SDCL Efficiency Income Trust Plc (SEIT) Earnings Call Transcript & Summary

Good morning, and thank you for joining us. I'm Tamsin, and I'm here with my colleagues, Jonathan Maxwell, Eugene Kinghorn, Ben Griffiths. Today, we're presenting the results for the year ended 31st of March 2026, alongside an update on the strategic direction of the company. As you will have seen from the announcement last week, the Board has proposed a portfolio sale or managed wind-down of the company with a clear focus on realizing value and returning cash to our shareholders. Today's session is intended to do 3 things. First, to summarize the highlights for the year; second, to provide some context on the proposed sale or wind down and third, to update on the progress since the end of the year. I'll hand over now to Jonathan, who's going to take you through the strategic update and key messages.

Thank you, Tamsin and before we turn to the detailed results, I'd like to put the presentation into context and be very clear about our priorities. The portfolio continues to perform operationally. Our objectives are clear, and the exit process by means of a sale or wind-down is underway. We're focused on execution and discipline protecting value, reducing debt and converting the value of the portfolio into cash for shareholders as efficiently and promptly as practicable. The past year has been difficult and disappointing for shareholders. We're looking to provide a decisive response to challenges such as the persistent discount to share price, the constraints on distributions, the lack of access to equity capital and the consequent level of gearing. And our objectives are clear that to secure liquidity, realize value and return capital to shareholders in the shortest practicable time frame. There are 3 central elements to this strategy. First, we're focused on maximizing the cash that will ultimately distribute it to shareholders. We'll consider the full range of available mechanisms and use whichever approaches most efficient in the circumstances, whether by means of income or capital distributions. Second, reducing our refinancing debt is an immediate priority. The stronger and less leveraged balance sheet protects value, it costs less to run. It reduces financing risk and creates the capacity for shareholder distribution. Disposal proceeds will, therefore, initially be applied to reducing debt levels and then as soon as practicable to distributions to shareholders. And third, we must continue to protect the operational performance and value of the portfolio throughout this process. These are functioning businesses with thousands of customers, hundreds of employees, lenders, and contractual and regulatory obligations. The portfolio contains successful energy efficiency companies that continue to generate EBITDA and cash, and most of the assets have been operating broadly in line with budget. However, growth and some near-term cash flows have been limited by the company's own capital constraints and by the prudent retention of cash following the wind-down announcement. We've reflected to see circumstances of the company in the valuation and a reduced NAV. Most of the reduction in the NAV year-on-year is attributable to a reduction in growth assumptions. For example, behind our investment in Onyx, which is not a reflection of the quality of Onyx, but if the capital constraints have see it. And also in red, where we've reduced short-term growth expectations from existing and new clients. Our objective through the proposed policy changes and realization process is to help to release the company's capital constraints and preserve the enduring value of the assets and platforms in which we've invested. So finally, a word on execution and governance. We're actively engaging with investors who are interested in individual assets or the portfolio as a whole. The sale process is itself controlled by the Board and supported by independent advisers. So to reiterate, the portfolio continues to operate, in fact, with about 5% of budget. Our objectives are clear, and the realization process is underway. We're focused on execution, protecting value, reducing debt and converting the value of the portfolio into cash for shareholders as efficiently and promptly as practicable while finding the best possible home for the valuable and important assets and platforms that we've built over the years. Across to Tamsin.

