Foresight Environmental Infra H2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
June 24, 2025

Key Takeaways

  • Board concludes to maintain core strategy with refinements, prioritizing proactive portfolio management, targeted asset disposals and a simplified continuation vote structure.
  • Record cash generation drove flat NAV at 106.5p, dividend cover of 1.32x and a 2.1% dividend increase to 7.96p.
  • £90m raised through disposals of non-core AD and rooftop solar assets, funding reduced debt, a £30m share buyback and maintaining one of the lowest sector gearing levels.
  • Growth assets are advancing, with CNG Fuels network expansion, Glasshouse ramp-up to breakeven and Ruocan aquaculture nearing first harvest.
  • Outlook remains disciplined, focusing on sustaining income generation, recycling capital into core environmental infrastructure and pursuing selective new investments meeting strict return and inflation-linkage criteria.
AI Generated. May Contain Errors.
Earnings Conference Call
Foresight Environmental Infra H2 2025
00:00 / 00:00

Transcript Sections

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Chris Tanner
Chris Tanner
Partner at Foresight

Good morning. Hello, everyone. Thank you very much for coming to this presentation covering Foresight Environmental Infrastructure's Annual Results for the Financial Year 2025. Thank you to those of you who've come in person, and also to those of you who are online. First, some housekeeping. There are no fire alarms scheduled for this morning, if an alarm sounds, for those in the room, please follow the instructions of fire marshals who will guide you out of the building. If you hear an alarm when you're online, I'm afraid that's your problem.

Chris Tanner
Chris Tanner
Partner at Foresight

Just to take you through the running order for today, in a minute, I will hand over to Ed Warner, the Chair of FGEN, who will spend a few minutes running through the steps the board took in arriving at the strategy update that we announced at the beginning of the month and that we reiterate in these annual results. Ed will hand over to Ed Mountney and Charlie Wright, who will run through the main elements of the annual report. I'll then return to give a view on outlook and to wrap up, and at which point we will invite questions from those in the room in the first instance, and then we'll turn to those who have dialed in. I will now hand over to Ed Warner to talk first of all. Thank you, Ed.

Ed Warner
Chair at FGEN

Thanks very much, Chris. Good morning, everybody, those online and in the room here in The Shard. Good to see you. Thanks for the interest that you're showing in FGEN's results. I won't be talking about the numbers themselves, the current state of the portfolio and the markets, because I'll leave that to Ed, Charlie and Chris. As Chris has trailed, we did make a strategic update announcement a few weeks ago. I just wanted to take this opportunity to put that into some context for everybody. I've had a number of questions as to how a board goes about a strategic refresh or review. A little bit of insight might be helpful here, I hope. As a board, this was not a one-off moment looking at strategy. It's something that we do on a pretty continuous basis.

Ed Warner
Chair at FGEN

We're always alive to the options available to us to serve our shareholders, and we are very cognizant of the way in which the shares trade and, in particular, the relationship between the share price and net asset value, the discount. At times past, it's been a premium, clearly that's not been the case for the last couple of years. Earlier this year, we wanted to accelerate that continuous work and to look in even more granular detail into the range of strategic options open to the company because of the persistence of the discount at which the shares were trading. Now, we didn't do that just with captive advisors, either the investment manager or our retained advisors.

Ed Warner
Chair at FGEN

We wanted to get independent external support in that as well, because it's important that you don't end up with groupthink or an entrenched view based on years of looking at the company and believing in it. We wanted to ensure that, as a board, we were in the best possible position to conclude on the right strategic direction for the company in what is clearly a challenging environment, and we didn't want to be steered in that regard by our investment managers, much as, much as we love them. What did we look at? We looked at a range of scenarios. These went for, at the most extreme, a managed wind down of the portfolio or the company, a targeted divestment approach, and that could have been divestment of any of the assets within the portfolio.

Ed Warner
Chair at FGEN

The continuation of the current investment strategy, some refinement of the current investment strategy, potential mergers and acquisitions with other listed investment companies. We looked at all of those options on a qualitative and a quantitative basis. Our central objective throughout was delivering the best possible outcome to what is, let's face it, a broad base of shareholders who have a diverse set of views. We didn't want at any time to take those views on trust, so we did speak to a number of investors through the course of the last few months to test our thinking subtly. We weren't asking them to tell us what we should do. We didn't want to make them insiders, but we wanted to get an assessment of their attitude towards FGEN and to plug that into our work.

Ed Warner
Chair at FGEN

Our overriding conclusion, and you'd have seen it in the strategy update, was that shareholders' interests are best served through a proactive management of our existing portfolio. Of those range of options that we looked at, very much that central case of a continuation of the current investment strategy, albeit with some refocus or refinement. We concluded that because we believe this course of action is consistent with the long-term objective we have of generating both income and a progressive dividend delivering that income and growth in net asset value over the medium to long term. This is a portfolio which you know, or a company which you know, has got a very diverse range of assets, technologies underlying those assets, and has been positioned to deliver both a growing dividend, a high income yield, but also some growth as well.

Ed Warner
Chair at FGEN

That very much distinguishes it amongst the peer group in the listed market. Having reached that conclusion, it is only right to say, "Well, what is your asset disposal strategy? Have you even got one?" Our answer is yes, we absolutely have, and it is to focus our exits of assets on selling our growth investments at the right time when they are sufficiently mature that we can really secure the value that has been created and is being created by the work that the operators of those assets are undertaking, and the management team at Foresight are also generating in working alongside and above those operators. We are not looking to dispose of assets in the short term simply to validate our net asset value, because we have that on a regular basis reaffirmed for us by external advisors. We believe in our NAV.

