. You saw on the slide the megawattages associated with those wind farms are typically 5-10 years old. The guys at RES are continuously developing and innovating in this space.
Those assets which are now out of their construction yield are, say, 2, 3 years old. Soon, they will be 5-10 years old, and there'll be new innovation to apply to those. I think that's one of the key benefits we have of having RES alongside us in the management team, is that thinking is continuously ongoing. Phil, do you want to take the 300?
Thank you, Minesh. Okay. So we have sales processes in train. We'll see how those sales processes go. Gode interest is certainly the one that's at the front of that process. I think we'll also look at turning out the RCF, some of the RCF, because we have capacity within projects to de-risk achieving the 300 during the year. We've got a lot of projects with subsidy and without gearing in, so I think we can do that fairly well.
So we should do that during the year. So I think if you're going to do a financing, then you want to do at least 50 or 100 million to make it worthwhile. So you might do a financing of 100, 150, and the balance might be disposals. So that might well be how we progress things. But I think we've got more, I mean, we'll see how the timing runs, because these things always seem to take longer than you'd like. But we've got more disposals and financing than 300 in our plans, so hopefully, we'll achieve that in time.
Yeah. And so the third part of your question was around the market, transaction market. I think we've been saying for some time the market has been somewhat softer. There was a bit of a hiatus, really, in H2 as people were waiting for the U.K. budget, the U.S. election, and then obviously, most recently, we've had the German election. But as Phil says, we've seen good interest in the first of our next sales, about 10-15 parties interested in that. And it's clearly worth remembering that we have led the way in the sector with the largest quantum of disposals to date. So we feel we have the best team to deliver that.
Good morning. It's Callum Stewart from Stifel. I've got a couple. Firstly, on PPAs, I was wondering if you could just talk a bit about the market. I mean, presumably, it's somewhat easier than it was a year ago to get PPAs in place. And what sort of pricing are you achieving if you're putting PPAs in place at the moment? And then the second one's just on dividend cover. The guidance of 1.1 times. I mean, obviously, that compares to 1.2-1.3 in August. Since then, the market power price is quite a bit higher. The outages have been fixed. Can you just sort of take us through why that guidance is down at this low level?
Sure. Shall I start with the PPA question? I think the market is improving for PPAs. If we roll back two, three years, it was very much kind of a corporate's market for procuring it. I think that balance is shifting now, particularly with the increased focus in the UK and Europe around reducing Scope 2 emissions. And we're seeing that in the processes we're participating in.
If we look at the kind of PPAs that we've fixed in the second half of last year, the guys at RES have people on the ground in France who are able to support, to source that supply agreement with a new green hydrogen producer, which actually allowed us to fix at above the wholesale price. And normally, we talk about being at a discount to the wholesale price. This was a great fix because of the requirement for green hydrogen to have temporal and locational proximity.
And then we secured a really great contract in Sweden for guarantee of origin certificates, selling those out for the next 10 years for some of our capacity there to a blue-chip vehicle manufacturer in Europe as well, so a high-quality counterpart. So I think that's the benefit of having that wide team that's actually able to go out and source those PPAs.
And as we said in the announcement, we are working on heads of terms with a party in the U.K. for a corporate PPA in relation to 2% of our annual generation, which would be a really great result and hopefully able to execute that later in H1. As with all these things, it takes a little bit of time to get it in place. The second half of your question around dividend guidance, Phil, do you want to take that one?
Yeah. H2 dividend cover was tighter than we had expected in H1. During Q3, it became clear that power prices achieved in Spain and Sweden were lower than we had expected. And there were some outages on some other wind farms. And also, the Q3 generation was pretty poor with low wind speeds. And that we covered in our NAV announcement for Q3. I think also the cable outages dented revenue in our largest assets. And I think the recovery of that is taking longer. I think that while the wind farms are fully generating, it takes a while to get the cash back up to the levels to service debt in those projects. So I think that it takes longer than we would like.
I think the long-run rate of dividend cover of 1.1-1.2 times we're still very happy with. But the speed of getting back to that level, we're a bit more cautious on. I hope you're right about the power prices being good for this year. And certainly, that's what the forward's looking like now. And we haven't baked that into our numbers, which if it doesn't come through, we'll be grateful for.
And if it does come through, we'll be even more grateful. So if we have a quarter, which we may be now with good wind speeds and good power prices, that's going to be really helpful and give us a bit of a tailwind on dividend cover. But let's see how that goes. And I think the timing of insurance recoveries from those cable outages will also be relevant.
