SDCL Energy Efficiency Income Trust H2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
June 23, 2025

Key Takeaways

  • Stable NAV: Net asset value per share remained steady at 90.6p with a 9.6% levered discount rate (vs 9.4% last year).
  • Robust cash flow: Generated £97 m (+4% YoY) and EBITDA of £86 m, fully covering the annual dividend and supporting future growth.
  • £170 m invested in existing portfolio, including refinancing Onyx Renewables at the project level to secure self-funding; no new acquisitions made due to the wide share price discount.
  • Conservative leverage: Total gearing at 34% of enterprise value (within limits), with a plan to reduce debt and a refinanced RCF featuring interest rate caps.
  • Persistent share discount: Shares trade 40–45% below NAV with ~13% dividend yield; management fees will shift to a 50/50 NAV–market-cap basis and all strategic options (disposals, buybacks) are being considered.
AI Generated. May Contain Errors.
Earnings Conference Call
SDCL Energy Efficiency Income Trust H2 2025
00:00 / 00:00

Transcript Sections

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Jonathan Maxwell
Founding Partner and CEO at SDCL

Good morning. Thank you for joining us. Looking forward to discussing the annual results for the SDCL Efficiency Income Trust, or SEIT. Just starting today with the key facts, the net asset value per share has been announced at GBP 0.906 per share. That is approximately in line, just up a little bit from this time last year. The weighted average discount rate that was applied in SEIT's valuation to get to the GBP 0.906 is 9.6% on a levered basis. That compares to 9.4% at the last annual results. Just reminding people that that levered basis assumes substantially that SEIT's portfolio gearing is run through rather than maintained at current levels. From a performance perspective, investment management activity, balance sheet, and market capitalization, I am going to be joined today by colleagues. We will discuss today the performance of the portfolio.

Jonathan Maxwell
Founding Partner and CEO at SDCL

My colleague Ben Griffiths will take us through the details, as well as the investment activity that we've been conducting. We will be working through the financial results in more detail, and my colleague Eugene Kinghorn will be taking us through those. We will also be talking through the market capitalization of the company. Clearly, the net asset value to price is dislocated at this stage, and we would like to talk to you and talk to our shareholders about what we plan to do about it. Starting with performance, the headline number we start with is our cash generated during the period. The cash inflows of just less than GBP 100 million, up 4% from the prior year, from GBP 93 million to GBP 97 million. The cash coverage during the course of the year fully covers our cash dividend from net distributions.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Aggregate EBITDA during the period from the last period that we're reporting on in this annual accounts is GBP 86 million, in aggregate for the full portfolio for the calendar year 2024. As Eugene will come on to describe, we expect that number to push forward in the following years. The operational performance, having said that, from the portfolio during the reporting period here has been in line overall with our expectations. Investment activity, during the course of the year, we've continued to keep our existing investment portfolio, investments going and growing. We have invested just over GBP 170 million during the year, from available cash resources and supported the growth, for example, of Onyx in the United States. We have had now a minimal ongoing requirement, however, to continue with financing going forward at Topco.

Jonathan Maxwell
Founding Partner and CEO at SDCL

What we've been looking to do and achieve during the course of the last financial year is to secure as much financing as possible at portfolio company level and to ensure that our investments can be self-financing. We're thrilled, with the outcome, that we've announced recently, to refinance, for example, Onyx Renewables at portfolio company level with a financing facility that does set it off on the right footing to be self-financing going forward. Having said that, any capital that we've been investing behind portfolio companies, including, but not limited to, Onyx, has had a hurdle rate associated with it. We're hugely conscious of the discount to share price, sorry, to discount to net asset value, which our shares trade in the market, and therefore any new investments that we make have to compete with that.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Accordingly, during the course of the year, we made no new acquisitions, no new additions to the portfolio. Coming back to the balance sheet, as at today, standing at around 34% total gearing loan to value, that is the total debt across the entire business, whether downstairs at portfolio company level or upstairs at the end of this reporting period, is 34% of the total enterprise value. Current leverage is within our gearing limits. We have, having said that, a plan to reduce leverage, starting with the leverage at revolving credit facility level at the group at the Topco level. I would like to emphasize that we do have a plan and a sort of desire to reduce group leverage. However, also note that the gearing across SEIT's business and portfolio assets is relatively low compared to its peer group.

Jonathan Maxwell
Founding Partner and CEO at SDCL

During the course of the period, as well as Eugene will give more details on, we were also pleased to refinance SEIT's revolving credit facility that helped to mitigate interest rate risk by introducing additional caps. From a market capitalization perspective, there has continued throughout the period to be a pretty fundamental dislocation in share price from value. This has been very largely, I think, driven by a distressed U.K. investment trust market, which has got worse rather than better since the September 2022 interest rate and inflation increases. We certainly will and continue to look at ways in which we can address that, and do something about it.

Jonathan Maxwell
Founding Partner and CEO at SDCL

We have identified in this report and accounts two important features, one of which seeks to align shareholder outcomes from a share price performance perspective with management initiatives, not just to drive value in our underlying portfolio from a net asset value perspective, but also to help support the outcome for shareholders through the market capitalization. In conjunction with that, we have pushed forward on a change to the basis on which we charge management fees, which will switch from 100% associated with net asset value to 50% associated with net asset value and 50% associated with the market capitalization and how the shares trade in the market. The other thing that we have said is that we will consider all strategic options for the company going forward, the how, the tactics we have been very clear on over the course of the last few years, couple of years.

Jonathan Maxwell
Founding Partner and CEO at SDCL

We came up with a six-point plan to reduce the discount to net asset value, everything from disposals, reducing leverage, raising cash, making sure that we pushed the portfolio hard in the right directions. You know, we've improved the marketability and liquidity of the stock. All of these tactics are valid, but also we need to think broadly about how to improve valuation. It's a key feature, and we'll be unpacking that a little bit more through Tamsin's presentation shortly. Just coming back to the high-level introduction to the business, this is an infrastructure portfolio. It is very diversified. The company's operating in 10 countries. About 70% of that's in the United States. The rest of it substantially is in very high-quality markets here in Europe, including the U.K. and Western European countries. Massively underlying diversified portfolio of contracts connected to about 50,000 customers.