Ed Warner
Chair at FGEN

We don't think we need to sell assets just to prove NAV to anybody. This is a challenging market, it's only right that you sell things when you can secure genuine value uplift from doing so, and that you do so at a time at which you maximize the opportunity to deliver returns for shareholders. This disposal strategy is consistent with our refocused investment message. We will be disciplined, we are very conscious that one or two of our most exciting assets in the growth segment of our portfolio, particularly The Glasshouse and Rjukan, have been a little controversial for some shareholders because they see them at very much at the far end, if you like, of the technology spectrum that FGEN is investing in.

Ed Warner
Chair at FGEN

What we are saying for now is that we would not make any further investments into controlled environment businesses or projects such as these, but we do very much believe in them and their growing value, and we will look to exit them, but only at the right time when we've proven that value to the market and to ourselves and have secured that as hard cash and a significant return on the money invested in those projects. What are we going to do in future? We will continue to allocate investment to growth assets. We will make selective disposals to facilitate capital recycling into reinvestment in our core portfolio and into new growth opportunities.

Ed Warner
Chair at FGEN

This will be an important feature of our investment strategy going forward because, as I said earlier, we want to generate a progressive dividend, a high yield, well-covered, and growth in the NAV. Now, you may say that's nirvana, but that is what we're aiming at. That's what this company has done for many years and will continue to do so into the future. One final thing. I just wanted to explain the change that we've announced today in the discontinuation vote structure from next year's AGM onwards. We have, as you know, been offering a discontinuation vote to shareholders if our shares trade on average at a greater than 10% discount through the course of a year. We had a vote last September. We have one coming up at the AGM this September.

Ed Warner
Chair at FGEN

Looking at that, it feels to me it's very shareholder-unfriendly for two reasons. One is it forces people to think sort of upside down in voting to discontinue, whereas normally, when you have an AGM notice come out, the board asks you to vote in favor of all the motions. We were asking people last year and all this year to vote against one particular motion, even though it's a motion we have put forward, seems a bit odd, and can confuse, particularly maybe some retail investors. The 75% threshold just feels wrong to us. If we had, let's say, a vote of 51% to discontinue, what would we do? Would we ignore that? Of course, we wouldn't, but it wouldn't have reached the 75% threshold.

Ed Warner
Chair at FGEN

It seems to us that a very simple democratic 50% threshold, a continuation vote in which we, if we had these votes in future, would be asking shareholders to vote in favor of a motion to continue the company seems simple, straightforward, understandable, and very shareholder-friendly. Let's hope we don't have to have a vote next year, but if we did, that would be the way in which it was structured. We hope that shareholders will recognize that as a further indication of the board's concern that it takes shareholders' interests into every decision that we make and is at the heart of all of our thinking strategically for the company. That's the background. I'm gonna be here throughout the presentation.

Ed Warner
Chair at FGEN

Very happy to take questions at the end, but I'm now gonna hand over to the team for the more interesting bit, which is the portfolio update. Thank you very much.

Charlie Wright
Co-Lead Investment Manager at FGEN

Thank you, Ed. Hello, everyone, thank you again for taking the time to attend. I'm Charlie Wright, Co-Lead Investment Manager to FGEN. I'll be taking you through the first half of the results presentation today before handing over to Ed Mountney. Now, the main focus is obviously our results and performance over the last financial year. Before we cover that in detail, following the statement and on the back of the strategic direction that the board has concluded, I'll just take a couple of minutes to run through the key tenets of FGEN's unique investment proposition and clearly establish why we are here, what our investment strategy is, what the fund is aiming to deliver, and what makes ours a compelling story.

Charlie Wright
Co-Lead Investment Manager at FGEN

Obviously, some of this will be familiar, so I won't dwell too long on it, but we feel it is important that our investors and other stakeholders have a comprehensive understanding of our investment case, particularly in the light of the board's strategic direction. Firstly, FGEN is an infrastructure-based proposition aiming to deliver stable returns, predictable income, opportunities for growth from environmental infrastructure investments with a focus on long-term stable cash flows, secured revenues, inflation linkage, and the delivery of essential infrastructure services. Looking forward, there'll be a very disciplined focus on these characteristics, particularly in this changed macroeconomic environment. We've always emphasized diversification, and we cover a broad range of technologies. We have simplified our investment thesis across three pillars in order to ensure that diversification is more easily understood. Renewable energy generation, including wind, solar, AD, and others.

Charlie Wright
Co-Lead Investment Manager at FGEN

Other energy infrastructure such as storage and cleaner transport, and heat and broader electrification. Sustainable resource management such as water and waste management, plus our controlled environment assets. Finally, as Ed said, we've been very clear about our disposal strategy, whereby we are not pursuing short-term asset disposals but are focused on medium-term disposals across our growth assets in order to recycle capital and grow through reinvestment. Looking forward, targeted exits will be an important feature in our investment strategy alongside that longer-term objective to grow through reinvestment, which the company is well-placed to do given the current makeup of its portfolio. Towards the end, Chris is going to highlight some examples of new investment opportunities that we're monitoring. On the next slide, why FGEN? Why do we think that investors should invest with us?

Charlie Wright
Co-Lead Investment Manager at FGEN

I get some of this I've touched on on the previous slide. Our key strengths and differentiators are the fact that we have an attractive return objective, offering investors liquid access to a long-term stable return profile. We have a huge market opportunity ahead of us. We're a differentiated offering versus our peers, investing not just in wind, solar, and storage, but a range of sectors that reduce reliance and exposure to a single technology or subsidy framework. We've got a strong track record of 11 years of dividend growth. We're backed by a high-quality manager with 40 years of investment experience, and we have a robust governance framework in place with the investment manager accountable to the fully independent board and in turn, shareholders.

