Gore Street Energy Storage Fund Plc (GSF) Earnings Call Transcript & Summary

Good morning all, and welcome to the Gore Street Energy Storage Fund Plc Investor Presentation today. With us, we have 3 members of the company's Board of Directors. [Operator Instructions] Now the company may not be in a position to answer every question received during the meeting itself. However, the company can review all those questions submitted today and publish responses where it is appropriate to do so. Before we start, I believe the IMC team are just going to submit a poll, which I'm sure they'd be very grateful if you have time to complete. But without further ado, I'm going to pass across to Angus Gordon Lennox, Chair of the company, to start us off. Angus?

Thank you, Henry, and welcome to you all who are on this webinar. We are here to hopefully give you some background and indeed our position on why we think the Saba Resolutions are poor for you as shareholders, and we urge you to vote against them to protect your investment. Before we go on to that, I would just like to introduce Norman Crighton and Christine Higgins, who will just give you a short bio of their own. Norman?

Good morning, everyone. My name is Norman Crighton. I joined the Board of Gore Street in October of last year. And my credentials for joining the Board are that I've been involved in closed-end funds for the past 36 years as a stockbroker as a fund manager and as a Director of numerous closed-end funds. Recently, I was the Chair of Harmony Energy Income Trust, which was also in the battery energy storage space, and that was bought by Foresight for around net asset value back in the summer of last year. Christine?

Good morning, everybody. I'm Christine Higgins, and I joined the Board in February of this year. My background is that I'm an accountant by training, but spent most of my executive life as an investment banker arranging finance on transportation and infrastructure assets and then since becoming an independent nonexecutive, I sit on boards in a number of industries, but most recently in financial services.

Thank you, Christine. For those of you that have listened to these IMC presentations before, I've explained myself. I'm the Chair of the company and have a deep understanding of investment companies, having been Chair of other investment companies and indeed worked in the industry for a very long time. The two directors who are not here today for a very good reason, are Keith Pickard, who was the CFO of HICL and is deeply entrenched in the infrastructure industry and Simon Merriweather, who has, again, a deep, deep understanding of infrastructure. And between the three that have the most understanding of infrastructure, i.e., Norman, as he's just explained, Simon and Keith, they have formed a Board subcommittee to oversee asset sales and indeed the running of the assets as we present them. You will remember for those of you who were on the first of these that I did that we updated the strategy back in March, March 17, I think it was, because we realized that we needed to return some value and money to shareholders. So the updated strategy announced in March focused on disciplined and timely value realization, accretive augmentations, i.e., to make the assets that we've already got worth more and returning some money back to shareholders. Now those are all underway. You will know that last week, we announced the sale of 2 Republic of Ireland assets. And indeed, this morning, this very morning, we announced another 1.75p dividend, which is a distribution to all shareholders in an equal way. And we also have, as you know, further assets to be disposed of, but also to recycle this capital that we're raising from the asset disposals into augmentation of other assets to increase their value. So this, we think, strengthens stakeholder alignment, in particular for the shareholders. And as I'll come on to you in a minute, we're making good progress at our speed as fast as we think is sensible. Next slide, please, Henry. We've received these 2 resolutions from Saba, and we think that they, through acceleration of what we're already doing, risk destroying shareholder value by derailing the process that is already well underway and in good shape. The two resolutions, one is Resolution 16, which is to make the company not be -- well, I'll read it out, an ordinary resolution that the company shall not continue in existence as an investment company. And Resolution 17 is that a special resolution that if Resolution 16 is passed, then within 3 months of the directors shall put forward proposals to the shareholders to the effect that the company be wind up, liquidated, reorganized or unitized. We believe that both of these risk destroying value because it is accelerating a disposal process. And when someone seems to be an accelerated seller, the buyers tend to try and bid down or disappear. So you would all have experienced this in your lives, frankly. So we think that we should vote against and you should vote against the Saba Resolutions. And the other point to make at this stage is that Saba very often in the past has relied on shareholders like you, like others, not voting at all. And sometimes it can be difficult for shareholders to vote, but we urge you to vote for our Resolutions 1 to 15 and against the Saba Resolutions 16 and 17. It's really important that you vote if you want to make the most of these shares and the value. Next slide, please. So we firmly believe that accelerated sales as envisaged by the execution of the Saba Resolutions would risk crystallizing value at its lowest point. You will remember that the NAV, which is driven by revenue curves very often, has fallen, which is unfortunate. But it's a cyclical low for these, we believe, and therefore, to accelerate into sales process at this stage would destroy value. We also, because of our geographic distribution around the world, we think that a single portfolio sale is not possible and certainly not as a forced seller. And we actually are believing and beginning to experience that live sales are being derailed with people asking questions about what is going on at this company. We need to say goodbye to the Saba Resolutions and continue to do what we've been doing, which is making progress on the plan that we announced in March. Selective, steady asset sales, time for best value alongside the value augmentation that we've talked about is expected to deliver much greater shareholder value than an accelerated realization that will be brought about by the passing of the Saba Resolutions. Next slide, please. So we're making progress. I've already talked about the dividend that we've announced this morning. We've also made progress by selling the 2 Republic of Ireland assets here. It completed last week. The money is in the bank. It enables us to say that our strategy is working, but there's more to do. Next slide, please. We've also announced that the Middleton preconstruction asset will be sold or certainly in part and disposals are underway. There's also augmentations underway, you'll be pleased to hear as well. So just to be clear, augmentation is improving the site so that they can make more revenue, more money, but it requires money to be spent on that site in order to do so. Next slide, please. Now we're also aware as the directors and don't forget that this Board has only been fully in place since February. But we're also aware that for some of you and a lot of you, this has been a tough share to own. We're only too aware of that. So that's why we've made these commitments, and that's why we've come up with this strategy, and that's why we have said that shareholders should get some money back in the fairest way possible. So we've committed to a 7p distribution each year so that you, the shareholders get the money back. We have asked the manager to make disposals to do both the payment of that distribution and also the augmentations of the assets that can be made more valuable by augmenting and if that doesn't work, there's a continuation vote in 2028 anyway. And we think that, that is a much, much more realistic time scale than this accelerated time scale that's happening at the moment. Next slide, please. So as I mentioned, the Board is great experts in the relevant parts of what can make you better value and better shareholder value. We've talked about their deep experience, and it's been completely changed. And so we would urge you, the shareholders, to vote for what this Board, which is steeped in experience in these assets and infrastructure generally and against Saba, which, by the way, is not. So with that in -- and having said all of that, we urge you to vote for resolutions 1 to 15 against the Saba Resolutions 16 and 17. And we know that it's not always that easy to vote, especially if you hold your shares through a platform, but please, please make the effort. Make it for yourselves, not for us because we genuinely believe that we will deliver better value than what is being proposed here. So without further ado, I think we can move on to a question-and-answer session. Hopefully, you've all asked all the questions that you would like to, but please do so if that's raised any further questions. Henry, back to you.

