SDCL Energy Efficiency Income Trust H1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
December 8, 2025

Key Takeaways

  • Positive Sentiment: The portfolio continues to generate steady cash and EBITDA (GBP 58m inflows in H1), the board declared a H1 dividend of 3.18p and is maintaining the full‑year target of 6.36p with ~1.2x cover.
  • Negative Sentiment: Net asset value fell to £0.876 (from £0.906) after cautious valuation adjustments (notably at Onyx) and look‑through gearing sits at ~72% of NAV, above the 65% policy, restricting further drawings until deleveraging occurs.
  • Neutral Sentiment: Management is executing a disciplined disposal programme (one sale achieved at a premium; a material disposal is expected imminently) and the board/manager are exploring strategic alternatives aiming to reduce debt and address the NAV/price discount.
  • Positive Sentiment: Operationally key assets (DRIVA, RED‑Rochester, Primary Energy and Onyx) are broadly performing in line or ahead of targets, delivering ~£6m of organic NAV growth and several accretive projects that underpin future value, although Onyx faces short‑term market/policy headwinds.
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Earnings Conference Call
SDCL Energy Efficiency Income Trust H1 2026
00:00 / 00:00

Transcript Sections

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Tamsin Jordan
Director at SEEIT

Good morning and welcome. Thank you for joining us for the SEEIT Interim Results presentation. We're going to start with an introduction and overview from Jonathan Maxwell, the CEO and founder of SDCL Sustainable Limited Capital. Over to you.

Jonathan Maxwell
CEO and Founder at SDCL

Thank you very much indeed. Thank you to all of our shareholders and guests for joining today. My name is Jonathan Maxwell, CEO and Founder of SDCL. Just starting with just the high-level messages from today, we've been working across the portfolio to deliver a combination of stability and also the conditions for positive change to deliver value for our shareholders. We've been focused on the change side in the short term on achieving disposals in a disciplined manner to protect shareholder value and looking at other aspects of change that can deliver value for our shareholders going forward. Just to contextualize the results, and I'll come to some summaries on the business in one second, but just as a sort of market background or context, we have taken a more cautious approach to valuation from a net asset value perspective during this period.

Jonathan Maxwell
CEO and Founder at SDCL

That has involved a slightly more cautious approach to future cash flows in specific circumstances, for example, where there is a degree or has been a degree of policy uncertainty related to movements in the U.S. But you'll see that, that notwithstanding, the net asset value is close to where it was at the last print in March. We've also kept discount rates broadly consistent. We have seen some tightening in the yield curve, but we have maintained the discount rates at a broadly consistent manner so far during this period. We've also been progressing disposals. The primary use of proceeds of disposals is and is going to continue to be reducing the gearing across the portfolio. We are in a position where we're well within all of our covenants across the group, but we do wish to reduce our gearing. We'll come on to that more later.

Jonathan Maxwell
CEO and Founder at SDCL

And we are also looking at how we can free up the company to help address the capital constraints that come along with the gearing levels for the company today. That said, the portfolio continues to deliver EBITDA and cash flow. We have positioned the portfolio not just for stability, but also to be able to create the conditions for growth going forward. And we continue to see that coming through. We have accretive projects which have been delivering improvements to net asset value of a number of our investments. And we've also created very substantial opportunities for growth, in particular in some of our investments in the United States. So if I just come back, first of all, to performance, the overall portfolio EBITDA, which is a metric that we've started to provide much more disclosure on from last year, overall portfolio EBITDA is up.

Jonathan Maxwell
CEO and Founder at SDCL

Investment cash flow is also up year-on-year compared to the same period last year in the results. And the portfolio valuation you'll see has increased a little during the period. That's mostly due to the drawdown of construction capital into projects that were in development during the last period. Behind the EBITDA and cash, we have our dividend payments. The dividend payments are on track. So we have, in fact, this morning declared a dividend of GBP 3.18 in aggregate for the six months. So the latest dividend print this morning is consistent with that six-month dividend and the overall target for the year. Dividend cover that we're reporting at this time is running at about 1.2x. For the full year, dividend is GBP 6.36 for the period ended financial year, March 2026. From a balance sheet perspective, the balance sheet is robust.

Jonathan Maxwell
CEO and Founder at SDCL

We have always provided investors with a look-through to our underlying gearing. The loan-to-value across the business is about 42%. The net asset value decrease modestly from the March to September period was one of the contributing factors to the overall gearing increase from a percentage of net asset value that is higher than our investment policy limit. We are therefore looking at a very substantial series of actions to reduce that below the 65% level, which is our investment policy target. And that, again, will free up the company to continue to make progress in the future. I'd like to re-emphasize that this is a sort of policy perspective. We are well within our covenants across the group. The revolving credit facility is part of our group gearing across the business. That has remained consistent from last print in March to these results.

