Foresight Solar Fund Limited (FSFL) Earnings Call Transcript & Summary

Good morning, and welcome to the Foresight Solar Fund Limited Full Year Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives in the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Ross Driver, Managing Director. Good morning to you, sir.

Thanks very much, and thanks for handover. Just so we can crack on with the presentations to take on full year results, just go to the first slide there. You got with me this morning Toby Virno from the fund management team, who worked on the [ timing ] on that; and Matheus Fierro from our Investor Relations, Manager as well. We will take you through this pack between us. And so just a very quick overview, potentially for those of you who are new to Foresight Group, Foresight Group is international alternatives manager with just under GBP 12.5 billion of AUM. Currently, the majority of that, just under GBP 10 billion, is with infrastructure, and the most relevant part of this for our fund, for Foresight Solar, is our international presence there with offices in London, Madrid, Rome and over both Sydney and Australia -- Sydney and Melbourne in Australia. We have 175 infrastructure professionals that work with us across those regions, and we manage over 435 infrastructure assets across 16 different investment vehicles. If we get on to a bit of an overview and recap of Foresight Solar and the fund itself, it is -- remains a predominantly U.K.-focused fund, with a large portfolio of ROC-backed U.K. Solar assets. That is the bulk of our portfolio with 50 projects there and 723 megawatts, making it one of the largest portfolios in the market. We also have 3 [ hedge-funds ] battery storage projects, 1 that's currently in construction, and the project [ rights ] to further ones. We then also have our international exposure. We -- the fund went into investing in Australia. First of all, we've got 4 assets there, comprising 170 megawatts of generation; and more recently into Spain, where we developed 4 projects there and also have -- and recently made a 50% sell-down in the space of 3 of those assets now as the local portfolio, above NAV. It is also, in the region, a core market for us, where we've also done our first development-stage investment with just under 0.5 gigawatts of pipeline there that we will talk you through in more detail. Next slide. The first slide here is just giving an overview of what we're going to talk through this morning. Predominantly, the key focus for us and the Board has been the capital allocation of the fund and keeping it very tight in the current time frame. So what will be done, we will go through in a bit more detail, the share buybacks, relatively one of the largest in the renewables market, with GBP 40 million committed there. We've made our first divestment with the sale of the Lorca portfolio at a 21% premium to NAV, and we've used that's alongside cash generation to pay down debt. Also focused on, we are not progressing with significant capital expenditure at the moment and paused other construction projects, but we do see scope for modest investment in development-stage pipelines in order to grow the fund in the future. Operational performance over strongest year or highest generation to date over 1-terawatt hour and probably is not without some challenges that we'll come on to speak about, but it continues to be incredibly strong and incredibly cash generative, overall. The financial outlook then, a very strong income of dividend for 2023, 1.6x cash covered. And that, along with what we'll talk about how our price is going forward, is what's given ourselves and the Board the confidence to increase the dividend target 6% again this year to 8p per share. One of the other parts that we'll come on to speak about, we've got the valuation number up there. We've put out a comparable number to recent transactions in the market. We see our valuation is somewhat more conservatively valued than some of those transactions at GBP 1.17 million per megawatt there. So if we can go on to the next slide, just diving in a little bit more detail on the capital allocation and the rationale behind that, the share buyback program, why are we doing that? Well, we see in terms of -- it's a good way to acquire an investment decision on its own, which is acquiring stock in our own portfolio that we believe is incredibly solid and is massively undervalued at the moment. And we believe that, that has been fallen out by the recent transactions in the market that we'll come on to. And it's also a good way to return cash to shareholders. We would say that we have done this, others have talked about it and not done as much. And arguably, this is the, like I said, largest relative buyback program in the market, and it is NAV accretive in terms of -- on a pence per share basis that we'll come on to. We made the first -- as mentioned, first divestment program with the sale of Lorca, circa [ 50 ] megawatts there. And we're not intending to rest on our [ wallets ] with that. We are looking to push ahead with the remainder of that divestment program during 2024. We're not putting ourselves to [ mass ] and saying it's specifically which assets they are. We're looking to retain a better flexibility on that, but we are making progress on all fronts and hope to report back on that before too long as well in terms of progress. The key area of what we've used monies from the sales for is to pay down the RCF balance, so the only variable-rate debt that the portfolio currently has. And it's just over 6% at the moment in terms of [ debt ]. So it's a key area to focus on to reduce. We gave ourselves the target of paying that down to GBP 75 million by the end of December, and we hit that by making GBP 40 million reductions in the RCF from the sale of Lorca, but also from cash generation to fund as well. I'd also say on top of that, we've also paid GBP 42 million of our long-term amortizing debt. So in total, GBP 82 million was the paid-off debt by the company. We've also extended out the RCF as well to 2026, deferring any refinancing risk there, but still see a very strong market from -- on the funds that we manage and the interest in RCFs for these funds. On the dividend increase, just coming back to that, it's another 6% increase, taking us to 8p per share. We'll go on to why we feel comfortable giving this. We see it as a bit of a catch-up for the last couple of years of high inflation, high [ coal ] prices and looking to pass some of that on to investors. But based on the current map, that's just under a 7% yield on that and around, I believe, close to 9% yield based on current share price as of today. And we continue with our strong shareholder engagement, continuing to broaden the investment base, having many, many meetings and discussions with investors to get the feedback. There can be a diverse range of views and [ thoughts ] on what's best to do at the moment. But we hope in terms of our strategy here, we are looking to cover off as many things that we think are right to shareholders' interests, as some of the feedback that we're getting, and we believe is the right thing to do. We've also done a shareholder perception study recently that had some very good insights into that for us. And I'll just hand over to Toby for the next slides to take through a little bit more of that in a diagramatic form.

