Greencoat UK Wind PLC (UKW) - Reports results for the year ended 31 December 2023

[idpickering]

Performance

· Net cash generation was £405.5 million and dividend cover was 2.1x.

· The Group's investments generated 4,743GWh of sustainable electricity.

Dividends and balance sheet

· The target dividend for the year was 8.76 pence per share. With the increased dividend for the final quarter of 3.43 pence per share, declared dividends for 2023 were 10 pence per share.

· The target dividend with respect to 2024 is also 10 pence per share, an increase of 14.2 per cent above the target dividend for 2023, significantly above December's RPI of 5.2 per cent.

· Aggregate Group Debt of £2,375 million as at 31 December 2023, equivalent to 38 per cent of GAV.

And later;

On 29 January 2024, the Company announced a dividend of 3.43 pence per share with respect to the quarter ended 31 December 2023, bringing the total dividend declared with respect to the year to 31 December 2023 to £231.4 million, equivalent to 10 pence per share. The record date for the dividend is 16 February 2024 and the payment date is 29 February 2024.

https://www.investegate.co.uk/announcem ... t-/8062218

Also posted on Company News here; viewtopic.php?p=650123#p650123

I hold these in my HYP, and know others here do too, so this may be of interest here.

Ian.

[kempiejon]

Ta Ian, I have come round to the idea of renewables as being part of my portfolio and for now being a different sort of thing to the established utilities that are a bedrock of my income portfolio. UKW yielding over 7% with 10 years of increasing dividend looks a good prospect. While I applaud this year's dividend coming in above their estimate for the year and hope for more of the same it's a shame the forecast for next year is pegged at this years actual. I like to see an increasing dividend commitment for the future my holdings. Perhaps it's expectation management.

[idpickering]

Ta Ian, I have come round to the idea of renewables as being part of my portfolio and for now being a different sort of thing to the established utilities that are a bedrock of my income portfolio. UKW yielding over 7% with 10 years of increasing dividend looks a good prospect. While I applaud this year's dividend coming in above their estimate for the year and hope for more of the same it's a shame the forecast for next year is pegged at this years actual. I like to see an increasing dividend commitment for the future my holdings. Perhaps it's expectation management.

Thanks for your input, and you're welcome. I prefer a rising dividend too. Things might change re that div nearer the time, we'll see.
As for renewables being worthwhile holding in an HYP, my answer is yes, if the numbers etc fit/are ok of course. I hold a number of other renewables too.

Ian.

[Dod101]

I built up a holding over the year end and and am very happy to see the dividend this morning. I expect this year’s dividend to end up more than the forecast but we will see as the year progresses.

I will take a proper look at the results later.

Dod

[Gerry557]

From the presentation, I think the buyback looks like it might be increase. Nice to have that rising dividend. It up nearly 60% on my first lot so if the rest follows suit over time all well and good.

I even got as far as pressing the buy button recently but became too greedy and didnt accept hoping for an even better price. Oh well you cant win them all. In hindsight right now it looks foolish but Mr Market might offer me another swing later.

With the drop in power prices the overall shouldn't be too adversely affected as it should be offset by no windfall tax. Probably one of the better companies to invest in in this area and with x2 divi cover able to reinvest too,

[ElectronicFur]

I've been meaning to look into these.

Can anyone explain how in the final results report they claim to have a dividend cover of 2.1 but they also state the earnings per share are down to 5.44 (down from 41.15 in 2022). With a dividend per share of 10 I don't see where the dividend cover figure comes from.

[monabri]

I've been meaning to look into these.

Can anyone explain how in the final results report they claim to have a dividend cover of 2.1 but they also state the earnings per share are down to 5.44 (down from 41.15 in 2022). With a dividend per share of 10 I don't see where the dividend cover figure comes from.

They state (page 8 of the latest Annual Report)

https://www.greencoat-ukwind.com/invest ... tions/2024

Closing cash balance (Group and wind farm SPVs)(2) 221,217 m
Net cash generation £405,510 m
Dividends £197,043 m
Dividend cover 2.1x


Their definition seems to based on "cash generation " divided by "dividends ".

[csearle]

I've been meaning to look into these.

Can anyone explain how in the final results report they claim to have a dividend cover of 2.1 but they also state the earnings per share are down to 5.44 (down from 41.15 in 2022). With a dividend per share of 10 I don't see where the dividend cover figure comes from.

