Net Asset Value, Operational and Deployment Update
24 November, 2022
Downing Renewables & Infrastructure Trust plc `
("DORE" or the "Company")
Q3 Net Asset Value, Operational Update and Further Deployment
The Board of Downing Renewables & Infrastructure Trust plc (the "Company" or "DORE") is pleased to announce the Company's unaudited Net Asset Value ("NAV") as at 30 September 2022 and a further acquisition for the portfolio.
Net Asset Value as at 30 September 2022
The Company's unaudited NAV was £217.2 million or 117.7 pence per share as at 30 September 2022. This is an increase of 1.5% from the Company's NAV as at 30 June 2022 which was £214.1 million or 115.9 pence per share. The total return for the period, including the dividend paid in the period (1.25 pence per share, £2.3 million in total), was 2.6%.
The movement in NAV during the period was attributable to several factors:
- financial performance (+1.3pps);
- advantageous fixed pricing arrangements and power price forecasts (+1.6pps);
- foreign currency exchange movements (+4.3pps);
- higher than forecast inflation for the period (future inflation assumptions remain unchanged) (+0.8pps);
- increased discount rates across the portfolio (-4.7pps); and
- other movements including dividend (-1.5pps).
As a result of movements in the risk-free rate in both the UK and Sweden, discount rates were increased by 0.5% to 8.0% for the operational levered UK solar and Swedish hydropower portfolios and by 0.3% to 6.3% for the unlevered Swedish wind farm during the period, resulting in an overall increase of the portfolio discount rate to 7.7% from 7.2% and a reduction in the value of the portfolio of £8.7 million.
The Company notes that all of its acquisitions in 2022 have been accretive and have been acquired with base case returns that are in excess of the revised portfolio discount rates. This gives the Company confidence that the robust pipeline of suitable opportunities can meet the new, higher returns implied by the higher discount rates.
No impact from UK Electricity Generator Levy and EU Price Cap
On 17 November 2022, the UK government announced the introduction of a new levy on excess profits produced by electricity generators. The annual generation forecast for the Company's UK portfolio is below the proposed threshold of 100GWh and therefore the Company believes that it falls outside of the scope of the UK government's proposed electricity generator levy.
The Company's European portfolio is focussed on Northern Europe which results in exposure to electricity markets with average prices materially lower than those of central and southern Europe and the UK. The Company reiterates its guidance from October that its price forecasts for its European portfolio fall below EUR180/MWh from 1 January 2023 and so to the extent that the EU price cap is introduced by the Swedish Government at this level (and the plants do not fall within the various exemptions applicable to hydropower installations), this will have an immaterial impact on the Company's NAV, if any.
Financial performance of the portfolio for the period was above expectations and contributed £2.4 million of the NAV uplift, equivalent to 1.3pps.
Generation across the solar portfolio was slightly above budget during the quarter. Revenue and operating profit were both c.9% above budget.
Operating profit in the wind portfolio was slightly above expectations, supported by strong wind speeds and good levels of availability.
Generation across the hydro portfolio was below budget, mainly driven by low levels of precipitation. However, operating profit was c.30% above budget, with high power prices offsetting low levels of generation.
Power prices and inflation
Medium to long term inflation forecasts were unchanged from the Company's June 2022 update at 2.75% for the UK in 2023 and 3% thereafter to 2030 and 2% for Sweden from 2023 onwards.
The increase in forecast future power prices and impact of entering into advantageous fixed price arrangement contributed to £2.9 million (1.6pps) of the NAV uplift.
The power price forecasts used in the Company's valuation are set out below in GBP. Where prices are in Euro they are converted back to GBP for the purposes of comparison.
Deployment and acquisitions since quarter end
In line with the original investment case, on 7 October 2022 the Company repaid the mezzanine debt that was present in the UK solar portfolio when acquired in 2021. This has further derisked the Company's investments and has increased the Company's NAV exposure to this attractive portfolio by c.£10 million to c.25% of NAV. After prepayment of the mezzanine debt, gearing across the portfolio stands at 30%.
