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

0:00 Good morning, ladies and gentlemen, and welcome to the OCTOPUS Renewables Infrastructure PLC Annual General Meeting and Investor and Management Update. Throughout this recorded meeting, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. If you just type in your question at any time and press send. I'd now like to hand over to Chairman Philip Austin. Good morning. Well, good morning, ladies and gentlemen, and welcome to the twenty twenty three Annual General Meeting of OCTOPUS RENEWABLES INFRASTRUCTURE TRUST PLC. The time is now 10:00, the time appointed for the Annual General Meeting of the company convened by the notice to shareholders dated the 03/28/2023. My name is Philip Austin, chair of the board of directors, and also present are my fellow directors, Audrey McNair, James Cameron, Eliza Ellinger, and Sarim Sheikh, together with David Bird and Chris Gayden from our investment manager, OCTOPUS RENEWABLES.

1:03 We also have Nadia Weisert and Brian Smith representing our company secretary, APEX listed company services UK limited, as well as Carol Fong and Craig McCure representing our registrar on Computershare. Sarim has been appointed as an additional director to the board earlier this month after the notices of the AGM was sent out. So his candidates... Candidacy will be put forward for election by shareholders at the company's next annual general meeting. In accordance with the company's articles, I'll act as chair of the meeting and represent the proxy votes that have been submitted in advance. I can confirm that a quorum is present, and therefore, I declare the meeting open. The format for the proceedings today is that we'll start with the formal business of the meeting. And once completed, we'll then proceed to a presentation from our investment managers, David and Chris.

1:57 This presentation will be filmed and made available on the company's website after the meeting. Attendees will have the opportunity to ask questions after the presentation. I now turn to the formal business of the meeting. I propose and given consent of those present that the notice of the meeting be taken as read. To reflect the views of shareholders of the company more accurately, voting today will be done by way of a poll on each of the resolutions. This is seen as being in the best interest of the company and shareholders, as it gives all shareholders the opportunities to participate in the decision making of the company and have their votes recorded in proportion to the number of shares that they hold. The poll will be administered by our registrar, COMPUSHARE.

2:44 Polling cards were distributed when you registered this morning. If you're entitled to vote and do not have a poll card, please raise your hand now. If you already... If you have already lodged a proxy form appointing me or one of my fellow directors as your proxy and you do not wish to change any of your votes, there's no need to complete your poll card. However, if if you do wish to change your votes, you should complete your poll card for every resolution. I will now move to the resolutions. I propose that the resolution set out in the notice of meeting be put to the meeting. We've taken the contents of the notice as read, and unless otherwise requested, I do not therefore propose to read the text of the resolutions in full, and so we can proceed directly with the voting formalities.

3:35 Please, would you now complete your poll card by marking how you would wish to vote on each resolution and sign your poll card? You can vote in favor of proposed resolution, against a proposed resolution, or you may withhold your vote. If you require any assistance, please raise your hands. Poll cards should be handed to the registrar on leaving the AGM. The final results of voting on each of the resolutions will be announced on the London Stock Exchange and via the company's website as soon as practicable following this meeting. Voting will close ten minutes after the end of the meeting. I'll now hand over to David and Chris who will give us their presentation. Okay, good morning all. So, listed OCTOPUS Renewables Infrastructure Trust back in December 2019 when we raised £350,000,000 in a heavily oversubscribed raise.

4:40 Since then, we have conducted two follow on raises. So, the total amount that we've now raised is £574,000,000. Back in November last year, very exciting for David, myself and the rest of the OCTOPUS team for ORIT to have been admitted to the FTSE two fifty Index. And today we now have a market cap of £553,000,000. Our progress to date and success in fundraising has been driven very much by the differentiators that we have in the mandate. And I'll run through those briefly here. So, first of all is our highly experienced team of over 110 renewable energy specialists that we have within the OCTOPUS business.

5:28 It's the diversification that we have built into the portfolio across both geography and technology. It is the possibility of an additional element of capital growth through the construction allocation that we have and the impact that that provides, and it's also the optionality that we get through our development allocation. And then finally, it is our approach to impact and ESG and the fact that we're an SFDR Article nine product. Over the time since IPO, we've delivered on that mandate. We now have nine eleven megawatts in the portfolio. We're spread across seven different countries and we have 42 assets under management.

