Octopus Renewables Infrastructure Trust (LSE:ORIT) — Annual General Meeting

0:03 Good morning, and welcome to the OCTOPUS Renewables INFRASTRUCTURE TRUST PLC annual general meeting. Throughout this recorded meeting, attendees online will be in listen only mode. This meeting will commence shortly. Good morning, ladies and gentlemen, and welcome to the two thousand and twenty four annual general meeting of OCTOPUS RENEWABLES INFRASTRUCTURE TRUST PLC.

0:59 It's now 10:00, and so it's the appointed time for the annual general meeting of the company, convened by the notice of meeting to shareholders dated the 03/22/2024. My name is Philip Austin, and I'm Chair of the Board of Directors. Also present are my fellow directors, Audrey McNair, James Cameron, Elena Elsinger and Sarim Sheikh. Together with David Bird and Chris Gayden representing our investment managers, OCTOPUS RENEWABLES. We also have Hannah Shaw representing our company secretary, APEX listed company services limited as well as Carol Gillespie representing our registrar, Computershare.

1:47 In accordance with the company's articles, I will act as chair of the meeting and represent the proxy votes that have been submitted in advance. I confirm that there is a quorum present and therefore declare the meeting open. The format for the proceedings today is that we'll start with the formal business of the meeting. And once completed, we'll then proceed to a presentation from our investment managers, David and Chris. This presentation will be filmed and made available on the company's website after the meeting. And attendees will have the opportunity to ask questions after the presentation. So I now turn to the formal business of the meeting. I propose, and given the consent of those present, that the notice of the meeting be taken as read.

2:37 Right. Thank you. To reflect the views of shareholders of the company more accurately, voting today will be done by way of a poll on each of the resolutions.

2:47 This is seen as in the best interest of the company and shareholders as it gives all shareholders the opportunity to participate in the decision making of the company and have their votes recorded in proportion to the number of number of shares that they hold. The poll will be administered by a registrar, COMPUSHARE. Poll voting cards were distributed when you registered this morning. If you are entitled to vote and do not have a poll card, please raise your hand now. Thank you. If you've already lodged a proxy vote, a form appoint... A proxy form appointing me or one of my fellow directors as your proxy, and you do not wish to change any of your votes, there's no need to complete your poll card.

3:34 However, if you do wish to change any of your votes, you should complete your poll card for every resolution. I will now move to the resolution. Mister chairman. I'm here on behalf of my daughter. I filled in actually or I filled in the whole card, which we have said to the government. I take it onboard that you have received it, I'll say. Yes. We have. Yes. And and the registrar is just acknowledging that to me. Thank you. So I'll now move on to the resolutions. I propose the resolution set out in the notice of the meeting be put to the meeting. We've taken the contents of the notice as read and unless otherwise requested, I do not therefore propose read the text of the resolutions in full, and so we can proceed directly with the voting formalities.

4:24 But before doing that, are there any questions on any of the resolutions, please?

4:30 No. Okay. So, please, would you now complete your poll card if necessary by marking how you wish to vote on each resolution and sign your poll card. You can vote in favor of a proposed resolution, against a proposed resolution, or you may withhold your vote. Should you require any assistance, please raise your hand. Poll cards should be handed to the registrar on leaving the AGM. The final results of voting on each of the resolutions will be announced on the London Stock Exchange and via the company's website as soon as practical following this meeting. Voting will close ten minutes at the end of the meeting.

5:14 So that concludes the formal business of the Annual General Meeting. And I thank you for your attendance and declare the meeting now closed. So that's the formal AGM finished, and we'll now move on to the presentation by our investment managers, David and Chris here. I think the presentation will be about fifteen minutes, and then we'll be happy to answer any questions on the presentation after they've finished. And questions pertaining to the report of what I'm hoping, Mr. Chairman? We'll cover those, yes. All right. Thank you. Okay. David and Chris. Okay. Thank you. Great. Thank you for joining us at the Annual General Meeting for OCTOPUS Renewables Investment Trust. My name is Chris Gayden.

6:00 I am one of the fund managers alongside my colleague, David Bird, and we manage the business on a day to day basis.