Charlie Wright
Co-Lead Investment Manager at FGEN

Again, this will obviously be familiar, but we do think it is worth just reminding ourselves of the sheer scale of the investment opportunity. Decarbonization and net zero are the key mega trends of this generation, and the investment requirements are enormous in scale, with nearly $50 billion of investment required in energy transition between 2025-2030 alone in order to hit the trajectory required for net zero. Whilst clean power is critical, other sectors such as electrification of heat and transport are significant opportunities in their own right, and that plays to FGEN's ability to work across the range of environmental infrastructure, particularly as we continue to evolve our portfolio revenue mix away from reliance on ROCs. Now I'll move on to the performance summary. First up, we have an overview of the highlights of the year.

Charlie Wright
Co-Lead Investment Manager at FGEN

The main thing I'd like to bring out here is a theme of resilience and of record cash generation. NAV per share stands at GBP 1.065 pence, with the reduction from GBP 1.136 pence being counterbalanced by a dividend of GBP 0.078 pence, leading to a flat NAV total return of 0.6% in the period and an annualized NAV total return of 7.3% since IPO. Our operational portfolio continues to perform well with the 10th consecutive year of record cash receipts contributing to a dividend cover of 1.32x, our second highest since IPO. We've increased our dividend target for next year by 2.1% to GBP 0.0796 pence per share, which we expect to be well covered again.

Charlie Wright
Co-Lead Investment Manager at FGEN

Finally, reflecting on our disciplined approach to capital allocation, which was obviously a crucial objective throughout the year, we are pleased with our execution here. First and foremost, we completed two value accretive and strategically important sales. The 51% disposal of part of our AD portfolio aligned interest between the parties with further value that's been recognized through delivery of value enhancements and alignment of operating assumptions, including the removal of operator profit sharing agreed as part of the transaction, which alone resulted in an additional 9% uplift to NAV. Disposing of the solar rooftop portfolio as a non-core, lower-returning part of the portfolio allowed us to put that capital to better use elsewhere.

Charlie Wright
Co-Lead Investment Manager at FGEN

This raised proceeds of GBP 90 million, which is equated to 10% of the portfolio value at the beginning of the year, which we used to further reduce gearing to maintain, which was already one of the lowest gearing percentages in, amongst the peer group, and facilitating our GBP 30 million share buyback program, which is still ongoing. Here we have FGEN's cash flow statement. I mentioned before about the record cash receipts from projects, and as per the previous year, this is primarily due to a combination of the high power prices that we successfully locked in at their peak with active management of short-term fixes, a key focus for the team, alongside the asset enhancements we've been able to deliver over the years, particularly at our bioenergy assets.

Charlie Wright
Co-Lead Investment Manager at FGEN

As our growth assets progress, they will soon be contributing yield, so that will step in when these elevated price fixes roll off. Other points to bring out on this slide include the GBP 30.7 million of investment. Obviously, we remain very cautious in our approach to deploying capital in the current environment, so this doesn't reflect investment into new opportunities. It instead covers existing commitments and value enhancement opportunities across our existing portfolio, most particularly Rjukan, CNG, and the ADs. Whilst funding this GBP 31 million of investment commitments, we have done this alongside a reduction of debt of nearly GBP 60 million and GBP 20 million of share buybacks.

Charlie Wright
Co-Lead Investment Manager at FGEN

These have been predominantly funded by the proceeds of our value accretive asset sales. It also means that we funded nearly GBP 20 million of investment activity through surplus cash generated by the portfolio. That's over 20% of cash generated being used to keep down borrowing. The net of all these items on the screen gives us a dividend cover of 1.32x or just under 1.4x if you add back the EGL payments. On to debt management. We continue to operate with a prudent approach here, maintaining one of the lowest levels of gearing amongst the peer group. This is something that we will continue to put great value on given the wider volatility across markets.

Charlie Wright
Co-Lead Investment Manager at FGEN

Here we show the 18.5% gearing at project level, which goes up to 28.7% when adding in the RCF held at the fund level. As before, all long-term debt fully amortizes within subsidy lives, with no refinancing risk and interest rates fully hedged on all long-term project finance debt. Following the refinancing of the RCF last year, a few months ago we downsized the size of the RCF facility from GBP 200 million-GBP 150 million with an associated cost saving. This reduced RCF still continues to provide ample headroom to cover outstanding portfolio commitments as well as investment opportunities across the portfolio during this current year, of which there are a few we're currently progressing. The GBP 30 million uncommitted accordion facility remains in place if required.

Charlie Wright
Co-Lead Investment Manager at FGEN

As per previous updates, we are showing our weighted average cost of debt, which now stands at 4.4% for project level debt and 4.9% when factoring in use of the RCF. We continue to feel conservatively geared with the flexibility and the stable financial position that we need. This looks at the asset financial performance and where the distributions are coming from. To reiterate again, we’ve generated a record level of cash this year, despite the fact that actual cash receipts are 7.7% behind budget. Like many across the peer group, it hasn’t been a great year for wind and solar generation, both due to weather resource itself and also DNO outages.

Charlie Wright
Co-Lead Investment Manager at FGEN

As per our update in last quarter, we have adjusted down our wind yield forecast to better reflect performance over the last few years. Other energy infrastructure obviously shows a large relative reduction, but overall that is not material, and it relates to the retention of CNG yields in order to fund the growth of the business as opposed to distributions. We have a good performance across our concession assets. Now onto the actual generation side across our renewable energy assets. Overall, that is expected to be 6.1% under budget once expected compensation measures are accounted for, primarily in the form of warranties and insurance claims. As I said, wind and solar show some underperformance with the drop in solar generation also impacted by the sale of the solar rooftop portfolio in December.