Jonathan Maxwell
Founding Partner and CEO at SDCL

We've got about 50 projects, some larger than others. We typically report on our big five, and Ben will be taking us through that shortly. Overall, the portfolio has about a weighted average life of its contracts of about 16 years, so a very high quality of earnings profile. Having said that, currently the market capitalization does not reflect, in our view, the value of the business or the portfolio, going forward. The shares are trading at about a 40%-45% discount to net asset value, and have been for a period of time. The current dividend yield has been trading at around 13% dividend yield.

Jonathan Maxwell
Founding Partner and CEO at SDCL

If you look at today's net asset value and you track forward, the kind of the inversion of the 9.6% discount rate that we've fed into the valuation, the other way of describing that is that the unwind discount rate, the embedded performance in the portfolio from an IRR perspective, total return perspective, is about 9.6% from today's net asset value. Just to remind everybody, the company actually came to market through an IPO in 2018, in December 2018. What we've done here is just to remind investors and analysts of the progression of cash generation and also dividend per share over the period of time that we have been operating. Cash cover for our dividends has typically exceeded substantially our dividend payment.

Jonathan Maxwell
Founding Partner and CEO at SDCL

This year, we've made a very substantial investment in ensuring the integrity and opportunity for growth for our existing investments. That notwithstanding, we've still generated enough cash to cover our dividends, and we're expecting, and we've given some more detail on this in the R&S and the annual report, expecting that dividend cover to expand back into the 1.1-1.2 range for future periods. So pleased with the cash generation and the profitability of the underlying infrastructure portfolio. To illustrate that, we've had put out a mountain chart, if you like, projecting out what we would expect going forward from our cash flows from the infrastructure portfolio and comparing that to the dividend, as if it would progress according to our dividend policy over future years.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Just to remind everybody, the underwriting discipline or investment discipline with which we enter into infrastructure investments, one of the key features that we look for is creditworthy counterparties. We summarize SEIT's business as being investing in infrastructure assets that provide essential energy services to essential industry. You know, a great starting point is making sure that the industrial counterparties, commercial, industrial, public buildings that we provide energy services to, have very strong credit standing so that they can obviously repay the service charges, energy service charges under our contracts with them over the 16-year weighted average life. The other feature is we've always focused on industries which are essential to their economy. You know, we're tracking back, I'm thinking of the last five years, the stress cases we've been under with COVID, and then, you know, subsequently with the Russia-Ukraine crisis and the financial disruption.

Jonathan Maxwell
Founding Partner and CEO at SDCL

I have been taken by, impressed by the resilience of the demand and the credit standing of our customers all the way through that period. These are essential services, steel, chemicals, data centers, public buildings like hospitals, agricultural facilities that obviously are critical to their economies and therefore continue to operate through difficult times. Fundamentally, we start with the concept of creditworthy counterparties. Our portfolio assets, SEIT's portfolio assets, comprise project companies that provide a service, a critical service to those creditworthy customers. They happen to be contracted under an energy as a service agreement or a power purchase agreement. Fundamentally, their obligation or their objective to their customers is to provide reliable, low-cost, energy-efficient services to customers. It might be power, cooling, heating, lighting, but all under a project contract.

Jonathan Maxwell
Founding Partner and CEO at SDCL

In return for providing that service, we get contracted revenue streams and each of our projects, no matter what it looks like, whatever the industry, fundamentally follows this principle. Other principles that we look for, just to remind everybody, we do not like unmitigated exposure to merchant power prices within the construct of this portfolio. It is designed, with the objective to have no unmitigated exposure to merchant power prices. I am pleased to say, that is currently how it is positioned. We have wanted to have positive inflation linkage, particularly as this decade has unfolded in a more inflationary environment than the last decade. We have taken steps to improve that positive inflation linkage. We are also very focused on commercial solutions that do not depend on subsidies.

Jonathan Maxwell
Founding Partner and CEO at SDCL

This is an extremely important point to make while, for example, the US policy environment is far less certain or, I'll go further, far less supportive of clean energy, projects going forward. The projects that we invest in are designed to stand on their own two feet to deliver lower cost, lower carbon, more reliable energy services even than the grid. We are deliberately targeting, and preferring investments that do not require subsidy. On that note, to talk about the investments that we have made in the past and how we're looking to improve those and the progress we're making along the road, I'd like to introduce Ben Griffiths, one of the fund managers of SEIT, and who's been with the portfolio for a long time, squeezing its juice. Please, Ben, over to you.

Ben Griffiths
Managing Director of Fund Management at SDCL

Thank you.

Ben Griffiths
Managing Director of Fund Management at SDCL

Look, I'm very happy to start by saying that the portfolio is performing. Our portfolio of energy efficiency projects. First, before getting into that, what I wanted to do was just cover off what we mean by energy efficiency. Essentially, putting it simply, it's taking less input to deliver the same or more output. In doing so, it's delivering cleaner, cheaper, and more reliable energy direct to our customers. In doing so, why do we do this? It's trying to address the energy industry's biggest, dirtiest secret, which is that the majority of energy is lost before or at the point of use. How do we do that? We like to think about our portfolio in two different categories. First of all, we've got our energy generators and, second of all, energy savers.

Ben Griffiths
Managing Director of Fund Management at SDCL

To start with energy generators, we've got some examples here in the top box, but this is, put simply, bringing the point of generation direct to the point of use. Delivering energy direct to customers. I'll come back to these examples in more detail a bit later. To cover off in terms of energy savers, this is very simply reducing the amount of energy that our customers need to use. A couple of examples here in the bottom box: we have FES, who install high-efficiency LED lighting across lots of commercial and industrial customers in the U.S., and also Sparkfund, high-efficiency heating, ventilation, air conditioning systems also in the U.S. across commercial and industrial customers. I said I'll come back to the energy generators. That is predominantly because they represent about 80% of our portfolio by value.