6:14 So we launched ORIT back in December 2019 with a differentiated mandate with the aim to deliver a return of 7% to 8% over the long term through investing in diverse portfolio of renewable energy assets, delivering an attractive level of income alongside an element of capital growth. Now we consider ORIT to be the most genuinely diversified renewables investment trust with that focus on diversification important for protecting investors from concentrations of risk such as grid and regulatory risks. We have a progressive dividend policy and established track record of growing the fully covered dividend in line with inflation.

7:06 And in January, we announced a further increase for 2024, again in line with UK CPI. ORIT sits as I'm sorry, the slides are moving by themselves ORIT sits as part of a sector which is set for dramatic growth over the coming years, with renewables investment of 1,700,000,000,000 per annum needed in Europe over the course of the next twenty five years. And the breadth of our mandate means that ORIT is very well positioned to capitalize on that opportunity.

7:42 ORIT's portfolio has now reached genuine scale with eight zero eight megawatts of generating capacity across six countries, five technologies and also alongside five developer investments. The portfolio is delivering diversification, which we put at the heart of ORIT's mandate, with the spread across geographies and the balance between wind and solar alongside a small allocation to complementary technologies, in particular batteries and hydrogen. You can also see here the progress of the portfolio towards becoming fully operational, including the 28% of the portfolio where our initial investment was made at the construction stage. We'll update on the progress of

8:31 the portfolio a little later in the presentation. The allocation towards developers allows us to retain optionality on the proprietary pipeline. That's particularly important in the current macroeconomic environment. It also helps us to avoid competitive processes to acquire assets in the future.

8:54 ORIT is an impact fund and we have the aim to accelerate the transition to net zero through our investments, as well as the inherent impact of investing in renewable generation, particularly at the developer and construction stage where we're adding new capacity to the grid. We ensure that our communities and environments around our projects are also carefully considered at each stage of the project life cycle. Importantly, we don't see any trade off between positive impact and investment performance. And indeed, by being good stewards of the land around our assets and behaving responsibly with the local communities, we increase the probability of being able to secure additional value for investors through extending the lives of our assets and potentially repowering them in the future.

9:47 Okay, brief overview of the financials during financial year 2023. So, ORIT's net asset value as at March 31, £587,000,000 or 103.9p per share. Now, taking into account the borrowing in the group, the gross asset value is £1,100,000,000 And ORIT is targeting a dividend of 6.02p per share for FY24, and that's a 4% increase on the prior year. And as I mentioned a moment ago, that is the third year in a row in which the Board has been able to increase the target dividend in line with inflation. And with that, I'll hand over to David to talk through the portfolio. Thanks, Chris, and good morning, everybody.

10:35 So I'm going run through some of the key milestones over the past year or so and some more recent developments.

10:42 Looking back to 2023, this is the first time that ORIT has actually sought to sell assets. Active portfolio management was something that's always been part of the strategy right from the start of IPO. And with equity markets having been closed and the portfolio increasingly weighted towards operational assets, it made sense to look to release capital from some of of of those operational assets and then consider the most appropriate use of that capital. That process of capital recycling has begun very successfully. We realized £97,000,000 of net proceeds from the sale of two operational wind farms in Poland, which ORIT acquired during construction in 2021, and also from the exit from an option to acquire a 175 megawatts of ready to build solar assets in Spain.

11:33 The Polish sale in particular was completed at a 21% premium to the holding value and represented a 30% IRR over the lifetime of our investment. And the proceeds of each of those asset sales have primarily been used to repay short term debt. Moving into the beginning of twenty twenty four, and in February, we completed the acquisition of 199 megawatts of Irish solar assets, for a total consideration of around €160,000,000 That Irish acquisition across four sites represents the largest solar complex in Ireland, and those sites have been the subject of a conditional acquisition agreement going right back to 2021, and the purchase completed this year once the sites had formally been handed over under their construction agreements.