Thank you. I'll pick up on some of the key data points for the year and how those fit in with what we're doing now. The portfolio continues to generate earnings and cash with approximately GBP 91 million of EBITDA for the calendar year 2025. We reduced the NAV per share for March 31 to 77.8p primarily reflecting the reduced growth assumptions, as Jonathan has touched on. But as Eugene will explain further in the finance section, the 3 key valuation movers for the period were the adjustments to our growth assumptions, the impact on the broader environment and sentiment, particularly in the U.S. and what that meant for regulatory assumptions and to a lesser extent, the impact of us taking a more prudent approach to valuing the timing of when we expect to be able to sell the excess capacity at Red. The portfolio was GBP 1.1 billion valuation. And the investment cash flows were GBP 84 million. Eugene will unpack that number a bit for you. But that this is primarily driven by CIT's capital constraints and what that means for our ability to continue funding the pipeline, particularly Onyx. So the underlying assets are continuing to perform even as we shift our focus to realizing value and returning cash. On distributions, 4.8p per share of dividends were declared across 3 dividends the fourth dividend was not declared. That reflects the prioritization of cash within the business, in particular, supporting the balance sheet and reducing leverage with the intention to return cash as soon as practicable whilst protecting value. On the balance sheet and liquidity, we've already completed a disposal for approximately GBP 105 million post year-end. The upfront cash was just over GBP 80 million. GBP 45 million of that was used to reduce the RCF with the remainder primarily retained on the balance sheet. That reduced our RCF from GBP 233 million down to GBP 190 million post the end of the year and reduced our gearing on a pro forma basis. So we've already started to delever and to strengthen the balance sheet with more work still to be done. Finally, as we've already touched on, the managed wind down has been proposed and the circular has been published with a preference for a portfolio sale but flexibility to pursue phased disposals if needed. We're prioritizing active management of the portfolio throughout to protect the value and ready the assets for sale. So this slide is simply a reminder of the circular that has been published in the upcoming vote on the tenth of July. It's -- it's 3 key resolutions were put forward. Firstly, updating the investment policy to be able to asset -- realize assets and provide flexibility during the wind down; second, to cancel the share premium account in order to create distributable reserves and thirdly, to remove the continuation vote, which will align to the wind down as it supersedes the need for one. Taken together, those are fairly technical, but they are important. They're designed to give the company the flexibility to execute the managed wind down to realize the portfolio in an orderly way and to return cash to shareholders efficiently and equitably. In terms of how that works in practice, the proceeds from assets will be used first to reduce borrowings under the RCF and then distributions to shareholders using the most appropriate means at the time. So again, the emphasis is getting cash back to our shareholders in the most efficient way as possible in the most efficient way as practicable while maintaining value through the realization process. Also, it's important to note that the Board unanimously recommends that you vote in favor of this. The manager will be voting in favor of that with our shares as will the Board members. So moving on to post year-end progress. Before I hand over to Ben, I just want to remind you, as we've already announced that we did make a disposal of a diversified portfolio of assets earlier in the year that completed in Apri and that was within 10% of NAV. Of those proceeds, we used GBP 40 million to reduce drawings under GBP 45 million to reduce drawings under the RCF and bring gearing down to GBP 190 million at the RCF, and that resulted in a pro forma gearing of approximately 43% of enterprise value, which equates to 75% of the NAV. So Also, the company and the manager are continuing to engage actively with investors who are interested in assets or the full portfolio. And we're doing that with a view to optimize value in the shortest practicable time frame. So with that, I'll hand over to Ben to give you an update on the portfolio.