Thank you, Ross. So on this slide, we aim to illustrate the company's capital allocation policy. We presented a similar diagram. This clearly communicated strategy to the market at the interim results. And what we do now is evidence what we actually delivered in the period in terms of capital allocation. So moving from left to right, you see start of the year with some healthy cash balances and then went on to generate record levels of cash in the period, GBP 120 million -- over GBP 120 million gross proceeds. Net of debt service and amortization, GBP 71 million was received by the company, in addition to GBP 24 million of proceeds from the sale of our 50% stake in Lorca at 21% premium to holding value on that asset. And we then utilized that cash, carefully balancing across a number of different capital allocations. And first and foremost, servicing our dividend, which is taken full and in line with target as we have done every year for the 10 years since IPO. Ross has already touched on paying down the RCF, we set [ this ] target to reducing this down to GBP 75 million by the end of the year, and that was the target that we hit, paying down GBP 40 million of that balance. We are halfway through the share buyback program as of the end of the period, with GBP 20 million having been invested out of the total GBP 40 million budget that increased fourfold throughout the year. And finally, I'll touch on reinvestments in the pipeline portfolio itself. We have GBP 11 million that went into reinvestments in that portfolio. Some of that, the bulk of it, were pre-existing contractual commitments to further the construction of our first battery storage project, the Sandridge project in Wiltshire, later this year. And then the balance was invested in the acquisition of 467-megawatt pipeline of Spanish development-stage solar assets. And we're very excited to be taking that first step, investing in development stage-projects, and that is shaping some of the future investment strategy for the fund that will come on to later in the presentation. We can go to the next slide, please. So in this section, we recap on the net asset value that was announced earlier in the period. We present here an abridge version of the NAV bridge for the year, focusing on key value drivers across the periods. So there's overall a fall in net asset value to a little over 118p per share. The primary driver of that downward pressure on NAV was the increase in discount rates just shy of 100 basis points increase over the period, proving the weighted average discount rate for the fund to a little over 8%, the highest in its history since IPO. That is naturally a reaction to increasing risk-free rates in the countries in which we operate in around the world. There are also downward pressures from macro assumptions going forward, principally NAV price outlook and also inflation, both seeing modest downward pressure. In the case of power price forecast, this was offset by reduced tax versus that budgeted under the electricity-generation levy, which was introduced during the energy crisis of 2022. Going forward, we do not forecast to make any further payments of the electricity-generation levy owing to reducing power price outlook and also the allowance to support that regime. Finally, project actuals for the period came slightly low budget as [indiscernible] function of prices actually secures, where we have projects that did not have [indiscernible] being below those that were originally budgeted. Moving to the right of the chart, you can see the positive levers that we've been pulling to drive value for the company and for its shareholders. Firstly, the share buyback program, the GBP 20 million invested in our stock, it was NAV accretive to the tune of 1.1 pence per share. We also then crystallized value through the sale of Lorca asset, both cash and proceeds received, but also marking up our residual stake in that portfolio, accreting 1.6 pence per share for our shareholders. And then finally, in NAV [indiscernible], that's comprised of a markup of [ re-dose ] pricing outlook specific to the company, every megawatt tower of renewable electricity generated in the U.K., reflecting actual contracts that we've secured in our portfolio team for our assets. And then finally, the ongoing campaign to extend asset lives for our portfolio. We can move on to the next...