12:26 There is a fifth site already in the complex, which is called Harlickstown. That site is now fully constructed and it's connected to the grid and producing electricity. And we're going to acquire that site once all of the testing procedures and associated documentation have been completed in a few months' time. There's also the possibility to add a sixth site as well. That clearly will be subject to capital allocation considerations and of course reaching commercial agreement with Stackcraft the developer. All five of the existing sites benefit from a long term agreement with Microsoft to purchase all of the power produced by those sites for a fixed price for the next fifteen years. Moving forward into April of this year, we've entered into a ten year agreement with Sky Media in relation to the output of the Cross Dykes wind farm in Scotland.

13:20 This is another example of the active management and the risk management and optimization that we carry out in our portfolio. Led here by our specialist energy markets team, we've been able to add value to the portfolio after making the initial investment.

13:36 Under the agreement with Sky, they will pay a CPI linked fixed price for just over two thirds of the site's generation for a period of ten years. That agreement would have resulted in an increase in net asset value of 0.95p per share had signing occurred before the most recent March 2024 valuation date. So Chris mentioned on the portfolio map side that we give a bit more of an update on the construction progress. So part of that small part of the portfolio that was still in construction at March was the Breach Solar Farm in Cambridgeshire. And in May, that site has received its connection to the National Grid Transmission Network. Breach is a 67 megawatt site. We acquired it at 2022 at the construction ready stage, and that construction work was substantially completed last year.

14:31 And since then, we've been waiting for that grid connection. The site has been going through its testing procedures over the last few weeks, and we expect it to reach full output capacity by the end of June. Our final update in the portfolio is on Simply Blue. Simply Blue Group is a renewable energy developer based in Ireland, and they're focused on developing floating offshore wind projects, as well as complementary technologies such as sustainable fuels for aviation or shipping. ORIT first invested in the Simply Blue Group back in August 2021, and we've now agreed to invest a further €7,000,000 into its current funding round. The aim of that is to enable Simply Blue to continue developing its large pipeline of offshore wind and

15:19 sustainable fuel projects, while it seeks to raise longer term strategic funding to bring these projects through to the construction ready stage over the coming years. So to conclude, before we take questions, we'd like to reiterate some of the key points. Firstly, ORIT has a sizable and truly diversified portfolio. Our valuations have been validated through the recent asset sales, and the portfolio has shown robust performance in a difficult economic climate. We delivered a positive NAV return in FY 2023, as well as a fully covered dividend, and we've been able to increase that target dividend in line with inflation for the third year in a row.

16:09 We think, notwithstanding some of the challenges in the market, that there's a very positive outlook for the Fund through delivering further asset sales, with a disciplined approach to capital allocation, and then taking advantage of the broad mandate of the company, we think ORIT is very well positioned to capture growth opportunities in the future, once the time is right to do so.

16:35 And with that, I think we'll move to questions. But should we do questions in the room first? Yes, please. Are there any questions on the presentation to start with for David and Chris? I think it's a very good presentation, very clear. But as an a person, somewhat part, not understandable because you are using abbreviations, which I do not know about, which come... May come on to that. Actually, where the annual report is concerned, one of them is quite clear and understandable. But when you come for abbreviate... Oh, sorry. That's okay. Sorry. But when you come to abbreviations like ORIT and...

17:11 I have written one or two of the others down. Yeah. NAV, IPO, g a v, which are basically on page four, is very difficult to find what they actually mean. For future reports, if you... Somebody can, shall we say, itemize what they mean. So we say right at the front of the the agenda one way or another, as people are reading the report, they will be able to refer to the front page as to what the actual meanings mean. That's all that I say on that comment. I think there is actually in the back of the report. Liz has just got there. I think there is there. Look. Oh, sorry. I'm most likely didn't get to that.

18:01 It'll take a while to get to it. Okay. Okey doke. Now the other one is down there is concerning dividends. I, on behalf of my daughter, like to take shares for dividends. I don't see anything in the report about IU that you are offering. It's just purely cash only. Are you please giving your consideration to shareholders if they want to take shares to build up their portfolio? I mean, sort of script. Dividend scheme? So I could see But not Liz. Have my stockbroker. Liz, do you want to just answer that? Yeah. Sure. So ORIT, as an investment trust, has to pay out at least 85% of its profits effectively and has to pay that out in cash.

