Sequoia Economic Infrastructure H2 2026 Earnings Call Transcript

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Provided by Quartr
June 11, 2026

Key Takeaways

  • Positive Sentiment: FY2026 performance was solid, with NAV total return of 8.4% and NAV per share rising to GBP 93.17, supported by interest income and stable loan valuations. EPS increased to GBP 0.0683 from GBP 0.0504 last year.
  • Positive Sentiment: Dividend cover improved to 1.06x from 1.0x, while the board said the current dividend can and will be maintained. The dividend remained unchanged at GBP 0.06875 per share, implying a current yield of about 8.4%.
  • Positive Sentiment: Portfolio credit quality remained resilient, with non-performing loans falling to 0.3% of NAV from 1.0% last year. Management emphasized low valuation risk because most assets are performing loans with monthly independent valuation review by PwC.
  • Positive Sentiment: Share buybacks continued to be a major support, with 75.3 million shares repurchased during the year and 288.5 million bought since July 2022. The program was described as accretive, adding 0.0074 to NAV per share in the year.
  • Neutral Sentiment: Management is considering an investment policy expansion to add more eligible jurisdictions, especially in Asia-Pacific, subject to shareholder approval and FCA consent. The company said this would broaden opportunity and diversification without loosening underwriting standards.
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Earnings Conference Call
Sequoia Economic Infrastructure H2 2026
00:00 / 00:00

Transcript Sections

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Moderator

Good morning, ladies and gentlemen. Welcome to the Sequoia Economic Infrastructure Income Fund Limited investor presentation. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and will publish our responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, we would just like to submit the following poll, if you could give that your kind attention, I'm sure the company would be most grateful. I'd now like to hand you over to the team from SEQI. Randy, good morning, sir.

Randall Sandstrom
CEO and CIO at SEQI

Good morning, everybody. Welcome to the fiscal year 2026 results call for SEQI. This will cover the period of April 1, 2025 through March 31, 2026. I'm Randall Sandstrom, I'm joined this morning by Steve Cook and Matt Dimond. If we turn just right to page one and go to the introduction, SEQI is a platform with scale that's been proven through the cycles, we have an 11-plus year track record of meeting dividend targets in volatile market conditions. SEQI is a leading listed infrastructure debt fund with a NAV of GBP 1.4 billion, that makes us the largest listed credit fund on the London Stock Exchange. The fund invests in infrastructure-backed cash flows through a diversified portfolio with currently 50 different positions. It's liquid as well, with about 3 million shares traded per day, we have a low operating cost ratio of 1.01%.

Randall Sandstrom
CEO and CIO at SEQI

Our resilient performance has continued into what is now SEQI's 12th year. The dividend is GBP 0.06875 per share, the dividend yield finished the fiscal year at 9% and is currently about 8.4%. We have a portfolio yield to maturity, which is pretty high at 9.6%, we had a solid year on NAV performance with total return on NAV of 8.4%, then 6.6% on a share price basis. Our NAV per share was up GBP 0.006 to GBP 93.2, we have upside potential as well of about GBP 0.045 per share from a pull to par effect, which is when positions will go from what is currently a small discount to par due to spread in interest rate changes, but are expected to mature at par. We have a leading share buyback program.

Randall Sandstrom
CEO and CIO at SEQI

We've accumulated so far, bought back rather, 288 million shares since July 2022 at a cost of about GBP 232 million. We have strong cash flows into the fund that reflect a diversified thematic portfolio, the cash dividend cover finished the year at 1.06 times up from 2025 at one times. If we go right to page two and just talk about the highlights of the results. The dividend yield finished the year at 9%. The stock has traded up since then. It's currently about 8.4%. The annualized portfolio yield to maturity was down slightly by 30 basis points to 9.6% from 9.9%. Net assets finished the year at GBP 1.4 billion, down marginally from the previous year. Our net asset per share increased by GBP 0.0062 to GBP 93.17, that's up from GBP 92.55. That increase contributed pretty significantly to our good NAV total return of 8.4%.

Randall Sandstrom
CEO and CIO at SEQI

Our stock price finished the fiscal year at GBP 76.6, which was pretty much a low for the calendar year following the Iran conflict, since then, it has traded up to what is now GBP 81.3. Our share discount to NAV also finished the year at 17.8%, but correspondingly has narrowed to what is now 12.2%. Our earnings per share were up for the year and finished the fiscal year at GBP 0.0683. That's up solidly from GBP 0.0504 last year. Dividends are unchanged at GBP 0.06875 per share. Dividend cash cover, as I mentioned, has gone up nicely. It finished the year at 1.06 times up from 1 time, and our portfolio ESG score finished the year up 1.42 to 66.12.