6:17 So this map here shows that portfolio that's been built over the last three and a half years. And it also hopefully brings to life the diversification that Chris mentioned. You can see we've got assets right across Europe, and that enables those assets to benefit from a a broad range of different weather patterns, which helps reduce risk, helps smooth out cash flows. And it also means that we've got access to a wide range of different regulatory regimes, which both helps again manage risk, but it also gives us a much broader opportunity when we're looking at where do we go and buy assets, where's the next assets we're going to build. What we view is really important is not just what the company has invested into, but also how we've gone about making those investments.

7:09 And we do consider ORIT to be an impact company. We we are accelerating the transition to net zero with these investments. But beyond that, we're also making the investments in what we consider to be a responsible way. We're considering ESG risk factors all the way through our investment process, and we're also continually looking for where there opportunities to bring broader benefits than just the new green electricity, which is clearly very important. But we we look at everything through these three lenses of performance, planet, and people. On the performance side of things, that's really being clear that we don't see any kind of trade off here with financial returns. We, in fact, view that the the ESG risk framework is really powerful in in reducing risk, and that in making these investments and doing it in the right way, we should actually be able to enhance customer returns in the long run.

8:07 On the planet and people side of things, for example, we're looking at where we can bring environmental benefits to the sites we're building, enhancing biodiversity, and also supporting a just transition on the people side of things, local labor, workers who might have been in the oil and gas industry coming through into the renewables industry and things like that. So over the past twelve to eighteen months we've focused very much on the construction projects that we have acquired to ensure that they are delivered both on time and on budget. We can go through each of those very briefly. So, we bought the first two projects for ORIT in Poland that represented a new market for us and we successfully completed the Krececin and Kushlin projects in February 22 and June 22.

9:06 Over in France, we acquired the Ceresoux Wind Farm. We started the construction back in August 2021 and that was successfully completed in October 2022 and that represented our first wind farm in France. And then in The UK, we acquired the Cumberhead Wind Farm, which is now fully operational and this is our first unsubsidized wind farm that we've successfully built. And then the Breach Solar Farm is a project that's currently in the process of construction. We bought it last year and construction is progressing very well for a handover later on this year.

9:55 All of the mounting parts have all been installed, the panels are now being installed and testing and grid connection will happen at some point in Q3. And then the Ballymakhani Solar Cluster in Ireland. Now these are projects that we bought on a forward purchase arrangement from a company called Stackcraft. They're currently constructing those and we're on track again for a q three takeover of those projects. So looking a bit further forward and and a bit bigger picture outside just what's going on within the company, clearly, the the energy sector has been dramatically impacted by the the effects of Russia's unprovoked invasion of Ukraine last year. We've seen really, really high power prices as a result of that. And although those have come down to to some... Somewhat lower levels, they remain high, and we expect the effects of of that invasion to continue throughout the energy sector for some time.

11:03 One of the things that it has meant is that governments across all of the the target geographies where ORIT is investing have really redoubled their efforts to accelerate the transition to using renewable generation as as the future of their energy system. There's been a recognition that as well as providing decarbonization, these technologies are also the cheapest form of generation available, so we'll help bring those prices down. They're also offering greater energy security because you can have wind and solar in your country. You're therefore not reliant on importing gas from from another country where that no long... May no longer be possible. So we see big momentum behind renewables.

11:50 We also see green electricity as the future of much broader parts of our economy. So green transport, green heating, the the greening of heavy industry possibly via green hydrogen. So all of these things mean we think there'll be huge demand for green electricity over the medium to long term, which will also support the prices that our assets can receive. Having said all of that, there's still not enough capital out there right now to build as much renewable electricity generation capacity as we need as quickly as we need, and there's also plenty of other constraints around getting this generation built. So there's a huge opportunity ahead of ORIT and one where, again, that broad mandate that ORIT has allows it to both to to reduce concentration of risk, but also to target where those opportunities are the most exciting.

12:48 So to sum up, the presentation for today, looking back, ORIT's been delivering attractive levels of return. We've been able to grow the dividend consistently in line with inflation for the last couple of years, and those dividends are underpinned by a very high percentage of fixed revenue, 78% over the next two years, And of the forecast revenues over the next ten years, 56% of them have contractual inflation linkage. That means there's a lot of security behind that dividend. Then looking at our portfolio, we've delivered the diversification that we set out to at IPO and intend to continue doing that since to help reduce risk and capture those opportunities.