They state (page 8 of the latest Annual Report)

https://www.greencoat-ukwind.com/invest ... tions/2024

Closing cash balance (Group and wind farm SPVs)(2) 221,217 m
Net cash generation £405,510 m
Dividends £197,043 m
Dividend cover 2.1x


Their definition seems to based on "cash generation " divided by "dividends ".

Is there a difference between cash generation and earnings? C.

[monabri]

They state (page 8 of the latest Annual Report)

https://www.greencoat-ukwind.com/invest ... tions/2024

Closing cash balance (Group and wind farm SPVs)(2) 221,217 m
Net cash generation £405,510 m
Dividends £197,043 m
Dividend cover 2.1x


Their definition seems to based on "cash generation " divided by "dividends ".

Is there a difference between cash generation and earnings? C.

Yes.

Cash generation is one thing but there has to be offset against expenditure. "Earnings" comes from the success of generating more cash than is expended.

[simoan]

Is there a difference between cash generation and earnings? C.

Yes.

Cash generation is one thing but there has to be offset against expenditure. "Earnings" comes from the success of generating more cash than is expended.

I’m not sure what you mean by this? The beauty of cash is that it is very difficult fake, unlike earnings which are merely a matter of accounting opinion. The only issue with cash is that it can vary a lot over the course of a financial year due to changes in working capital, so knowing the cash figure every 6 months is not really much help. What you really need to know is the average level of cash held throughout the year but most companies never disclose this. This leaves ample room for the CFO to window dress the cash at the end of each reporting period. It pays to be cynical when a company deviates from the normal way of reporting a metric, so I would expect the UKW dividend was not covered by “earnings” this year.

[monabri]

Yes.

Cash generation is one thing but there has to be offset against expenditure. "Earnings" comes from the success of generating more cash than is expended.

I’m not sure what you mean by this? The beauty of cash is that it is very difficult fake, unlike earnings which are merely a matter of accounting opinion. The only issue with cash is that it can vary a lot over the course of a financial year due to changes in working capital, so knowing the cash figure every 6 months is not really much help. What you really need to know is the average level of cash held throughout the year but most companies never disclose this. This leaves ample room for the CFO to window dress the cash at the end of each reporting period. It pays to be cynical when a company deviates from the normal way of reporting a metric, so I would expect the UKW dividend was not covered by “earnings” this year.

The earnings did not cover the dividend looking at Page 68 of the AR. The comparison with the previous year is stark in terms of profit and then earnings.
Their definition of dividend cover...that's why I mentioned it ( as it is not conventional) but it is their definition. I wouldn't know if 2022 was a good year but one could check.... Regarding a CEO window dressing the accounts...I would have thought that the annual report would be the time to do it.

Source https://www.greencoat-ukwind.com/invest ... tions/2024

[simoan]

I’m not sure what you mean by this? The beauty of cash is that it is very difficult fake, unlike earnings which are merely a matter of accounting opinion. The only issue with cash is that it can vary a lot over the course of a financial year due to changes in working capital, so knowing the cash figure every 6 months is not really much help. What you really need to know is the average level of cash held throughout the year but most companies never disclose this. This leaves ample room for the CFO to window dress the cash at the end of each reporting period. It pays to be cynical when a company deviates from the normal way of reporting a metric, so I would expect the UKW dividend was not covered by “earnings” this year.

The earnings did not cover the dividend looking at Page 68 of the AR. The comparison with the previous year is stark in terms of profit and then earnings.
Their definition of dividend cover...that's why I mentioned it ( as it is not conventional) but it is their definition. I wouldn't know if 2022 was a good year but one could check.... Regarding a CEO window dressing the accounts...I would have thought that the annual report would be the time to do it.

I am not a fan of fair value accounting tbh and don’t like holding companies that use it having got my fingers badly burned in the past. I do hold a couple of REITs which are a small part of my overall portfolio, but it still makes me uneasy. Given the huge movements in the fair value of investments, it’s probably fair enough to quote cash cover of the dividend. I just wish they’d refer to average cash, rather than the period end figure.

[Dod101]

These days when companies are obliged to charge adjustments to the fair value of properties through the P and L account we get wild variations in the profits and yet it could be argued that these variations are capital items. You can see it in the recent HSBC accounts and of course in Greencoat. They are non cash adjustments and whilst they will affect the NAV they have nothing to do with the day to day running of the business. It seems to me that is what Greencoat is acknowledging and so it seems to me that they are quite entitled to claim the dividend cover that they do.They are not trying to hide anything.