Steve Cook
Head of Portfolio Management at SEQI

Thank you, Randy. On this slide, we're going to look at the performance of the company both over the year and over the longer term. The annual performance was driven predominantly by interest income of GBP 0.0827 per share and stable loan valuations, as you can see on this page. The downward movement was the dividends paid of GBP 0.06875 per share. The overall net effect is that the net asset value went up over the year. If we look at the longer-term performance on the right-hand side of the page, I think there's two observations I would like to make. The first is that we've very materially outperformed liquid credit. The black line is our total return. That includes income, as well as price movements. We have a cumulative total return of 92%. That compares to 46% for high-yield bonds.

Steve Cook
Head of Portfolio Management at SEQI

Second point I'd like to make is we've achieved that with much less volatility. That's a testament, I think, to the intrinsic merits of infrastructure. It's a stable asset class. It tends to perform very well in periods of high volatility. In fact, going back over the last 11 years, we've had about half the level of volatility as the general broader credit markets. Turning onto the next page, we've got here a snapshot of some of the portfolio characteristics as at year-end. I think many of these things have not changed substantially over time, but there's a few things I'd like to draw your attention to. The first is that we have relatively short average loan lives of 3.4 years. That's a deliberate part of our strategy.

Steve Cook
Head of Portfolio Management at SEQI

It means that we have a high degree of agility in the sense that we have a lot of cash generation. We can use that for buying back shares and for redeploying into attractive new lending opportunities. It also means that fee income on the loans is a very substantial driver of performance, because on average, we're earning those new lending fees every 3.4 years. Second thing I wanted to draw your attention to was the average equity cushion. This is the amount of equity, on average, in the companies that we're lending to. It's 38% of the total capitalization of the business. That's equivalent, in a sense, to a loan-to-value of about 62%. That tells you that the loans are not very high leverage on average, and it means that they have a lot of resilience in downturns.

Steve Cook
Head of Portfolio Management at SEQI

Essentially, all of that equity cushion needs to be eroded before we, as a lender, can suffer a loss. Turning to the right-hand side of the page, couple of observations. One is the portfolio is about 63% senior secured debt. That's the lowest risk point on a company's balance sheet. Again, it provides resilience. Secondly, we've gone for slightly more fixed-rate debt than floating-rate debt. It's approximately a 60/40 split, and that's to position the fund as and when interest rates start to turn down over time. We're locking in interest rates. The third thing I wanted to point out is that we have a low exposure to construction risk. Only about 12.8% of the loans in the portfolio are financing construction. The balance, 87%, are operational projects where you're through construction and the projects are generating revenues. Finally, on this page at the bottom, we have diversification by sector.

Steve Cook
Head of Portfolio Management at SEQI

I think you can see very easily just how diversified the portfolio is. This, again, adds resilience to the portfolio. It means we're not exposed to the same types of risks and the same economic factors across different parts of the portfolio.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

Thanks, Steve. I'll now turn to a description of our portfolio credit performance. It's worth saying that the active monitoring and management of credits is a fundamental and important feature of high-yield private infrastructure credit portfolio management. Having said this, we are able to mitigate risk, we believe, very effectively through SEQI's strong diversification and our ability to refresh the portfolio thematically. We can do this because the average portfolio loan life is less than four years, enabling us to reinvest, freshly mapping the evolution of infrastructure markets. While the infrastructure market has shown an ability to perform very defensively across cycles, it's true to say that a broad range of exogenous factors may impact any individual infrastructure credit over time. On the right-hand side, you'll see some data from Moody's, which illustrates the credit performance of infrastructure versus broader corporate lending.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

You can see that the average default rates for infrastructure, and this is a Ba or BB equivalent, which is a high-yield infrastructure, performs with an average default of 0.9%, and this is over a 40-year history of the market. That compares to about 1.6% annual default rates for general corporate lending. This exhibits really a very consistent performance of credit. As well as having relatively low default rates, the recovery rates for infrastructure are also very good compared to corporate credit. For SEQI, we have also improved our NPLs during the financial year. These represented only 0.3% at the year-end, compared to 1.0% last year. One loan that had been difficult, this is a Washington, D.C., property-backed loan leased to a school, which represented less than 0.1% of NAV. This has now been fully sold.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

The remaining balance of the NPLs at year-end is represented by a municipal infrastructure loan in Germany. This represents only 0.3% of NAV. I'd like to turn back to Randy to give you an example of a case study.