Thank you, Angus. [Operator Instructions] Angus review those questions submitted today. But in the meantime, I'd also like to remind you that recording of this presentation, along with a copy of the slides and the published Q&A can be accessed by your investor dashboard through the portal. We have received a number of questions throughout today's presentation. So thank you for those who have done so. And please do keep them coming. I suppose we have received quite a number. I'll try and group them in areas to sort of maximize time. There's a couple here might make sense to start on performance. It's an area you touched on, Angus in your comments just now. On asking why performance has been poor versus the rival Gresham House as the questioner puts it. Another says, we've seen an 11% decline in share price today following the latest set of changes, what assurance should we gain from the Board and manager on a recovery of value? What do you have to say on performance today?

We're clearly disappointed about performance. I think you, shareholders, have had a rough time of it, frankly. And that's why we're trying to make it better value for you in the future. We're not alone as a company that in infrastructure and renewables area where many, many of the infrastructure and renewables companies have actually suffered poor performance, largely in the battery energy storage space because of the perfect storm of massive build-out of energy assets and also higher interest rates than when this company was first envisaged. And therefore, it comes back to the point about the cyclical low. What happens when lots of assets are built, revenues fall because revenues fall, assets stop being built, therefore, revenues rise again. And I think we're in the middle of that at the moment. Norman and Christine do feel free to dip in if you'd like. As to the Gresham House one, the Gresham House is a different company to us. I don't propose to talk too much about them. But I would say that they don't no longer pay a dividend. And of course, our total return is a different number to the Gresham House total return. Similarly, we are geographically diversified and they are not. So we think that our strategy, however, will produce an outcome for shareholders that is significantly better than the current outcome.

You referred to the manager just then of different trust. I mean there's a couple of questions here on Gore Street Capital as manager, one saying sort of would you invite external companies? I think that means management companies to bid for management, another that says after 8 years, would you consider a manager review? I suppose, is that one of the areas that you looked at in your review earlier this year?

The answer is yes. As simple as that, we looked at everything. We looked at every type and kind of how to get better value for shareholders. And that, of course, included looking at the manager. The outcome of that, however, if someone has bought it, built it and is running it, they're more likely to know it and manage it better than others. But we're open the whole time to all aspects of trying to get better management and better performance of the share price and indeed the NAV. And if that includes manager change, that includes manager change. But the reality is that we have decided at the moment that the current manager is best placed to produce best value from these assets.

Great. One here on the discount more generally. And I think this touches on a number of areas in some other questions, but I think this one sort of sums it up quite well. What are your plans and strategies for reducing the share price discount?

