Greencoat UK Wind’s NAV fell 7.9% to 151.2p per share in the year to 31 December 2024, due to poor power price forecasts and wind yields.
Reflecting negative investor sentiment to the renewable energy sector and wider issues in the investment trust sector, the company’s share price fell further by 15.7% over the year, resulting in the company’s discount to NAV widening to 15.6% (from 7.7%).
Portfolio performance
Portfolio generation for the year was 5,484GWh, 13% below budget owing to low wind and lower availability, with a notable export cable failure at Hornsea 1 in the first half of the year.
Despite lower than budgeted output, net cash generated by the group and wind farm SPVs was £279m and underlying dividend cover for the period was 1.3x on £221m of dividends (10p per share) paid in the year.
The company is targeting a dividend of 10.35p per share for 2025, increased in line with December’s RPI of 3.5%.
Lucinda Riches, chairman, said: “Equity markets have continued to be challenging throughout the year, with particular difficulties for investment trusts. Whilst interest rates have started to fall, longer term gilt rates have risen towards the end of year and outflows from the UK stock market have continued, resulting in a reduction in the share price during the year. Some progress has been made to address cost disclosure rules, which have served as an investment disincentive for wealth and retail investors in alternative investment trusts, but a final resolution and implementation has yet to arrive.”
The company said that including reinvestment of excess cash generation (dividend cover) in addition to the dividends paid, the return to shareholders over the year was 12.5%.
Investment and divestment
During the year, the company invested £14.25m into a further 15.6% interest in Kype Muir Extension from free cash flow, increasing the group’s stake in the wind farm to 65.5%. In December, it completed its first disposals, generating £41m from the sale of 40% interests in Dalquhandy and Douglas West wind farms. These divestments were made at their prevailing NAVs. Proceeds were used to buy back shares and reduce the company’s drawn Revolving Credit Facility (RCF).
Launch of £100m buyback programme
The company has bought back over £100m of its shares at a discount to NAV since October 2023, and has today initiated a further share buyback programme of £100m.
Change at management team
Co-head of Greencoat UK Wind’s investment manager Stephen Lilley will step down from his role on 24 April 2025 following the company’s AGM, and be replaced by Steve Packwood, who joined the manager Schroders Greencoat as a partner last month. He will join Matt Ridley as co-head of the investment management team.
Packwood has 20 years’ renewable energy experience, spanning the development, construction and operational phases across a range of technologies. Prior to joining Schroders Greencoat, he was regional director of projects at BayWa r.e. where he was responsible for the development and construction of wind, solar, and storage projects in several European markets, including the UK.
Outlook
Riches added: “Wind continues to be the most mature and widely deployed renewable energy technology in the UK (30% of GB electricity generation in 2024). The change in government during the year has resulted in a significant increase in aspirations for the wind sector and for renewable generation in general. Were the government’s targets of doubling onshore and triple offshore wind capacity to be realised by 2030, we estimate an additional £175bn of investment would be needed.
“Through strong cash flow and dividend cover, coupled with our disciplined approach to capital allocation, we are confident in our ability to continue to meet the objectives of dividend growth in line with RPI and long term capital preservation in real terms.
“The Board and the Investment Manager recognise that this has been a challenging year for investors, but have been working hard to drive shareholder value through proactive actions and continued active asset management. Despite lower portfolio generation for the year, cash generation has remained strong at £279m. Over the next five years we expect to generate over £1bn in excess cashflow, and additional capital should be available through further opportunistic disposals, providing optionality for capital allocation and shareholder returns.
“Notwithstanding the current market conditions, our simple, low risk and proven model remains highly attractive. We have a sizeable and diverse portfolio of high quality assets and are well positioned to help deliver the UK government’s net zero ambitions. We are continuing to deliver net returns to investors of 10% on NAV, and we remain confident in our ability to continue to meet our objectives of dividend growth in line with RPI and capital preservation over the longer term.”