Randall Sandstrom
CEO and CIO at SEQI

Thank you, Matt. Yes, we'll go into a couple of case studies now. This first one is a really neat deal. It's a recent transaction we did. It fits right into today's energy transition theme and the need that we're seeing for power. It's called Life Cycle Power, and the company is a really leading provider of mobile power generation solutions. They provide all different types of power, backup power, emergency power, permanent power, and they cater to utilities, data centers, and industrials. It's a company that's headquartered in Houston, Texas, and they operate really pretty much across the U.S. They were acquired recently by Partners Group. That was in 2025, and Partners, of course, is one of the largest private equity and infrastructure firms globally, with about GBP 174 billion of AUM.

Randall Sandstrom
CEO and CIO at SEQI

In terms of the deal that we did, we invested $60 million into a second-lien financing. This position benefits from asset backing, really what is a growing business, their product is in high demand, and a pretty good, strong equity commitment by the sponsor. We got very attractive economics on the deal. It's a five-year tenor. We got upfront fees. We got call protection. The final yield to maturity worked out to almost 10.4%.

Steve Cook
Head of Portfolio Management at SEQI

Thanks, Randy. The next page is a case study on Active Care Group or ACG. This is a business that we restructured a couple of years ago. Since then we've been focused on really two things. First of all, improving the quality of the business. That's been achieved by investing very nearly £40 million in a mixture of physical investment in the estate, just shy of £31 million. Also in digital infrastructure management reporting systems, clinical systems, et cetera, to improve the way in which the business can be run to make it more efficient. You can see the effect of that on this page. If you look at the quality care ratings on this top right-hand corner, it's gone from 72% rated good standing two years ago to about 96% today. That's been the first goal, to improve the quality.

Steve Cook
Head of Portfolio Management at SEQI

That is important because it drives rates. It drives occupancy. There's clearly a link between quality and financial performance. There's also a link between quality and risk. The second thing is we've been repositioning the business towards private pay. This is a tremendous growth opportunity for the business. The U.K. has a shortage of neurorehabilitation sites, and we think this can be an engine for growth. This investment has been funded through a mixture of debt provided by ourselves, by third-party lenders, and by internally generated funds. We're now in a phase where we have done some targeted disposals starting earlier this year, and that frees up further funds, but also can lead to deleveraging of the business. This is one of our larger positions. Most of our debt exposure is senior secured. That makes up 4.6% of our portfolio.

Steve Cook
Head of Portfolio Management at SEQI

We have a small junior position, which makes up 2.6% of the NAV. We also have some equity upside, which to be prudent, we're currently valuing at zero.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

Thank you, Steve. I will now turn to discount control, stewardship, and active management. Firstly, on the buyback, as mentioned also by Randy, we have this leading program among infrastructure fund peers. We started repurchasing shares back in July 2022. During the financial year, we repurchased a further 75.3 million ordinary shares. This aggregates since the beginning of the program to 288.5 million shares for an aggregate cost of GBP 232.3 million. Clearly, this buyback is accretive for shareholders and has added in the financial year GBP 0.0074 to net asset value per share. Having said this, these additional investments have been made at good interest rates in line with our portfolio yield to maturity. This helps maintain a healthy, diversified, and thematic portfolio, which is important in continued prudent risk management.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

In terms of transparency, this is a very key differentiator we believe with other funds, particularly in the broader global private credit market. We continue to undertake monthly reporting with an independent third-party valuation. This instills a very high degree of confidence in the net asset value. This is really, I think, a very thematic story because some of the issues that we have seen maybe in the press have been as a result of, for example, quarterly or other valuation methodologies, and valuations undertaken by the manager rather than with third-party reviews. In terms of fees, we remain within the most competitive quartile of our peer group of infrastructure, renewables, and lending funds. 10% of the fee is still taken by the manager in SEQI shares to align interests.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

We would also highlight that we continue to operate a very active management and reinvestment program with the loans having average life of less than four years. It is a very actively managed portfolio. In terms of marketing and extending the appeal of SEQI's proposition, we work very closely with our corporate brokers, namely Jefferies and JPMorgan, and with our retail advisor, Kepler, on promoting the SEQI story, both within the U.K. and selectively in overseas markets.

Steve Cook
Head of Portfolio Management at SEQI

Thank you, Matt. I want to say a few words about sustainability. This is a very important part of our investment process. It takes a number of different aspects. The first is negative screening, where we have prohibitions on certain types of things that we simply don't do, like upstream fossil fuels and coal-fired power stations. We have positive screening where we track and look favorably on projects with renewable energy or enabling the transition to a lower carbon world or infrastructure with social benefits. Then we also have a scoring regime where we look to grade or quantify the sustainability and ESG effects of different investments.