Ben Griffiths
Managing Director of Fund Management at SDCL

Just to kind of go into a little bit more detail here, here's an outline of their operational performance. As you can see, there's operational performance in line with expectations. This is our portfolio of diversified projects, both in terms of geography, technology, and the industries that we serve. We're really happy to see this performance. One thing I really wanted to focus on on this slide is the work that we do with our local management teams. We're very actively involved and engaged with the local management teams with various NAV growth initiatives. In the year, in the reporting period, we've delivered about GBP 20 million worth of asset value through all these various initiatives, which is in line with the expectations that we outlined about a year ago. We also think that there's more to come.

Ben Griffiths
Managing Director of Fund Management at SDCL

There's upwards of GBP 150 million worth of potential that we think that we can deliver over the coming years. That's very much what we're going to be focused on going forwards. To go into a few project specifics and to start with Onyx Renewables. Onyx is one of the largest and fastest growing solar and storage behind the meter platforms in the U.S. They have a very diversified footprint across the nation in the U.S. They have operational sites in 14 states. They're developing projects in 35 U.S. states. This is one of the projects that we spend a huge amount of time with in terms of active engagement. We're really happy to see their positive results in the year. They've set all sorts of company records.

Ben Griffiths
Managing Director of Fund Management at SDCL

Just to name but a few, they have set records for the number of new customers that they've signed up. They've also set records for the number of sites that they've started installation on as well. They've also, the other examples, they've tripled the rate of projects being completed in terms of installation. They've also reduced the delivery time of projects by about 40% compared to the previous year. Huge significant progress from the team there. One thing not mentioned on the slide is the policy landscape in the U.S., which we're clearly very focused on given all the recent news. In the short term, we're confident that these risks, any risks that these introduce, are mitigated through secure tax equity financing, but also secure project contracts as well.

Ben Griffiths
Managing Director of Fund Management at SDCL

Looking ahead, we think there's suitable opportunity and flexibility within our project structuring to be able to mitigate and manage these risks going forwards in the medium to the long term. Largely, Jonathan alluded to it a bit earlier, but Onyx has also closed a $260 million financing facility, which will look to fund their growth going forward. We're very pleased with that, and it's another feather in their cap and a show of confidence to Onyx and what that company is doing. Moving on to Stockholm and Driva, which owns the gas network in the city of Stockholm in Sweden. The great thing, the unique thing about this gas network is it's mostly biogas.

Ben Griffiths
Managing Director of Fund Management at SDCL

and it's biogas generated from local wastewater plants that are connected into the grid, and we distribute and deliver that biogas to around 50,000 customers within the city and the surrounding area. The project's been performing consistently, but also at the same time, they have been improving their environmental performance. In the last year, they've reduced their methane emissions by about 7%, which is fantastic to see. they're also progressing various capital projects as well. One project that we're working on, the team's working on is the SodaTurn Connection project. Once that's delivered later this year, by the end of this year, that will see gas volumes increasing on the grid as well.

Ben Griffiths
Managing Director of Fund Management at SDCL

I mentioned at the interim results about a key focus of the company going forwards in relation to energy as a service and effectively diversifying what the company's doing and what projects they're offering the customers and what services they're offering the customers. They've had some initial success there in terms of the signature of the first few contracts with solar as a service and also bus electrification, which is really good to see. This will very much be a continued focus going forwards. Moving on to RED-Rochester, which is located on one of the largest district energy sites, business parks in North America. RED or Recycled Energy, it delivers about 17 different utilities to around 120 different customers over a vast 1,200 acre site just outside of Rochester.

Ben Griffiths
Managing Director of Fund Management at SDCL

At the interim results, I mentioned that there've been some underperformance due to, predominantly due to lower customer demand. That's very much reflected in the end of year results, albeit there was some recovery in the second half of the year through management initiatives, which was good to see. Also, what I wanted to highlight was that so far in 2025, the performance has been good and ahead of expectations. One thing that's come out of 2024 is increased conversations with the customers to understand their needs, to understand their demands. That's a very much positive learning for the management. Also, we've been progressing the tariff amendment discussions with the customers. Whilst we haven't concluded those yet, we're focused on doing so in the coming months.

Ben Griffiths
Managing Director of Fund Management at SDCL

but also we're expecting that to be a good foundation for future growth partnerships with our customers going forwards. One thing not mentioned on the slides is Lifecycle, which is an existing customer of RED-Rochester. They're going through a public bankruptcy and sales process at the moment. We're very actively engaged in that process and with various stakeholders. Whilst we're clearly hoping for a positive outcome of that, even if Lifecycle or future owners don't use our power, we're very confident of being able to sell that power to other customers, either existing or new to the business park. On that note, just in terms of that power, really happy to report that the team at RED-Rochester have been successful in delivering the Cogen Project. They have brought that to commercial operations, both on program and on budget, which is fantastic to see.

Ben Griffiths
Managing Director of Fund Management at SDCL

We're already seeing the energy efficiency benefits of that project. Moving on to SEIT, Oliver, this is one of my personal favorites. We have a portfolio of onsite energy generation assets that serves Spain's olive country. We have a portfolio of cogeneration assets and we utilize residual waste from the olive industry, combine those together and we create sustainable, sustainable heat energy that we deliver back to the olive oil manufacturers. It's a fantastic solution. We have seen results slightly ahead of budget, which is great, and largely I put that down to the experienced team that we have in Spain. We have an experienced team dealing with things like feedstock procurement and energy procurement and optimizing performance under the updated RORi regime, which that benefits from.