The thing that will reduce the discount will be better performance of the NAV and better background in the renewables area as a whole. We are not alone in a wide discount. We have a wide, wide discount, but we are not alone in a wide discount in this area, in the renewables area. Clearly, we're uncomfortable with the discount. We think that the distributions over time will improve the discount because we will be giving money back to shareholders at NAV, which is effectively what we're doing with these distributions. And therefore, we think that over time, given performance, given better performance, the discount will close. Now of course, we've looked at all sorts of things like share buybacks and other things. But the reality is share buybacks give money to just those people that are selling, where we wanted it to be very much more equal so that the distribution is spread across the shareholders. But in time, we will be looking at our KPIs, and we'll be looking at our augmentations. And the reality is, is that if the return of buying our own shares is better than the return of augmenting some of our assets, then we'll be doing that as well. We look at everything. And Norman and I have been deeply, deeply involved with investment companies, which therefore means with discounts over the years. And there's no quick fix to any of these problems. but we are on it, and we are wanting to close that discount more than anything.

Great. I suppose as part of that strategy, sort of an addendum question here to that theme, I'll read out verbatim. If a portfolio realization is value destructive, why did the Board change the strategy to paying out a large dividend, which would require realizing assets? I suppose going to that point of the strategy you just described, Angus.

Yes. So we felt that the shareholders should have some distributions back so that we could -- and we went back to the original prospectus and 7p was the right number. The issue is the accelerated sales. It's not the sales themselves. We think that accelerated sales destroy value. And therefore, but sales in an orderly fashion create value and enable us to some of that money back to shareholders. So we changed it so that we've got capital recycling, we've got augmentation and we've got distribution to shareholders, financed in part by the orderly sales of these assets. What would derail that process is some kind of disorderly sale of those assets.

That's clear. I think we move on to an area regarding the Saba letter of last week and some of the points that were raised in that because there have been some questions on that area. I'll read this one out, but there are some similar. Can you address the concerns raised by Saba in their most recent press release? And obviously, the concerns around some of those points that were raised, I suppose, in particular, regarding the sale. Would you be able to talk more about that, Angus?

Yes. I think I've addressed some of the things already. But I think that the -- so let's just talk about the Irish sales and us not being able to disclose the precise number of what we have sold. So we've sold -- just to be clear, not to a related party, but to another fund that is advised by GSC who have got their own management -- investment management committee, et cetera, et cetera. So the reason that we haven't been able to disclose that number is nothing to do with our choice. It's because the limited partner that was buying the assets from us put it into their contract that we weren't allowed to disclose it. So we had two choices. We could disclose it. We had two choices. One was not to sell the assets because we couldn't disclose it or to sell the assets at a premium to NAV and not disclose it. So we took the second choice. And by the way, the whole process of -- which I think is understandable. The whole process of that was not only overseen by an independent third party. So there was a company called Alexa that was selling those assets for us. At GSC, there were two different parties with a barrier in between them so that we could ensure that no information flow between the two, so we can ensure the best value. And the third thing is that, as I mentioned before, there was a subcommittee of the Board who monitor this unbelievably closely. And we were comfortable, completely comfortable with the process and how we did. We were comfortable with the valuation -- more than comfortable with the valuation that we achieved but we were, to be honest, quite frustrated that we couldn't announce it, but that we were stuck between a rock and a hard place. And that's where we are. So the choice we had is don't sell it or sell it and don't say the price. So I think that was the main thing in that letter.

Great. I think that covers a lot of points actually, and that's a fairly comprehensive answer in a number of areas. A few of the questions refer to related party. This clearly wasn't a related party was there.

No. So as you might imagine, with that Board that I put up there beforehand, all unbelievably experienced executives, if you like. We asked a lot of questions about this. We took advice from lawyers, took advice from our investment bankers. We've taken a lot of advice on a lot of things. And it was clear that this was not a related party transaction.

Great. Question here on Germany, which we haven't spoken about yet. I'll read out in full. You've previously spoken about disposing one of your assets in Germany and saying this is well advanced. A lot of time has now passed. The shareholders have heard nothing. Please provide an update. What can we say today about Cremzow?

We can say that we'll advise you as soon as we can about it. But I would say that these resolutions have probably not helped this process. And the point that we make about it disrupting the process that we're trying to do, it has taken longer than we wanted. It's still in process and we're hopeful that we'll be able to announce something in due course. But as I say, we talked about delay beforehand and there is currently a delay. If there wasn't delay, we would have announced it.

A follow-up on the Saba points again, just sort of querying whether the Board will disclose the sale price. Clearly, that's something that you're not able to do, but please do add anything else further color?

Well, we've contracted not to.

That's clear.

Unfortunately, as I say, by the way, we're quite pleased that, a, we've completed it; and b, we've got a good price for it. We'd love to charge it from the rooftops, but we are contractually obliged not to.

Roughly how many bidders were involved in the process? I don't know if there's anything more we can add other than clearly it was competitive.

It was certainly competitive. There were a lot of bidders. We took just say the winner was the highest bid. Norman, I don't know whether you want to say something you were closely involved in that. But I mean, as you can imagine, the funnel narrows until you get to 1 or 2 or 3 bidders. But at the top of the funnel, there were a lot of interested parties in the data room and stuff like that. It probably doesn't need to say more than that unless you'd like to Norman.