Thank you. So to update on the portfolio. Shown on the slide here are our 5 biggest investments, which represents about 85% of the value of our diversified portfolio. That's to report the operational performance and the cash generation of these investments, but also the portfolio as a whole has been robust. EBITDA has come in slightly behind budget, but only by about 4%. There do continue to be opportunities to grow NAV across the portfolio. But in the current environment in which SEIT is trading, what we're focused on is maximizing realizable value. What this requires is additional focus on managing expenditure, management of the balance sheet of our investment companies, prioritization of the different opportunities and maximizing returns. We're focused on this and delivering these results, along with the close coordination and dialogue with the management teams within our investment companies. So to go on to some project-specific updates and to start with Onyx Renewables, which is our solar and storage platform in the U.S., which has been operating in a fairly changeable market in the U.S. But despite this, they have seen good demand continuing for distributed solar projects amongst commercial and industrial customers. As I said, despite this market backdrop Onyx has been successful in signing of 50 megawatts of new contracts with new customers and also completing the installation of a considerable and significant 93 megawatts of new sites. Now there is a time horizon on the investment tax credits, which Onyx Renewables benefits from with projects need become operational before the end of 2027. But Onyx has completed a lot of work in order to maximize the remaining availability of these tax credits, which also includes securing new tax equity partners. Looking past that, they're also working on developing new customer contracts to ensure customer offerings remain competitive and project returns attractive. The immediate focus is on managing the balance sheet and the capital availability within Onyx, and we hope to be able to allow Onyx to use the remaining capacity of their construction debt facility in order to fund the near-term pipeline, and that's consistent with the proposed changes that Tamsin just outlined in relation to the SEIT gearing limits due to be voted on on the 10th of July. Now the majority of value within Onyx is in the asset base, both in terms of operational sites and also those in construction. That represents about 85% of the value of Onyx. The EBITDA of the operational portfolio has been below budget, but the majority of that does relate to timing matters in relation to various incentive revenues such as renewable energy certificates. There have also been some one-off impacts, though, in terms of -- in relation to weather and other site specific matters, but the asset management team at Onyx has been very busy implementing various performance improvements. We've recently reported a reduction in distributions from Onyx in the second half of the financial year, which is due to the constraints of SEIT capital situation and the financing structure of Onyx itself, but Eugene will cover this in a little bit more detail later. But what this does mean is that -- the reduction in distributions from Onyx are a result specifically of SEIT's own constraints rather than the fundamentals and the core business model of Onyx itself, which remains strong. Moving on to Driva, which is our biogas grid in Stockholm, which has outperformed targets this year, seen through stable demand from customers, but also through additional revenue of new projects coming online. One of these new projects is the [indiscernible] Gas Connection, which came live at the end of 2025, which was the result of 2 years of construction and 4 to 5 years a very significant effort from the Driva management team themselves. They've also been successful with the year-on-year reduction in leakage from the gas grid. They've implemented and installed new pressure regulating systems on the grid, which had delivered instant results, both in terms of environmental and financial benefits. And they're also continuing to develop and deploy the new Energy as a Service business line with in 2025, bringing 8 charging as a service in a couple of biogas as service projects online delivering new services directly to new customers and adding revenue to the business. At our District Energy business, Red Rochester, they're continuing to deliver 17 different utilities to over 120 customers across Eastman Business Park in New York. The EBITDA performance was slightly below budget this year but significantly up year-on-year by about 33%. This was underpinned by resilient customer demand but also operational efficiencies and savings delivered by the new Cogen project. Red Rochester continuing to progress leads to bring new customers into the business park -- and there's been some positive progress despite these being long lead items, there has been positive progress with items like the textile recycling company, [ Reyu. ] He signed a land agreement with the landlord and also RED-Rochester itself securing land options for various parcels of land on the site. We are expecting Glencore and their battery recycling facility to be a customer in the future still. But we are also developing alternative plans in order to better utilize the capacity of RED-Rochester systems notwithstanding. And really, it's the -- this organic growth of new customers, which is the focus of discussions with existing customers in relation to amendments to the tariff arrangements under which customers pay RED-Rochester, and we're hoping to make significant progress on that during the next period. As I reported during the interim results, the -- our Spanish on-site energy generation portfolio SEIT, Oliver did experience some market pressures in the first half of the year. But as a result of considerable efforts and improvements made by the management team, they were able to largely recover that position by year-end. Much of these efforts focused on adapting the hedging policy to better match the regulation changes that came in during 2024 and also introduce an operational framework in order to ensure that assets are operating in a way that maximizes margins and, therefore, profitability. Long-term planning for this portfolio of assets continues we focus on capital -- various capital projects, life extensions and other strategic options. But what we're also mindful of now is dovetailing that with the strategic priorities of see it. And last, by no means least, primary energy in Indiana, which continues to decarbonize the hard-to-abate steel industry. Performance continues to be very strong, slightly ahead of budget for the year. Notwithstanding that, the management team are not stopping there. They are very busy advancing accretive projects that were already in train. They're currently as we speak, commissioning new variable frequency drives on the site, which are expected to deliver power savings therefore, increasing output and hence, revenue for primary energy. During the period, there has been a one-off negative impact in relation to the Ohio REC scheme, which looks to monetize the renewable energy certificates that primary energy generates. The compulsory element of this scheme is set to expire at the end of 2026, and there was a potential for that to be extended, which is still the case, but a lack of regulatory action has cast more doubt on whether this will happen or not and we've reflected that in our latest valuation. On the more positive end of the scale at primary energy, the PCI contract has been renewed and extended for a further 5 years with 2-year further option. And this really underscores the strong links that Primary energy has with its key customers and is also a positive indicator for future renewals that we expect going forward and also some other opportunities that the primary energy team are working on with their key customers. So to summarize, I believe that the fundamental performance of the portfolio remains strong. And we remain focused on delivering shareholder results. And largely, what that means for us is continuing our active management of the portfolio, diligent oversight of expenditure, delivery of initiatives that are currently underway, all with the aim of maximizing realizable value of the portfolio. With that, I'll hand over to Eugene to talk us through the financial performance.

