SEIT Sdcl Energy Efficiency Income Trust Plc

19 March 2024

SDCL Energy Efficiency Income Trust plc
("SEEIT" or the "Company")

 Interim Update Statement

The Board of SEEIT announces an Interim Update Statement for the period from 1 October 2023 to 18 March 2024 (the "Period").

Jonathan Maxwell, CEO of the Investment Manager, SDCL, said: "Both the Board and the Investment Manager are pleased to see an improvement in SEEIT's share price over the last month which has been helped by our ongoing efforts to improve the liquidity and marketability of SEEIT's shares. SEEIT's diversified portfolio of energy efficiency investments has been performing in line with expectations, helping us to meet our investment objectives as we continue to seek to improve the capital value, as well as the cash flow, from our portfolio. As previously disclosed,  we are progressing a number of disposal initiatives and we have now selected a preferred bidder for one of SEEIT's larger assets. We intend to use prospective proceeds to pay down the Company's shorter term revolving credit facility ("RCF") and to support organic investments that enhance our existing assets and that deliver value for SEEIT's shareholders."

Portfolio performance

Overall for the Period, the portfolio continued to perform in line with the guidance provided in the Interim Report for the period ended 30 September 2023 (the "Interim Report"), reflecting the quality and diversity of the underlying assets. Highlights include:

·      The portfolio aggregate EBITDA has outperformed budget for the calendar year 2023[1];

·      An exercise to refinance the debt at Primary Energy continues to progress well with the final outcome expected to enhance post debt service cash flow;

·      The building of the CHP cogeneration plant at Red Rochester progresses in line with plan and once operational in 2025 will improve margins and cash flow generation;

·      EBITDA at Oliva was significantly above budget in 2023, in line with previous projections, although production levels were below forecasts owing to intermittent strategic stoppages (to optimise profitability during short term periods of unfavourable market economics) and an unplanned turbine outage; and

·      There have been some notable developments within SEEIT's investment allocation to developers, managers or operators of energy efficiency projects designed to support its organic pipeline. At the EV Network ("EVN"), SEEIT's investment in fast electric vehicle charging infrastructure for clients such as bp pulse, good progress is being made on both new project delivery and overall profitability. Rondo, supported by investment from SEEIT, Microsoft and others, has signed an up to 2GW agreement with the major European utility, EDP, to roll out its breakthrough heat battery technology and solution. 

Investment and Disposals

As previously indicated, the Company has continued to make selective investments to fund committed construction activities and the growth of selected platforms in line with the Company's Capital Allocations Policy. During the Period SEEIT made investments totalling £52 million, all of which was organic investment into existing assets under development or construction predominantly in Red Rochester and Onyx where the Company anticipates strong double-digit internal rate of returns.

The Company's development platforms, the largest of which are Onyx (onsite solar) and EVN require further capital to enable the management platforms to be scaled up and value created in both the platform and the associated project pipeline.  With a view to maximising the opportunity whilst conserving the portfolio's current prudent gearing levels, discussions with select prospective co-investment partners have been initiated.

The Company noted in its Interim Report, that a disposal programme was underway.  The Investment Manager has selected a preferred bidder for one of the Company's larger investments and aims to select a partner for another in the coming months. We intend to update shareholders with material progress on disposals between now and the release of the annual results, expected in late June, where we will also provide further updates on the ongoing focus on capital allocation.

Gearing

The RCF is expected to be circa £155 million drawn at 31 March 2024. This is expected to reduce in the near term as the proceeds from disposals are used to pay down the RCF.

The aggregate of borrowings by the Company's portfolio investments, excluding the RCF, is forecast to be around £325 million at 31 March 2024 (£334m at 30 September 2023). The balance reflects investment activity at Onyx and RED Rochester net of amortisation across the remaining facilities.

Financial performance and valuation

The Company is on track to deliver fully cash covered aggregate dividends of 6.24p per share for the financial year to 31 March 2024.

The Investment Manager notes that risk free rates have reduced in all relevant territories (between 30 and 60bps) since the September 2023 valuation date. These movements, taken in isolation, would suggest an increase in valuations as at 31 March 2024 (all other things being equal). As noted in the Interim Report, a discount rate reduction of 0.5% across the portfolio would increase NAV per share by 3.9 pence.

The Investment Manager is evaluating other comparable data and will take a prudent view in calculating the portfolio valuation, noting that it may be too early to reflect some or all of the benefit of the movements in risk free rates in the Company's net asset value as at 31 March 2024.

Actual inflation in the Period has been broadly in line with the September 2023 valuation projections and no significant changes to forecast assumptions are currently anticipated. The Company's exposure to inflation is mostly in the United States.

Outlook

The Company's portfolio appears well positioned to continue to deliver strong levels of cash flow as well as opportunities for growth. The Board and Investment Manager remain focused on protecting and improving the value of the portfolio, on careful capital allocation, on reducing its RCF through disposals and on maintaining a prudent approach to gearing in the medium term.

About SEEIT

SDCL Energy Efficiency Income Trust plc is a constituent of the FTSE 250 index. It was the first UK listed company of its kind to invest exclusively in the energy efficiency sector. Its projects are primarily located in North America, the UK and Europe and include, inter alia, a portfolio of cogeneration assets in Spain, a portfolio of commercial and industrial solar and storage projects in the United States, a regulated gas distribution network in Sweden and a district energy system providing essential and efficient utility services on one of the largest business parks in the United States.

The Company aims to deliver shareholders value through its investment in a diversified portfolio of energy efficiency projects which are driven by the opportunity to deliver lower cost, cleaner and more reliable energy solutions to end users of energy.

The Company is targeting an attractive total return for shareholders of 7-8 per cent. per annum (net of fees and expenses and by reference to the initial issue price of £1.00 per Ordinary Share), with a stable dividend income, capital preservation and the opportunity for capital growth. The Company is targeting a dividend of 6.24p per share in respect of the financial year to 31 March 2024. SEEIT's last published NAV was 90.6p per share as at 30 September 2023.

Past performance cannot be relied on as a guide to future performance.

Further information can be found on the Company's website at www.seeitplc.com.

Investment Manager

SEEIT's investment manager is Sustainable Development Capital LLP ("SDCL"), an investment firm established in 2007, with a proven track record of investment in energy efficiency and decentralised generation projects in the UK, Continental Europe, North America and Asia.

SDCL is headquartered in London and also operates worldwide from offices in New York, Dublin, Madrid, Hong Kong and Singapore. SDCL is authorised and regulated in the UK by the Financial Conduct Authority.

Further information can be found on at www.sdclgroup.com.