Ben Griffiths
Managing Director of Fund Management at SDCL

In the period, there was an update to that, to that regime, and that has improved the visibility and the transparency and reliability of that scheme. The team are very much focused going forwards on optimizing our approach under that RORi. One thing not mentioned, but in addition to that, we are also looking at lots of strategic plans for this project. We have a lot of assets there, both in terms of the actual assets on the ground, but also the infrastructure, things like the grid connections, the gas connections, and also the experienced team there. We have got lots of expertise that can be put to other use. We are looking to combine all those things, leverage that, and look at different options about how we can extend the life of that project past the regulatory life. Last, but by no means least, is Primary Energy.

Ben Griffiths
Managing Director of Fund Management at SDCL

Primary Energy is located in Indiana, and Indiana is the home to some of the most important steel mills in North America. What Primary Energy does is decarbonize the hard-to-abate steel industry. As an engineer, this is one of my personal favorites in terms of the solution that we're providing to the customer. Normally, steel mills emit their waste gases to the atmosphere. We do not here, we capture those, we convert them back into energy in the form of heat and power, and we deliver that back to the steel mills for them to use. It is a really fantastic solution. The business continues its really strong performance. One thing I really wanted to highlight here, a great success story is their progress in terms of accretive projects and initiatives.

Ben Griffiths
Managing Director of Fund Management at SDCL

Since the reporting period, they've also been successful in delivering additional renewable accreditation at one of the main sites and increasing the capacity there. Why do we care about that? Fundamentally, it increases the revenues of that site by $2 million-$3 million per year for zero cost. It is straight to the bottom line, pure profit. A great result by the team there, and we're looking to do more on that front. We've also, in the year, refinanced that business. We've renewed one of the major contracts for one of the projects, and we're looking to renew another contract in the coming months on one of the other projects in the portfolio as well. Also, very recent news just to finish on, but we're very happy to see the acquisition of U.S. Steel by Nippon Steel conclude last week.

Ben Griffiths
Managing Director of Fund Management at SDCL

That will instantly bolster the creditworthiness of one of our key customers at that site. We also believe it involves $11 billion of investment going forward into their steel mills, which we hope to unfold growth opportunities for Primary Energy going forward. Just to sum up, we've got a heavily diversified portfolio that is performing. It's that performance which is driving the cash generation that pays our dividends. Going forward, we'll remain laser-focused on our growth initiatives to deliver that NAV growth across the portfolio. With that, I'll hand over to Eugene Kinghorn, our Group CFO, to talk about the financial highlights of the company.

Eugene Kinghorn
Group CFO of Group Finance at SDCL

Thank you, Ben. The company's NAV has been stable at GBP 0.906 per share at March 2025, just marginally up from GBP 0.905 at March 2024.

Eugene Kinghorn
Group CFO of Group Finance at SDCL

Our earnings of GBP 0.064 covered the dividends paid of GBP 0.063. Our NAV total return for the year was 7.1%. We have covered our dividends with cash every year since IPO. On this slide, we demonstrate the resilience in our portfolio cash flows, including the significant level of amortization at project level. Our cash flows of GBP 97 million are up approximately 45% year on year. From those cash flows, we pay all of the company's expenses as well as the financing costs related to the RCF. This delivered the one-time cash cover for this year. As alluded to earlier, we're confident in returning to 1.2 times in future years. The weighted average discount rate only had small movements in the year, up at 9.6% from 9.4% a year ago. The increases in risk-free rates were materially absorbed by asset-specific risk premium decreases.

Eugene Kinghorn
Group CFO of Group Finance at SDCL

As a manager, we also run a scenario in which we maintain project-level gearing at 35% rather than the amortizing debt in the current portfolio. This implies a gross return of circa 11%. Profit after tax for the year was GBP 70 million. This reflects the stable valuation underpinned by the operational performance that Ben described. The balance sheet remained stable with limited change to the company's net assets of around GBP 980 million. Investments at fair value of around GBP 1.2 billion was also supported at March 2025 by a third-party independent valuation covering all of the largest assets, that is approximately 80% of the portfolio. From a cash flow perspective, as discussed, the cash from investments of GBP 97 million was in line with our expectations and supports that strong record of cash-covered dividends.

Eugene Kinghorn
Group CFO of Group Finance at SDCL

The disposal proceeds earlier in the year were used to repay the RCF, and subsequent drawings were used to fund Onyx, mainly Onyx, as well as EVM. Overall, we are pleased with the financial performance despite the challenging macro backdrop. We maintained our focus on growth to deliver higher NAV, increase in cash generation, and increase in EBITDA. With that, I'd like to hand it over to Tamsin Jordan.

Tamsin Jordan
Director of Fund Management at SDCL

Thank you. Hi. I'm going to start with some of our strategies to address the discount. We remain focused with our priorities on releasing liquidity and reducing debt and, of course, supporting the value of the portfolio, but that's not all we've been doing.

Tamsin Jordan
Director of Fund Management at SDCL

On the left-hand side of the screen, you can see some dark blue boxes that are what I like to think of as the sort of business as usual, the ongoing workflows that we are focused on all the time. Then on the right-hand side of the screen, there is the sort of more strategic, events and activities that we are working on. If we start on the top left, positioning for growth, you can think of that in sort of two buckets. The first is the, are the projects that do not need significant capital investment. That is very much about active management, Ben and his team working really closely with the management teams throughout the portfolio. Then the second bucket within that is the strategic CapEx investments, such as the new Cogen facility at RED-Rochester or, you know, the development pipeline for Onyx.

Tamsin Jordan
Director of Fund Management at SDCL

The next box on the left is the capital allocations policy. I think the key point to note there is that the significant amount that we have invested during the financial year, that's all been done at a significant return hurdle. We're looking at mid-teens return hurdle. As noted previously, this has been very much a focus on investing, but thanks to the project financing that we've announced at Onyx, that is going to be less of a focus going forward, and we're going to be looking much more at realizing the returns of the investment we've already put in. In terms of supporting the liquidity and marketability of the shares, that's something we've worked really, really hard at, and I think we've had quite a lot of success.