Steve Cook
Head of Portfolio Management at SEQI

Very excitingly, after having had our existing system in place since 2020, this year we are refreshing it, and there's a lot more information about that in the sustainability report. We believe in transparency and reporting and also engagement, both with our investors through reporting, and we've done surveys and DDQs, and we have investor events as well, with the borrowers that we lend to, and with our peers. This is deeply embedded within our investment processes, and hopefully, many of you will get a chance to look at our sustainability report, which goes into much more detail on this topic. Turning onto the next page, we have mentioned in the annual accounts that we're looking to potentially change the investment policy of the fund, and this reflects the changing nature of the private credit world over the last 11 years.

Steve Cook
Head of Portfolio Management at SEQI

When we launched the company back in 2015, there was very, very little private credit outside the U.K., Western Europe, and the U.S., and perhaps a couple of other places to a lesser extent, like Canada and Australia. What's happened subsequently is that many more jurisdictions now have the potential for interesting lending opportunities. What we're not looking to do is turn this into an emerging market fund. We're not looking to take excessive risk. In fact, we've set a very strict eligibility test, which is a country needs to be rated investment-grade or be a member of the OECD. Although, in fact, currently all the OECD members have an investment-grade rating in order for it to even be an eligible jurisdiction. The commercial rationale is clear.

Steve Cook
Head of Portfolio Management at SEQI

It enables us to work more closely with the infrastructure equity funds, who are the main funds that we lend money to through their portfolio companies. It will improve deployment of capital and improve diversification within the portfolio. To be clear, we're not looking to relax any of our standards around underwriting. It's absolutely necessary that when we make a loan, we're able to rely on the enforceability of our security, that we can hedge currency risk, that there's no adverse tax consequences, et cetera. What we'd like to do is consult with our shareholders on this change. It's obviously subject to an AGM vote and FCA approval. In terms of what it would mean on a granular level for the portfolio, it is an incremental change. We're proposing increasing the allocation to Asia Pacific, the cap on the allocation, I should say, by up to 10 percentage points.

Steve Cook
Head of Portfolio Management at SEQI

That would go from currently we're able to invest only in Australia and New Zealand, but clearly there are very good countries, Japan, South Korea, Hong Kong, Malaysia, et cetera. We'd take that cap from 20% to 30%, and then we'd take the other category from 0% to 10%. All the other allocations would remain the same.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

Thank you, Steve. We now have a couple of slides on the broader infrastructure market. Firstly, megatrends. These continue to drive infrastructure investment globally. This is a key differentiator from other sectors because of the consistency and sheer scale of some of these themes. You'll be very familiar with decarbonization and energy transition. There's also digitalization, which includes not just data centers, but also mobile towers and lines like fiber and so on. Demographics has been a key theme for several decades, I guess, in terms of transportation, but of course, with aging populations, the healthcare sector, and the continued global trend towards greater urbanization. More recently, we've had a sense of de-globalization, and this is epitomized in a need for greater resilience in a number of areas, including supply chains, as well as strong energy and digitalization infrastructure domestically and regionally.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

In fact, all of these are often interconnected, or they have a lot of interconnections. We've seen recently digitalization is somewhat reliant, or increasingly reliant should I say, on power. In fact, digitalization is measured in terms of megawatts or gigawatts in the same way as energy is. There are some strong connections there. Obviously, demographics drives many of these themes as well. On the right-hand side, you can see what this actually means for our market. This is the growth in funds under management. The light blue is the infrastructure equity funds under management. That's now in excess of GBP 1.4 trillion globally.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

That's grown really impressively over the years, really starting from essentially transportation and PPP in the early 2000s, and then expanding into energy transition, digitalization, healthcare, and so on, and continues to grow on the back of very strong needs from many countries, including a reluctance generally from governments to dedicate their balance sheets to some of these needs with other shorter-term requirements in each market for fiscal spending. You can see the infrastructure private debt piece is still relatively small, and we're part of that. This exhibits a huge opportunity for us because part of our client base is indeed the infra private equity market. We can also lend to non-managed equity in the form of corporates and other vehicles. This really does exhibit the very attractive supply-demand characteristics for a lender in this space.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

Turning to the next page, this is a really important story that has come to the fore in 2026. This is why we're different from broader corporate credit. There are several areas we'd like to highlight, and firstly, the investment sector. Infrastructure over a long period has displayed stability and resilience over economic cycles. Typical private credit has a much broader range of industries that it lends to and recently has been revealed to have a somewhat higher exposure to areas such as U.S. software, with more than up to 30% of some portfolios. In terms of loan collateral, infrastructure loans are typically lent against hard assets that maintain their value well, and a key focus of our business is really looking at sustainable revenues and predictable revenues as well. Broader private credit looks at a mixture of hard and soft assets, including goodwill, brands, and IP and so on.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