Jonathan Maxwell
CEO and Founder at SDCL

The increase in gearing relates specifically to project financing at underlying portfolio company level. That tracks broadly to the GBP 51 million worth of investment that has gone into the construction program that I referenced a few moments ago. In terms of strategic actions, we have during the period been successful in getting a disposal completed. We were pleased with the premium to net asset value that we were able to achieve there. We achieved a disposal last year, broadly in line with valuation, and we're working currently on a significant disposal, which we're looking forward to the opportunity to update shareholders on in the coming period. Very focused on streamlining our portfolio, making sure that we can position it best for value for shareholders on reducing our debt and to addressing our discount to net asset value.

Jonathan Maxwell
CEO and Founder at SDCL

We believe with conviction that our portfolio is significantly more valuable than the share price indicates on the screens. We think that's a very substantial opportunity for the company and its shareholders. We are also looking at strategic options. We have been the board and the manager have been discussing for the last, sorry, during the course of 2026, sorry, 2025, we've been discussing the fact that we're looking at all strategic options. We're working very closely, the investment manager working very closely with the board on alternatives to the status quo. We look forward to the opportunity of consulting with shareholders in due course. Some big features that I would like to describe in terms of the, before we get into the performance of the portfolio and the results.

Jonathan Maxwell
CEO and Founder at SDCL

For just broadly, what we see happening with the energy market, second, what's happening on the policy front, third, what's happening on the M&A front, and then fourth, what this all means from an outlook perspective for SEEIT. I think the one thing I would pick out on the energy trends side is that for years, SEEIT has always been proposing that decentralized energy could make as much, if not more sense than grid-connected energy. The decentralization of the market, we said, was on its way. I think we've seen that coming to life over the course of the last few years as SEEIT's portfolio has increased and decentralized energy solutions have taken hold with investors. Why? Because they're cheaper, cleaner, more reliable than the grid in many cases, and now we're seeing increasing demand in the market for those types of solutions.

Jonathan Maxwell
CEO and Founder at SDCL

I think the energy trend towards decentralized energy is an important feature of the market. It's impossible to open The Economist, The Financial Times, mainstream media today without having a serious read about the constraints of the grid, and what SEEIT is doing today, I think, is a very interesting and important solution to some of those constraint problems in the grid. Second, on the global policy front, clearly we've seen some reversals in U.S. policy and some policy uncertainty in other respects in the U.S., in the U.K., and in Europe. We have seen decarbonization, at least for now, being maintained as a very significant policy objective, but generally speaking, what I would also say is that policy volatility, which has also led to some market volatility, is also another way of sort of compare and contrast.

Jonathan Maxwell
CEO and Founder at SDCL

It attests to the type of investment that SEEIT is making in decentralized, efficiency-led, cost-effective energy solutions that are designed to be less affected by short-term policy and even market volatility. On the third area, M&A environment, we are currently very active in working through opportunities for disposals carefully and selectively. We want to maintain and protect value for our shareholders during those processes and working to find the right capital partners for us to work with, as we have done in the past, to achieve value for our shareholders is really our main priority. The M&A market, there is excess supply in the market when it comes to private markets, infrastructure assets, but we are carefully and have been working through and in the past and currently successfully finding investors that are compatible with the program that we're looking to raise.

Jonathan Maxwell
CEO and Founder at SDCL

We're not a forced seller and we're not accepting propositions which could poorly affect our shareholders on value for money. In terms of outlook, the key feature I would like to come back to later is indeed the fact that we are working closely with the board to look at alternative solutions to the status quo. I think SEEIT is in a very strong place. I think it's got a good balance sheet. It's got very strong EBITDA and cash flow characteristics. There are substantial growth opportunities coming through from the business despite the capital constraints that it faces. Disposals are underway, but we are being disciplined. And we are working closely with the board to look at what the best outcomes for our shareholders are within that context. And we look forward to consulting in due course. Over to Ben to talk us through the portfolio.

Ben Griffiths
Managing Director at SEEIT

Thanks, Jonathan. This morning, I'm glad to report that our highly diversified portfolio of assets continues to perform and is delivering results in line with expectations. On the screen here, you can see the results shown for our five largest investments, and they cover about 75% of the portfolio value. The results, the performance here can largely be seen through the EBITDA numbers, which are in line with targets. Now, as well as the strategic actions that Jonathan has just mentioned, we at SDCL have focused on maximizing shareholder returns. Largely, how we do that is in part through this portfolio performance, but also through the delivery of NAV growth across the portfolio. During the six-month period, we've delivered around GBP 6 million of organic NAV growth through various initiatives that have been progressed by SDCL and also the local project management teams.