Thank you very much, Ben. We reported a NAV of 77.8p compared to 90.6p at March 2025 and 87p at September 2025. The significant reduction in NAV of around 12p during the year was mainly due to adjustments to longer-term cash flow assumptions related to growth and regulatory parameters. In the case of growth assumptions, -- we reduced the value ascribed to Onyx pipeline over the medium term. This contributed around 5p to the overall reduction. Changes and risk of changes to regulatory parameters, affected Oliver and primary energy. And on the basis that we assume these parameters are enacted and stay in place over the long term, contributed around 4p to the overall reduction. Changes at RED-Rochester reflected a net downward movement to take into account timing adjustments, causing slower -- caused by slower-than-anticipated utility utilization ramp-up of an existing customer which is partially offset by an additional customer signing an agreement to enter the business park, and this contributed around 2p to the overall reduction. Net FX movement remains in line with expectations of the current hedging strategy, which is to minimize movement in NAV from volatile FX markets, and our company expenses remained in line with expectations. The portfolio as a whole continues to generate EBITDA and cash and the dividends paid was cash covered after paying company expenses, including finance costs. However, -- our objective has now become to maximize total return of cash to shareholders. This necessitated taking a view on whether to pay the final interim dividend for FY '26 and of upcoming quarterly dividends. The factors that have caused us to take a cautionary near-term approach included capital constraints and cash preservation. Capital constraints at SEIT has caused a necessary slowdown in business development at Onyx, as you've heard today. Previously, SEIT was able to allocate capital to Onyx that in turn allowed SEIT to receive a regular return of cash from the upfront monetizing of future cash flows linked to completion of construction activities. This is over and above cash flow generated from operational assets. The absence of capital availability from SEIT meant that Onyx could not be placed in a position where it could capitalize on the continued demand for distributed energy. This resulting slowdown in construction activity required cash to be retained at Onyx for its own construction and financial obligations. Cash preservation is required during the completion of stakeholder assessment as a result of moving towards order realization of assets in a wind-down strategy. With the objective of shifting to returning cash to shareholders in the most efficient and optimized way, protecting stakeholders such as customers, lenders and portfolio companies becomes essential. This initially requires a focus on gas preservation within the larger projects. Cash continues to be generated at project level, and this does pay for the financing and operational cost at a company level, and provides us the opportunity to reduce the RCF debt as part of ensuring compliance with our requirements under the existing facility, a key focus for us. All of the underlying projects remain in compliance with covenants of their own facilities and we continue to monitor and manage this on a regular basis, as you would expect from any company. Looking ahead, you've heard from Ben, that we are focused on ensuring the portfolio continues to deliver strong operational performance. Alongside the stakeholder assessment and the proposed changes to the investment policy, this allows us to plan for a return in the future to regular shareholder cash returns in addition to cash returns from disposal activity. I will now hand you over to Jonathan to close the presentation.