Sorry, just you can see the question there about the buybacks as well. I think it's a fair question in terms of does it make sense to continue buying back the average [Technical Difficulty] it was 96p, currently at [ 89p ]. What we just say to that is -- Toby will go through this on the next slide in terms of what we see as proof of valuations. And actually, I think there's an order to buy even more of our shares back at the current share price because we still see this massively undervalued versus the value of our assets, particularly in the U.K., Spain and Australia are actually worth. And it's always going to argument in terms of how much of the difference it makes on an ongoing basis. But I think you've already seen, there's been a bit of a small jump in the share prices across the markets this moment. At this morning, literally just off the news that inflation is coming a bit [ lower ], and that feeds into views on when interest rates may kickup. We feel that we're doing everything we can here with the levers that we can pull. We do see our fair value being well in excess of 100 -- closer to 118 pence at the moment. So we do see this as a significant discount to the fair value of the assets. We do intend to continue to keep buying the stock even at these reduced prices. I think as soon as there's an indication from the Bank of England that rates are going to come down, you will see a rewriting in this sector, and that's why we continue to say this as a good investment. But Toby will talk through how we see that in terms of the comparable transactions out there.

Yes. No, absolutely. I mean the opportunity to invest in a stable operational portfolio with a 10-year production track record at the implied returns that our current share price offers is a great investment by all accounts. And that is the primary driver to the buyback program. And we would reiterate that it is in balance with tightening up balance sheet through paying down variable interest rate debt and also investing in the future growth of the pipeline that we will come on to a bit later on when we go through a case study for [indiscernible] assets. On this slide that we're showing now, we present for the first time, split out of our U.K. portfolio valuation, the enterprise value on account per megawatt basis at GBP 1.17 million per megawatt. We think it's an appropriate time to be disclosing this level of detail in our valuation as quite rightly, portfolio valuations are under scrutiny in the market against the rising risk-free rates and high inflationary backdrop. And what we do then is present us against a number of publicly available comparables. And we think that the 3 REITs selected here are particularly relevant in the market for U.K. ROC-backed solar assets. In each case, these portfolios have very similar vintages in terms of ROC presentation and subsidy support relative to FSFL's own portfolio. And in each case, we have some greater insight into the Foresight VCT sales [ with that ] managed in-house [ Foresight ] group. So we are just now far in excess of GBP 100 million at [indiscernible] trade. But otherwise, in each case, all of those portfolio valuations are in excess of our own portfolio valuation and at every stage throughout the last year that we [ turned above ]. And what we think this does overall is hopefully provide confidence in the market, in the robustness of our valuation methodology and give confidence that at least the cutting edge of the market is more aggressive than our own valuations. We do obviously have insight just to the range of bids that were received in a number of these processes; and we are very comfortable with the level of that valuation relative to the range that you see. If we move on to the next slide, please, Matheus. We'll now move on to operating performance. I'll hand back over to Ross to talk through results from the year.