Ben Griffiths
Managing Director at SEEIT

We've got further NAV growth targeted for the remainder of the year as well. On to some project-specific updates. To start with our on-site solar and storage platform, Onyx Renewables, which is continuing to successfully deploy projects across the U.S. As Jonathan also mentioned, it has seen some political and market uncertainty earlier in the year, which did see some slowing in the market. But Onyx's sound commercial offering of decentralized generation is continuing to cause demand within the customer base. This, paired with their efficient management systems, is also helping to deploy the megawatts onto customer sites continuing across the U.S. During the period, Onyx Renewables has raised various tax equity financing, but we do expect this market to change mid-2026.

Ben Griffiths
Managing Director at SEEIT

The company is continuing to look at alternative project financing options, but the strong economics and margins of the projects continue to cause optimism that these changes can be mitigated in the medium and long term. And finally, on the operational side, there are some site-specific matters that are causing some low generation, but the team's working hard on various actions to rectify these and some partial recovery is expected in the balance of the year. Moving on to Driva, which is our biogas grid in Stockholm, which is outperforming. It's seeing some strong sales in its core business. And this is also supported by continued efforts to maximize the biogas content of the grid, which is around 90% currently, and also to continue to reduce leakage across the gas grid, which doesn't only bring financial benefit, but also delivers environmental performance as well.

Ben Griffiths
Managing Director at SEEIT

Now, in June, I talked about Driva's strategy to diversify and also develop various energy-as-a-service offerings to its customers. Glad to report that they have signed some contracts, some new contracts within the period. And they're seeing momentum within the various customer segments, but in particular, charging as a service for bus companies and also biogas as a service for industrial customers. And lastly, on Driva, we are continuing to progress Södertörn, our capital project, which will see a large new connection made to the gas grid, and also corresponding increases in gas volumes. And this has been progressing on track and is expected to complete construction around the end of this calendar year.

Ben Griffiths
Managing Director at SEEIT

Now, next, moving on to our district energy business, RED-Rochester, which continues to deliver 17 different utilities to over 120 different customers on Eastman Business Park, has seen strong performance in the first half of the year. This has largely been as a result of increased customer demand, which in turn has also largely been because of a colder-than-expected winter, but also performance has been delivered by our new 38 MW Cogen project coming online and delivering expected efficiency improvements. We continue to be actively engaged with the customers at RED-Rochester in order to agree amendments to the tariffs under which the company is paid, and we've got renewed focus on this with looking to deliver benefits to both customers and RED-Rochester as new customers, and therefore their associated loads are brought onto the business park.

Ben Griffiths
Managing Director at SEEIT

On that very note, our previous customer, the assets of our previous customer, Li-Cycle, have been bought out of bankruptcy by Glencore. We expect Glencore and their Hub Project to be an important customer to RED-Rochester in the future. But also, we're progressing and advancing discussions with other prospective customers during the period in order to best deploy and utilize the systems of RED-Rochester and ultimately increasing the revenues of the company. Our Spanish on-site energy generation assets, SEEIT Oliva, have experienced some market pressures in the first half of the year. We at SDCL have worked very closely with the local project management team in order to adapt their hedging policy and look to relieve some of these pressures. And, glad to say that these did see some improvement in EBITDA performance during the period.

Ben Griffiths
Managing Director at SEEIT

The management team will continue these efforts to try and focus on delivering this improving trend through the end of the year and also beyond. In parallel, we've continued the long-term strategic planning of the organization, looking at all the different strategic options for the business and ultimately how we can best leverage the infrastructure, the assets, and also the expertise of the team within that company. We expect to conclude on this next year, and finally, on the asset side with Primary Energy based in Indiana, which is continuing to decarbonize the hard-to-abate steel industry and also continuing to perform very strongly. In June, I reported about a successful initiative to increase the renewable accreditation at one of the sites, delivering value at little to no extra cost.

Ben Griffiths
Managing Director at SEEIT

The management team have been busy in submitting a very similar application at another one of the company's assets, and we expect results from that in the second half of the year. Also, there's been progress on a couple of accretive projects, which have been progressing in line with the timeframes expected. They have seen some one-off negative impacts as a result of the new U.S. import tariffs, but we've looked to partially mitigate those through an acceleration of the delivery program. Also, the management have been extremely busy in renegotiating and agreeing on a new contract at one of the assets' PCI. This new customer contract sees securing the operation of that asset for a further five years. And that extension also includes some possible options for further more timeframe on that contract.

