Foresight Environmental Infrastructure Limited (FGEN) Earnings Call Transcript & Summary

Good morning, and welcome to the JLEN Environmental Assets Group Limited Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Chris Tanner, Investment Manager. Good morning, sir.

Thanks very much, and hello, everyone. Thank you for taking the time to attend JLEN's half year results presentation for the 6 months ending 30th of September 2023. So I'm Chris Tanner. I'm a partner at Foresight Group, the Investment Manager, and I've been part of that investment management team since IPO nearly 10 years ago now. In a moment, I'll hand over to my colleague, Ed Mountney, to talk through the financial results for the period and also to look at the portfolio valuation. Then I'll give some more information on the portfolio, and I'll also touch upon JLEN's approach to capital allocation in the current environment and what that means for JLEN's outlook. We're very happy to take questions. What we will do is we will pick them up at the end of the prepared part of the presentation. But do just fire them through as you think of them, that will be collated for us to have a look at. Okay. So just an overview. So JLEN is a diversified environmental infrastructure fund. And this has benefits in terms of no one set of risks predominating. It also means that we are very well placed to follow societal trends towards decarbonization and more sustainable approaches to economic activity. And that means we're able to look across a range of opportunities to assess where we see most attractive risk-adjusted returns. We have features from our portfolio in terms of high levels of inflation linkage. And also, we spend a lot of time trying to communicate what the portfolio offers in terms of ESG benefits, but we'll come on to those points through the presentation. So I'll now hand over to Ed to take us through the financial part of the presentation.

Thanks, Chris. As Chris said I'm Edward Mountney, I'm an Associate Director of Foresight Group. I'm one of the lead investment managers to JLEN, and I'll be taking you through the financial performance and valuation side today before handing back to Chris. So first up here on Slide 5, we have an overview of the position for the first 6 months of the year. The main thing I'd like to bring out here is a theme of resilience and record cash generation for the portfolio. So our net asset value total return now stands at just over 120% or 8.7% on an annualized basis. And that brings us to a net asset value or NAV of GBP 792.1 million or GBP 1.197 per share. Supporting this, the portfolio delivered a second consecutive period of record distributions from our investments driving a dividend cover of 1.32x or 1.54x, excluding our first payments of the electricity generator levy being the windfall tax on electricity generators introduced by the government. And this compares to 1.51 last year, just showing the continued strength of the underlying asset base, which has allowed us to reinvest back into the portfolio to conservatively manage the use of our revolving credit facility and maintain a prudent level of gearing. So moving on to Slide 6. We get into some of the detail. And here, we kick off with JLEN's cash flow statement for the first 6 months of the year. And last time I did this presentation, I was telling investors about the jump in cash that we received from the portfolio last year saying that it wasn't just a one-off. I'm pleased to say now that we've proved that by delivering a second consecutive period of record cash flows, 6% up from this time last year. And this really is a result of the combination of the high power prices that we've locked in as well as the continued boost from investments and asset enhancements made over recent years. I won't go into each and every line item on to the cash flow statement, but other points that I'll just touch on here, you can see GBP 30 million of investment, and that primarily represents the follow-on contribution to our construction commitments, such as the project Rjukan in Norway, our co-located glasshouse facility and also our battery storage assets. On top of that, we also have our exciting green hydrogen development platform that we first announced last year, and Chris will come back to that a bit later. Secondly, I'll draw your attention to the graphic on the right of the screen. And what we've shown here is that the portfolio generated net cash flows of GBP 40 million for the 6-month period. So that's after covering things like the electricity generator levy, fund running costs and RCF financing costs. And that gives us the cash cover over the dividend of 1.7x. So from there, we can allocate GBP 9 million to pay down project level debt, and that gives us GBP 31 million available for distributions, GBP 24 million of which went to shareholders with the remaining GBP 7 million reinvested back into the portfolio to accelerate growth and further enhance returns for shareholders. So why are we presenting this? Well, we know that different funds have different debt structures. So this may help us compare cash cover between the peers. Slide 7, we have our income statement on the left and our net asset position on the right. Firstly, with the income statement, we can see that whilst earnings per share is down from last year, actually, if you add back the fair value movement to the