So what the chart is showing here is the ongoing growth in the total generation of the portfolio that's hit over 1 terawatt this year, predominantly with Spain coming online. What I'd point to is you see, there is a dark-grey bar being the U.K. generation. So once that portfolio was built up from about 2018, that generation has been pretty stable there. In fact, the major fluctuation is down to [ irradiance ] and is generating more when the radiation has been above budget because there's -- I will just say, we are confident that our portfolio is one of the best performing in the market, given the asset management team and their work to keep that portfolio operating and online in order to capture the additional days of sunshine of that when we have very limited downtime in that portfolio, given their proactive asset management, and it's been very solid for a long time. The gold bar is the generation that's coming through Australia, which itself has been pretty consistent. And it's fair to say, that market has not been without its issues. We have a 9% below forecast for this year. It has been below forecast for the last couple of years. It has been impacted by high economic curtailment, which means that the [ prices ] have ramped down at periods of oversupply into the market. They still have a lot of coal there, but it's still yet to be ramped down with a lot of baseload production. It's something that the government are looking to address there and is a key focus for us this year in terms of looking to rectify that. We are looking at more sort of asset management spend to put batteries on those projects to take off some of those generation during times of curtailment or even private wire connections to sell some of this electricity direct to other users to help alleviate some of this. It is something that's expected to alleviate from the market, in general, going forward. But looking at the Australian portfolio and how best we resolve those issues is a key progress for us this year. And then just coming on to Spain, we've been very happy with the Spanish portfolio coming on for its first year, full year of generation there. And it was just 1.5% lower than the budget, but that was really because the radiation was 1.6, how strong -- how much sunshine we were getting is 1.6 below the forecast due to it being quite still earlier in the year in Southern Spain. So Spain, otherwise, is on budget and on target. And just going on to the next slide. I think before wrap -- okay. So in terms of the -- one of the questions we've had quite a bit around is power price forecasts and our hedging position as well. We are very well hedged on the portfolio for the next couple of years, for this year and for next, with around, on average, over 80% of our revenues either through from subsidies or through the price fixes actually covering that. The question is what happens to power prices? A lot of people are pretty well fixed over the next few years, in the immediate term, what happens longer term in this, particularly over from 2026 onwards? So a number of analysts covering the market have raised this question sort of rightly so. And showing there the chart on the top left is the Bloomberg forward curve in terms of what's happens to the forward rate prices in the market over the next few years, showing that those have come down significantly. We agree that's something that we've seen in the markets as well. This is the offtaker that we sell our energy to and what prices we can achieve for that. And we also agreed that with certain offtakers, the liquidity is noticeably lower and has dropped off as well. What we would say is that we put that chart there on the right to show the sort of range of prices that we are seeing in the market and have the ability to lock into for the rest of this decade. We still have very strong dividend cover, and we're forecasting 1.5x for '25, 1.35x for '26. But there was -- actually in the broader pool of hedge counterparties and other offtakers that we see, this pricing that we're seeing on the right-hand side remains attractive in terms of in terms of what we can lock into. There's a lower band being the black line there and the upper band being big blue line in terms of even at the middle point of that around the [ GBP 60 ] per megawatt hour, we are comfortable of being able to lock into that and providing strong dividend cover for the foreseeable future, from which we're talking in excess of -- well in excess of long [ times ]. I think we've been a bit spoiled with the power prices in recent years. But given the consistency of solar production, I mean, the target dividend cover of 1.1x, 1.2x is a very healthy target. And that has given us and the Board with careful consideration about dividend cover of [ set ] targets. We forecast a dividend cover of what we think we will be giving a continued progressive increase year-on-year, we forecasted out for the long term and to give ourselves the comfort that we're able to cover that with our electricity sales. Looking at an analysis has given us the confidence to, again, give that 6% uplift on the dividend for the year 2024. And we remain confident of robust dividend cover, going forward for the foreseeable future, which we will give further updates on that as we build out our hedge position. Toby?