Ben Griffiths
Managing Director at SEEIT

So really, to sum up, I'm glad to report that the portfolio is continuing to perform, delivering results in line with expectations. And we at SDCL, we remain focused on our active management of the portfolio, driving NAV growth, and ultimately looking to deliver total shareholder return. So with that, I'll pass over to Eugene, our Group CFO, to run us through the financial performance.

Eugene Kinghorn
Group CFO at SEEIT

Thank you, Ben. The net asset value closed at GBP 87.60 compared to the GBP 90.60 at March 2025. The reduction of GBP 0.03 during the period was mainly due to systemic market risk, leading to longer-term cautionary adjustments and to a lesser extent from specific asset-related issues, including one-off adjustments. In this period, a large part of this cautionary adjustment related to Onyx, where assumed deployment of new projects in the medium to long term reflects the uncertainty of market factors, notwithstanding that the manager will continue to work closely with Onyx in the belief that Onyx can return to or exceed the previous long-term deployment targets. The net FX movement remains in line with expectations of the current hedging strategy to minimize movements in the net asset value from volatility in the FX markets. And company expenses have remained in line with expectations.

Eugene Kinghorn
Group CFO at SEEIT

Cash flow shown is a reminder that SEEIT's diversified portfolio continues to produce steady distributions and cash cover as it has done in the past. It also is a reminder of our GBP 6.36 dividend target for the full year. The cash inflows to SEEIT from the portfolio was GBP 58 million, from which we pay all of the company expenses and all of the financing costs associated with the revolving credit facility. This includes all of the regular receipts of dividends and acceleration of investment returns associated with Onyx, where tax equity investors step in at the end of construction. The net outcome is a 1.2x cash cover for the dividends paid during the first half of the year.

Eugene Kinghorn
Group CFO at SEEIT

Overall gearing on a look-through basis is at circa 72% of NAV, as you heard earlier, or 42% loan to value, meaning that no further debt can be drawn at this stage until debt reduces to below 65% of NAV. However, all of the portfolio companies have significant headroom on their financing covenants and continue to service their debt from their operational cash flows. You heard that reducing the RCF balance of GBP 233 million remains our top priority. This same RCF was refinanced earlier in the year and extended to 2028 with extension options thereafter, in addition to new and improved facilities that we secured at project level during the period. We illustrate on this slide the estimated impact on the portfolio evaluation of specific downside risks as well as upside opportunities.

Eugene Kinghorn
Group CFO at SEEIT

Taking a step back, this partly aims to illustrate that the gap between NAV and share price remains unjustified, even if all of the downsides crystallize and are unmitigated. It also illustrates the work that the manager is doing to identify, quantify, and pursue NAV growth opportunities through the upside opportunities identified. Positive inflation correlation for the portfolio as a whole remains strong, and continued long-term interest rate reductions are potentially materially positive for the net asset value. And with that, I'll hand back to my colleagues.

Tamsin Jordan
Director at SEEIT

Thank you. Yep, Jonathan.

Jonathan Maxwell
CEO and Founder at SDCL

Great. So just one comment to make before handing over to Tamsin to wrap up, that we have here provided a signpost in terms of the opportunity sets within the portfolio. To Eugene's point, we've identified hopefully where downside risks don't align today, we don't believe, to where the share price is trading. However, on the upside, we would have wanted to make the clear point that there are very substantial opportunities for a number of our investments within the business. Onyx, in particular, I think, particularly given the more cautious approach to valuation during this period, has a very substantial future. I think the opportunity to deliver cheaper, cleaner, more reliable energy than the grid underlines the commercial capabilities that we have with decentralized generation.

Jonathan Maxwell
CEO and Founder at SDCL

With Onyx on RED, we're seeing some very interesting opportunities to deploy the existing utility capacity, mostly power, that we have on the site. We've got some additional capacity that we can deploy, and indeed, we're finding some very interesting new opportunities for new entrants to come into the park, which will pick up the loads and therefore improve our margins going forward, so that's another area of particular excitement. We see some substantial opportunity around Primary Energy, which is our steel industry specialist in Indiana, and we're also seeing, and we've seen coming through already, the monetization of additional opportunities, for example, in the Driva, that is the Stockholm biogas-heavy grid, which I believe is today officially the greenest gas grid in the world, if it's kind, and we are making some substantial progress, so once again, thank you to our shareholders for your support so far.