We haven't assumed all the insurance money comes in. Insurance can take a while to get in, but I think if we get none of it in, that will make dividend cover harder to hit, and if we get it all in, that'll make it much easier, but I expect we'll be somewhere in between those two.
Okay. Thank you very much.
Thanks, guys. Just want to pick up on something in terms of the repowering, particularly some of the southern French wind farms that you touched on. Is the kind of CapEx for that included within the capital commitment figures that you're giving? It's sort of GBP 40 million overall for this year, GBP 20 million, and sort of GBP 40 million for the next year.
So you've included for Ryton, which is a storage project.
Great claim. Which we're going to start with a bit.
That's in. Which is another storage project.
There's Cuxac, which we haven't yet made the final decision to invest, isn't in. And that would be around GBP 30 million over three years.
Yeah. So when that's lined up for its final investment decision, we'll reflect on the capital allocation priorities at the time. We'll consider what the relevant hurdle rate is at the time, as well as the kind of relative balance of risk-reward, and make that assessment at that stage. I think the benefit of a repowering project is it's got a new 20-year inflation-linked Feed-in Tariff. You also already know the wind regime for that. So there's been a lot of conversation about energy yields. That is de-risked on a site where you've got 20 years of operational history. And you've got a partner who also knows the site, knows the site access, knows the grid counterparties, the landowners. So actually, these can be quite attractive returns for a relatively modest spend.
Understood. Thanks. And then just separately on the EBITDA margin based on sort of pro forma EBITDA, sort of appreciate a few moving parts in the years. We're given the cable outages and lower revenues. The margin's sort of fallen sort of 77% down to sort of 73%. What do you sort of view as sort of a steady-state normalized sort of EBITDA margin on the portfolio as it stands today?
I think this year's going to be much more of a normal year than last year, 2024. But 2024, as we talked about, had, I think, 2025 had better power prices. Fingers crossed, the end's right. And hopefully, we'll have better generation without the cable outages. So maybe nearer to 75% as a long run. As revenues come down, some costs will be linked to revenues, but many of them won't. So I think we'll tend to find as revenues come down that the EBITDA margin will come down. Thanks.
Morning. This is Conor Finn from Barclays. A quick one on the point you made on the transaction market. How much of the softness would you attribute to REMA? And do you think confirmation of that later this year could act as a clearing event for transactions?
I mean, naturally, REMA has created more uncertainty in the U.K. market. I mean, there have been other causes of uncertainty in the U.K. market as well. And that's part of the reason that our U.K. discount rate has been increased by 1.3% more than our European discount rate increases over the last two years. Yes, certainty over the outcomes would be helpful.
I think it's clear that the plans, whatever's coming, comes post 2032. I think that's also helpful. I think the key thing for TRIG is, A, 40% of our portfolio is not in the UK and not subject to that. And then the balance of the portfolio is roughly split equal between Scotland and England. So you will have different impacts on those assets. And also, we have solar in the portfolio in the south of England as well, which will also have a different driver. The other piece is if it does end up as zonal pricing, then clearly you have kind of smaller markets with lower liquidity and therefore potentially higher price volatility in each of those zones.
The fact that we have a battery development pipeline where batteries benefit from volatility will also be another factor that reduces the impact, or if it ends up being zonal on the TRIG portfolio overall, and whilst we wouldn't be preparing to zonal and we're preferring to stay over a national market, government are quite anxious to ensure that existing owners and generators aren't too adversely impacted or aren't adversely impacted. So there are transitional arrangements being considered to protect people from changes in price and volume. But let's see how that develops, or if they find it too complicated and just go with a single market, that would be preferred.
Hi. Thomas Martin at BNP. Excuse me. First of all, just on the fee side of it, could I ask you've gone for a blend of any of your market cap based. What was the thinking and drivers behind that? Perhaps a related question on the management of the business. What impact will the lower fees have on how you manage the business? Will you have changes to resourcing, changes with the way you work with RES, changes in manpower overall? Or can you absorb it perhaps given you're focusing more perhaps on the buyback side of things than new developments?
And maybe a third one, if I can. Sorry. And on portfolio diversification, obviously you've been disposing of assets. You've spent a long time building up the diversification. You've been disposing of assets. You've got an ongoing program. Is it becoming challenging to balance those two aims? And how are you thinking about that? Thanks.
Sure. Shall I start with the portfolio construction and divestments question? And then perhaps I can hand over to TRIG's chair to discuss the management fee changes. I think we've discussed in the past that when we think about divestments, there are both push and pull factors. The push factors being, we'll go down the list of the projects. We'll have a priority order.