portfolio, which I'll come back to when we talk about valuations, adjusted earnings per share is up from 3.1p to 3.7p, again, showing the continued improvement of the underlying asset base. On the right-hand side, we have our net asset position with the key figures here being the portfolio valuation itself, which remained flat versus last year and also the revolving credit facility, which now stands at GBP 125 million, bringing neatly on to a slide about leverage. And the main point to pull out here is that JLEN continues to operate with a prudent approach to debt management, maintaining a low level of gearing, both relative to the sector as well as what the assets themselves could sustain. So just under 18% project-level gearing, which goes up to 28.7% with adding the RCF. And main things to note here is that for that project level debt, all long-term facilities fully amortized within subsidy lives. We have no refinancing risk assumed in our valuations and interest rates are fully hedged on all that long-term project finance debt as well. So JLEN is well sheltered from the current lending environment. In terms of the RCF, I mentioned before that we've now got GBP 125 million drawn. That's out of a total facility available to us of GBP 200 million. The facility itself is linked to a certain ESG metrics with margins ranging between 195 to 205 basis points over SONIA, depending on how we perform on those targets. And that gives us ample headroom to meet our build-out commitments over the year ahead. And again, that's something Chris will come back to a bit later. Let's see on the slide, we've also added our weighted average cost of debt, and that's following the request to see this last year. That turns at 4.5% for project level debt and 5.3% when factoring in the use of the RCF. So in summary, we still feel conservatively geared at this point and at a comfortable level at this moment in time. Slide 9 is a summary of the track record of year-on-year growth since IPO and the dividend. And everything that we've covered so far is here to illustrate that we are on track to deliver this year's dividend target of 7.57p, and that's equivalent to a yield of nearly 8% on the current share price. So now we move on to some slides about portfolio valuation. You no doubt recognize most of the format from previous presentations that those that are familiar with JLEN, but there are a few new areas of content side as well this year. First, we have our valuation bridge that's showing a major movement over the course of the year-to-date. And the first thing you'll see is that the overall position is largely flat versus the start of the year, again, showing the ongoing resilience of the portfolio. In terms of the details, stepping from left to right, you can see the GBP 30 million acquisitions I mentioned earlier, with investment activity focused on meeting our ongoing commitments to higher returning construction stage assets and that green hydrogen development platform in Germany as well as the usual follow-on investments into existing assets, such as a further build-out of our network of low-carbon CNG refueling stations across the U.K. Next, GBP 46 million of distributions received from projects, which we saw earlier, and that brings us to the rebased valuation and then on to the fair value movements on the right-hand side. So firstly, we have a GBP 17 million decrease from power prices. That's net of the electricity generator levy. Then GBP 13.5 million uplift from economic assumptions, which is largely driven by actual inflation growing above our assumption set at the start of the year and a revision to 2024's forecast RPI. And then a GBP 31 million reduction from discount rates, all of which are covered in more detail on the next slides. The other point to pick up here before moving on is it the portfolio remains largely insensitive to changes in FX. So then the only other item is the balance of portfolio return. And that's primarily the effect of unwinding the discount rate for 6 months. And also, you'll see in the table on the right-hand side, GBP 12 million uplift from sustained higher guarantees of origin certificate pricing plus a number of other low-value items you can see in the table on the screen. So moving on to look at power prices in a bit more detail. The first thing to say here is that our methodology regarding power prices remains unchanged. So in the absence of price fixes, JLEN models 2 years of market forwards before reverting to the blend of 3 independent market consultants and then making adjustments for project-specific arrangements and things like price cannibalization. The blended power curve is presented on the slide here, and you'll see the reduction in value I mentioned earlier, is really coming from changes to the front end of the curve, which we are largely insulated from through a combination of the fixes we have in place as well as our relatively lower reliance on power-generating assets achieved from our diversification strategy. The table on the right-hand side shows the extent to which generation has been fixed across the portfolio, and it's worth just reiterating that distinction here that we present generation of revenues, so it doesn't include contracts from things like subsidies or private wires. And again, that's something Chris will touch on in a few slides and then covers the revenue mix of the