Dod

[simoan]

These days when companies are obliged to charge adjustments to the fair value of properties through the P and L account we get wild variations in the profits and yet it could be argued that these variations are capital items. You can see it in the recent HSBC accounts and of course in Greencoat. They are non cash adjustments and whilst they will affect the NAV they have nothing to do with the day to day running of the business. It seems to me that is what Greencoat is acknowledging and so it seems to me that they are quite entitled to claim the dividend cover that they do.They are not trying to hide anything.

Dod

I thought that was what I wrote? Ultimately, all dividends have to be paid from cash. I’ve never really understood why people use earnings per share to measure dividend cover. Earnings do not always generate cash as UKW illustrates. The only issue is that cash tends to be a more volatile measure for most businesses, varying more from year to year than earnings, but using the average free cash flow over a number of years works well i.e. using say a 3 or 5 year average cash flow cover, it soon becomes apparent whether a dividend is sustainable, or not.

[Dod101]

These days when companies are obliged to charge adjustments to the fair value of properties through the P and L account we get wild variations in the profits and yet it could be argued that these variations are capital items. You can see it in the recent HSBC accounts and of course in Greencoat. They are non cash adjustments and whilst they will affect the NAV they have nothing to do with the day to day running of the business. It seems to me that is what Greencoat is acknowledging and so it seems to me that they are quite entitled to claim the dividend cover that they do.They are not trying to hide anything.

Dod

I thought that was what I wrote? Ultimately, all dividends have to be paid from cash. I’ve never really understood why people use earnings per share to measure dividend cover. Earnings do not always generate cash as UKW illustrates. The only issue is that cash tends to be a more volatile measure for most businesses, varying more from year to year than earnings, but using the average free cash flow over a number of years works well i.e. using say a 3 or 5 year average cash flow cover, it soon becomes apparent whether a dividend is sustainable, or not.

I sorry if I am repeating what you said but the point is I think worth stressing.
I have never thought that charging changes to capital valuations through theP& L account is a good idea but then I am old fashioned and not an accountant

Dod
Dod

[ElectronicFur]

If, for example, a business is generating 100m cash, but expenditure is 80m necessary to generate that cash, then isn't it misleading to use that 100m figure to calculate dividend cover, and one should use 20m?

[simoan]

If, for example, a business is generating 100m cash, but expenditure is 80m necessary to generate that cash, then isn't it misleading to use that 100m figure to calculate dividend cover, and one should use 20m?

It depends. They should be using free cash flow, which is the cash left after all other expenditure. I have no idea what cash UKW refer to with regard to dividend cover but would hope it is genuinely surplus cash post all bills being paid.

[AndrewInDevon]

Earnings are net profits, so include fair value changes on SPV investments (ie windfarms in this case). So an utterly useless number - as Warren Buffet recently said about Berkshire Hathaway's reported earnings, the number is "worse than useless".

Its a bit harsh to criticise Greencoat for a projected flat dividend for 2024 (at 10p/share), when they decided to increase the 2023 final dividend to 10p a share, effectively bringing the increase forward. They have met their objective of increasing dividends by at least RPI and are implementing strategies to reduce the discount and increase NAVs.

It looks like a compelling business model to me and solid operational performance.

[Arborbridge]

If, for example, a business is generating 100m cash, but expenditure is 80m necessary to generate that cash, then isn't it misleading to use that 100m figure to calculate dividend cover, and one should use 20m?

It depends. They should be using free cash flow, which is the cash left after all other expenditure. I have no idea what cash UKW refer to with regard to dividend cover but would hope it is genuinely surplus cash post all bills being paid.

Yes, if we could be sure they are using free cash flow to equity, then we would take some comfort from it. After all, on here we've banging on for years about how free cash flow dividend cover is a better measure than eps dividend cover.
My hunch is that they don't mean their cash figure is free cash as we know it. Can anyone dig into this and prove it one way or another? *
*I think the trboule is that the answer will hang on whether some cap-ex was allowable as "discretionary" or whether they were really maintenance in disguise.

Arb.

[AndrewInDevon]

Measures like free cash flow are backward looking historical accounting figures which ebb and flow with revenues and costs. It’s a measure of flow, not stock.

Dividend cover is by how many times the stock of cash at reporting date can finance current dividend levels. It’s only an indicator of how many times their cash balances can fund dividend payments. It’s a crude and simple measure of financial health, not a definitive guarantee that they will have sufficient cash to fund future dividends.

A working assumption will be that future cashflows (from operations or new borrowings) will be sufficient to fund cap ex, so this has no impact on dividend cover in Greencoats business model (where cash flow is roughly 50% applied to cap ex and 50% paid out as a dividend).