Charlie Wright
Co-Lead Investment Manager at FGEN

The crop ADs have continued to perform really well for us, and whilst Bio Collectors has had a challenging year, a series of operational initiatives and improvements overseen by an industry expert installed as the new CEO are already bearing fruit. Ed will talk more about Cramlington later, and whilst it has been a fantastic investment for us, there was an unplanned outage in Q1 which reduced generation, but with generation then exceeding its target for much of the year. With that, I'll now hand over to Ed, who will run you through the portfolio itself and the valuation.

Ed Mountney
Ed Mountney
Director at Foresight

Right. Thanks, Charlie. Morning, everyone. As Charlie just said, I'll take you through a bit on portfolio evaluation and what's in the portfolio, how we're actually looking at portfolio composition at the moment. Before I get into that, I think I recognize everyone in the room, but for anyone online that doesn't know me, I'm Ed Mountney, Director at Foresight and one of the Lead Managers to FGEN. I've been doing this role for about three years now. Before that was Head of Valuations at Foresight. I've been involved in FGEN in various roles for, well dating back to 2016, only two years after IPO. First up on the screen, we've got our usual valuation bridge. All no doubt familiar with the format.

Ed Mountney
Ed Mountney
Director at Foresight

Starting on the left-hand side, I'll just run through, I think all these movements on the left. They're cash items. They're things that Charlie's already talked about in the cash flow statement. I won't go into loads of detail, but it's the GBP 30 million of follow-on investments into the construction assets and a few value enhancements. The GBP 89 million of disposals that Charlie mentioned as well. You'll see the GBP 90 million record cash flows coming off the assets. We move on to the right-hand side, so just past the rebased column, that's where we get into the underlying fair value movements within the portfolio.

Ed Mountney
Ed Mountney
Director at Foresight

That's GBP 22 million up from the previous year and includes the usual drivers for things like power prices and inflation, which actually have been pretty stable this year. The main movements this time sit within the balance of portfolio return, and we've outlined that in a bit more detail, which you can see in the blue box on screen. There you've got the GBP 60 million uplift from the mechanical unwinding of the discount rate 12 months. We've also got the GBP 19 million write down from the impairment in HH2E that we announced and talked about in some detail at the half year. 8 million reductions from the revision of our wind yields that we announced back in December.

Ed Mountney
Ed Mountney
Director at Foresight

Lastly, various other low value movements, which includes the operational items that Charlie just talked about, as well as some of the updates from the regular reviews of things like our maintenance forecasts and our food waste ADs. A whole bunch of things that go into that. Normally here we'd have a slide on power prices. This year there's been a slight rejig of the slides, which I expect you've already noticed. We've moved the curves themselves to the appendices, so anyone that wants to see the detail, they're still in the presentation. I'll cover the usual info on things like our hedging strategy and revenues more generally in a bit when I talk about the portfolio.

Ed Mountney
Ed Mountney
Director at Foresight

All that stuff's still in the presentation, just to come in a bit. Before I get into that, we've got discount rates. Main thing to say here is we've kept those flat this year, albeit the weighted average has ticked up 20 basis points to its highest since IPO at 9.7%. And that's really owing to ongoing investment into the high returning construction assets, and then movements in underlying valuations just pulling the average up. The main thing I wanted to put out here is the additional disclosures that we've put into the table on the right. Not only have we added more sectors to what we've disclosed before, we've also now shown the levered and unlevered discount rates alongside the usual weighted average.

Ed Mountney
Ed Mountney
Director at Foresight

Given no changes in the rates, so that we don't need to dwell on the numbers, but hopefully this will simplify further comparisons against other funds with differing technologies and differing debt structures for anyone that wants to go back and have a look. Next up, we have a slide on inflation. So far this year, inflation has tracked ahead of our model assumptions, which is why we've increased the RPI rate for 2025 by 0.5%-3.5% before we revert back down to 3% until 2030, then stepping down to 2.25% thereafter.

Ed Mountney
Ed Mountney
Director at Foresight

We think this remains very conservative, and you can see on the middle chart how our blue RPI curve there steps down over time, and that it compares favorably, both in the short term versus the latest OBR forecasts, which are in green, as well as the longer term gilt implied rates of inflation, which is the dotted purple line there. The chart on the right takes this one step further by then comparing the real return available, investing in FGEN's portfolio, being here the difference between our inflation assumption and our weighted average discount rate, which we've taken as a, as a proxy here for the overall return generated by our assets. The difference between that versus a 10-year U.K. gilt.

Ed Mountney
Ed Mountney
Director at Foresight

What you can see here is that FGEN offers a real return of over 7% above our inflation assumptions, whereas the gilt offers a real return of only 1.5%. That's nearly 5x higher investing in FGEN than a gilt. We think our approach here remains conservative. As I said, it offers good value for potential upside, particularly given that the portfolio itself remains very correlated with inflation. Lastly, on the valuations themselves, we've got a slide on useful economic lives. We haven't changed any assumptions here, but what I really wanted to draw your attention to is what we feel is the very conservative approach to valuing our ADs, our anaerobic digestion assets, which involves a DCF up until the end of their Renewable Heat Incentive. That's their RHI subsidy that they receive.

Ed Mountney
Ed Mountney
Director at Foresight

In other words, we assume they just simply cease to operate at the end of that 20-year period. In reality, we expect a very strong market for these assets, already providing a crucial source of green gas to the U.K., and we're seeing growing evidence of the ability to run these plants beyond their tariffs. And we're even now hearing instances where some investors are choosing to value their assets into perpetuity, i.e., with no end life at all. These assets themselves, they're robust physical structures, and we're confident that with the right maintenance program, they can be run for more than 20 years, perhaps significantly more than 20 years. From a technical perspective, we're comfortable. It comes down to, well, where does the revenue come from?