Tamsin Jordan
Director of Fund Management at SDCL

We've brought in quite a lot of new shareholders into the register, both in the U.S. and here, so we've seen quite a significant rotation. We've also done quite well at supporting the liquidity of the shares. Just as a data point, the average daily trading volume over a period of a whole year today compared to a year ago is up about 40%. That is quite a lot of momentum. It's speeding up. If you look at just one month average, it's up four times multiple over the year. That is something we've worked really hard on. Moving over to the more strategic updates.

Tamsin Jordan
Director of Fund Management at SDCL

The first two boxes are both about debt, and I'm going to talk about that a little bit more on the next slide anyway, but I just want to point out that we are still very focused on reducing our RCF, the company-level, short-term debt. We've got two main methods to do that. Of course, one is disposals, and that's the way that we will have the biggest impact on the RCF level, but it's not our only approach. We're also using project-level finance that is very amortizing to try and move debt downstairs. As we've already mentioned, we managed to refinance the RCF with quite some success. We've got competitive rates, and there's also the interest rate caps. That means we've mitigated for both interest rate and refinancing risk there over the next few years.

Tamsin Jordan
Director of Fund Management at SDCL

In terms of the project-level financing, we've put in a few over the last few months, and we've also got some more announcements to come. I think the most important of those is obviously the Onyx level financing that has meant that they are for the foreseeable able to self-fund, which is really important for us. Finally, moving on to the disposals, clearly it's some time ago now, but early in the financial year, we did make a big disposal at a small profit of UU Solar, and that was used to pay down the RCF at the time. Since then, the main focus for the team has been on the Onyx disposal process. To give a bit of an update, back in autumn of last year, that's when we launched an advisor-led process, which received multiple bids.

Tamsin Jordan
Director of Fund Management at SDCL

The most acceptable of those bids were taken through to a second round of the process in Q1 of this year. Unfortunately, the week that the tariff announcements came out in the U.S. was the same week that we were expecting to receive final concrete bids. Given the uncertainty that those announcements brought into the market and the difficulties to value a construction pipeline, the relevant parties were unable to make concrete bids at that time. However, we are continuing to work on the process, so we are having private negotiations now in order to sell parts of Onyx, and we're very focused on equity partnerships and on the operational assets within the portfolio. Coming back to debt, the portfolio is at the end of 31 March. It was 34% total debt as a percentage of enterprise value.

Tamsin Jordan
Director of Fund Management at SDCL

You can think of that as an LTV basis. The gearing, we are within the gearing limits of the portfolio, although up towards the top end of it. It's important to note that relative to our peers, those gearing limits are fairly low, and we do have a really clear plan to reduce it. What is that plan? Amortizing debt at the project level, we are using that to pay down the RCF incrementally, allowing that to run off and thereby in time reducing debt in the portfolio. Of course, disposals as well will serve to meaningfully reduce that further. Just some data points to put it into context, of our structural debt, it's currently 64% of it is amortizing and over a relatively short time.

Tamsin Jordan
Director of Fund Management at SDCL

During the period of the year, we've paid down GBP 33 million of structural debt payments, so it's significant amounts. We've got a competitive 5.7% average interest rate across not just the structural debt, but also that includes the RCF. Of the structural debt, 67% of it is at a fixed rate, which means we've got relatively low exposure to interest rates within that. While we are focused on disposals, we do have a plan in place to reduce it over time wherever possible. Strategic considerations, we are very focused as well as on disposals, but also on returning capital to shareholders. Whilst this portfolio has performed well, the share price has not. The current discount is completely unacceptable, so we are all focused on what to do about it. Our objectives are threefold: releasing liquidity for shareholders, reducing gearing, and also substantiating our valuations.

Tamsin Jordan
Director of Fund Management at SDCL

With that in mind, the board and we, the manager, are incredibly focused on all strategic options. That does include disposals and buybacks, but there are other options on the table as well. Everything we are looking at is taken to be conditional on achieving shareholder value, so the best interests of shareholders. To put that into a little bit of context, whilst there is better value available in the private markets for infrastructure investments, it is better than the public markets, it is still a bad time to sell assets. There has been significantly weaker deal activity than historically. It is down 6% year on year for renewables, but actually 21% for the broader industrial sector. That means that we are seeing longer time to complete transactions as well as fewer buyers available, and that translates into lower offers. The policy environment has a significant amount of uncertainty.

Tamsin Jordan
Director of Fund Management at SDCL

There are serious challenges to the public sentiment for renewables, particularly in the U.S. at the moment where we have significant exposure. Valuations are depressed. That's mostly because of the increased risk premiums that we need to apply to our valuations, and that translates into lower acquisition offers. Finally, cost uncertainty, cost and supply chain uncertainty. It becomes very difficult to value and project the future cash flows of a project with that degree of uncertainty. We are trying to be particularly innovative in our approach to release liquidity from the portfolio. We have teams in the U.S. and U.K. working really hard on that, and we do expect to have success, but it may not look like a traditional disposal.

Tamsin Jordan
Director of Fund Management at SDCL

We're looking forward to seeing many of you over the next coming weeks as part of our roadshow, and we're really keen to hear about your objectives and your opinions because that feeds into our conversations about strategic next steps. Back to Jonathan.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Thank you, Tamsin, and I think it's also important for us to say thank you to shareholders and thank you to the board of SEIT as well. I think this presentation is designed to illustrate some of the strengths of the company. The strengths of SEIT is that it has scale and diversification. There's GBP 1.6 billion infrastructure portfolio, about GBP 1 billion worth of net asset value, about GBP 600 million worth of debt.

Jonathan Maxwell
Founding Partner and CEO at SDCL

It's generating about GBP 100 million a year in cash inflows, and it's a very big company from a diversification perspective too, operating in 10 countries, although the United States is the largest of those, and some of the best markets in continental Europe. The second major strength is the net asset value, which has held up well over the course of the last year. Thank you to Eugene's commentary there and also to recognize the level of independent valuation that's been conducted this year. The third strength, major strength, is the dividend. The dividend has been covered and growing progressively since IPO, notwithstanding some of the financial constraints that the company has been under over the last year and its obligation to protect shareholder value. Therefore, the investment that we've made over the course of the last year, we've still covered our dividends and intend to continue to do so.