Jonathan Maxwell
CEO and Founder at SDCL

I think the portfolio is very well positioned, not just to carry on generating EBITDA and cash flow, but indeed to keep driving that forward and for growth in the future. Now over to Tamsin to wrap up.

Tamsin Jordan
Director at SEEIT

Thank you, Jonathan. Just to conclude and to summarize what we've covered today, ours and the board's primary focus is reducing gearing. We're doing that through a disciplined approach to executing disposals. We're also seeking to achieve a streamlined portfolio from doing so that is well positioned to benefit from the growth driven by increased demand for decentralized energy solutions. In the context of a pretty uncertain backdrop, valuations have only gone down slightly. Operational performance of the underlying portfolio remains stable and in line with the expectations overall. There was GBP 58 million of investment cash inflows during the six months.

Tamsin Jordan
Director at SEEIT

And that meant that we were able to pay dividends that were 1.2x covered. And we also declared GBP 3.18 for the period as we guided that we would in the summer. Despite this, the market dislocation remains for SEEIT as it does for the sector. We see no signs of the discount narrowing. This means that SEEIT continues to have access to no new equity and also to no further borrowing at this stage. Reducing debt is our absolute priority at the moment. We report our debt on a look-through basis. That's approximately 42% on a loan to value basis at the moment and 72% as of the 30th of September. This is well within all of our banking covenants. Fortunately or unfortunately, given capital constraints, we do have the benefit of significant growth opportunities within the portfolio.

Tamsin Jordan
Director at SEEIT

Our disposal program is seeking to release liquidity from elsewhere within the portfolio, and that will be used primarily to reduce debt, but also to be able to continue to support those opportunities as and when possible. It is a difficult market to do that. We have few buyers who are offering acceptable prices, but we are taking a disciplined approach to be able to achieve that, and we hope to make an announcement in the coming weeks, so restricted by the continuing capital constraints and frustrated by the issues in the broader sector, we are actively looking at options with our board. We're working together to find a solution to change the status quo and to deliver good value for all of our shareholders. We look forward to meeting many of you in the coming weeks.

Tamsin Jordan
Director at SEEIT

For those that we won't be seeing, we hope this is a good opportunity for you to ask questions. So for now, we're going to open up to Q&A. There'll be a short pause while we consolidate those questions.

Operator

Thank you, Tamsin, Jonathan, Ben, and Eugene for that presentation. As Tamsin mentioned, we're moving on to the Q&A section of the session. If you have any questions, please do submit them via the Spark Live platform. There are a couple of already come in, so I think we'll crack on with the first one. Markuz Jaffe from Peel Hunt asking whether the disposal process has fed into portfolio valuations.

Jonathan Maxwell
CEO and Founder at SDCL

I'll take a go at that. So what we've found in the market for the last year or two, and we've been able to attest to that in the valuations that we've printed, in other words, the prices we've achieved in the market, is working carefully with buyers, specifically fitting the assets that we have to the needs of specific buyers, sometimes strategic in the market. We've been able to achieve good value for shareholders. We have not sought to dispose at any price of our investments. We are looking at making sure that we can protect value. And indeed, we've been successful at doing that in the past. And our current trajectory is that we should be able to continue to be doing that by working carefully and selectively with specific buyers in the marketplace. So I do think there is a difference between price and value.

Jonathan Maxwell
CEO and Founder at SDCL

Broadly, for a rushed sale or sort of disposal process, I do think that there could be a very substantial diminution potentially in value. However, for a staged, disciplined approach, which is the one that we've taken in the past and we're continuing to take, we think that we should be very well placed to be able to secure value for money for SEEIT shareholders, which is our absolute primary objective here. We absolutely are committed and have been working incredibly hard to deliver the goods, not just in NAV, in dividends, in cash flow, in earnings, but also in terms of the value for money we're achieving in any disposals or recycling of our portfolio.

Operator

Thank you, Jonathan. A quick follow-up from Markuz as well is whether you will report on detailed performance of all portfolio investments in future reports?

Jonathan Maxwell
CEO and Founder at SDCL

Yes, I think we've been increasingly expanding our disclosures at portfolio level. We've disclosed our EBITDA on a portfolio as well as a group basis, and we'll continue to do that. We've also hopefully been open and transparent, not just about how we report on our underlying portfolio and taking some of those metrics into the valuation this time around and picking those out for you, but also right across the rest of the board as well. With regards to, for example, look-through gearing, rather than just quoting our gearing at Topco, we disclose our leverage right the way through the platform, and thank you again, Eugene, for pointing out our compliance with all of our covenants.

Operator

Thank you. Niall O'Connor from RM Funds has a question regarding Onyx. How much was the capital return, and would dividend cover have been excluding this?