Ed Mountney
Ed Mountney
Director at Foresight

We've presented two potential scenarios on the right-hand side here. Firstly, a scenario we've put out before, which is a simple five-year extension, assuming that the current RHI stays as it is, and we'll cap that extension at the leases that we have in place. Secondly, an alternative that assumes a new market opens up to keep these plants going. We think those revenues could come from something like corporate offtakes or green certificates, or probably more likely a combination of both. We're already seeing that with some unsubsidized ADs being developed in the U.K. at the moment. The government's currently developing a future policy framework for biomethane production in the U.K. We'll refine these sensitivities when more information is released.

Ed Mountney
Ed Mountney
Director at Foresight

As we've said before, we remain optimistic for this sector, and hopefully you can see why on the screen. I mean, these scenarios point to between GBP 10 million-GBP 20 million uplift on our assets, and that's equivalent to roughly GBP 0.015-GBP 0.03 on the NAV. That's the core valuation piece here. We now move on to a few slides on how we're looking at the portfolio. Firstly, a slide here that looks at our three pillars. Charlie referenced these earlier. I'll just go into a bit more depth in what sits within them and why we like each of them and why we've labeled them like this. Firstly, renewable energy generation.

Ed Mountney
Ed Mountney
Director at Foresight

At 73% of the portfolio, that really is the bedrock of FGEN, the primary bulk of the assets. It includes investments in things like wind, solar, AD, biomass, sectors with stable long-term cash flows and inflation-linked government-backed revenues. They have mature technologies, their diversification means FGEN is less exposed to individual risk factors, so things like the sun not shining or the wind not blowing. They also include a complementary mix of energy generating profiles, recognizing the vital importance of baseload generators in a world with increasing renewables penetration. Secondly, we've got other energy infrastructure in the middle there. These assets don't generate energy, they play a vital role in supporting the transition towards net zero. That includes things like our battery storage and carbon transportation assets.

Ed Mountney
Ed Mountney
Director at Foresight

Totaling 10% of the portfolio, this category provides exposure to energy markets, but also diversification away from generation. Last but not least, we have an allocation called sustainable resource management. In other words, assets that support the sustainable management of scarce resources or contribute towards cutting down waste, themes that are growing rapidly as we as a nation recognize that investment is needed beyond simply energy markets alone. This could include long-term government contracts for concession-based projects, or co-location investments like our Glasshouse facility we have at the moment. We believe the complementary nature of these assets delivers highly sought-after income and growth opportunities, while balancing assets across different stages in their lifecycle, and in different technologies will provide a differentiated yet targeted offering. Hopefully that gives you a steer for how we think about portfolio composition.

Ed Mountney
Ed Mountney
Director at Foresight

Chris will come back to where we see future opportunities across each of these a bit later. I talked there about diversification by sector. This slide has a bit on diversification, or other forms of diversification rather. 8% of the portfolio currently in construction and 11% of the portfolio sits outside the U.K. That's the two charts on the left. These numbers will fluctuate as we recycle assets and look for opportunities to enhance the portfolio, but we'll always likely maintain a primary focus in the U.K. The third pie here is remaining asset life. We've got a long average remaining asset life of over 16 years. As I mentioned earlier, on the ADs, we think this is pretty conservative and are actively considering extension opportunities there. Here we've got the top 10 assets for FGen.

Ed Mountney
Ed Mountney
Director at Foresight

This is a new slide for us. We're trying to give a bit more visibility into what our largest and most important assets are. The main things really to pull out here is the fact that no individual asset represents over 10% of the portfolio, giving FGEN low exposure to single asset risk. Also that the top 10 gives a really good coverage of our main sectors. It includes biomass, wind, solar, ADs, and the growth assets are all represented here. On the next slide, we've actually got a mini case study that Charlie alluded to earlier on our largest and arguably most successful asset, and that's Cramlington Biomass, which I'll just take a moment to talk about. Cramlington, that sits within our renewable energy generation portfolio.

Ed Mountney
Ed Mountney
Director at Foresight

It's a biomass facility that creates electricity and heat by combustion of woody biomass to produce superheated steam, which in turn then drives a large turbine that generates electricity and heat. We bought this asset out of administration back in 2021 and completely turned performance around. It has generated enough income to pay back our investment within less than four years at a current IRR of over 25%, and that's something that's almost unheard of for typical operational infrastructure or renewables assets. Why am I talking about this? To give you a flavor of what our largest asset is, but also because it's a great example of the sorts of things that FGEN can target within its mandate.

Ed Mountney
Ed Mountney
Director at Foresight

It's also a great example of the capabilities that Foresight has in active asset management of complex bioenergy assets. Moving on, we've got a couple of slides that look at revenue across the portfolio. Firstly, the chart on the left here shows how underlying revenues earned by the portfolio evolve over time. The main thing to say here is that our diversified revenue streams reduce reliance on government subsidies and therefore provide greater opportunities to continue to extend the life of the fund once those subsidies expire. The chart on the right shows that careful diversification doesn't mean compromising on familiar infrastructure-like characteristics. For instance, inflation linkage there, you can see 61% of underlying portfolio revenues having explicit inflation linkage.

Ed Mountney
Ed Mountney
Director at Foresight

That chart also shows us that the linkage comes through all three of the pillars that we've talked about. On to the next slide, we look at how we manage our exposure to the largest uncontracted revenue stream that we saw on the previous slide. That's merchant power. Just to say, we typically fix generation for a period of between six months and three years. What you can see from the table on the left is that the approach will vary depending on the nature of the underlying asset. Intermittent generators, such as wind and solar, typically have a higher proportion of their generation fixed than the baseload generators like the ADs that are in the biomass.