Thank you, Eugene. So allow me to conclude by bringing the key points together. Announcement of the sale or wind-down of the company has fundamentally changed our strategy and objectives. The focus is now firmly on realizing value, returning capital the making distributions. At the same time, it's important to distinguish the company's capital and liquidity constraints from the underlying operational performance and quality of the portfolio. The portfolio generated over GBP 90 million of EBITDA during the 2025 calendar year. The portfolio as a whole performed within 5% range of budget supported by long-term contracted revenues. The principal valuation reductions reflected revised assumptions relating to growth, development timing, regulation and the availability of capital rather than any broad deterioration in current operations. The portfolio also continues to generate cash. Distributions have been constrained in the short term by 3 main factors. The first is the capital constraint at Onyx, which is reduced the upfront cash generated from new projects. The second is the prudent retention of cash within portfolio companies following the wind-down announcement, while those businesses assessed and protected their obligations to customers, employees, lenders and other stakeholders, and the third is the decision to prioritize debt service, liquidity and balance sheet resilience during the initial phase of the process. But we believe that a significant proportion of these constraints are temporary. Although the timing of their release will depend on operating requirements, liquidity and progress with the realization program. So our priorities are, therefore, sequential and deliberate. We must secure liquidity. We must reduce or, where appropriate, refinance debt. We must preserve the operational value of the assets while they are marketed. And as the balance sheet is strengthened and proceeds become available, we maximize distributions by any appropriate means, whether it's income or capital to shareholders using the most efficient mechanisms available. There's already been tangible progress. The disposals completed after the year-end, generated approximately GBP 84 million of net cash proceeds at completion; GBP 45 million applied to reducing the debt and most of the rest strengthening the balance sheet. The revolving credit facilities consequently reduced from just over GBP 230 million to about GBP 190 million and pro forma gearing has reduced to around 43% of enterprise value. Now this is an initial step, not the conclusion of the process. We're seeking to deliver value for money for shareholders by means of a sale of the portfolio or its assets, whichever delivers the best value for money and timing. We'll pursue a portfolio-level solution where that offers the strongest combination of value, certainty and speed. And we'd also want to take a phased disposal of assets where that produces the better outcome. Market conditions, financing availability and buyer demand will influence the execution, of course. -- but we're addressing the process with urgency. The objective is to act as quickly as practicable without unnecessarily compromising value. The Board is in control of the process supported by its advisers and appropriate protocols are in place to ensure a level playing field. All proposals will be assessed consistently based on value, certainty, structure and execution risk. So to conclude, the portfolio remains operationally resilient. The balance sheet is being addressed and the realization process is underway. And every material decision will be judged against 1 overriding objective, delivering the greatest practicable value and liquidity to shareholders as efficiently and as promptly as possible. Thank you very much. So now we're going to open it up to questions. There's a number of questions that we've got online.

First question is from [ Peter Whale. ] What is the Board's -- I guess, the company's in this case, realistic expectation for the timing of first material capital return and the completion of the wind down.

So I'd say sort of tokens to that. The first of all, important really to recognize some of the progress over the last year or 2. So we have made substantial distributions -- sorry, disposals of assets in the past couple of years, we sold GBP 100 million asset in United Utilities. We've sold a very substantial proportion of the tail of our portfolio. These processes do take time. However, 1 of the ways of mitigating the time is to look at a portfolio sale as well as individual assets, and there are some nuances associated with that. times of the assets, and we're progressing avenues right now. Ed, what's the other question about value as well as

The timing on the the portfolio sale.

I think it's really as soon as practical. We're not giving an artificial timetable or deadline associated with this because we're progressing the activity of achieving a portfolio sale or sale of individual assets in parallel in order to maximize a combination of value.

The completion of wind down.

In terms of the completion of the wind down, it will be a subsequent to either a sale of the portfolio, which would likely -- I think, in my view, at least be more expeditious if it was going to go down an asset by asset disposal, in my view, I think it would take more time.

This is from [ Gordon Noble. ] What's the likely impact on ordinary shareholders of the increasing stakes in the company being built up by Saba and Jefferies? Have you opened discussions with these significant shareholders to identify, clarify and elaborate on their intentions?