13:35 We're focusing on construction increasingly for any new investments. That delivers enhanced returns above the income side of things, and indeed, we've been able to deliver £14,500,000 worth of additional shareholder value, since inception from successfully managing projects through construction. We've also made investments into developers. That was a mandate change, a couple of years ago now from... And and brought in after the IPO, and that really gives us more ability to capture those tailwinds in the sector. It gives us access to the pipeline that we can then fund the construction of in due course. And last but by no means least, we're doing all of this in a way that's considerate to the environment and the community around where the assets are actually being built. We think that will protect investors in the long run as well as being the right thing to do.

14:31 Thank you, David. Thank you, Chris. We're now happy to take any questions. We have some questions online, which I've just lost. But I wonder, are there any from the floor, first of all, before? About the long term prospects of solar energy as an investment? Because some time ago, I read that solar energy prices are due to come down in the long term. So so we firmly believe that solar energy is going to be one of the core technologies of the future of our whole economy, not not just our our power system. It's going to be fundamental. We do expect that the more solar and the more wind that gets built, they tend to have an effect of bringing the cost of energy, which corresponds to the price they receive for selling that electricity. Yes.

15:28 That will come down, but all of that is already taken to account of all. What we expect to happen there is taken account of when we're making the investments. If you look at the models we use when we're looking at these, it does show a price that declines over time as more and more solar gets built. But that that generation will still have value to to support the investment case. Yeah. Hi. Thanks for the presentation. How are you going to fund expanding the assets of the company? Should take that. Yeah, so I think the first thing to say is that all of the construction assets that we have at the moment are all fully funded from existing cash and credit facilities.

16:18 It's no secret that equity markets are very challenging at the moment, but we don't think it's right for us to sit on our hands and do nothing waiting for markets to come back. So, we are looking at well, we have the possibility of potentially putting some debt into the portfolio. There is some spare capacity there, but interest rates are extremely high and it's not particularly attractive to do that at the moment. So, what we are doing and this relates to another question we've got online is reviewing our portfolio to see where there's opportunities for an asset sale, whether that might be projects that we've built and have the opportunity to crystallize some of the construction gains as we've de risked those projects or whether it's the opportunity to sell projects and crystallize, you know perhaps if we've originated an opportunity off market and got a better than market price, perhaps we could crystallize some of those gains, and then we would look to recycle the proceeds of those sales and put it into new construction assets so that we can continue targeting that capital growth that we get through de risking construction projects.

17:31 So, Chris, that I'm sorry, are there any more from the floor? No. That sort of partly covers off the first question from Michael D, which is how many projects are currently under consideration for disposal, and what would be the reasons behind this? Yeah. So, I alluded to it there where we're doing a whole of portfolio review and looking for areas where we think we can crystallize value. We don't always buy projects to build and sell. We need to take a sort of holistic view across the portfolio and just see where it makes sense. Okay. The second question for Michael D. Do buybacks factor in your plans moving forward? Maybe I can answer that.

18:18 Obviously, as a board, we look at all the options available to us. We notice that some of our peers have undertaken share buybacks. So, it's something we're monitoring. But I think, you know, we want to grow this business, and we just think we have other levers available to us at this moment in time, recycling assets, debt if if need be. So whilst it's something that the board, you know, have under consideration, if there's no decision been made to date about share buybacks. The next question, Chris David, is do you see a focus on expansion outside The UK moving forward? I don't think there's any change in particular from when we launched the mandate. The UK is obviously our sort of home country. It's it's also got, the same currency as investors are investing in. So there's several reasons why it might make sense for The UK to have a slightly larger weighting in the portfolio than any other country.

19:19 Maybe that won't always be the case. We're certainly not ruling out future UK investments. We're really looking for where we see the best value, best risk adjusted value, and the best opportunities for investors overall. And that that could be in The UK, but it could just as well be elsewhere in Europe. Okay. Another question says, this seems... Excuse me. This seems to be heavily weighted on generation, I guess, our portfolio. What is the energy storage strategy, which in turns enables trading at times of higher demand? Chris? So, we have an allocation of up to 20% to what we call other technologies, and that includes flexibility assets such as batteries and other forms of storage. The rationale behind having batteries in the portfolio is that as more renewables comes onto the grid, that does create more volatility in pricing because it is intermittent generation, and the batteries can trade off that volatility.