Ed Mountney
Ed Mountney
Director at Foresight

That's because baseload generators have a profile, which means they'll be running throughout the day, so are best placed to capture the very highest prices as they arise, whatever the weather conditions. We believe this gives good protection against downside risk for the portfolio if prices fall, while also retains the ability to capture upside potential. Since the year-end, I'll just say as well that we've seen prices tick up, so we've fixed more out into 2026 at levels above our valuation assumptions, and we'll continue to monitor how current global events impact energy markets.

Ed Mountney
Ed Mountney
Director at Foresight

The table on the right there tries to put those hedges into context. You can see that when we factor in our other contracted revenues, such as the subsidies and the long-term contracts, some 68% of revenues have fixed pricing for 2026, with similar numbers for the next two years afterwards. That gives us really good visibility across the portfolio, allowing us to make informed capital allocation decisions and monitor dividend cover. In fact, we've run sensitivities over the next three years telling us that even under a very severe downside scenario where unhedged prices fall to GBP 40 a megawatt hour from the current forecast of GBP 70-GBP 80, assuming standard levels of generation, dividends remain covered, albeit with less headroom.

Ed Mountney
Ed Mountney
Director at Foresight

Lastly from me, I'm just going to talk a little bit about our growth assets and the progress that FGEN's made over the year. That's CNG Fuels, The Glasshouse and Rjukan. There's a lot of information in our asset spotlights that we have in the annual report, and we've also put quite a lot of information in the appendices to this presentation as well for anyone that's minded to really get into the detail. For now, here's a quick summary of what's happened. Taking CNG Fuels first, that's about 5% of the portfolio. This is a leading clean fuel infrastructure platform consisting of 16 operational refueling stations providing renewable CNG or compressed natural gas biomethane to heavy goods vehicles across the U.K. It's a bit of a mouthful.

Ed Mountney
Ed Mountney
Director at Foresight

One of the only players at scale in this sector, hence its customers include a roster of companies like John Lewis, Amazon, Royal Mail, to name just a few. Not only does CNG biomethane have excellent sustainability credentials compared to diesel, it's also cheaper to run, hence why we've seen huge growth year on year in the amount of fuel dispensed as more and more fleet operators convert their vehicles. We also recently announced a restructuring of the CNG group intended to create a more simplified business ahead of an eventual exit. Next up, we've got The Glasshouse in the middle there, so that's also 5% of the portfolio. Now, The Glasshouse is a sophisticated 2.4-hectare controlled environment for growing high-value crops. To put that in context, 2.4 hectares is about the size of six football pitches.

Ed Mountney
Ed Mountney
Director at Foresight

Our operating partner there is using the facility to grow heavily regulated cannabis for pharmaceutical use under special license from the home office. It's co-located with one of FGEN's bioenergy facilities, so it benefits from cheaper green heat and power via a private wire. The facility's now fully operational and in the process of ramping up sales targeting EBITDA break-even later this year, ahead of a full ramp-up into 2027. This sector's seen huge growth in recent years and is forecast to have growth in the years ahead as well. Lastly for me, we've got Rjukan Aquaculture. That's a construction stage land-based aquaculture facility in Norway, capable of producing nearly 8,000 tons of trout each year, and I'm told that's equivalent to about 22 million dinners.

Ed Mountney
Ed Mountney
Director at Foresight

The world faces an increasing demand for quality protein amid limited resources of land and water. Rjukan's unique location provides access to high-quality source of freshwater and renewable electricity, and its highly controlled growing environment is intended to provide optimal growth conditions and consistent fish quality. Construction continues to progress well there, and it's now largely complete. Fish are in the tanks and working their way through the facility ahead of first harvest targeted in July. Given it's yet to make its first sales, Rjukan is still valued at cost and represents 6% of the total portfolio. We remain really excited by each of these assets as they continue to mature, and like Ed said at the start, they remain a key focus for us to seek to maximize value for shareholders, likely via an exit.

Ed Mountney
Ed Mountney
Director at Foresight

Once they've demonstrated fully ramped up performance, it can therefore command the highest pricing. On that positive note, I'll pass back to Chris.

Chris Tanner
Chris Tanner
Partner at Foresight

Thanks very much, Ed and Charlie. I will recap the final key points for the year in review. First of all, income performance was really strong, and that remains a key priority for FGEN. We had record cash generation from the assets and a good level of dividend cover at 1.32x covered. We achieved some capital growth in parts of the portfolio, such as the ADs, and that helped to offset the write-down of HH2E, our development investment in German hydrogen. We continue to see the progress of our growth assets, which are conservatively valued while they remain in the ramp-up phase, and that gives us the potential for capital growth in the medium term.

Chris Tanner
Chris Tanner
Partner at Foresight

We adhered to our capital allocation policy, returning GBP 19.2 million to shareholders through NAV accretive buybacks. We reduced gearing further so that we remain one of the lowest geared funds within the sector. As part of our capital allocation policy, we successfully delivered asset sales representing 10% of the portfolio, enabling us to recycle capital out of lower-returning non-core parts of the portfolio in the case of the rooftop solar and to strengthen strategic alignment for further value enhancement in the case of the ADs. In addition to that, the board and the investment manager lowered fees for the fund, and there's a further proposed reduction to come, improving alignment with shareholders. Now, just moving on to outlook for the year ahead. Our strategic priorities are clear.

Chris Tanner
Chris Tanner
Partner at Foresight

First of all, we are an income-paying fund, and this remains key to our offering to investors. The record cash generation from the portfolio for the year in review provides a good platform for the target dividend for the coming year, which increases to GBP 0.0796 per share, and that's about a 10% yield on the current share price. Second, our main investment focus continues to be the existing portfolio. As well as managing our operating assets and the issues that will arise from time to time there, we will assess value enhancement opportunities as an effective use of funds for reinvestment. We will also continue to be closely involved in our growth assets as we monitor their progress towards maturity and the planned asset sales in the medium term.