Jonathan Maxwell
Founding Partner and CEO at SDCL

We have a progressive dividend policy that we are maintaining going forward. From a total returns perspective, we have obviously been focused on the continuing operations of the portfolio. Tamsin, thank you for pointing out the capital allocation policy of the company. We continue to experience robust operational performance, which has underpinned the net asset value. It is thanks also to Ben and his broader team on hands-on portfolio management, which has helped to secure and then to grow the prospects for cash flow and EBITDA going forward.

Jonathan Maxwell
Founding Partner and CEO at SDCL

I think the last point, but probably the most important one for us to consider in terms of strategic direction, is making sure that we can support share price total return, you know, as well as net asset value total return, you know, and hence, you know, our very strong consideration for certainly all of the tactical measures that we can do to support price, and also thinking through strategic options to do so in the future. I just wanted to conclude with my thanks to the management team, thanks to the board, thanks most of all to shareholders, and open up to questions. I think your hand was up quicker, sir. Is there a microphone?

Tamsin Jordan
Director of Fund Management at SDCL

Yes.

Tamsin Jordan
Director of Fund Management at SDCL

Hi, morning. We're writing, Steve. I have three, please. First one is, what's driving that dividend cover forecast increase to 1.1-1.2 times?

Tamsin Jordan
Director of Fund Management at SDCL

Is that based on debt materially decreasing or is that based on increased revenue going forward?

Jonathan Maxwell
Founding Partner and CEO at SDCL

You're right to point out that we do have amortizing debt and we are taking steps to reduce leverage. On a steady state perspective, we've made some pretty substantial investments over the course of the last one or two periods. These investments obviously are designed to translate from construction into operation, two examples of which would be the EBITDA and prospectively cash contribution that we could expect to see from investments made at RED-Rochester during the last financial year, which are designed to translate into cash and EBITDA in future periods.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Just to unpack that just a bit, just in case it seems obvious to me, you know, if we're investing in a major project to create 35 MW of new power, the cash goes out last year and of course the return on investment that shows up in future periods is a pretty substantial investment, notwithstanding that we covered our dividend. Another example of that would be the support that we've made to Onyx, which we're delighted with. Thank you, Tamsin, for your comment there. You know, I think Onyx is one of the best companies of its kind in America. We're fully behind it. There are definitely ways of helping to, you know, release growth as well as liquidity for shareholders going forward. Investments we've made in Onyx in prior periods will deliver results as assets come out of construction. So those are two examples.

Jonathan Maxwell
Founding Partner and CEO at SDCL

There are other minor ones across the portfolio or less significant ones.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Sure, thanks. Second one, are you able to give any color on what assets in particular you're looking at to add project level financing to?

Jonathan Maxwell
Founding Partner and CEO at SDCL

Can I hand over to Eugene?

Eugene Kinghorn
Group CFO of Group Finance at SDCL

In terms of project level financing, the post-balance sheet event was, it was Onyx refinancing. I think it was referred to earlier. We have put a statement into the annual report to say at or around this date we will, we look to conclude a financing for the electrical vehicle charging. That's our asset code called Zood. That has concluded. I'm pleased to announce that that has also happened. Those were the nearer term ones.

Eugene Kinghorn
Group CFO of Group Finance at SDCL

We are looking at opportunities which will come in H2, later this year, around the rest of the portfolio, predominantly a larger opportunity in the U.S. for us to refinance.

Eugene Kinghorn
Group CFO of Group Finance at SDCL

Thank you. Lastly, do you have a rough idea of what Onyx yields or, another way of putting it, what would be the impact on dividend cover if you sold Onyx or a chunk of Onyx?

Jonathan Maxwell
Founding Partner and CEO at SDCL

I think I am going to have to stick to what we have disclosed in the annual report and accounts, but happy to pick up with you separately to see how we can take public information and translate that into an answer to your question.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Thank you.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Thank you for the presentation. Kind of following on from one of the questions, it looks like your cash flow projection includes refinancing proceeds.

Jonathan Maxwell
Founding Partner and CEO at SDCL

If I look at the shape of it, is it mainly impacting the next year out of that bar chart? The second question, just on talking about potentially inviting more co-investors into your different assets other than Onyx, which other opportunities are you seeing in your portfolio?

Jonathan Maxwell
Founding Partner and CEO at SDCL

Sure, I'm happy to pick up the second half of that question.

Eugene Kinghorn
Group CFO of Group Finance at SDCL

Yeah, Fiona, I'll quickly answer the first one. The long-term cash flow chart that we show, that's operational cash flow. It doesn't include the refinancing proceeds.

Eugene Kinghorn
Group CFO of Group Finance at SDCL

Okay, thank you.

Jonathan Maxwell
Founding Partner and CEO at SDCL

On the second half of the question, I think major, major advance this year on Onyx has been to put it onto a footing where it can self-finance.

Jonathan Maxwell
Founding Partner and CEO at SDCL

As I said, and just to repeat, you know, we are delighted with the object, you know, the outcomes that we've been able to achieve over the last couple of years with Onyx, which, you know, is testament to the hard work of the SEIT management team, but also the on-the-ground management team inside of Onyx. We are open, to, introducing equity capital partners to support the growth of that business. We already have a freshly refinanced debt facility, but to the extent that we can help grow the business with equity, we're in active dialogue. We've made an announcement to that degree. I think there are other opportunities across the portfolio too, where there's opportunities to keep, going and growing and perhaps further faster with some of our portfolio assets.

Jonathan Maxwell
Founding Partner and CEO at SDCL

There are also opportunities to introduce equity capital partners in attractive EBITDA generative and sort of cash flow generative assets. We are certainly looking at opportunities in one or two of our major opportunities, projects in America, as well as potentially within the context of some of our European assets. Some of our European assets contain onsite generation that is operational and yielding. You know, there may be opportunities to introduce capital partners there. We are in active dialogue across the portfolio. I noticed one of the analyst comments this morning referencing, you know, sort of our willingness to introduce capital partners or potentially achieve disposals. We are happy and willing to do both of those things, where it preserves shareholder value and obviously, where we can get the right outcomes.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Thank you.