On 23 November 2022, DORE completed an additional accretive acquisition; that of a 14 GWh hydropower portfolio of seven assets with significant reservoir capacity in Sweden. Six of the sites are located in SE3, and one in SE2. The total investment amount was c. £6 million and the acquisition increases the hydropower portfolio to 26 plants. The acquisition has been funded on an ungeared basis.
Following the repayment of amounts outstanding under the revolving credit facility in June 2022, the repayment of the mezzanine debt in October 2022 and the most recent hydro acquisition, the Company holds cash of £28 million, or 13% of NAV.
Tom Williams, Partner, Head of Energy and Infrastructure at Downing LLP, commented:
"We are pleased with the portfolio's positive performance in the quarter. It is a real strength of the Company that discount rates can be increased to some of the highest in the sector and still show continued NAV growth despite deleveraging. It is especially pleasing to see the new hydropower acquisition being accretive even at this new benchmark.
The Company's strategy of meaningful diversification by technology and geography continues to reap benefits as the impact of government interventions in different markets with different energy mixes unfurls."
DORE has today published its quarterly factsheet and commentary to the end of September 2022. Copies can be downloaded from the Company's website: www.doretrust.com
Downing LLP - Investment Manager to the Company
+44 (0)20 3954 9908
Singer Capital Markets - Joint Corporate Broker to the Company
Robert Peel, Alaina Wong, Asha Chotai (Investment Banking)
Sam Greatrex, Alan Geeves, James Waterlow, Paul Glover, William Gumpel (Sales)
+44 (0)20 7496 3000
Winterflood Securities Limited - Joint Corporate Broker to the Company
Neil Morgan(Corporate Finance)
Darren Willis, Andrew Marshall (Sales)
+44 (0)20 3100 0000
TB Cardew - Public relations advisor to the Company
+44 (0)20 7930 0777
+44 (0)7738 724 630
+44 (0)7425 536 903
* The dividend and return targets stated in this announcement are targets only and not profit forecasts. There can be no assurance that these targets will be met, or that the Company will make any distributions at all and they should not be taken as an indication of the Company's expected future results. The Company's actual returns will depend upon a number of factors, including but not limited to the Company's net income and level of ongoing charges. Accordingly, potential investors should not place any reliance on these targets and should decide for themselves whether or not the target dividend and target net total shareholder return are reasonable or achievable. Investors should note that references in this announcement to "dividends" and "distributions" are intended to cover both dividend income and income which is designated as an interest distribution for UK tax purposes and therefore subject to the interest streaming regime applicable to investment trusts.
About Downing Renewables & Infrastructure Trust plc (DORE)
DORE is a closed-end investment trust that aims to provide investors with an attractive and sustainable level of income, with an element of capital growth, by investing in a diversified portfolio of renewable energy and infrastructure assets in the UK and Northern Europe. DORE has been awarded the London Stock Exchange's Green Economy Mark in recognition of its contribution to the global 'Green Economy' and also in 2022 DORE won 'Renewables Fund of the Year' at the Sustainable Investment Awards.
The Board classifies DORE as a sustainable fund with a core objective of accelerating the transition to net zero through its investments, compiling and operating a diversified portfolio of renewable energy and infrastructure assets to help facilitate the transition to a more sustainable future. The Company believes that this directly contributes to climate change mitigation.
DORE's strategy, which focuses on diversification by geography, technology, revenue and project stage, is designed to increase the stability of revenues and the consistency of income to shareholders. For further details please visit www.doretrust.com
About Downing LLP
Downing LLP is a responsible investment manager formed in London in 1986. It currently manages in excess of £1.8 billion of AUM invested into businesses across a range of sectors, from renewable energy, care homes, special educational needs schools, and children's nurseries, to technology and early healthcare businesses. Downing has a demonstrable track record in renewables, having made more than 177 investments into solar parks, wind farms and hydroelectric plants since 2010.
This announcement is not for publication or distribution, directly or indirectly, in or into the United States of America. This announcement is not an offer of securities for sale into the United States. The securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States, except pursuant to an applicable exemption from registration. No public offering of securities is being made in the United States.
For further details please visit www.downing.co.uk