Greencoat UK Wind PLC's (LSE:UKW) Matt Ridley talked with Proactive about the company’s interim results and strategic direction in a challenging macro environment.
Ridley highlighted that this marks the twelfth consecutive year of paying an RPI-linked progressive dividend, amounting to £1.3 billion in total distributions. "We generated about £1 billion of cash to reinvest in the business," he noted, emphasising the importance of maintaining net asset value in real terms.
Despite facing some of the lowest wind speeds in the first half of the year, Greencoat UK Wind still achieved a 1.4x dividend cover. Ridley said this demonstrates the resilience of the portfolio. However, net asset value declined, impacted by lower-than-expected generation and softer power prices.
To support capital allocation efforts, the company has now completed £222 million in asset disposals over eight months, including four new disposals announced with the interim results. These were completed at prevailing NAV, reinforcing the disconnect between the share price and private market valuations.
Discussing broader sector challenges, Ridley noted rising gilt yields and oversupply of products have pressured valuation. In response, the company rebased its fees, launched a £200 million buyback program, and progressed with divestments to support de-gearing.
On policy, the government’s decision to drop zonal pricing was seen as supportive, preserving investor confidence needed to meet Clean Power 2030 goals. Ridley said, “It’s important that reforms are done in a way that gives the right commitment for existing owners of assets.”
Looking ahead, the company expects over £1 billion in excess cash flow beyond dividends in the next five years, with 50% of near-term cash flows indexed to inflation. It continues to see significant long-term investment opportunities in wind.
Proactive: Matt, it's very good to speak with you. You're out with your interim results today. Could you give us an overview please?
Matt Ridley: So we published our half-year results this morning, with an analyst call at 9:00 AM that will be on our website for people to view if they want a deeper dive. But the story is really one of resilience in terms of dividend cover, against some of the lowest wind speeds that we've seen during the first half of this year.
Wind was particularly low in the first quarter of the year and not much better in April, with a bit of a recovery in June. Overall, that left us 14% down on budget, but that still gave us dividend cover of 1.4 times for the half year. So that demonstrates, I think, the resilience of our portfolio. Our NAV was also down, and that was really impacted by lower-than-budget generation and a softening of power prices.
A contributing factor was the mark-to-market on our swaps. That doesn’t make us any richer or poorer — it’s just the accounting treatment. We speak a lot in our results about capital allocation. It’s extremely important in the world we’re in today. We said in our last set of results that we would look at disposals to further fund that programme.
So we were pleased to announce this morning that we've contracted four further disposals for a gross asset value of £181 million. That brings the total divestments over the last eight months to £222 million. They were all sold at our prevailing net asset value, which further reinforces that there’s a bit of a disconnect, frankly, between our share price and how private markets value these assets. But we appreciate those disposals done. And that will go towards our buyback programme, which continues, and also to de-gearing the business.
Proactive: Matt, the sector has faced some headwinds over the past 12 to 18 months. What have you been doing to address these?
Matt Ridley: It certainly has, and we haven’t been alone in that. If you look at rate movements over time, and at there being probably a bit too much product in our sector, that’s dragged everyone down to a discount. We can really only control what we can control. So we look through the prism we always look through: what actions can we take that are in the best long-term interests of our shareholders?
We and our board are fully aligned on that. Our fees are fully rebased to market capitalisation — so our experience is the shareholders’ experience as well. We were also the first to start a material buyback programme that’s been extended to £200 million in total. We’re about £130 million through that. We were the first in the sector to recognise that as gilt yields rose, our return needed to adjust.
These are all proactive things that we and the board have done. More recently we’ve been focused on capital allocation. We committed to the divestments I mentioned earlier, and that will support our ongoing buyback programme and de-gearing. The overall point is that we and our board continue to take the right actions in the best interest of our shareholders, because we want to improve the company’s attractiveness relative to the climate.
We know we’ve got a lot more work to do, but you can see from today’s results some of the fruits of the labour we’ve undertaken so far.
Proactive: The government recently ruled out zonal pricing. Presumably this is a positive for UK Wind?
Matt Ridley: Yes. With the review of electricity market arrangements, it’s pretty clear that some version of reform is needed. But it’s also important that it’s done in a way that’s sympathetic to the need for continued investment in the sector — not just renewable assets but also grid and related infrastructure.
We and other generators that own assets already felt that if you introduced a zonal pricing market and didn’t do it in a way that gave the right commitment for existing owners of assets, it could lead to uncertainty in the investment community. And that, in turn, could have jeopardised the government’s goals for Clean Power 2030. So we’ll carry on engaging with the government around what’s left — which is, in effect, national market reform. Again, our view will be ensuring that the outcome is equitable for consumers and existing owners of assets.
Proactive: More broadly Matt, is this a supportive policy landscape for renewables?
Matt Ridley: I think it is. The government is very clear in its goals. The Clean Power 2030 plan is very clear as to the delivery mechanism. The same with the review of electricity market arrangements — that’s all about getting more renewables onto the grid. The government hasn’t changed its level of aspiration, and it’s following through as far as we can see.
In terms of policy — we’ve mentioned zonal pricing before — it’s really important they implement REMA in a way that preserves investor confidence. That’s key, because given the government’s desired electrical system, you need around £40 billion a year of CapEx for the next five years. We need to build transmission. We need to build assets. The CapEx is huge.
There’s already a question on whether we can generate the £250 billion of capital needed to invest in this market. And the government, I think, is doing a reasonable job of supporting investor confidence. The other key mechanism is the Contracts for Difference — the long-term fixed price awards to new projects.
Allocation Round Seven details are now out. Strike prices have been published — they’re ahead of the last round. We know the term of those contracts will be 20 years instead of 15. We don’t know all of the ingredients — most notably the overall budget — but with what has been published so far, I think the government is serious about delivering on its commitments to increase offshore and onshore wind, and they’re making the right moves to support the investment climate.
Proactive: Looking ahead, what is the investment case for UKW? What are you focused on?
Matt Ridley: Really, the proposition remains the same. Talking through our results this morning, I’m always pleased to remind people just how much we’ve paid in dividends over time. This is our twelfth consecutive year of paying an RPI progressive dividend. That’s £1.3 billion in total that we’ve paid to our shareholders.
Beyond that — and this is a crucial part — we’ve generated about £1 billion of cash to reinvest in the business. That supports our second aim of maintaining NAV in real terms. So the proposition is the same.
While power price forecasts have fallen, we still expect to generate over £1 billion of excess cash flow beyond the progressive dividend in the next five years. That gives us cash to allocate appropriately at the time. It’s worth reminding our viewers that 50% of our cash flows are explicitly linked to RPI and CPI. They are fixed, and over the next five years that rises to 60%. That has always been a feature of this production and is quite valuable in the context of the recent uptick in inflation.
Overall, we see wind as a really huge market going forward. The potential to grow by maybe £150 billion over the next five years is a really significant investment opportunity for us. Over the medium term, we expect there’ll be really good opportunities that can outperform buying back shares. So overall, the proposition is unchanged. The policy landscape is now clear, and we look forward to continuing to deliver for UK Wind shareholders.
Proactive: Matt, I hope you’ll continue to keep us updated with your progress. Thank you very much for taking the time today.