18:53 And, unfortunately, doesn't fulfill the requirements for that 85% distribution, but you're obviously able to use the cash that we... You receive as a dividend payment and reinvest in the stock market. Yeah. I know. But if I have shares for dividends, I don't have to worry about the stock market because I automatically get the shares, and I don't have to pay what... Any fees whatsoever. But we but we... We're an investment trust. You're an investment set up. And as Liz

19:23 said, all investment trusts, they have to distribute eight plus 85%. You're not as a company as I understand the company being. Well, we're a listed company. We're a company like list like you? No. No. We're a different structure. Investment trust. Yeah. Ah, okay. As are most of the companies that operate in the sector that that we operate in. Yeah. Okay. Well, fair enough. That answers that query. I have to admit, I'm disappointed. I would've thought I would've been able to, shall we say, yeah, advise my daughter because I'm 87 now, to to take shares for dividend as and when they are offered. I shall still give her that advice if OCTOPUS decides to offer share... Change their structure and offer shares for dividends, take shares for dividends.

20:09 I've done quite well. I'm sorry. Yep. I've done quite well over the years Okay. Taking shares for dividends in Yeah. Other companies one way or another, so I can't complain. Complain. Okay. But you can tell your daughter she's getting a very good dividend. Oh, yes. Not disputing. No. Not disputing.

20:24 So we can't do a script arrangement. Okay. Can I just ask give some other people the opportunity? Do you have any other questions? Come back to you if I may. Yeah. Yeah. Questions from any other shareholders? No? Okay. Do you have another question? Yes. I do. I've written down here on pay... Well, first of all, can I congratulate you? You're a very small shareholder directed group. Usually, when I go to meetings, I'm a dish or some of you as well do, you have a board of about sometimes 10 or 11 people one way or another. Here, Here, we have a board of basically four or five. And I think, I know you have two brilliant managers. I've read their rights up down there one way or another, and I congratulate you. And I'm gonna come on to you in a minute and then, like, hearted question.

21:15 So, yes, two two. You, as a small board, manage with your with your two colleagues here, manage what I call a very, very well run company one way or another. As I say, this is is my first shareholder meeting. I came by a shell who you bought out because one way or So I thought, well, I might as well buy some shares for my daughter on her behalf that I can attend the board meetings and and see actually what goes on and meet the people in control. One way or another is what I'm doing for today. Right. So there. Yes. Two two. As... Are we? Oh, yes. As I said, on page 81, I've written down there, well done. Without referring to down there, I'll let I'll let you decide on what page 81 is.

22:06 Well done. Page in 83 is talking about... Oh, sorry. I haven't got my book. It's all about, shall we say, trying to do things right one way or another. My comment is, do you happen to give yourselves a crystal ball, or do you work on the facts that you see them at today? In relation to relations of future purchases and future investments. I was got this... Because quite honestly, when you are dealing with things for the future, why today it works out alright, but tomorrow, it might not.

22:53 That's why I'm just asking. Do you have a crystal ball? Yes or no. And We don't we don't don't have a crystal ball, but we have investment managers. That's right. This is are very much think of the word at the time. Yeah. Who are very much Yeah. Aware of what's going on in the industry and the sector in which we operate. So part of their job is to look ahead and anticipate trends and so on. Give you advice. And come back to us and give us advice. Yeah. Righty ho then. Are there many more questions? I've got some online here we have to do. Oh, sorry. But Yeah. Well, I did put on page one one two. Interesting. So Okay. So I'll take a couple of these questions online, and then you think you've got any more. Anymore, mister Joe. Okay. Well, if they're all, I'll come back to you check with you before we finish. Okay.

23:39 At At least least you you know, know I've I've read read the the report. Report. Well done. Well done. We've got a question online here saying, the ORIT share price discount to NAV is over 30 Please, could the manager advise shareholders what the Board are doing and will in future be doing to manage the discount? Perhaps I'll answer that initially. The Board is very aware of the discount of around 30%. We're not out of line with the sector. Most of the renewable sector are at a heavy discount around about where we are. But it's something that the Board give a lot of thought and consideration to and a lot of discussion around it. And I think there's a second question actually, which ties in with this is prioritizing debt repayments over share buybacks.