In terms of loan terms, with our attractive supply-demand characteristics, our loans are usually very highly covenanted, whereas the broader private credit market, with the not so attractive supply-demand characteristics for the lender, have tended towards being increasingly covenant-light. In terms of leverage, our fund has no structural leverage. Our investment policy limits our debt to 20% of NAV. The typical broader private credit approach is to apply leverage, and this can be, in some instances, up to 200% of NAV. This may be accretive on the surface to returns, but also magnifies losses and volatilities in such strategies. Finally, and as mentioned earlier, we maintain a very high level of transparency in corporate governance with our independent and monthly valuations. Typically, private credit would have a quarterly approach to valuations, and some of these are prepared internally by the manager.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

We have been very consistent in our approach over the life of the SEQI fund, and we believe it's a very strong differentiator in current market conditions.

Randall Sandstrom
CEO and CIO at SEQI

Thank you, Matt. Let's turn to the next page 13, we'll just discuss the key takeaways from the presentation. SEQI has had attractive long-term performance, which includes 11 years now of paying steady and growing dividends, our total return performance has been ahead of our benchmark by just over 400 basis points per annum. We employ an agile and thematic strategy, this agility really stems from the portfolio high cash generation, which in large part comes from a relatively short average life where we get back about 25% of the portfolio every year. That allows us to fund the buyback and also make new portfolio investments as well, that allows us to track the thematic evolution of the global infrastructure market and invest in optimal sectors.

Randall Sandstrom
CEO and CIO at SEQI

We have continued our proactive management of the share price discount through buybacks, as well as lots of investor engagement. We really believe that we have best-in-class transparency. We have fresh, independently approved NAVs, where PwC independently does the marks on our loans. Lastly, SEQI really gives resilience in what has been a pretty volatile world. We've got four bullet points here that I want to discuss because they really help to distinguish SEQI from other listed funds. First of all, it's infrastructure, what that means is it's typically essential. Infrastructure projects are essential, that means that they tend to perform well throughout the business cycle relative to corporates, even in times of economic weakness and market uncertainty. These are typically domestic businesses, which means we're less affected by tariffs.

Randall Sandstrom
CEO and CIO at SEQI

There are typically high barriers to entry, that helps to reduce competition and volatility of margins. Typically hard assets, which helps to improve recoveries, typically contracted revenues, which helps to reduce portfolio returns. It's also credit, what that means is that we have structural protections that are built into our loan agreements, that's through a variety of financial and operating covenants. It's also credit is considered defensive versus equity because our interest and principal are contractual. The income to the fund is contractual as opposed to discretionary, like dividends are from an equity investment in infrastructure. It's also income instead of growth-oriented, our current dividend yield today, as mentioned earlier, is a pretty attractive 8.4%, which is nearly four percentage points greater than five-year gilts right now.

Randall Sandstrom
CEO and CIO at SEQI

We also have a long-term track record of earning a premium total return over high-yield bonds, our benchmark. Lastly, it's highly diversified by sub-sector, sector, counterparty, jurisdiction, this helps to produce smooth portfolio returns. That concludes our fiscal year 26 SEQI investor call, we'll now open it up to Q&A.

Moderator

Perfect, guys. That's great. If I may just jump back in there, thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab that's situated on the right-hand corner of your screen. Just while the company take a few moments to review those questions that have been submitted already, just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can all be accessed via your investor dashboards. Guys, as you can see there, we have received a number of questions throughout your presentation this morning. Thank you to all of those on the call for taking the time to submit their questions.

Moderator

If I may just hand over to you to read out those questions and give your responses where it's appropriate to do so. If I pick up from you at the end, that'd be great. Thank you.

Steve Cook
Head of Portfolio Management at SEQI

Thank you. I'll take the first question, which is, which three individual assets contribute most to portfolio valuation risk today? What specific developments would cause you to reassess those holdings? This is a question about the valuation of the portfolio. I think I'll start by saying, firstly, we have a very robust valuation process. All the underlying marks, valuations of loans are reviewed monthly by PwC, so it's an independent review process. Monthly is pretty frequently in private credit to revalue assets. We aim for a very transparent approach as well, right? We put the whole portfolio, including marks, et cetera, on the fund's website. That's by way of preface. I think I'd also say that typically for performing loans, valuation tends to be a relatively straightforward exercise compared to, for example, private equity.