We discuss it annually or more frequently in this market with the Board, and the projects that we put up for sale are the ones that either have the lowest adverse impact or sometimes they can improve portfolio construction because actually those assets are in a different place to where they were when we acquired them. For example, if you're further into a subsidy period, then you may be getting less inflation correlation benefit when they were younger. Or you might say another market participant might take a different view. We sold those three onshore wind farms in Ireland. We took one view around repowering a lower probability.
The buyer took a higher probability view around that. And therefore, were able to pay us for value that we hadn't included in the portfolio valuation. And of course, then you have pull factors. The depth of our transaction team means that they're aware who has pockets of capital that they're looking to deploy. And clearly, then you can seek to take advantage of someone looking to deploy capital and see if you can package up an asset for them. And that's why in the offshore wind example, we knew someone was looking to deploy capital and were able to assign an asset to that transaction. So yeah, we have a list. We debate it with the Board. And that is the primary start of informing how we approach divestments.
Please. Thank you.
Yes. So thank you very much. Minesh referred earlier to the dislocation between share prices and NAV. I think the Board's view was that in those circumstances, it was appropriate to set an incentive based on each of them, not just share price, because I think we've all seen what happens when people get too many share options and don't worry about the long-term value of the business.
We felt it was appropriate to do both. It's all about sort of alignment of incentives, both in the shorter term, which is about the share price, and in the longer term, which is about the NAV, which we still consider an important marker of value in the medium to longer term. That's the kind of driver. The 50/50 was. I'm not sure there's much science about 50/50 rather than 40/60 or 60/40. It was just a starting point.
And as I say, try and get the managers really aligned with what shareholders wanted. And the same actually goes for the other fees that we've introduced. I'm conscious it's a bit awkward talking about fees in front of the managers. So I'm more than happy to come and talk to anybody who wants a session on fees or the detail of the fees more generally at your leisure. Thank you.
Anything else in the room before we go online?
Is there anything to say about how you're going to manage or anything?
Oh, the resource. Yeah. Yeah. I think, like as Richard said, it's about that balance between the short and long term. Through our discussion with the Board, it's about taking that long-term view. And whilst currently the dislocation between share price and NAV means pretty significant reduction in the management fees, we're working very hard to evidence why the share price should be at a higher level, much closer to NAV.
NAV has been evidenced by the disposals that we've done. And not just we've done, but others have done in the sector as well. And we continue to show how we are adding value, whether it's through the PPAs that we have specialists to deliver, whether it's the operational and technical enhancements, which you've heard the RES team are at the absolute forefront on, or whether it's originating the kind of divestment transactions. So we're giving reassurances to the Board that we are also willing to take that longer-term view in the recognition that if we continue to prove that we can deliver that value, the share price should be reverting to NAV. Thanks.
So if there are no further questions from the room, we'll turn to those online. I'll group these in the interest of time by theme. We have had a number of questions on the management fee. Just to reiterate what Richard said, where these are best answered by the Board. Richard will come back to you directly. Where these are addressed to InfraRed, we will come back to you directly also. So first key topic area is the capital structure. So the question is centered around how much of the debt repayment is amortizing and therefore structural versus a decision from the managers.
I think the decision from the managers is in relation to all debt repayment. The capital structure having amortizing debt was a deliberate decision because that is more conservative. It's linked to the fixed revenues. It means that each investment can service its debt. Yes, once that arrangement has entered into, then that is a scheduled amortization profile that's then non-recourse up to the top company. So the whole capital structure is deliberate.
That amortization profile, as Phil's shown, is a conservative. We showed on the slide the capacity that exists today. There was the question around the split on the 300 between disposals and debt. We saw on the slide that if we wanted to, we could term out all of the RCF. But it's then that balance between what is the right answer to reduce those short-term borrowings.
We think that is a balance between disposals and RCF, disposals and long-term debt. We have both levers in front of us that we can pull. Yeah, we're comfortable. There's plenty of headroom both to reduce short-term gearing as well as drive future growth and shareholder returns.
Thanks, Minesh. Staying on that theme then, there's a question or there are a couple of questions around whether the company would consider introducing non-amortizing debt other than the RCF. Yeah.
There's a whole range of debt options. At each investment decision or debt procurement decision, we'll consider the different options available to us. It'll also depend on the nature of the revenues that you're raising debt against. If, for example, it's a portfolio with a rolling series of hedges like you might see in places like Spain, for example, then maybe non-amortizing could be the right option.