24:29 So what the Board have done, we've been looking at what we call capital allocation, how we allocate our capital, how we can best do that for shareholders, for the company. And you will have seen over the past few months, we sold some Polish assets, which was referred to in the presentation, and we used the majority of those proceeds to pay down debt. And that remains a priority of ours, paying down the debt. Subsequently, you've also heard in the presentation, we've invested CHF 7,000,000 into Simply Blue. And just two weeks ago, we're now in our third week, we started a buyback program. So what we've tried to do is undertake a balanced program, if you like, of trying to support the share price.

25:15 So I think in I hope I've addressed both these questions here, I. Debt repayment is a key priority of ours. And buyback program, yes, we've started a buyback program, but debt repayment is our priority. Will the Board take this into consideration? And I think we're doing that. I have another question here, David. I'm going to direct this to you. What was the dividend cover in Q1 twenty twenty four? And what are the forecasts for Q2 Q2 and Q3 twenty twenty four? Yes. So on dividend cover, actually, we don't publish a quarterly dividend cover figure. The nature of the assets that the company owns, being wind and solar, there's a certain amount of seasonality.

26:05 We don't think it makes sense to have a dividend that changes quite a lot quarter on quarter in order just to sort of follow precisely that profile. So we pay a relatively even dividend over the four quarters of the year, and we publish our dividend cover metrics on a semiannual basis along with the interim report and the full report. So we've said that we're targeting a 6.02 per share dividend for 2024, and we expect to be able to pay that in a fully covered way. But the precise figures for what that cover is will be in the interim in the annual report later in the year. We haven't published a forecast dividend cover number for individual quarters. Okay. Thank you, David. Chris, perhaps one for you here. It sort of picks up a point you were saying, wholesale power prices. What's the current outlook of the future trend of seasonally adjusted Thursday average power prices for each of The UK, Ireland and France? So where are prices going?

27:02 Where do we think prices are going? So well, typically across all of our markets, we when we do our valuations, we assume that power prices will be falling over the long term. That's driven by a few things, but in particular, the increased rollout of renewables, which is a very cheap form of producing energy, will start to bring down prices.

27:26 So in all of our valuations, we assume that, that's going to continue on that continued declines on a real basis. Okay. And the final question, I think, here. Maybe for you again, Chris, capital recycling. Have the difficulties in obtaining timely grid connections and increased costs of wind turbine installations impacted the company's tactic of selling on mature assets and recycling into new projects? David or Chris? So I guess there's two bits there which are relevant. So in terms of our capital recycling program, the market is such at the moment that it does take longer to sell assets simply because there's fewer buyers in the market, especially with all of the listed trusts currently not being very acquisitive.

28:19 Now to recycle capital into new projects, the increase there has been some cost inflation on the wind turbine side. There has also been some on solar panels and batteries, but we're starting to see declines in both of those technologies now.

28:39 So the opportunity to recycle or to find new projects where it is economic to go and buy new equipment and install it and then build that site is such that there's still lots of opportunities available in the market. But we're not doing it yet because, as David touched on before, we and as Phil mentioned, we have our capital allocation conversations, And it is more attractive for us at the moment to be repaying debt and conducting some share buybacks than it is to be reinvesting into newbuild assets. Chris, there's a follow on question I'll just pick up on. It says, why sell assets earning a good income when gearing on the balance sheet appears to be quite low? Why are we selling assets at this moment in time?

29:24 Well, we would like to bring down the gearing that we have. And so selling assets is a way of releasing liquidity in order to be able to achieve that. Our gearing is probably at the upper end of the range. Yeah. There's a few different questions around gearing actually, which I think highlight some of the different views because there's that question which suggests that our gearing is quite low. There's other questions effectively saying, we worried with gearing at 46%? And and actually, both are fair because if you look at the quality of the assets that we have in the portfolio, they are very capable of supporting gearing significantly higher than what we currently have at around 46%. And if you look at other sorts of structures that own these sorts of assets, which aren't listed companies, it would be quite normal for them to have gearing that's well in excess of 50%.