Steve Cook
Head of Portfolio Management at SEQI

The reason is that on a performing loan, all your cash flows, the interest income and obviously the return of capital, they're contractual, right? They're set out in the loan agreement. To value a loan, therefore, you know what the cash flows are. You just apply a market discount rate, then you do a present value calculation, and it's fairly mechanical. Where there's more complexity is on non-performing loans, right? There, you obviously by definition, don't necessarily know the cash flows, right? The borrower's not performing, so you can't go off what the cash flows are in the contract. The contract's not being adhered to. You've got to make assumptions therefore about recovery levels, the timing of recovery, and the discount rate.

Steve Cook
Head of Portfolio Management at SEQI

I think that puts us in quite a good position in the sense that our NPLs are currently very low, about 0.3% of the portfolio, therefore valuation risk is hopefully necessarily also very low. I'm not sure I've got three individual assets that contribute specifically to portfolio valuation risk. I think the way I'd answer this question is to say that nearly all of the portfolio consists of performing loans. Their marks are independently reviewed, and loan valuations are intrinsically more straightforward and also arguably more objective than things like private equity valuations.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

I'll take another question. This is, does your shareholder base remotely reflect the asset base? Might the trust be marketed internationally more effectively? This is a very good question, and it's something that occupies us increasingly as we look for opportunities to diversify the register. It's worthwhile saying that we work very closely with our two corporate brokers, Jefferies and JPMorgan, on this matter and are constantly seeking further internationalization of the register. The current register is about between 13%-14% overseas. We've had some long-term supporters overseas in places like Scandinavia, Switzerland, and we also have a scattering of other investors in other jurisdictions of the island, North America, and Asia-Pacific and Middle East as well. It is relatively modest. It's a slight challenge, to be honest, I think of two groups of companies, one being investment companies in general.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

Although it's an industry that's 150 years old in the U.K. or more, in the rest of the world, it's not very well-recognized, I think it's fair to say. In a world where allocators tend to have buckets for things, the U.K. investment company doesn't often have a bucket outside the U.K. It takes a sort of rather creative and entrepreneurial type of investor to even consider it. We are in the forefront of educating the market, because actually, to our knowledge, the only listed infrastructure credit funds in the world are actually in London. There is no kind of equivalent elsewhere. Having said that, there are very large, broader credit funds, particularly in the U.S., the BDCs. They kind of dominate the landscape there. The largest one of those is over $70 billion, and some of those have had some challenges.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

This is a great opportunity for us to say, look, infrastructure is different, and maybe appeal to some of those investors. It's one of the things we're looking at. The other challenge is, I guess, sort of FTSE 250 versus FTSE 100. We note that the FTSE 100, because of trackers, has a lot of interest from overseas. I think the ONS survey suggested that 59% of investors in the FTSE 100 are overseas. That includes quite high allocations for those investment trusts and investment companies that are within the FTSE 100. Clearly, that would be a longer-term goal, whether for us or our peers, and would be a distinct advantage in terms of diversifying the range. Suffice it to say, it's an active question for us, and we're going to continue to push this opportunity to diversify the register.

Steve Cook
Head of Portfolio Management at SEQI

Thanks, Matt. We've got two questions which are covering the same topic, so I'll address them both at the same time.

Randall Sandstrom
CEO and CIO at SEQI

Yes.

Steve Cook
Head of Portfolio Management at SEQI

The first is, should we be concerned at the loan that is 7.1% of NAV, and how are we reducing that position? The second question is, can you please talk about the strategy and potential timeline to ultimately exit the Active Care Group investment? This is the transaction that we've put together the case study on. I think, to give a little bit of context, this is a transaction that we restructured a couple of years ago. It's definitely larger than the ideal position in our portfolio. There's no denying that. The reason it's larger is twofold. First of all, we've put in further capital into the investment to invest in the business. Secondly, interest is accruing, so there's a PIK element, which obviously naturally makes the position bigger over time.

Steve Cook
Head of Portfolio Management at SEQI

The exit strategy is really driven by the investment strategy in the sense that, as I mentioned in the case study, the first thing we've done is improve the quality of the estate, the physical quality of the care, the internal systems. Everything's been improved with nearly GBP 40 million of investment. That, I think, leads to a lot of operational and financial benefits over time. The second thing we've put in place is the pivot to private pay on the neurorehabilitation side. We think that's a very attractive business, and it's an engine for growth. The next stage, which we've started, is some targeted disposals. We sold off one business in the first half of this year. That frees up, obviously, more funds for investment, which accelerates the repositioning and can also lead to de-leveraging. That's part of the exit strategy.