Chris Tanner
Chris Tanner
Partner at Foresight

Third, we'll continue to scan for suitable opportunities for new investment for the fund when the conditions are right. We will be highly disciplined in this area, taking into account other potential uses for cash, such as reinvestment in the portfolio, reduction of debt, and share buybacks. Ensuring that any new investment compares favorably with these other options and sticks to the refocused proposition that we've spoken about, around core environmental infrastructure characteristics. What kind of things could new investment mean? What we have here are three actual examples from the Investment Manager's wider origination activities that would fit within FGEN's environmental infrastructure mandate. The first is a development stage investment in repowering of wind assets in a European renewables market that is very familiar to us, and that would be backing an experienced developer.

Chris Tanner
Chris Tanner
Partner at Foresight

Capital outlay would be fairly low for FGEN, and returns targeted would be 2-3x the development expenditure deployed. The second is a European AD platform in a market with attractive government support for biomethane. The platform consists of construction-ready assets and also a development pipeline of sites, and has an experienced team, and target returns there would be in the mid-teens. Third is a provider of last-mile water services, which has an established customer base and already has good revenue visibility. There we would be providing investment for further growth into a business that has high barriers to entry. I stress that these are not deals that we are pursuing currently for FGEN. What we are showing you is the kind of thing that FGEN could go into if the conditions are right.

Chris Tanner
Chris Tanner
Partner at Foresight

These are the kind of opportunities that Foresight originates on a regular basis, and just shows the breadth of the environmental infrastructure mandate. To wrap up on outlook, we have a clear strategic direction, followed by a measured analysis by the board of what is in the best interest of shareholders. We'll focus on the existing portfolio, ensuring that we prioritize income from the operating portfolio, while also bringing the growth assets through their ramp-up periods to a stage where they're ready for sale. These sales will provide us with an opportunity to recycle material amounts of capital, which, depending on conditions at the time, may be used to refresh the portfolio. New investment will be highly selective and consistent with key infrastructure characteristics such as contracted revenues and inflation linkage.

Chris Tanner
Chris Tanner
Partner at Foresight

Within this refocused investment proposition, FGEN continues to benefit from its strategic environmental infrastructure mandate that positions it well to be able to assess a wide range of opportunities that the world needs if it's to decarbonize and live more sustainably. That concludes the prepared part of the portfolio. We can now open up to questions in the room in the first instance. Iain.

Iain Scouller
Iain Scouller
Analyst at Stifel

Hi. Good morning. Thanks for the presentation. It's Iain Scouller from Stifel. I've just got a question on PPAs and power prices, and also the dividend cover was good at 1.32x. I assume there'll be some sort of benefit from PPAs that were put in place two or three years ago. What sort of price did you achieve on PPAs that were in place last year? What prices are being achieved on new PPAs that are being put in place at the moment? Yeah.

Ed Mountney
Ed Mountney
Director at Foresight

I'm not sure if the mic is picking me up, so I'll hover next to Chris.

Chris Tanner
Chris Tanner
Partner at Foresight

Can you do that as well?

Ed Mountney
Ed Mountney
Director at Foresight

No, I don't think so.

Chris Tanner
Chris Tanner
Partner at Foresight

Yeah.

Ed Mountney
Ed Mountney
Director at Foresight

Hi. In the annual report, we've got a breakdown of the all-in energy price received across each of the sectors. The reason we do it that way around is because it's very different for the ADs versus something that you'd get on the wind and the solar. We've got prices ranging from in the low hundreds up to GBP 350 that we secured some while ago. We've still got some fixes in place that we've had for two years now running for the next 12 months. Some of those are still very attractive terms, and the newer ones that are being signed up now are more, it could be GBP 70-GBP 80 or plus.

Ed Mountney
Ed Mountney
Director at Foresight

Markets have ticked up a bit since then, actually pricing's starting to improve, and that's off the back of various global events that are happening. We're live to those, and we're fixing daily where we see opportunities. It's right that price has come down, but that's why we wanted to put out the guidance around dividend cover for the next few years, even under some pretty severe downside scenarios. I think whilst we've talked a lot about the record cash flows here, we'll monitor how that evolves for next year, but we're still very comfortable on the dividend cover.

Iain Scouller
Iain Scouller
Analyst at Stifel

Okay. Thank you.

Chris Tanner
Chris Tanner
Partner at Foresight

Fiona, hi.

Analyst

I think kind of following the dividend cover-ish question, just on when I look at your guidance, you pointed to 1.2-1.3x. You have obviously exceeded that, at 1.32x. I just kinda wanna understand, like, what drove that positive performance since interim 'cause interim, I think you were at 1.2x, not 2x, 1.20, but 1.2 something. You didn't mention any outperformance in H2, so I wanted to delve into that a bit. Following that, what is your thinking around dividend cover for this, well, FY 2026?

Chris Tanner
Chris Tanner
Partner at Foresight

Ed take as well.

Ed Mountney
Ed Mountney
Director at Foresight

I guess it goes without saying that when we're putting expectations forward, there is an element of forecasting in that of uncertainty. There are some parameters up or down where it could go either way from what we're expecting. Where you get things like a large cash distribution come from the wind assets. Sometimes that can be a bit more or sometimes it can be a bit less. We try and get that modeled as accurately as possible. What did happen is that we had a different profile of maintenance on some of the assets, so some bits of CapEx were brought forwards, others were delayed based on whatever's needed, and sometimes that can have an impact on the available cash at that moment in time.