I think the investment objectives of the company have pivoted towards a realization of its portfolio for cash, the highest value for money in the shortest practical time frame. I think obviously, we have a series of long-term investors who have backed the company over sometimes, in many cases, from the beginning, and we say thank you very much to those shareholders, and we'll be looking to maximize value. but we also understand that the company is now owned by shareholders as a shorter-term objective to realize cash. And we will be bringing those objectives together and addressing both of them in 1 go by delivering the best possible sale, the best value fine for shareholders in the shortest practicable time frame. And I think at best point, that's in the best interest of the shareholders as a whole. And I don't think that there is a divergence of interest.

Okay. [ Charlie Murphy ] from Singer Capital Markets. The retained portfolio, excluding [ Kiathon ] assets, delivered pro forma EBITDA of circa GBP 76 million and GBP 72 million in 2024 and 2025, respectively. Is that the correct baseline for prospective cash generation? And how much of that reaches holdco as distributable cash rather than being retained at the asset level for debt services, working capital CapEx?

I am going to pass to Eugene to take that question. Thank you for it.

Thank you, Charles. The numbers you quoted for EBITDA are broadly correct. It's excluding the ether assets or the portfolio that we sold after the year-end. I would also just add that those EBITDA numbers have the potential for growth in the future. But as a baseline, you can use that, but that is EBITDA, not necessarily the cash generation after EBITDA, you have to service the interest, you have to service the construction activity and the working capital at each of these assets. What it does point to though is the consistent and reliable indication of cash generation. These are long-term assets with key customers, long-term revenue contracts, and it's, therefore, able to generate that cash I will just maybe point out because it was important as part of our presentation to explain the cash generation that we received from Onyx from construction activity, which isn't generated from the EBITDA. So you can't extrapolate that from the EBITDA because that is in relation to the pace of development, taking their assets through to construction and able to monetize upfront monetize cash flow that would otherwise be received over a very long period. So that's the 1 addition to the stable cash generation that you can extrapolate from the EBITDA.

Will Kraton. How come cash inflows from the portfolio fell around GBP 13 million year-on-year despite EBITDA growing GBP 5 million year-on-year.

Yes. Thank you. Well, I think it's the same point I've just made around Onyx and the distribution we get from Onyx, which is a mix of the operational cash flow as well as the construction cash flow. And the construction cash flow is the part that reduced over the second half of the year compared to our own expectations. And that was as a result of the capital constraints at SEEIT level that then filter through the amount of construction activity that Onyx could sign up without taking undue risk.

Okay. And another 1 from Charlie Murphy on Onyx. How much of the value is of Onyx is attributable to the existing completed or fully funded construction projects. When do you expect the construction projects to start and then complete absent the tax credits, which elements of Onyx's pipeline are visible.

I'll give a quick answer to that question and then hand across to Eugene and to Ben. So the [ colocalaunche ] is the vast majority of Onyx is valuation in this NAV is attributable to operational assets or assets that are under construction and funded. There's been a very substantial reduction. I think Eugene you mentioned 5p during the year, which is attributable to the reduction of growth. In other words, the valuation of the platform or the pipeline, but the substantial majority of the investment value that we've attributed to Onyx is in the operational and construction. We did telegraph this in our signpost diagram in the interim results in December, so we might direct shareholders back to that signpost the left pointing signpost, which said that if we reduced the value of the development business within Onyx. I think, substantially [indiscernible] into 0 variable or a very substantial proportion that it can take off.

After 2027.

A large amount and we have taken off a large amount from the valuation this time around. And just to reiterate that it does is not a reflection of the quality of the Onyx business, the potential, the relationship it has with its customers or indeed its operational quality. It's got to do with a different approach that we've taken because this company has announced a sale of its portfolio. And therefore, we are not attributing a growth to a growth asset within our business. We would hope that an owner of this business going forward will be able to enjoy the capacity that Onyx has to print a very high-quality business. But go to the specific numbers, I'll go back to Ben and then Eugene.