portfolio. So the first thing to note on the table is that we adopt a policy of fixing prices over a period ranging from 6 months on to 3 years. And what you can see here is that the approach taking will vary depending on the nature of the underlying assets. So for example, whilst we're 68% fixed in [ aggregate ] for winter 2023 and 50% in the summer '24, you'll see that intermittent generators such as wind and solar, tend to have a higher proportion of fixed revenues versus baseload generators. That sort of baseload generators have a profile, which means they are best placed to capture the very highest prices over the course of the day. The end result being that we've targeted an approach that very protects against the risk of prices falling, but also gives the best platform for capturing the highest floating prices as they arise. To Slide 13, we now move on to cover discount rates. So despite the softening since the valuation date, we continue to see elevated risk-free rates, which is recognized in our valuation with an average increase of 75 basis points since the start of the financial year. That, combined with ongoing investments into high returning construction projects has resulted in an overall 100 basis points uplift in the weighted average discount rate, which now stands at 9.4%, some 5% above a 10-year div yield and our highest discount rate since IPO some 10 years ago when these sorts of assets and their respective funds were much less familiar than they are now. So a couple of other points worth throwing out. Whilst the 75 basis points I mentioned was the average uplift there was a smaller premium applied to our anaerobic digestion portfolio, noting Foresight's recent transaction experience in this market, indicating demand for high-quality assets in this sector continues to support current valuations. The overall negative movement from discount rates is partially offset by a GBP 4 million uplift from compressing the co-located glasshouse discount rate following achievement of several major milestones on the path to becoming fully operational. And Chris will cover that in a moment, too. And lastly, we've now also presented our sector weighted discount rates to add insights to the portfolio. You'll see I've noted the gearing percentages for each sector alongside them, which should help comparisons against other funds with different debt structures. So for instance, our solar rate is 7.6% covers a mix of levered and unlevered assets, so the figure here represents a blended rate. Slide 14. The continuing trend of new disclosures. We've included one further piece on discount rates, showing on the left-hand side that we continue to model conservative inflation assumptions versus the U.K. gilt market implied rate of inflation. And on the right-hand side, we show how our high average discount rate is 9.4%, sits nearly 7% above JLEN's average long-term inflation assumption, which compares favorably to a 10-year U.K. gilt yield, offering a real return of less than 1%. So we think our conservative inflation assumptions offer greater potential for value upside, and we've included our usual inflation sensitivity here showing how actual inflation running 2% above our model rates for the next 2 years. We drive value uplift of GBP 18 million or 2.7p per share. So lastly for me, before I hand back to Chris, we have a slide on our other key valuation assumptions. We've covered inflation. Although the table to the right summarizes our assumptions just for reference. So the main points to bring out here again are the new disclosures that we've added this year. Firstly, renewable energy guarantees of original [indiscernible], which I mentioned a bit earlier, then added nearly GBP 12 million to the portfolio value this period. And now you'll see our assumptions to the bottom right of the table, with the value change largely coming from a revision to our previously very low long-term price assumption of 45p now moved up to GBP 2, still well under pricing available at the moment. And I'd be happy to explain what [indiscernible] are if that would be useful. It's very technical, so I'll leave that for the comments. And secondly, we added a note on useful economic life assumptions across the primary sectors of wind, solar and AD with the main point to bring out here that we continue to apply a very conservative assumption that our AD facilities will simply cease to operate after the end of their 20-year RHI subsidy. In reality, we expect a strong market for those assets already providing a crucial support -- I'm sorry, crucial source of renewable gas to the U.K. And we're now beginning to see growing evidence with the ability to run these plants beyond the end of their tariff and even early indications about coming through in transactional pricing. We had introduced new sensitivity indicating how a simple 5-year extension on the current terms would increase NAV by nearly GBP 23 million, equivalent to 3.5p per share. And I should say, from a technical perspective, we're confident that these plants will be capable of running for 5 years, if not longer. What remains to be seen is how that revenue is built up. So we'll continue to refine that sensitivity as those post RHI revenue streams become clearer. So that positive note brings me to the end of the valuation slide. Happy to answer any questions at the end. But now I'll hand back over to Chris.