Tamsin Jordan
Director of Fund Management at SDCL

If there is no, oh, there is one.

Tamsin Jordan
Director of Fund Management at SDCL

Just a question on capital policy. You say that you test your continued investment against buying back your own stock. I guess paying back debt does not ever come up and meet that investment hurdle, I guess. Or is that something you would consider as more aggressive deleveraging or does it just not reach the investment hurdle?

Jonathan Maxwell
Founding Partner and CEO at SDCL

Paying back debt is probably the, if I may be so bold as to say, you know, in the short run is our first use of proceeds for disposals. We have been, and we will continue to, you know, hopefully we will have some good news to report on this shortly as well, but we are continuing to look at opportunities to introduce capital efficiency into the portfolio. Just to sort of explain what we mean by that.

Jonathan Maxwell
Founding Partner and CEO at SDCL

If we can secure longer term and cost effective financing at portfolio company level, that itself produces a cash flow which can help to refinance some of our RCF, which is shorter term and perhaps less cost effective. Using even refinancing at portfolio company level as a source of proceeds to use to refi, to reduce, revolving credit facility gearing at Topco is something we're actively doing and pursuing. The second route is to Tamsin's point, our project level financing naturally amortizes. It's a really important point because the 9.6% IRR or discount rate that we quote assumes a continuing amortization. If we were keeping our leverage constant, sir, and not using cash flows from our underlying portfolio to amortize debt, then our IRR quoted would be 11% plus, as Eugene has stated. Of course, beyond that, there's then disposals, cash disposals.

Jonathan Maxwell
Founding Partner and CEO at SDCL

We made a disposal, that we completed, in May last year of the United Utilities portfolio. It is a pretty big one, GBP 100 million. It created at least a temporary acknowledgement by the capital markets before that share price bump disappeared shortly afterwards. The use of proceeds, if you might recall, was entirely to repay revolving credit facilities. The last point I will make is if we do get to the point where we can release enough cash from recycling, bringing in capital partners or even perhaps making disposals, then, you know, we would also like to see the opportunity taken to acquire shares. This is obviously the board's ultimate decision, but, you know, we would be, you know, we would have the appetite, if you like, as a manager to buy back shares in the market because it is a tremendous deal.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Thanks.

Tamsin Jordan
Director of Fund Management at SDCL

I know we've got a number of questions coming in already, but as a reminder to participants, you can ask questions in the written format on your webcast page by clicking the ask a question button. We're going to pause for a moment while the list is assembled and we work our way through the queue. There's someone in the room who will ask the question on your behalf to the team.

Operator

Shall I start?

Tamsin Jordan
Director of Fund Management at SDCL

Yeah. Great.

Operator

Yeah. Yeah, it's a couple of questions from Markuz Jaffe at Peel Hunt. First one is, what would FY2025 dividend cover have been if based only on cash flows generated by recurring earnings, EBITDA? And is there any specific reason why the illustrative net cash flow shown on presentation slide seven is including refinancing proceeds? Which years are you assuming refinancing proceeds?

Jonathan Maxwell
Founding Partner and CEO at SDCL

I'm going to hand that question across to Eugene.

Eugene Kinghorn
Group CFO of Group Finance at SDCL

For the first part of that question, assuming that I understood that question correctly, look, the dividend cash cover would have been closer to 1.2 times if you'd also exclude the revolving credit facility financing costs. On the illustrative cash flow, I think Fiona asked the same question, so I'll repeat that the refinancing proceeds are not included. This is operational cash flow and our long-term projections for operational cash cover for dividends paid on a progressive basis.

Operator

Okay. The second one was, have there been any changes to the senior management team members responsible for managing SEIT?

Jonathan Maxwell
Founding Partner and CEO at SDCL

No, substantially. Having said that, over the years, Ben Griffiths has stepped forward from a long-term asset management role into a fund management role.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Tamsin was thrilled to have Tamsin on board over the last couple of years, and she has stepped up into a much greater level of fund management responsibility at the same time as managing our investor relations. We very much look forward to welcoming back Purvi Sapre, who we congratulate on her maternity. And, yeah, just looking forward to that. I think other than that, SDCL's management team has grown very substantially since IPO. And, last point I'll make is we're very comfortable and happy with the changes that we've made to the underlying project company management, where we've got, I think, real strength and leadership. And that's showing through, I think, in some of the results already.

Operator

Okay. Another one from Colette Ord at Deutsche Bank Numis.

Operator

I wanted to understand a comment you made on Onyx valuation with 80% ascribed to the operational and development assets, implying 20% ascribed to platform value. Isn't this wider than you were factoring in during the formal sale process? Just trying to understand that logic, given I assume it was the platform value that was the sticking point in the sales process, or am I missing something?

Jonathan Maxwell
Founding Partner and CEO at SDCL

I have to say, I'm going to refer to Eugene, but maybe Collect and we can pick this up separately. I think we did, on the announcement that we made a couple of weeks ago, I think we had a lower number attributed to the platform or growth.

Tamsin Jordan
Director of Fund Management at SDCL

Up to 15%.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Up to 15%. So Colette, perhaps I could just try and reconcile the 80/20 number that you've given.

Jonathan Maxwell
Founding Partner and CEO at SDCL

When you say it's wider, you know, candidly, you know, this is the way that we would look from a valuation perspective under audit and under the, under at a particular point in time and with the scrutiny of independent valuation at this net asset value. You know, frankly, I'm hoping that is going to be much better recognized over the long, over the medium to long term in the marketplace. I think the answer to your question is technically that the net asset carrying value from a net asset value perspective is actually narrower than that 20% number that you're applying. I'm not going to go in public record and suggest that that relates to the actual prospects for the company, that it's narrower. I, of course, my job is to make sure that it continues going and growing and it should be bigger.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Over to you, Eugene.