Eugene Kinghorn
Group CFO at SEEIT

Thank you, Niall. We do not disclose at this point in time individual receipts from all of our individual projects. Happy to take that discussion further offline. However, just to explain a little bit on this Onyx return. What we refer to here is the acceleration of investment returns. Really, these are cash flows over the long term that we monetize and are able to monetize upfront. They're the same cash flows that we also report and Ben would have reported on through the EBITDA and other means for Onyx. The nature of the cash flow is the same, but we're able to accelerate that and bring that into our investment cash flows up to SEEIT, as reported earlier.

Operator

Thank you. One from Retail Investor. Can you confirm whether the restrictions on any further amount being borrowed is an absolute restriction?

Eugene Kinghorn
Group CFO at SEEIT

This is a timing matter. So at this point in time, there's a restriction on drawing further debt. There is, specifically related to Onyx, because the question is on tax equity, there is the ability to recycle cash from projects as they come online. And therefore, it doesn't stop the operations at Onyx. But at this point in time, we do not have the ability to draw under the financing facilities until we bring the overall look-through gearing down below 65% of NAV.

Operator

Thank you. Will Crighton from Stifel. What might a restructuring that the manager is going to propose look like?

Jonathan Maxwell
CEO and Founder at SDCL

So thank you for the question. And we have absolutely said that we're working closely with the board. So I think that's the first thing to say. The other reflections I would make is that this has been a busy period for M&A in the investment trust market, and indeed for attempted M&A in the investment trust market. I think any proposals, well, I know any proposals that we put forward have to take into account, I think, three key features. First is to make sure that anything that gets put forward to shareholders has industrial logic. There has been challenge to that in alternative proposals that have been put out into the market. We want to make sure we get that clear with shareholders and right. Second is terms and making sure that they are also considered fair for shareholders as well as other stakeholders, including the manager.

Jonathan Maxwell
CEO and Founder at SDCL

And then the third area, which I think is absolutely key, is that once we are in a position to move those proposals forward, we wish to be consulting and engaging with shareholders before they are published. We've definitely seen some reaction where other parties have not done that to the extent that made some of the investors, large ones and small ones, as well as analysts, prospectively familiar with the proposals before they were released. So I think those are really the three key criteria that we're looking to deliver. Our priority is to get things done that are in the best interest of shareholders, that preserve value. We've built a very big, diversified business for the decentralized energy market. And we think it's in a very good position to do that.

Operator

Thank you. I think this is one for you, Eugene. Colette Ord from Deutsche Numis. Can you give color on the wider covenant positions you say you are comfortable with, but can you be more specific?

Eugene Kinghorn
Group CFO at SEEIT

Yeah, thank you, Colette. So the covenant positions that we're referring to are at project level. These are typical project finance covenants, debt service cover ratios, and the like. We haven't disclosed individual ones. But again, just to repeat, and it aligns with Ben's comments earlier in terms of the strong operational performance, we have no concerns that in aggregate, these covenant positions have significant headroom at each of the individual project financings. The projects continue to pay all of their debt repayments, principal and interest from operational cash flows, with no concerns from our side.

Operator

Thank you very much. One from Colin, Barclays. How appropriate is the current dividend policy given the aim to de-lever and the CapEx requirements of the portfolio?

Jonathan Maxwell
CEO and Founder at SDCL

Sorry, can I have a go at that? So, thank you for the question again. First thing to point out is that the current dividend policy relates to, or the current dividend target relates to the current financial year. The current financial year, we are generating earnings and cash in line with, in fact, a slightly in line with target and indeed just slightly above where we were last year. So we maintain the dividend target for this year, and we are, so far this year, covered in doing so. I think the key feature we need to look out for the long run is we do expect to see continuing progress on EBITDA and cash. But the company also has to take into account other features.

Jonathan Maxwell
CEO and Founder at SDCL

I think prospectively, the frustration from our perspective in the past three years has been that we would like to have been issuing equity in order to grow the business, as we did from 2018 through to September 2022. In lieu of that, the company, going back to September 2022, had relatively low levels of leverage, certainly well within our policy levels. And we've used that efficiently to be able to continue to drive EBITDA and cash flow forward. Clearly, from where we are now, we're now looking forward at what the best alternatives are for the company. What I'd sort of lean back on here is that we do have a good EBITDA and cash flow coming up from the underlying business and portfolio. We are in the right market, in the right place, with, I think, some very, very attractive and great opportunities in front of us.

