Speaker #1: I think at the same time we can touch on funding for the enhancement program. more generally, this has been pre-announced. Now, we have a very clear capital allocation policy at a time when capital is clearly constrained.
Speaker #1: And that is expected to be divided between paying down debt and selective investment into the portfolio. Now, we have presented as part of that earlier disclosure of the enhancement program that there are some really attractive opportunities to deploy capital to support better production of the portfolio.
Speaker #1: Some of that includes partial or full repairings. Here in the UK, particularly where we've benefited from successful warranty claims, if there have been a limited number of issues with, you know, key components.
Speaker #1: But also in that bucket is the hybridization case. For some of our international portfolio assets, where we do see significant opportunity to mitigate curtailment that is being seen widely across the Spanish market.
Speaker #1: Now, by way of reminder, we already benefit from very attractive terms under the PPAs that were struck for our Spanish portfolio. And as much as anything, this strategy to explore hybridization is future-proofing for when those PPAs expire and we're either looking to renew with new PPAs or engaging in a more merchant-trading strategy.
Speaker #1: Decisions have been taken yet. But, you know, we continue to assess all investment opportunities and capital allocations against that capital allocation policy and work proactively with the board as we do so.
Speaker #2: As Toby says, it's about future-proofing. It's making those assets either more resilient or more scalable. So all options remain available to us.
Speaker #1: we've noted throughout the presentation close engagement that we have with consultation processes, and it remains the case that air is relevant to our operations.
Speaker #1: We continue to engage with government, primarily through industry bodies, but also directly. We've leveraged foresight groups wider network and influence here to benefit foresight solar.
Speaker #2: It clearly, the interim statement is clear, including through the chair's statement that we are frustrated by that. And that is, I would say, the main reason for the chair starting a consultation with shareholders.
Speaker #2: Where we will be considering all options. There's no end game with that. It's about providing feedback, which everyone is welcome to do through the correct mediums.
Speaker #2: In terms of external market forces and the situation in the investment trust space, we're pleased with how share price has recovered this year. Clearly, we'd like to see that continue.
Speaker #2: But a discount remains, and that gap between where we see overall enterprise value and NAV and where shares price is something we'll need to work on progressively I don't believe it's something we solve with one action or initiative, but clearly progress on divestment helps to benchmark.
Speaker #2: Where we're at, as well as independent review, which is something we'll continue to consider. And ultimately, we hope to see sustained recovery as some of our peers have and as we have experienced in reasonable order certainly better than others.
Speaker #2: And some of that is helped by market activity but that isn't certainly the solution nor should it be assumed that it can be replicated in all cases.
Speaker #2: So one to monitor, one to work on, and hopefully increase demand from other sources is another aspect that can support the current share price versus NAV.
Speaker #2: I don't believe there's any intention here to increase in fact, any gearing impact recently has been more consequence of the NAV coming down or the overall enterprise value, I should say, coming down and that impacting the gearing ratio.
Speaker #2: Modestly. What we're aiming for with ongoing activities is simply to reprofile to adjust for expected future performance and dividend cover rather than an overall increased recognizing that we are amortizing the existing borrowing as it is.
Speaker #2: We're not a vehicle with a high percentage of non-amortizing. Three-quarters of our overall borrowings, more or less, is amortizing. So in a given year, that is decreasing in any case.
Speaker #2: Is there anything else you want to say to that, Toby?
Speaker #1: Just to add, so the fund has a very strict gearing limit in its investment policy, of 50%, with a target to maintain long-term debt before 40%.
Speaker #1: And we're currently very comfortably below both those levels. And whilst I talked about the additional debt capacity in the portfolio that could allow us to release some capital to pay down the RCF, I want to emphasize that this would only be quite modest in terms of scale as clearly we want to prioritize the ongoing service of dividends and the income offering that we have.
Speaker #1: And so it is not pragmatic to talk about material increases in gearing strategy in that context. So certainly not looking to adjust or come close to those gearing limits.
Speaker #1: And the first allocation of capital would be to pay down the RCF, which would actually be a net neutral gearing position. If thereafter the additional liquidity we have from the RCF could be applied to potential new investments, naturally resulting in an increase of gearing, that's a separate capital allocation decision.
Speaker #1: That would be taken at that time. I would be based on the merits of that further investment. The initial strategy is to appropriately structure the debt structure.
Speaker #1: So turning out a portion of the RCF, increasing overall cost effectiveness, and better aligning the fund's liabilities with its asset profile.
Speaker #2: You are projected dividend cover is 1.1. We're confident with achieving that, especially given direction of travel moving into the second half of this year.
Speaker #2: We do need to consider how we sustain dividends where we are selling and where value is being placed for the whole portfolio. But there is no intention at the moment to move away from our investment objective i.e. to provide both an income and growth proposition.
Speaker #2: How we balance that is what we are asking ourselves and we hope to provide further information on that as we move towards our year end.
Speaker #1: Certainly. Happy to do so. So there has been some further disclosure following the tax adjustments that were disclosed in Q3 and Q4. And from our perspective, this is not a new impact of the tax.
Speaker #1: This is playing through the settlement of historic taxes within the period. And what both board and manager have been very keen to make absolutely clear through the materials is the gradual settlement of the historic tax liabilities that were identified and disclosed to the market in Q3 and Q4.
Speaker #1: I refer you to the relevant sections of the interim report where we disclosed the amounts that have already been settled this year and those that remain for the remainder of the year.
Speaker #1: We also do go on to emphasize the expectation that the dividends will be met in full for the year. In line with previous forecasts and commentary on how extraordinary payments are treated as part of dividend cover calculations.
Speaker #1: There's a comment also around interest and penalties. Where there is late payment, there are by default interest and penalties that can accrue. As we have commented in the interim accounts, by virtue of the context of this discussion and engagement with HMRC, we are contesting a number of the interest and penalties that would otherwise apply by default.
Speaker #1: And so as such, there is uncertainty on the outcome of this position. And we'll report back when that is clear in the future.
Speaker #2: But I think you said as the approach we're taking is aiming to be transparent and report on a prudent basis as advised. Clearly, we're relying on tax expertise for managing through that.