30:18 So we're not worried that the assets can't support the debt that's in place in in the in the overall portfolio and in the company at the moment. But it is clear that some of that debt is expensive, and that broader shareholder appetite in the sector we operate is for a lower level of gearing than we currently have. And people... The investor group as a whole seems much more comfortable if gearing's below 40% perhaps rather than in the mid forties. So we we have to sort of respect that, that sort of broader feedback and and and look to bring down particularly some of that more expensive short term debt, but not not because we're worried that the portfolio can't support it, simply to sort of align with the sector and with investor expectations.

31:04 Okay. I think we can take one final question online, David, probably for you again. Think what measures are in place to ensure that ORIT's projects remain on track and within budget, given the various stages of development and geographic spread?

31:20 Yes. So that's one of the reasons that our team within the OCTOPUS energy generation business is as large as it is. So we have, over a 160 people, I think, now in the team. Not all of those work on on this on this company, although, you know, a large number do spend some of their time on it as well as people like Chris and myself who are dedicated to the company. So we we have a team of people whose job day in, day out is to oversee the performance of these assets, whether it's the construction progress or the operational performance or how quickly our developers are bringing projects through to ready to build. We also have external providers that are helping with that. So our French assets, we will have a local French accounting firm. We will have local French people on the ground going around and visiting the assets under contract.

32:06 But then our team within OCTOPUS Energy Generation is is constantly monitoring and reporting internally, then also reporting to the board at the quarterly board meetings. We also speak with the chairman and some of the other board members on a weekly basis, just updating them on those kind of things, how the performance of the assets, how are they tracking right across the full breadth. So we're able to manage such a diverse and broad portfolio in large part because of, one, the scale of the team, but also the nature of those people. So a lot of the people in our team have come from the renewables industry. They might have worked for a turbine manufacturer or a developer. We've got a lot of people who, again, have worked across Europe in lots of these countries, so they've got the right expertise to do that management. Thank you, David.

32:53 Okay. I think we've answered most, if not all, of the questions online. Are there any more questions from the floor? One more. Yes, of course. I have a small investment in a company called VERICA EX. It's a health company. And surprise, surprise, when I did a printout, I'll say it's got down at OCTOPUS investments. I've I've got got 21,000,000 shares in that company... Or shares in that company. Is that by any chance your group here? No. Investments in it, or is it a different octopus? I'm assuming it's gonna be a different OCTOPUS than what you are, because you seem to be... Or shall we say, electricity, gas, minerals, etcetera. Yeah. It is a different part of the OCTOPUS group. It's nothing... We... It's nothing to do with OCTOPUS Renewables INFRASTRUCTURE TRUST, also known as ORIT.

33:48 It's nothing to do with us. Chris, do you want to add anything? Yes. Anything, it is likely to be an investment from run by OCTOPUS investments, which, as Phil says, is separate from the OCTOPUS RENEWABLES. Different part of the OCTOPUS Group. Yeah. Okay. Enough. So, in a way, indirectly, you are part of it, but you... Is it run by a separate bit of Well, we're a... We're we're a... An independent listed company Yeah. That that, if you like, came out of the OCTOPUS Group. Yeah. David and Chris work for OCTOPUS. Yeah. And we, OCTOPUS RENEWABLES, we employ them as our investment manager, yeah, to advise and help us. A bit complicated for us. Maybe we'll have a chat about it when we finish this. We're happy to have a chat about it. Okay. If there's nothing else from the floor, I think we thank you all for coming, both those present and all those online as well, and thank you for your questions.

34:45 And we'll now declare this meeting closed as well. Thank you very much indeed. Thank you.

34:53 Thank you very much indeed to the board of OCTOPUS RENEWABLES INFRASTRUCTURE TRUST PLC. Could I please ask attendees not to close the session as you will now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the board of OCTOPUS RENEWABLES INFRASTRUCTURE TRUST PLC, we'd like to thank you for attending today's annual general meeting, and good morning