Steve Cook
Head of Portfolio Management at SEQI

We're going to be in the position for a little while, but we do hope that over time, leverage will reduce, both in terms of net number of pounds out, but also in terms of the leverage as a multiple of the underlying business. The credit ratios improve over time. In terms of risk, I'd say, first of all, the bulk of our position is senior secured debt. That's obviously the lowest risk point on a company's balance sheet. Having said that, it's still a turnaround situation. It's a business that we're repositioning, so it does have an elevated risk profile. However, we are very confident in the management team and their ability to execute a strategy. It's a good strategy, and we're already seeing real performance and improvements on the back of that.

Steve Cook
Head of Portfolio Management at SEQI

It's going to be a developing situation, and we'll keep, obviously, our investors well-informed as that progresses. I think we're on a really healthy trajectory at the moment.

Randall Sandstrom
CEO and CIO at SEQI

Thank you. Thank you, Steve. We have another question on buyback, on the share buyback, and asking for some of the particulars of the buyback. On that, we feel that we have had a market-leading buyback program. We started this way back in summer of 2022. We are one of the very first listed infrastructure funds to start a share buyback. We're quite happy with that. During that entire timeframe, we've bought back just over 288 million shares. In the last fiscal year, we bought back 75 million shares. Now, we don't discuss price or volume targets or anything like that. In the accounts, you would see in the chair's statement that he did reference an active and ongoing share buyback.

Steve Cook
Head of Portfolio Management at SEQI

Thanks, Randy. There's a few questions around the dividend. The first is, how safe is the current dividend at this level? Then there's a related question, which is, will interest income continue to support the dividend and the buyback? I think a couple of points to make on those two questions. First of all, the board has made a very strong statement. It's in the chair's statement in the accounts, which says, "The board believes that the current dividend can and will be maintained going forward." The reason for that is we have a high level of interest income. As I mentioned in the presentation, about 60% of that is locked in, so it's fixed rate. In fact, the short-term outlook is for rates to probably increase a little bit in the short term before they start to fall over the medium term.

Steve Cook
Head of Portfolio Management at SEQI

We've got really good visibility over interest income. We have got a very well-performing portfolio, and also things like fee income are major drivers. To give a little bit of context on that. On top of the interest income, when you make a loan, you typically get upfront fees of perhaps 1%-2% or 2.5%. On average, they come out to about 2% on a typical loan. Our average loan length is about four years or a bit less. That adds about half a percent of income on top of the interest income. You look at all the different sources of revenue, the low cost of the business, the predictability. I think we can have good confidence on where the dividend is.

Steve Cook
Head of Portfolio Management at SEQI

As the question alludes to, both interest income, but also the return of capital as loans mature, result in a really high degree of cash generation. It's a very powerful feature of our strategy. We're not locked for the long term into very liquid assets. Instead, we get this very high level of portfolio turnover. That means obviously we can pursue new lending, but equally importantly, we can have a very significant share buyback program. We've spent over GBP 230 million on buying back shares, and that's obviously helpful for the discount, and it's also accretive to returns.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

There's a question on renewables, particularly where on the equity side there's been some renewable revenue volatility. I guess that's meaning from power prices predominantly, and how we view that. Clearly, energy transition is a huge sector. It's something that has always been of interest to us since the fund was launched in 2015. Having said that, the industry has evolved, particularly away from a broader scheme of government guarantees, whether it be through feed-in tariffs or Renewable Obligation Certificates or similar programs, towards a more commercial industry where power prices have to be factored in or on a more active basis. We are always very cautious as a lender, looking at the plans and running sensitivities on power prices.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

This is particularly the case where the captured power price of a renewable may be lower than the average wholesale price, because clearly wind and solar, when it's windy in a region or sunny, then it tends to mean that all of the power plants are producing at the same time, which can reduce the actual captured price. We have to overlay that. What we're happy with is that we're a lender in this sector, so we do have the benefit of a more stable revenue flow as a lender versus being the equity, which will be exposed to this short and medium-term volatility. We do like the sector. There's going to be strong expectations for strong demand for electricity going forward, driven by broad economic growth, but in particular by things like digitalization, data centers, and so on, requiring ever more power.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

While power prices will be volatile, with the Ukraine war and other things being factors in recent pricing, there is a tendency for power prices to exhibit some sort of mean reversion, because if you have prices that are too low, then that means that people are less inclined to build new capacity until the prices recover, and then there's a reverse effect as well. We are very cautious. We don't over-allocate to renewables, and we're highly selective on projects. In the past, we've also done some adjacent industries, such as offshore wind jack-up or maintenance vessels, where we think that there's a strong supply-demand. As with all of our sectors, we don't religiously invest in them according to a particular formula. We look at each case and decide whether we should do that.