Thanks very much, Ed. So now I will take us through the next few slides on the portfolio. So first up, we have portfolio at a glance. So this slide gives a feel for diversification of the portfolio by technology and also by geography. So there are 4 main technology subsectors, wind, waste and bioenergy, anaerobic digestion and solar or broadly similar is kind of sizes. And then the 2 smaller parts of the book, low-carbon and sustainable solutions include our battery assets, our compressed natural gas, biomethane refueling, network and also our green hydrogen interest, and controlled environment makes up the glasshouse and also the aquaculture facility in Norway. So money is still going into a controlled environment as we build those assets out and also into the batteries and potentially our hydrogen interest as well, which we'll come back to later on in the portfolio. So a broad spread of technology within the portfolio. On the geographical side, we're up slightly in the 6 months to 8% from 6%. This is really as a result of capital going into things like the Rjukan aquaculture facility. So we see scope for modest growth in that European part of the portfolio, but the book will always remain heavily U.K. focused. Here is some more analysis on the portfolio. So in terms of the split between construction assets and operational assets, 8% of our book is in construction assets with 1% in development stage, which is the hydrogen interest. That's actually come down a bit from the full year position, and that's because one of our batteries West Gordie has become operational in the period. But going forward, we'll see that construction stage element sort of ticking up a bit and then coming back down as assets become operational. So I think always a modest level of construction activity going on, which, of course, is good for capital growth prospects. In terms of asset concentration, this is pretty low within the portfolio. the largest asset at 11% is our Cramlington biomass asset and then nothing else makes it into double figures. In terms of remaining asset life, we think we're quite conservative here as Ed has touched on. So without reflecting asset life extensions where we don't have the land rights to do so. Weighted average life is about 17 years. That doesn't include things like our development interests in hydrogen, for example. And then finally, on operator exposure, as you can see, broadly spread across a range of counterparties, as you would expect, given the diversification present within the portfolio. So this slide shows the gross revenues that our portfolio companies receive. And so what we're trying to show here is the range of different revenue types that we're exposed to. It's not just, for example, subsidies and wholesale power revenues. So in total, if you look at the pie chart on the left, you can see 46% of revenues on an NPV basis are subsidy in nature and 11% are long-term contracts. So these are fixed price arrangements with explicit RPI linkage attached to them. So that gives us more than half of the book on an NPV basis where the revenues have that fixed price inflation linkage element. We also have inflation linkage in other parts of the book as well. So for example, our customer contracts with fleet operators who use our biomethane refueling stations. Those contracts also have CPI inflation built into them, although we don't count them as long-term contracts, although in practice, they pretty much are because we have a very dominant position in refueling for CNG. So there's nowhere else for those customers to go at the present time. So this slide shows some further revenue sensitivities. So this time focusing on the wholesale revenues from gas and electricity sales. So what we've done is we've shown our assumption for those volumes that don't currently enjoy a price fix, and you can see them in the table above. And then we've assumed that for these floating revenues. First of all, the price that we receive is cut by half. And then we've assumed that we received no money at all for this generation. And so as you can see, if we look out for the remainder of this financial year for financial year '25, for financial year '26 in the 50% reduction case, we are still comfortably covered. Even if we were to receive nothing for unhedged volumes, we still remain covered in this year and 2025, and we're very nearly covered in 2026. Now I think the idea that we would receive absolutely nothing for renewable power is pretty far-fetched. So we're quite confident in our ability to pay the dividend over the short to medium term. So I'll now just look at some different aspects of portfolio performance. So this first one should also be viewed in conjunction with the slide -- the graph on the next slide. First of all, we're looking at the portfolio in terms of financial distributions to our fund compared with the expectations that we had at the beginning of the year when we set our budgets. So offshore wind is the main detractor, so this is down really as a result of low wind speeds in the period. You can also see that waste and bioenergy is currently underperforming. This is really a timing issue. So we are being fairly prudent in distributing cash from those assets, particularly our Cramlington Biomass assets. That asset had an issue with its turbine rotor in the last period, we reported on that in the full year. That is completely fixed, has been for a while now, and that asset is working very well. We're now just working through the consequences of that issue with insurers with the party that supplied us with the turbine rotor. So we expect