Jonathan Maxwell
CEO and Founder at SDCL

That's why we're looking at alternative solutions to move the business forward in the context of its current capital constraint. Of course, recycling capital through disposals, reducing gearing, and freeing up cash flow is one of the ways to do that.

Operator

Thank you. Ben, I think this is one for you from James Carthew, QuotedData. Having announced the write-down of delinquent accounts for FES, could you say whether there are any other similar issues with other businesses within the portfolio?

Ben Griffiths
Managing Director at SEEIT

Yeah, so I think this is referring to an update we've given in the valuation section of our report. Look, I think we're expecting this to be a one-off adjustment at FES. In terms of similar things happening in the portfolio, I think the short answer is no. I mean, ultimately, this is a key feature of our portfolio in terms of the creditworthiness of our customers.

Ben Griffiths
Managing Director at SEEIT

It's what we look for. It's what we strive for. Ultimately, with certain investments, a feature of that is a high number of customers. But we do have some default rates built into our valuations. We try and obviously iterate our valuations and amend them and learn from what is going on. So there are some areas where we have built-in default assumptions in those valuations. But ultimately, the important thing for us is working closely with the customers and really focusing on creditworthy counterparties. And this really brings home why that is a key focus of our mandate.

Operator

Thank you. Eugene, another from RM Funds, this time from Pietro Nicholls. So part of the leverage increase is due to the tax equity bridge loans. Once these assets reach completion, what would the LTV be?

Eugene Kinghorn
Group CFO at SEEIT

Pietro, thank you for the question, which I think helps to identify the timing here in terms of the drawing required to be able to deliver the growth. I hope you'll forgive me for a high-level answer because I don't have that scientific answer for you, as I said here. But prima facie, what we can expect is that the loan will go down over time and the value will go up. Why? Because we're delivering operational projects. We can expect to see yield compression, therefore, and a step up in value. But at the same time, the way that the construction financing and capital stack works at Onyx, you are able to generate higher returns and higher cash flows into Onyx once these projects are constructed. And that amounts higher than what they've drawn.

Eugene Kinghorn
Group CFO at SEEIT

So therefore, you can expect to see a steady and predicted step down in the loan part of the loan-to-value.

Operator

Thank you. And a follow-up from the same person at RM Funds. The interim report notes that the board is not minded to recommend a continuation of the company if criteria are not met. Assuming the company doesn't end up going into wind down, what would the likely run-off profile be, assuming value maximization?

Jonathan Maxwell
CEO and Founder at SDCL

Yeah, I'm happy to go through that. So I think there are a number of options available to alternatives available to the company. And we've been looking at all of those during the course of this year. Continuation votes in investment trusts typically these days happen every three years, and SEEIT is due next year.

Jonathan Maxwell
CEO and Founder at SDCL

Continuing beyond 2026 assumes that the investment trust market is, and the context in which SEEIT sits in it is acceptable to shareholders and acceptable to the board. There are, of course, alternatives. Alternatives could include selling assets, but they could also include restructuring the company. We are looking at all alternatives. But as I keep saying, Ben, that is really what's at the forefront of our mind is the same thing that's been at the forefront of our mind since 2018, which is looking after shareholder value. The company does have a strong level of earnings and cash flow. It's very well positioned across major markets in the decentralized energy sector. So we do believe that it has a future. The question that we'll be working on, both with the board and also with shareholders, is what the best future looks like.

Operator

Thank you. Question again from QuotedData, James Carthew. He believes there is downside risk to NAV from RECs finishing in 2026. Could you expand on this, please?

Jonathan Maxwell
CEO and Founder at SDCL

There's a specific reference, which we've just included for completeness rather than from a probability statement necessarily. But we've included for completeness in the signposts so that there is balance in our message. Our message really and the signposts inside of the results presentation and the results themselves is that there's very substantial growth opportunities, particularly on RED and other markets, including the Primary Energy style opportunities in the steel industry and indeed the district energy style opportunities we're seeing at RED. So that's really the big message. We included for completeness a number of alternative downside metrics.

Jonathan Maxwell
CEO and Founder at SDCL

For example, we have taken out, in the case of Onyx, just for modeling purposes and for signposting purposes, what happens if we don't continue to attribute value, really, to the business in terms of new business after 2027 or 2028. That's not our intention. That's not the necessity of the way that the company is structured. It's there for purely illustrative purposes. Likewise, in the case of Primary Energy, we've also identified a specific valuation point, reducing, sorry, with regards to RECs, Renewable Energy Certificates. This is a merit, actually, of Primary Energy. Primary Energy makes money at the moment by selling the attributes associated with the very, very high levels of carbon emission reduction associated with capturing waste gases or waste heat from the blast furnaces and recycling them. We get very large environmental attributes out of it.