Matt Dimond
Managing Director and Head of Client Capital at SEQI

For example, in the U.K. at the moment, we don't have any wind or solar onshore investments because we frankly can't get the returns that would meet our expectations.

Randall Sandstrom
CEO and CIO at SEQI

Great. Thank you, Matt. We've got another question on the dividend, and the question is: when do you intend to raise the dividend? As another question came in about income and dividend earlier, the board and we feel the dividend is sustainable. The current dividend yield is producing a pretty healthy 8.4% right now. Also, in the chair's statement, the chair says that the dividend is under constant review to ensure sustainability as well.

Steve Cook
Head of Portfolio Management at SEQI

Thanks, Randy. There's a couple more questions, I guess. One is asking, if the share buybacks are accretive, why don't we do more of them? I think the answer is twofold. The first is there are limits to the amount of share buybacks that you can do. You can't dominate the daily trading, as it were. That puts a cap. Secondly, lending is also accretive, and this links into another question, which is the performance bridge shows that if it were not for the share buybacks, NAVs would have fallen. Obviously, there's two forms of accretion, right? There's accretion through buying back shares, but there's also accretion through lending. To put some numbers on that, we've spent GBP 230 million on buying back shares. If we'd invested that at 10%, we would have made GBP 23 million.

Steve Cook
Head of Portfolio Management at SEQI

The dividends on that amount of capital are more like GBP 16 million or so, that's also accretive. We want a balanced approach. We want to remain active in the market. We want to maintain the fund as our going lending business, but we also want to support the share price, and this is why we've come up with this balanced approach. It's not quite true to say if we hadn't bought back shares, the NAV would have fallen, because obviously we would have earned interest income on the cash that we had used to buy back shares.

Randall Sandstrom
CEO and CIO at SEQI

Thank you, Steve. We've had another question on the dividend. It says: It's nice to see such a high dividend yield, trying to understand why it is so strong in the context of predictable cash flows and low-risk cash flows. That's a really good question. There's sort of two answers to that. I think the first way that we can look at that is to just do some arithmetic and look at the portfolio yield. We finished the year at 9.6%, and we got an operating cost ratio of about 1%. That brings down the net yield to 8.6%. Our dividend is six and seven-eighths P per share. That leaves just under 2%, 1.7% specifically. That really goes to creating a buffer. That goes to creating positive dividend cover.

Randall Sandstrom
CEO and CIO at SEQI

You can see that that came out at 1.06, up pretty good from last year, which was at 1 times. It also is there to go to NAV growth as well. The other way to think about an answer for that question is that we're investing in private loans. In private loans, you get a nice illiquidity premium versus actively traded or what some folks call publicly traded debt, like corporate bonds, for example. In a typical market, that illiquidity premium is about 1 to 200 percentage points. Also embedded in our yield of 9.6% is not only that illiquidity premium, but also what most folks would call a complexity premium. Infrastructure is more complex than an operating company, for example. It's a creature of contracts and special purpose vehicles, we tend to get awarded for that as well.

Randall Sandstrom
CEO and CIO at SEQI

As I said, most folks put about a 50 basis point premium on that. I think it's those combination of factors that allow us to pay the dividend that we pay. That really takes us to the end of the Q&A. Jake, I'll turn it over to you.

Moderator

Perfect, guys. That's great. Thank you very much indeed for being so generous with your time and addressing all of those questions that came in from investors this morning. Of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. Randy, perhaps before, really now, just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that'd be great.

Randall Sandstrom
CEO and CIO at SEQI

Sure, absolutely. Thank you for that, Jake. Well, we feel that SEQI is a compelling proposition. We have produced over the last 11 years and in this last year, steady returns, and we've got a pretty attractive current dividend yield, which is 8.4%, as we mentioned, and that's a full four, almost four percentage points above the yield on five-year gilts right now. We think that is quite compelling. We would just like to thank everybody for participating in the SEQI fiscal year 2026 results call. If you have any follow-up questions, please don't hesitate to get in touch and ask us those.

Moderator

Perfect, Randy. That's great. Thank you all once again for updating investors this morning. Could I please ask investors not to close this session, as you will now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of SEQI, we would like to thank you for attending today's presentation. That now concludes today's session, good morning to you all.

Analysts
    • Matt Dimond
      Managing Director and Head of Client Capital at SEQI
    • Moderator
    • Randall Sandstrom
      CEO and CIO at SEQI
    • Steve Cook
      Head of Portfolio Management at SEQI
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