to make various claims there. But for the time being, we're just hanging on to cash for the sake of prudence. In terms of the rest of the book, all broadly doing what it's supposed to do. So if we now flick to the same kind of analysis, but now just focusing on the generation assets, whether the assets have generated what we expected them to do. You can see there that wind is the area that's fallen short. And that, as I said, is because of wind speeds. Waste and Bioenergy is on budget. So giving us confidence that what we're seeing there is to do with our retention of cash rather than any underperformance. You can see that our anaerobic digestion assets have actually performed slightly better than budget. The reason that, that hasn't come through on the cash side is that gas prices have been falling in the period. And so for those unhedged volumes that we have, we've made slightly less money than we expected, but still overall a positive picture. And as Ed has said, our cash generation in the period is a second record outcome. So I'll touch on some of our construction assets now. So first up, the battery assets. So our West Gordie asset in Scotland became operational in the period. And actually, Ed and I were up there in the control room of our route-to-market partner last week. So watching the teams there, the data analysts, the traders and so forth, optimize that asset and get the most money that they can for it, and that was absolutely fascinating to see. Our Sandridge asset is in late-stage construction. We expect that to become operational over the course of 2024. We have project rights over 2 further battery projects, [indiscernible] At the current time, we are pausing taking those through into construction, and that's really a decision based in our approach to capital allocation, and I'll come back to that later on. But in short, while capital is relatively scarce, we see better opportunities out there in other sectors than those batteries. In terms of our controlled environment projects, so the Rjukan aquaculture facility is making good progress. So there is now water in the first of the tanks there. And we are expecting to introduce the first trial takes into the facility early in the new year. And that will form the first batch to move all the way through the facility. The facility is modular, and so we are able to build the later stages without affecting the early stages where the fish will start their grow out phase. It takes about 18 months from eggs to fully grown trout, and we expect the facility to be completed in the second half of 2025. I'll come back to the Glasshouse on a separate slide because quite a lot has been going on there. I'll just say a few words about our green hydrogen interests. So we continue to be very enthused by progress on our German development project. What we are seeing there has all the hallmarks of core infrastructure projects. So a strong level of government support and also a long-term offtake market. So as we sit here now, we expect that by the time we reach financial close on the first of our projects coming out of that development partnership, so that is the Lubmin project in Germany. All of the volume -- substantially all of the volume of hydrogen from that plant will already be spoken for in the form of long-term contracts with creditworthy organizations. So that's very encouraging. On the legislative and regulatory front, Germany is putting in place various measures that are beneficial to a project like this. So there are things to do with decarbonizing heavy goods vehicles that support our projects. So our project will produce hydrogen that in the jargon is RED II compliant. So it counts towards operators reducing greenhouse gas emissions. There is legislation to support the blending of hydrogen in the gas mains network. So that is a huge source of demand far in excess of what we can produce. And then there are also developments on the use of electricity, renewable electricity at times when that generation would otherwise be curtailed on the system. So that curtailment on windy days currently costs the German grid operator, several billion euros a year. They're very keen to incentivize flexible load on the system, and that's exactly what we provide. So very good signs for us there. So I will just say a few words more in detail on the colocated glasshouse facility as it passed a major milestone during -- shortly after the period end, actually. So that was the introduction of the first cannabis plants within the facility and the fact that the plant passed its inspection visit to ensure that we comply with the terms of the home office license that we grow under. So just to recap, the glasshouse started out as a value enhancement for one of our ADs. So the idea was for the AD to provide electricity and also heat that was otherwise wasted on a private wire basis to the growing environment. And instantly, that private wire is now substantially up and running with electricity already being taken and heat to commence shortly afterwards. So what became apparent was that the highest value use of the site was for a high-spec glasshouse growing the active compound from cannabis for the pharmaceutical market under heavily controlled license from the U.K. Home Office. We have provided a senior loan for the construction of the glasshouse itself, but also we have -- because we've been instrumental in making this happen, we have taken some equity interest in the grower itself. We think this is a pretty unique asset on the U.K. Mainland, and we think we're very well positioned now to capitalize on growing