20:22 Fundamentally, they're now starting to look like very attractive assets. So, we think that they have a natural position sitting in the same portfolio as a portfolio of intermittent generators and can potentially provide a useful hedge for the platform. I don't think we will be moving it outside of our 20 allocation. We will almost always be a generating company, but the batteries certainly have a very important role to play within that portfolio. Okay. That I think is oh, is this another question coming in? Oh, yeah. I've got another one more here. What are the key risks you see moving forward? Excuse me. What are the key risks you see moving forward, and how positive do you feel about the business?

21:12 Well, on the positivity bit first, it's certainly my twenty years of doing European renewables. I've never seen the sort of tailwinds behind the sector be as strong as they are now. David touched on them before around security of supply, the urgent need to mitigate the impacts of climate change, and more recently, the affordability crisis. And renewables really sits at the core of solving all of those things. And I'm very excited about the opportunities that lie there for ORIT because we do have a very diverse mandate that's very flexible, it's agile. We've made our first investments into batteries. We've done our first development platform alongside RES in the hydrogen development business.

22:01 And as this energy transition continues to continue or to roll on, we're going to see all sorts of opportunities come out of that and I think ORIT's mandate is particularly well placed to take advantage of those. So, all in all, I'm very excited about it. In terms of the risks, I think we're always monitoring the direction of travel on power prices, especially as more and more wind and solar gets rolled out, that does have a deflationary impact on power prices. So, I think the risk isn't so much that that's going to happen because we do have that modelled into our valuations, It's more about the speed of that happening and us just making sure that we're prepared, whether it's with batteries so that if there's more renewables coming onto the grid, we're able to trade the volatility or if that rollout goes more slowly, then our generating assets will be making more income.

23:01 Dennis, you want to add anything? Yeah, so I don't think there's anything that's massively different since when the company was launched, but there's certainly in terms of what the risks are, the emphasis of those risks is continually changing. Clearly, the macro environment is quite challenging in the round at the moment. We are looking to build new projects. We need reliable construction counterparties to be building those projects, so we need to be making sure that the companies we're contracting with are on a stable financial footing and that we have the right protections in place, particularly in the context of that macro environment. So that's certainly an area of of key focus, particularly for for new build projects is the the the contractor side of of construction risk.

23:49 Okay. Thank you, David. Thank you, Chris. That's the end of the questions. I'm sorry, Tom. Yes, go. Basically, you're saying share buyback at the moment we're about is it 10% discount? Something like that. A bit less than that, but around... Yeah. Yeah. Yeah. So is there a point where you think, well, you know, if we buy our own shares back, we're effectively buying these assets for 10 cheaper than constructing. Yeah. I... Is there a point? It's continuing the discussion. We have a board meeting following this, and I'm sure it'll be under discussion again. I don't think we've set a particular target. I think what we have seen, certainly one or two cases, you know, we've followed others who've undertaken a buyback program, and it hasn't been effective in terms of moving the share price at all. So as I say, I think we, you know, my view is we'd probably look at the levers first of all before we before we'd move to that. But, you know, we're open to doing it. We...

24:48 Obviously, we've got to keep an open mind on it. But I don't think it would be our first port of call in my view. Chris, I don't... David? Yeah. Yeah. And at those sorts of levels at a at a 10%, 15% discount to net asset value, our our modelling would suggest that we can deliver more NAV accretion through successfully managing construction at those levels than we could through buying back shares. See, there is a crossover point, but we we don't we don't think you've reached that crossover point at a 10 or 15% discount. Yeah. Yeah. Thanks, John. Okay. It only remains for me then to thank the shareholders who are here attending in person and those and others who have been watching us online.

25:36 Thank you for your attendance. And with that, I draw the AGM to a close. Thank you very much. Thank you to the board of OCTOPUS RENEWABLES INFRASTRUCTURE TRUST. Could I ask those online, please, not to close this session as we're now automatically redirect you the opportunity to provide your feedback in order that the board can better understand your views and expectations. I'm sure that would be greatly appreciated by the company. On behalf of the company, I'd like to wish you all a very pleasant morning. Thank you.