Yes, sure, thanks. So we'll cover sustainability performance in the period on this slide. I'll touch then briefly on some of the key achievements in the year. As Ross has already mentioned in the operational performance, this is the first year that the funds -- or the funds portfolio was generated over a terawatt hour globally, and that's a great milestone for the fund as it's [ fulsome ] capacity has come online, and we clearly hope to add to that, bringing through that sort of development pipeline, going forward. Just to put that 1-terawatt hour into context in a more meaningful way, so the 400,000 U.K. households annual consumption or the total electricity consumption for businesses and households in the city of [ Hull ]. So a very substantial contribution to decarbonization of energy production that fund is rightly proudly making. Further initiatives that the Ross touched on this slide are a new initiative to boost diverse net gain across our projects, working with consultants and contractors to look at what we can do to support wildlife in and around our projects and positively contribute to biodiversity, where these were previously farmers' fields with relatively [ poor ] biodiversity. And then finally, the sustainability-linked RCF has been extended in its term by a [ 3rd ] year. This continues to be linked to KPIs that the fund can deliver on to be incentivized to receive reduced levels of interest. Coming to the next slide, I think this slide here is one that was possibly skipped over earlier. We'll drill on it just quickly as it just illustrates the hedge position for the company over the coming years, given that high comfort around visibility of dividend cover and prices that we can secure both in 2024 and 2025, underpinning that strong dividend cover guidance of 1.5x for 2024 and 1.35x for 2025. And as Ross mentioned earlier, we have good visibility over continued dividend cover into the foreseeable future. We'll skip to the next slide now. This is a slide covering gearing position of the company. At the head of the presentation, Ross reiterated our commitment to paying down our floating rate debt in the form of the RCF. And that was part of the overall reduction in our total debt balance of GBP 82 million over the year, that's a [ 16% ] reduction in borrowings versus the start of the period and bringing total gearing for the portfolio down to 38.8% of GAV. We remain very committed to prioritize paying down the RCF, which had an interest rate cost of almost 6.5% in 2023. And clearly, it is a higher cost than we'd like, so we are focusing on paying that down, and that would primarily be funded out to further disposals of our 200-megawatt divestment program as well as cash flows generated organically by the portfolio. The final thing that I'll just reiterate on this slide is that our long-term debt, the size against the subsidies and contracted revenues, that's our assets benefit from in the portfolio, it is fully amortizing and fully hedged against interest rate movements. And we believe that a lot of structural financial gearing is at an appropriately conservative level, particularly relative to our [ peer ] group. Moving on to outlook and the strategic direction for the fund going forward, and we start with a case study of Foresight Solar's investment in the Lorca project in Spain. Now the Lorca project is about 3 assets in a 99-megawatt portfolio, and those were acquired in 2020, leveraging the mobile connections of Foresight Group's Madrid office. They secured those project rights at the preconstruction stage from -- on a bilateral basis with an [ experienced developer ]. They then went on to structure the construction agreements, the financing agreements and the offtake, securing a 10-year fixed-price PPA with a creditworthy counterparty, Statkraft, biggest energy house in Europe, adding value every step of the way. Over the course of the next 18 months, the project was constructed, reaching commercial operations in August 2022. At which point, we wrote up the value of the asset by [ 17% ] to 1.9p per share. That's illustrative of the value add through derisking project by taking it all the way through construction and bringing it into stable operations. We fast forward now to the end of 2023 and the successful delivery of the first phase of our investment program, we sold down a 50% stake in the Lorca portfolio for a 21% premium to its holding value, generating 1.6p of share of NAV uplift for our shareholders. Overall, we're amazingly pleased with this result, and we think this is a great illustration of how through -- systematically bringing a project through its key life cycle milestones and derisking it, you can broaden the appeal and bring investors, as is the case here, purely from a financial investor with a low cost of capital, who was very happy to come in alongside specialist investment managers such as [ coal ] science to co-own an asset that we know well and continue to manage in full and crystallize that value to shareholders. Now we think that this case study is illustrative of what we have achieved in terms of bringing the project through development all the way through to operations. And this is something that we'd like to emulate and repeat again, going forward, as we look at our development-stage investments [indiscernible]. Flipping to the next slide, I'll hand over to Ross to talk through our first step into development-stage investments with the 467-megawatt portfolio in Spain and then how we hope to build on this as we pursue the strategy further.

So the reason we're going through the Lorca example there is not just to talk about the divestment we made on the first part of that, but also to get a steer [ forward ]. We see part of the strategy for the fund going forward has been more of a training strategy and more of a recycling of capital, not just the initial 200 megawatts that we've talked about there. So the first step in our investments into development-stage portfolio was, of course, this 467 megawatts pipeline of Spanish solar. That's across 6 projects. The first of which, around a sort of 60 megawatts site in Southern Spain, could come through and get consented later this year. What that would mean for us is we would actually have the in that project from an earlier stage than even the Lorca assets that we sold there and have an additional ability to take value from that. To give investors an idea, the investments to secure our pipeline upfront was in the single low-digit million euros, with 85% of the payments made to the developer only at the point of which that gets planning consent and becomes an RtB, or ready-to-build, assets. We know from the price that is pre-agreed there, we could already sell those rights immediately out into the market without doing anything else around 2 to 2.5x the cost that we will have paid for. Alternatively, we can take them forward. And by going into that asset at an earlier stage, we know it will give us very high single-digit returns, almost double-digit returns, taking it forward to building out and construct it. And therefore, it is a very -- we see it as very yield accretive to the fund as well. Of course, if assuming that markets really haven't still recovered at that point, at the point this product comes out, it will be following our capital allocation program, which may mean that although it looks like a great opportunity, we may be passing on this one and selling it on to cash in, and that money then flows back into the decision-making process. But we see that as indicative of a pipeline that we're looking to build here. It sounds like a lot. We're targeting 2 to 3 gigawatts, so about -- but that's probably 4 to 6x or 7x the size of that at the moment, but we don't see that as actually being that much when you say small single-digit millions in order to secure these high rights. What we're looking at in funds discussions at the moment on is sort of U.K. pipelines of solar, some co-location, some place in there as well in order to take through -- build through developments. And we look to bid development-stage U.K. solar projects into the CFDs and other subsidies that can long term become a replacement for the ROCs in the portfolio. We're looking at more solar across Europe, in other markets as well, potentially more in Spain, Germany, other markets there. And also looking at -- there are some interesting opportunities in battery storage at the moment to get an early stage in other markets, including Spain and potentially Italy, where there could be subsidies towards that as well. But the idea being at all of these assets, we look to build early stage. We have the assets cross-collateralized, meaning that if one falls over, we can offset the costs and invest into that with the developers to set it up against another asset coming through. What we're looking to do here is build an ongoing basis, where we have several assets coming through to get planning consent every year, and then we'll be taking a view on which we take forward through this process, maybe sell earlier stage, maybe sell later stage, but to recycle that capital back into the business. There's an argument to say we can sell the rest of -- we have more Spanish projects come through, and we can sell the rest of the Lorca portfolio at some point as well. So it just gives you an -- investors a bit of an idea of the strategy that we're looking to address. Okay. There's important considerations in the regulatory environment as well. But Toby will just talk through it at the moment.