the plant to order for pharmaceutical companies. So this slide is just on ESG. So JLEN as a fund is an Article 9 fund. For those of you who follow such things, that means that we otherwise described as the deepest green color, and we have matters of decarbonization and sustainability built into our investment policy. So we've always worked hard to communicate what the portfolio has to offer in these areas, and you can see some of the stats on the page here. In terms of the year ahead, we're always trying to keep pace with the growing sort of best practice in this area. So we will be working on a transition plan in line with the transition plan Taskforce Disclosure Framework that was launched by HM Treasury a year or so ago. And we also intend to make progress on biodiversity assessments, partly in preparation for the Taskforce for nature-based financial disclosures. So expect to see more on these at the full year. So I'll now spend a bit of time talking about capital allocation and also what that means to the outlook for JLEN. So capital allocation is something that is very much on the mind of the directors of the Board of JLEN. So directors recognize that it's important to communicate clearly with investors in the current environment and also given the discount to NAV that exists within the sector as a whole that also applies to JLEN. So the director has put out a regulatory notice to this effect in October, and I'll reiterate what that said here. So the first thing to note is that JLEN has several assets in the construction phase. And so the first priority is to continue to meet those hard commitments. So there's about GBP 40 million of hard commitments. Remaining, as Ed noted, we have about GBP 75 million of headroom on our RCF. So well positioned to continue to meet those hard commitments, and we feel that is the right thing to do because continuing to build out those construction assets gives us the opportunity to recognize a capital uplift as they become operational. There are also now a very small number of follow-on deals that are directly connected to the existing portfolio. We announced one of those earlier on this week with the purchase of the remaining stake in the Bio-Collectors food waste assets. So that was something that was always envisaged as part of the original transaction. So other deals will be things like that, but we are really trying to only do those things that we think have a direct positive impact for shareholders. That is why, for example, we have paused on the construction of the remaining battery projects, so we may return to those in due course. But at the current time, we don't think they represent the best return on offer from the market, and that includes the offer the returns that are potentially on offer if we were to buy back shares. We think that we have enough financial resources and headroom under the RCF to do everything that is currently on our list of priorities. That includes investing in the first of our hydrogen projects where we don't have a hard commitment to do so, but we really see attractive returns on offer there. In order to make that position more comfortable, we are also actively engaged in asset disposal conversations. So we would like to sell assets from lower returning parts of the book and recycle capital into opportunities like hydrogen, for example. There is also the prospect of share buybacks. Again, that is something that is very much on the Board's mind. They're conscious that at a 20% or so discount to the current NAV, that represents, in our view, a pretty good investment opportunity. And I think if and when we are in a position of proceeds from asset sales, then that decision becomes a lot more straightforward for the directors. What does that mean for outlook? Well, we still see a very strong opportunity set within environmental infrastructure. So Foresight as a whole, sees over 700 opportunities a year. Many of those are dismissed out of hand as not being suitable. But there are still plenty of things that would catch our attention in more normal circumstances. But as I say, at the moment, we are being extremely selective and really things have to be very, very value accretive. And also, given the other things that we have going on, we will need to sell assets in order to reinvest. So not much more in terms of new activity focus for the time being is on the asset sales and also, we hope on the green hydrogen projects that we have. So in summary, it's been a very good period for JLEN. So cash generation has been in line with the previous record -- period, which is very pleasing to see that, that is continuing. Our NAV has been resilient even as we've increased our discount rates. The portfolio weighted average discount rate is now 9.4%. And as Ed has pointed out that offers an attractive real return over long-term inflation assumptions. We're also starting to see the benefit of capital growth as our construction assets become operational and start to deliver meaningful yield. We have a clear and disciplined approach to capital allocation in the current environment. That includes ongoing asset sales and also serious consideration of buy banks at the appropriate time. The fundamental drivers for investment in environmental infrastructure remains strong, and we continue to see a strong pipeline of opportunities. But as I say, at the current time, we will continue to run the fund in a prudent manner and not overstretch our balance sheet position. So that concludes the prepared part of the presentation. We will now start looking at some of the questions that have been asked online.