Jonathan Maxwell
CEO and Founder at SDCL

And more recently, I think we've doubled, more than doubled, our revenues from selling renewable energy certificates. This illustrates the removal of that revenue stream. That's not, in this call, a statement of probability. But I think to Eugene's point, what we're trying to illustrate here is that there's a very substantial difference between price and value with SEEIT and its underlying businesses and their EBITDA and cash flow generation capabilities. That's just one example. Even if we're saying you took out, made pernicious statements about what might happen to valuation of development assets in Onyx or indeed to revenue streams at Primary Energy, even if it doesn't justify the level of discount, we don't believe. We think that SEEIT is very substantially undervalued.

Operator

Thank you. One from Tim Kempster at Thinking Machines. How will you sustain the dividend with EBITDA of GBP 44 million before interest costs, finance management fees, and group level G&A?

Eugene Kinghorn
Group CFO at SEEIT

There are three components to this. Thank you, Tim, for the question. In no particular order. We told you our top priority is to reduce gearing, reducing the gearing. Therefore, the RCF means lower interest costs. Earlier in the year, we agreed with the board an amendment to the management fee calculation so that everyone is aligned. The management fee calculation now includes a component of share price or market cap as well as net asset value, whereas previously it was just net asset value. Then lastly, but very importantly, the investment that we've made in the last few years into these projects to allow growth in EBITDA. A couple of quick examples because Ben referred to them earlier. We completed the cogeneration facility at RED-Rochester.

Eugene Kinghorn
Group CFO at SEEIT

It brings significant efficiencies, and that comes straight to the EBITDA bottom line. Therefore, we have seen and will continue to see an increase in EBITDA. And then also significant investment into Onyx in the last few years, which means that we now have 250 MW, give or take, Ben, I think, of operational projects and expecting to see another circa 100 MW or so over the next 12 months. And therefore, that continues to deliver strong EBITDA growth. And that is what will underpin the cash flows and therefore the ability to continue with the dividend.

Operator

Thank you. A few questions around disposals. Jonathan, I think just bringing some of these together. So how significant is the potential imminent disposal referred to? Can you indicate a rough size? What might a transaction look like on a sale like this, as well as whether SEEIT will look to retain an ongoing stake following any transaction completing?

Jonathan Maxwell
CEO and Founder at SDCL

Okay. That's a lot of questions related to things that we look forward to being able to disclose in the public domain over the coming weeks. In terms of the, just to try and take them in order, in terms of the scale, there's an indication in the results that we're looking to use this disposal as an opportunity to reduce the gearing below the investment policy limitations. We do expect and hope and expect to get a substantial transaction done at a valuation that is acceptable to us.

Jonathan Maxwell
CEO and Founder at SDCL

With regards to other details in terms of timing and so on, I don't think I can say more other than to say that we're expecting to deliver what we hope is an attractive outcome in the coming weeks in terms of an announcement and in terms of financial close, as we said in the interim results before the financial year end. I think that's all I can say. But thank you for the question.

Operator

Thank you all for your questions. I don't think there are any more. So I'll just pass back to Jonathan very quickly just to round up.

Jonathan Maxwell
CEO and Founder at SDCL

Yeah. Well, look, thank you very much indeed. And look, just to sort of summarize again, really thank you to all of our shareholders for your support. We have a company together that has a balance sheet that is robust. Yes, gearing is higher than we would want it to be today. But at just over 40% loan-to-value, it still represents a reasonable position from which we can move forward. We are working hard on achieving disposals that will reduce that. But in the meantime, just to sort of reiterate, we're well within all of our covenants across the platform. We are delivering steady and increasing levels of EBITDA. We are getting increasing levels of cash into the portfolio. We do have underlying portfolio assets and businesses that have very, very substantial future and growth ahead of them.

Jonathan Maxwell
CEO and Founder at SDCL

We are looking to resolve our capital constraints by recycling capital and making sure that the structure of the business going forward is in the best interest of shareholders. And on that note, we're working closely with the board to make sure that we've got a solution that has the right level of industrial logic, fairness on terms for shareholders, and deliverability to make sure that once we consult with shareholders, we're in a position to go ahead and make the changes needed for this company to continue to deliver its outcome for shareholders. And thank you very much for everybody's support.

Analysts
    • Eugene Kinghorn
      Group CFO at SEEIT
    • Ben Griffiths
      Managing Director at SEEIT
    • Tamsin Jordan
      Director at SEEIT
    • Jonathan Maxwell
      CEO and Founder at SDCL
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