Sure. So we note that this slide is already up-to-date as on the data publication. The second round consultation from the REMA, review of electricity market arrangements, was released. And we have, of course, been digesting that over the coming days, and we'll be responding to that consultation and giving a view in due course. At high level, we're pleased to see that there are the -- direction of [ travel ] is away from some of the more revolutionary assets that -- and initiatives that were being initially consulted on. And within the scope of consultation, there remains regional pricing and a national pricing model. And it also looks like they're moving away from [ desegregating ] the market, meaning the renewable generators such solar farms will retain exposure to the marginal price setup, which remain [ gassed ] in the near-term future. We will, of course, continue to monitor progress on REMA as a key initiative of the electricity markets. There's been no further feedback from the consultation into the transition to fixed price That business launched last year. So we await that along with the rest of the market and trust that the government will hopefully see sense in not making dramatic changes to the subsidy regime in order to continue to support the investor confidence in the market. In Spain, there has been a reintroduction of generation tax However, this -- the impact of this has been offset by the fact that the windfall tax, the clawback tax, has not been continued to 2024. And there has also been a reduction in the [ bonus surcharge ], which are actually community benefit contributions that projects make. So the overall impact of regulatory changes in Spain has been somewhat muted. Can we move on to the next slide, please?

Yes. And just to summarize everything, it's been record electricity generation for the fund for the year and very strong good operational performance in the U.K. and Spain, not without some issues there in Australia that we're looking to rectify those as soon as possible and deal with them. The strongest ever cash generation from the assets delivering GBP 120 million in the last year due to the strong price fixes we've had in place. Upon the income, we are upping the dividend, but we are also targeting more of in high-yielding income plus growth strategy here, long-term growth being brought through by the development pipeline as well and looking at strong cash generation for the coming years to support that as well. In terms of the growth, really, the acquisition of those rights in the first development-stage project is just the beginning of that, and we're targeting 2 to 3 gigawatts in what we see as the engine room to drive the fund forward. We know that the markets will be continued -- will continue to be challenging, probably for the rest of this year, at least until we're getting towards some significant rate cuts. We're going to do everything we can to position the fund in the best place possible to take advantage of the situation when markets turn. And we will continue with our capital -- I think, disciplined capital allocation between ourselves and the Board that we are in line with and agree upon. I think the opportunity is still there. Once markets turn, once there is a clear reduction in interest rates, we do not think they're going to go down to -- clearly, we've seen them moderating back over the next couple of years, not going back to the levels we saw in the last decade, and that's why it's important to give a good spread there in terms of new versus other alternatives in terms of fixed income and other [ bank ]. And the fact that it will continue to be a growing dividend, it will continue to have the ability for long-term net growth in the portfolio as well, we see as being an attractive alternative. We'll pause. I see, there's quite a few questions, and maybe we can try and get through as many of those as possible. Matheus?

Perfect. Ross, Toby, thank you very much for your presentations. We have another poll, which will appear on your screens now. And if you could respond to that, the company would be most grateful. [Operator Instructions] But just while the company take a few of those questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. As we did mention, we have received a number of questions throughout today's presentation. So at this point, Matheus, if I can hand over to you just to chair the Q&A, that would be great, and then I'll pick up from you at the end.