Eugene Kinghorn
Group CFO of Group Finance at SDCL

No, I've got nothing to add. That's all good.

Operator

Thank you. A couple of Conor Finn at Barclays. How much does Lifecycle represent as a proportion of, sorry, how much does Lifecycle represent as a proportion of revenues currently at RED-Rochester?

Jonathan Maxwell
Founding Partner and CEO at SDCL

Eugene, do you want to pick that one up again with reference to what we've been able to disclose publicly?

Eugene Kinghorn
Group CFO of Group Finance at SDCL

Yeah, just, perhaps just to clarify that, Lifecycle is not currently contributing to the FY2025 revenue because the construction of their own hub, which has been on pause, as we have noted. It is, and I'll refer to what Ben discussed earlier. It is a customer from which we expected to generate future revenue.

Eugene Kinghorn
Group CFO of Group Finance at SDCL

In the absence of Lifecycle, we are able to sell the electricity that we generate from the cogeneration plant to a replacement owner of their facilities and/or future customers on the park.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Just to sort of translate that, I think the basic answer is none, in terms of 2024 numbers on 2025 years to date. We have, as Ben noted, having said that, built a, what we think is a very valuable power source. We will look forward to getting that, to selling that power to the right customer going forward. In the meantime, we have actually achieved efficiency gains by using the cogeneration system. We are enjoying the benefit of that during this current financial year, 2025. I think the basic answer to the question is we see that as very substantive upside to cash flow and EBITDA going forward.

Jonathan Maxwell
Founding Partner and CEO at SDCL

but it's not represented in the look back in the rearview mirror. This should be good news for shareholders going forward.

Operator

Sorry, another one from, from Conor. Can you quantify what changes have you made to assumptions on Onyx's development pipeline over the period to 2030?

Jonathan Maxwell
Founding Partner and CEO at SDCL

I just refer you back to the number that we gave. I think 15% of the value of Onyx has been attributed to that sort of thing. The rest of it is to do with the assets under continuing, sorry, existing operational assets and assets actually under construction right now. I think the first point to make is to contextualize, the value that we place on that pipeline is at around that level compared to the EV that we've quoted.

Jonathan Maxwell
Founding Partner and CEO at SDCL

You know, I do think that, I'm going to make one reference to policy, if you don't mind me addressing that head on, which is that current evaluation of construction costs in the U.S., given the existing tariff regime and also international trading and sourcing of materials, is obviously an area that we're looking at very carefully. Other features that we are certainly not complacent about are the prospects for continuing investment tax credits going forward. Perhaps, the lower element compared to, for example, other types of market incentives being, historically been very, you know, very much promoted by the U.S. administration and now very much not. I think one of the, one of the attractions, having said that, of backing a company like Onyx, as opposed, for example, to more mainstream renewable power sources, is that Onyx delivers onsite energy solutions to customers.

Jonathan Maxwell
Founding Partner and CEO at SDCL

They're designed to have the benefit of delivering cost-effective, low-carbon, and reliable onsite energy systems. Therefore, they have far greater resilience to policy headwinds than many other markets. The general trading environment for energy prices, and particularly electricity prices in America, has been going up and it's continued. If you're asking me to sort of project forward to 2030, I think I'm more comfortable projecting that decentralized and efficient energy services are going to continue to be valuable going forward because companies like Onyx can deliver power to their customers that's lower cost, more reliable, and lower carbon than the grid.

Operator

On a sort of similar theme, another question here.

Operator

Given the market bids that you receive for Onyx, is it expected that the valuation for Onyx will have to be updated accordingly, whether driven by the auditor or not, to reflect such bid levels?

Jonathan Maxwell
Founding Partner and CEO at SDCL

I think we have just completed a pretty extensive process associated with that, with our independent valuation advisors, with our auditors, with our board. I do think that the value at which we're carrying Onyx reflects the market conditions right now. In future periods, I would very much hope to see the value reflecting on its potential as a company. Just to sort of reiterate, you know, it's an extremely important and valuable component of our portfolio and we think a great source of total return for SEIT going forward.

Operator

Okay.

Operator

On the sale of, you've referenced the sale of UU Solar at a modest premium to NAV. Can you please confirm what the sale prices look like versus original investment cost?

Jonathan Maxwell
Founding Partner and CEO at SDCL

This was the, I think this was documented a year ago. I do think we've got something out there in the public domain. I think it was short stories. I think we described it as a small profit to original investment cost, as well as a small increase in net asset value. I'm just looking at my colleagues here because you're testing my reasonably okay memory. I know we've also gone in writing about that as well.

Ben Griffiths
Managing Director of Fund Management at SDCL

Yeah, it was a small profit when you calculate, also the distributions, if you account for the distributions that we took whilst under our ownership, those distributions and the sale proceeds that we got was a small profit to the capital, the original capital investment.

Jonathan Maxwell
Founding Partner and CEO at SDCL

That was notwithstanding a very substantial increase in portfolio discount rates.

Tamsin Jordan
Director of Fund Management at SDCL

Yeah. We have come to the end of the time allocated. We do have some more questions outstanding. Perhaps we can pick some of those up directly and get back to you individually as opposed to running over too much. I know you have all got the rest of your day outstanding. I would like to thank you all for your attendance, both in person and online. We look forward to seeing many of you over the coming weeks.

Jonathan Maxwell
Founding Partner and CEO at SDCL

Thank you very much.

Eugene Kinghorn
Group CFO of Group Finance at SDCL

Thank you.

Analysts
    • Jonathan Maxwell
      Founding Partner and CEO at SDCL
    • Analyst 1
    • Tamsin Jordan
      Director of Fund Management at SDCL
    • Ben Griffiths
      Managing Director of Fund Management at SDCL
    • Eugene Kinghorn
      Group CFO of Group Finance at SDCL
    • Analyst 3
    • Analyst 2
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