[Operator Instructions] As you can see, we have received a number of questions throughout today's presentation. Can I please ask you to read out the questions and give response where appropriate to do so, and I'll pick up from you at the end.

Okay. So I'm just scanning through these -- so if you can just bear with us as we try and talk them through. So the first question is concerning scope for merger and acquisition opportunities within the space. So yes, I think the market for investment companies more generally is already seeing corporate activity between trusts. I think in the infrastructure space, it is more difficult, not impossible but more difficult. The assets themselves are illiquid. So if investors expect some kind of liquidity provision at the point of combining funds that is hard to do that would have to follow some months later. I also think that there is a bit of a challenge when all of the funds are, to some extent, at a greater or lesser discount to their NAV. And so deciding at what point you put the funds together might be difficult for investors if one fund is at, for the sake of argument is 30, and another fund is at 20, you might find the more highly rated funds shareholders saying that there's no point doing that deal at NAV when they can go out and buy those shares themselves at a 30% discount. So not impossible, but some challenges, I think, to making it happen in renewables. Sorry, I've just lost questions. Next one after a few on debt. Ed, do you want to take the ones on debt?

Yes, currently, I think these are just sort of submitted as we were going through. So a couple you might have answered. So that was the current level of debt. Do you have RCF debt and if so, how much? So yes, before we do have an RCF, it's GBP 125 million drawn out of [indiscernible] GBP 200 million. So hopefully, that answers the question. But if there is some follow-up, feel free to write those in. The next question was on capital allocation. And again, I think you answered that subsequent to the question being submitted Chris. I think our policy and our [indiscernible] capital allocation is covered. We don't have a question on -- is dividend covered by cash income over the next 3 to 5 years? I'm happy to give my views on that. And the answer is yes. When we set a dividend target, we use the term progressive and sustainable dividends. So we are not just looking at next year's dividend and the ability to cover that. We are looking more longer term to say, can we afford the dividend now and into the future based on the view of cash flows that we have. So given that we have a very high proportion of fixed revenues in that -- certainly in that short to medium term that gives us a good level of security to say, okay, you have visibility of the cash flows. Yes, we come to that. We can cover that dividend.

Okay. There's been a question about, do we feel the market is sufficiently pricing? The fact that we have strong inflation linkage and interest hedging within the portfolio. And how do we feel about that given the discount to NAV? So the question refers to a widening discount to NAV is actually come in a bit in the last month or so. And I think that reflects a not necessarily a return to confidence in the future. But I think a feeling that perhaps the worst of the increasing rate cycle has come to an end. And now the question is how long we will remain at these kinds of levels of interest rates. And to be clear, a big part of what's happened to share prices in the sector over the past year or so is as a result of the rising rate environment. So our valuations are all negatively correlated to rising rates. I mean I don't think it will come as any great surprise to you to think when we say that we are quite confident in our NAV. We think that's what the assets are broadly worth. So the fact that there is a discount is something that we think about a lot and think about ways to close. I think doing things like being sensible on capital allocation and seeking to sell assets where we see good scope to recycle capital is part of that. But I think, ultimately, it will be quite -- it will require a real change in sentiment around the path of future interest rates for a significant move in the share price. There's a question there on what margin we actually paid in the period given the ESG linkage? Ed, are you able to answer that?

Yes, I can. So the question is around I mentioned earlier about we have a range of margins that we would have to pay on the RCF depending on how we perform against certain ESG criteria. So that's between 195 basis points and 205 basis points over SONIA. Presently, we're paying [ 200 ], the midpoint of that. In order to get the 5 basis points discount, we need to achieve all of the ESG targets that we have set. Now for anyone that's sort of worked in it before, you'll appreciate that when the banks set those targets, they are set with a very, very challenging backdrop. They want to see real, real improvement. So actually, I think what is probably most common is that we would deliver some of, but really struggle to deliver all of them because that's the purpose of it and they want to make sure that those targets are set there to challenge us [indiscernible]. So we're not paying any premium over the top of the margin, but in this particular year, we don't have the discounts to the margin just pay [indiscernible].