I think we got a quite a few questions. So debt structure and cost. So I think if you could address some of those from the start, maybe we can then pick off some of the [ programmables ]?

Yes. So the cost of long-term debt, this one is -- it's 4.15%. It's all fully hedged out as well. So we don't have -- we continue to keep kicking the tires on that to see if there's other options to -- but it's fully amortized and fully paying down. We look at that if we saw that being a benefit from breaking hedges. At the moment, we don't quite see that. But there might be a sweet spot at some point, something we continue to look at. Total debt and RCF moving to over the next 1 to 2 years, good question. Our target with investments to substantially pay the RCF off over the next year or so, I think it will be a good question of where things sort of sits in capacity by the time we need to refi that facility in a couple of years' time, whether we need as much as we do currently have. So we will continue to look at that. And...

I think that was mostly on debt. I think there are a couple of questions on debt as well in terms of what is the plan [indiscernible]. There was also one about co-location [indiscernible].

I'll pick up those questions separately. So I guess there's no shying away from the fact that 2023 was a bad year for batteries in terms of revenue performance with batteries across the country and seeing substantial below -- lower levels of revenue than forecast 1 or 2 years ago. This is a complement to a number of factors, all were headwinds to revenues in the sector, some of which are well documented, and some of which are less talked about and understood. Just to summarize briefly, power prices softened throughout the period and in absolute -- with lower absolute power prices, there was less volatility. The batteries trade within, that was a combination of demand [ restructure ], cost-of-living prices and businesses and households consuming less energy. It was also a low wind year as there was less periods where wind caused very low pricing throughout production. So again, contributing to that reduced volatility. During the time at this point in the period, the introduction of [ marketability ] services for the first time dampened the very [ exclusive ] pricing. In the first year, we feel that, that was oversubscribed as how we performed, going forward, due to the pricing set by the regulator there. And then finally, I'll come on to the acceptance rate of batteries or more [ factually ] known as skip rates in the industry, where batteries have been overlooked and dispatched for the balancing mechanism to the tune of 85% to 90%. This is a [ data ] issue that the control room at the [ ESO ] need to resolve, where they need to understand what state charges the batteries over the network so they can be more effectively dispatched in the [ balance ] while we go forward. So a number of headwinds, all coincided to drive very poor battery performance in 2023. There are some, of course, optimism as some of those issues are addressed. And hopefully, there won't be coincidence of those issues going forward, noting that coincidence of bad weather and those markets are structural factors. And I think that our view is that they can probably continue to be a slightly rocky revenue outlook for the near term as we expect that there may be a degree of overbills, given the number of boxes that the batteries connect in the immediate future. And we'll be looking with interest at the performance of our first battery that comes online later this year. I guess we will just think and say that we are currently causing material capital investments into progressing our 2 preconstruction battery projects. And that is the view that's aligned with our co-shareholder, [ JLEN ], who is under the management Foresight Group. Those assets are very well protected in terms of their project rights. And so we are evaluating the best course of action to progress those projects and realize the value for shareholders, going forwards. And just touching on the co-location point of the question earlier on in the presentation, does it make sense to connect batteries to solar projects? The business case of co-location is a viable one, albeit I think our analysis demonstrates it to do so at scale. So we would see large batteries, they connect to large solar projects as being most beneficial. It is not necessarily straightforward to retrofit to existing solar projects due to constraints in the grid connection. And so we would see the most profitable strategy for pursuing co-location in a new-build science, where the system is designed from day 1 to be co-located, allowing you to take the full benefit of the [ initiatives ] that can be gained back.

I guess the only thing I'd add to that is if there is -- we are going to [ scope ] on some of our existing size, they're quite modest-size batteries. It's more of an asset management initiative that I think that's going to set the tide in the valuations.

And is there another question on the size you want to answer [indiscernible]?

The fall in power prices affecting NAV revenues this year, yes, this question, I think it comes to some of that we've been talking about. I think because of the -- it's fair to say that the power curves that most of us rely on in the market and a blend of -- we used a [ pack ] of 3 consultants, all lagging the forward rates there at the moment and where those are slightly below the curves. All I'd say is that we are very well hedged for the next couple of years. We've looked at this, and actually a drop in the merchant element isn't going to significantly impact. There may be a bit of downside there, but it doesn't look significant because of the hedges that we've got . And then you're getting -- you're quite quickly getting down to that sort of GBP 60 per megawatt hour in the forecast by about 26, in other words. So not a material. But we don't foresee any of the big drops that we've sort of seen throughout the last year as those prices moderate back down.