Ed Mountney
Ed Mountney
Director at Foresight

There are also operational things that go on where we think, "Let's hold a bit of cash back because we've got something coming up." Circumstances might improve, or some insurance proceeds might come in, or something like that means actually we're in a more comfortable position to release a little bit more cash than we were expecting. There's always a bit of movement back and forth. What we try to do is give guidance that is both accurate but also not too aggressive because I don't think it helps anyone for us to put out a 1.5 div cover and then we only get to 1.2 div cover. We're trying to balance the sort of accuracy of what we can do versus it being helpful as well.

Ed Mountney
Ed Mountney
Director at Foresight

For next year, it is probably fair to say that dividend cover will likely come down slightly from where we've seen this year's, but still healthily covered, and we're in the range of somewhere close to 1.2 dividend cover off the top of my head for the next financial year.

Analyst

Okay. Thank you. A unrelated question. I was looking at your Rjukan commitment what you announced at interim, and then it looks like your H2 actually exceeded, or was the outstanding commitment at that time. Could you provide a bit more context around that?

Ed Mountney
Ed Mountney
Director at Foresight

I can. Charlie, do you want to give anything on that?

Charlie Wright
Co-Lead Investment Manager at FGEN

Sorry, repeat the question?

Analyst

It looks like the outstanding commitment for Rjukan at interim, it looks like it's slightly less than what you have actually invested in H2. I just kinda wanna understand, is there more costs that, like, are unexpected or is that just related to? Yeah, I'm not really sure what it's related to.

Charlie Wright
Co-Lead Investment Manager at FGEN

Good question. Compared to, I think compared to six or nine months ago, there has been some incremental investment into it. There was a small cost, a fairly small cost overrun, related to the construction of the facility, which when you follow it through the investment structure between the parties, related to, I'll follow up with the exact number, but an incremental amount on top of what was initially expected.

Analyst

Okay. Thank you.

Ed Mountney
Ed Mountney
Director at Foresight

If I just say quite often with these sorts of construction-based projects, you might find, particularly towards the latter phases, the developer or the constructor comes to you and says, "I can do it this way," or, "Actually, there is a better way of doing something over here. It might cost a little bit more money, but it'll improve the process. It'll make things quicker," or, "It might introduce some sort of value enhancement.

Charlie Wright
Co-Lead Investment Manager at FGEN

Mm-hmm.

Ed Mountney
Ed Mountney
Director at Foresight

We're trying to sort of balance those two things as well without saying, "Here's carte blanche to just go and make whatever you want," but we'll make individual decisions around wherever there's an additional funding requirement to say, "Do we want to do that or not?" Particularly if it's beyond our original commitment.

Charlie Wright
Co-Lead Investment Manager at FGEN

Mm-hmm. Also just to say when we, when we enter into these commitments, you know, there is, there is a commitment, but then there is also a contingency element to that as well. Obviously, you know, we've been doing this a long time. We know that, as Ed says, particularly towards the latter stages of construction, there is sometimes a need to dip into a contingency pot in order to get to the facility exactly where you want it to be, whether that's a value enhancement or not. You know, it's not unexpected to have this, and we manage that accordingly.

Analyst

Thank you.

Analyst

Thanks for the presentation. Just on the AD assets, were they part of the yield revision, that exercise that you guys performed?

Charlie Wright
Co-Lead Investment Manager at FGEN

No.

Analyst

Okay.

Charlie Wright
Co-Lead Investment Manager at FGEN

No. Yield revision was on wind and solar.

Analyst

Okay, fine. Just kind of on the performance versus budget because it was materially lower for this year and kind of operational maintenance, you'll be doing going forward, could you just provide, like, a little bit more detail on that, please?

Ed Mountney
Ed Mountney
Director at Foresight

I was just gonna say, ADs in terms of the agri ADs performed in line with their budget, which is the bulk of the AD assets that we have. We've got two food waste AD assets, which is the ones where we've signaled that there's been some revision to the maintenance profiles on those two. That's the Codford Anaerobic Digestion and Bio Collectors. I think, Charlie, you mentioned a bit about Bio Collectors in the presentation.

Charlie Wright
Co-Lead Investment Manager at FGEN

Mm-hmm.

Ed Mountney
Ed Mountney
Director at Foresight

If there's anything you want to add on those?

Charlie Wright
Co-Lead Investment Manager at FGEN

Bio Collectors, as we said, it's had some underperformance throughout the year. Over the last six-twelve months, we've taken very proactive measures to put in place a series of initiatives backed by a new CEO that joined Bio Collectors during the year. A very experienced, very experienced lead in the sector, and we're already seeing that, already seeing the, you know, some of that bear fruit, as I said. We hope that performance this year will be much better there. Did you have a question on the, on the wind as well? Did I hear that?

Analyst

No. It was just for-

Charlie Wright
Co-Lead Investment Manager at FGEN

Just for-

Analyst

the Bio Collectors. Yeah.

Charlie Wright
Co-Lead Investment Manager at FGEN

Okay.

Analyst

Thank you.

Ed Mountney
Ed Mountney
Director at Foresight

Just to add, when Chris put it on the screen, you can see the ADs are the largest generator that we've got within the portfolio, the agri ADs. There's a very large bit there. The sort of purply ones down over here being the food waste ADs are a much smaller contribution to everything.

Analyst

Thanks.

Chris Tanner
Chris Tanner
Partner at Foresight

Okay. First of all, I'll just say to Charlie, if you wanna get in touch with us offline, we're very happy to answer your question. That goes for everyone else. If you have any further questions, please do fire them through to the team, and we'll be happy to get back to you. Just remains for me to thank everyone for taking the time, and we look forward to seeing you soon. Goodbye.

Analysts
    • Charlie Wright
      Co-Lead Investment Manager at FGEN
    • Chris Tanner
      Partner at Foresight
    • Ed Mountney
      Director at Foresight
    • Ed Warner
      Chair at FGEN
    • Iain Scouller
      Analyst at Stifel
    • Analyst
    • Analyst
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