Where there's a cost of capital difference and project finance is the right thing, particularly sometimes where you have subsidies in place, then that's the route that we may follow. But we'll assess it on a case-by-case basis, consider pricing, consider cash flows, and make sure first and foremost that the dividend of TRIG remains resilient. Thank you. And a detailed one maybe for you, Phil. But what are the debt service cover ratios across the portfolio? debt service cover ratios. Yeah.
Oh, debt service cover ratios. I mean, quite healthy in a nutshell. There's a bit of a mix. We've got about 15 or so different structures of debt, maybe a couple more. Yeah. Obviously, we're a dividend-focused portfolio. So we deliver again over gear or get too close to gearing. So that means that often you have debt service cover ratios of 1.5 or 1.7 or higher throughout. Yeah.
You're tending to lower where you've got a Contract for Difference and higher where it's ROCs. And it might be higher where it's a project that's older and inflation's helped added more to the revenues. But yeah. So but 1.5 is fairly typical. One nearer to two where it's an older project that ROCs probably. Thank you.
And then moving on to share buybacks as a topic, we have a question that is around the topic of it not having an effect, the buyback program not having an effect on the discount and why therefore we have increased the share buyback program.
Yeah. So we make an assessment of the future cash flows of the business, both those that are operational as well as funding sources such as disposals and debt. And then we have a rigorous debate with the Board as to what the best uses of cash in excess of the dividend retained cash is. In the present market where the dividend yield is north of 10% and the implied return from the shares is around 12%, that clearly sets a very high hurdle rate to new investments. And therefore, allocation to buybacks is the right investment decision. We see the shares as being very attractively priced at the moment and thus tripling the size of the buyback program.
So buybacks will incrementally improve dividend cover because you're taking dividends out in the future and will slightly improve net asset value. So it's got those attributes that would push you that way.
Okay. And to illustrate the broad church that is our shareholder base, we have the other side of that coin. Why are you prioritizing reduction of debt when the shares are trading at such a big discount?
I think that's exactly the balance that we've been debating with the Board. Historically, we have kind of progressed the disposals, signed them, and then made the capital allocation decision off the back of that to when the Board introduced the share buyback program. Given the stark difference between our kind of marginal cost of borrowing at, say, 5.5% and the dividend yield that we'd be retiring, as Phil says, of 10%, that investment decision is really quite compelling. It's then whether we as managers can give the Board the confidence that we can deliver on that 300 million of funding through disposals and financings, and we've been able to do that, which has given the Board the confidence to triple the share buyback program.
Thanks, Minesh. Then a few questions on the portfolio looking ahead. What are the mixed targets? Technology mixed targets down the line, three years down the line for solar and batteries. Are these a hedge for potential REMA impacts?
Let me take the last of that first. I think I've discussed to an earlier question that solar and batteries do have different revenue characteristics, which would, if the outcome of the review of electricity markets in the UK was to be zonal pricing, would provide some insulation to the impact on the portfolio overall. In terms of where we'd like the portfolio to be in the future, I mean, that remains unchanged from what we've been discussing over the last 12-24 months, which is batteries increasing from 6% to about 10-15%, solar increasing from about 15% to 25-30%, and therefore wind coming down.
But as I said in the presentation, we're very mindful that in the present market, buybacks present a very high hurdle rate to cash transactions. And so we would be cautious in acquisitions at this point relating to solar and batteries if we were to use cash for those. And thus, the evolution of the portfolio at the moment is more around reducing the wind allocation with the sales that we've done and also the ones that we're progressing all from the wind part of our portfolio .
Thanks. And final question that we have time for. What do you make of the potential for repowered assets to bid for CfD contracts?
Very good is the simple answer. I think we've seen on the continent, we have an investment decision coming up soon in relation to the Cuxac site. As Chris mentioned, we've been able to increase that site capacity. Initially, it was from 12 megawatts to 21 megawatts, and then the guys at RES have managed to increase that further to 25 megawatts, which is a really fantastic result.
There we've secured a 20-year inflation-linked feed-in tariff. So that's common market practice there. We saw the UK consulting on the introduction of repowered projects into Allocation Round 7 of the CfDs. We expect this to come in, and that should be around the time that we start looking to repower some of our GB assets. So yeah, it'll be important to route one route to fixing revenues out as well as maintaining inflation correlation as we go forward.
Thank you, and that's all we've got time for and concludes our presentation of questions that we haven't managed to get to that have been submitted online. As I mentioned earlier, we will come back to you directly. But with that, thank you very much.