And just sort of quote to the late question that we received around sustainability of dividend cover, this is like that we look at very carefully with designing out the policy, going forwards. But we aim to deliver [ progressive ] dividends every year, growing that dividend as we have done every year since IPO. And past consideration for any increase in any individual year is the outlook for dividend cover going forward, and a significant part of that is the power price outlook. So we're very careful as a management team with our investment committees and then with our Board, look at the power price outlook, what we're able to lock into in terms of fixed-price hedges and then always targeting [ fast ] dividend cover in the years ahead. So we are very confident in our opinion that the dividend will remain well covered in the years ahead as we continue to grow it on an [ progressive ] basis.

Just I'm seeing a couple of other questions there. There was one question about holdings of our directors in the company. If you look on, it's all disclosed on Page [ 114 ] of the accounts. Another question there about the impacts of irradiation changes across future forecasts, that's also included in the report in the Sustainability section. We've run some analysis on this with consultants to what the increase in temperatures could mean for the portfolio. It's still -- admittedly, still a little bit of at the sort of theoretical level. But effectively, what It sort of saying is, actually, as temperatures -- if they do increase sort of slightly, it actually becomes more beneficial to the portfolio. I think what you start to see is sort of drier spells in the sort of places such as the U.K., which is probably at a higher radiation. But you would then -- as temperatures continue to increase, if we get to that more than 1.5%, 2.5% or beyond that, then you start suffering -- solar stocks suffering from extremely heat in certain areas, and that's really in places such as Southern Spain or Australia, where there is more risk. So it's a bit of a balanced picture in terms of that. So I think what we're all keen to make sure is that we are working towards limiting climate change in general. But there's analysis on that within the annual report as well. Toby, do you want to take a few...

There's one more -- stop there, which is just around the what the returns to the disposal of the Lorca asset represents. So yes, we've mentioned it was 21% premium holding value, that sale value. Overall, that's in excess of 12% IRR that was generated on the investments in that [indiscernible] holding of the Lorca assets. We think that, that was a great result and highly accretive to the fund's investment targets. What we would say is that, that was acquiring an asset and taking it from [ immunity of ] preconstruction. But we hope to go better than that as we look to invest in development-stage projects and taking them through from an early stage, something that Foresight Group has been doing for a number of years [ because some of our ] strategies are now in our list of solar fund, is going to benefit from that experience and track record.

So there's a question that says highlights there about color on possibilities of M&A in the solar renewable space. I think it's fair to say, it's something that the house is looking at from various different angles while considering this. For those of you who know the REIT sector, yes, it feels like the renewables in our sector here is dragging or lagging behind what's going on in the REIT space. There is every opportunity, I think, for some consolidation in this market, and it's something that we're thinking about very closely through different means as well. I think just don't want to say that you've only seen modern sort of approach for one of the similar funds at the moment.

I think we've covered most of them. I'll have a detailed look through. And if there are any other ones remaining, I can -- we can just answer those via [ fax ] as well. So let's wrap it up there.

Perfect. Thank you very much for answering all those questions from investors. And of course, the company can review all questions today, as Matheus just pointed out, and we'll publish those responses on the Investor Meet Company platform. But just before redirecting investors, provide your feedback, which is particularly important to the company, Ross, could I just ask you for a few closing comments?

Yes. Certainly, look, it's -- definitely, the market and the current set of macroeconomic backdrop at the moment remains challenging. We don't think that's necessarily going to turn quickly. What we are doing is positioning the fund to be as self-reliant as possible and not requiring the need to get out there for capital raises at the moment because we can't. So what we're looking to do is recycle capital. I think the main message we want to get across today is even when things do eventually turn, that we expect could be a bit more positive news by later this year or next, it will go out to be business as usual. And that's why we're looking at this as more of a training strategy for the fund, going through making more divestments and recycling the capital and really looking at now more of a total return strategy in terms of very strong growth -- very strong yield for the company along with long-term growth that we help to drive through that development pipeline as well. So that's the key message we want to leave for investors today.

Perfect. Could I please ask investors not to close the session as you now will be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? It is going to take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Foresight Solar Fund Limited, we'd like to thank you for attending today's presentation, and good morning to you all.