# SDCL Energy Efficiency Income Trust portfolio delivers substantial income

- Link: https://www.directorstalkinterviews.com/sdcl-energy-efficiency-income-trust-portfolio-delivers-substantial-income/4121189632
- Published: 2025-03-31T08:01:40+01:00
- Author: Amilia Stone

**SDCL Energy Efficiency Income Trust plc** (LON:SEIT) has announced a Trading Update
Statement for the period from 1 September 2024 to 31 March 2025.

> **Jonathan Maxwell, CEO of the Investment Manager, SDCL Energy Efficiency Income
> Trust, said:**
> “SEEIT’s active management of the assets in its portfolio has delivered substantial
> income to the Company, in line with previous years. This stable performance ensures
> that we can cover the target dividend of 6.32p which represents a double-digit
> yield for investors at the current share price.
> “We are confident that the portfolio is well positioned to maintain its performance
> and secure opportunities that are accretive to NAV. As the market challenges faced
> by SEEIT and its peers continue, our priority remains reducing the current discount
> to NAV. We are highly focused on preserving value and upside for shareholders,
> while at the same time considering ways to cut costs and find capital efficiencies
> at project and company level.”

**Operational Update**

During the Period, SEEIT’s operational performance has been generally in line with
expectations, delivering the expected distributions to the Company:

_Primary Energy_

Primary Energy, which provides energy services to some of the largest blast furnaces
in the United States including recycling waste heat and gas to create power and 
steam, has delivered its budgeted EBITDA for the year to 31 December 2024. Recent
tariff announcements in the US are designed to support domestic steel production
and could have a material positive impact on Primary Energy given demand for its
services is directly linked to the operational activity of the steel mills it supports.

_RED-Rochester_

As a result of considerable cost control efforts, EBITDA for the year to 31 December
2024 at RED-Rochester, one of North America’s largest district energy systems, was
above mid-year projections, although below full year budget.

RED-Rochester’s CEO has installed a new leadership team, bringing management capabilities
and expertise in house, driving cost benefits. The new management team have increased
efforts to optimise efficiency and bolster business development to increase occupancy
rates. RED-Rochester has further capacity in its systems and exclusivity to supply
17 essential utility services to customers of the business park, offering the potential
for significant performance improvements over time. The team is also focused on 
advanced tariff amendment discussions with Eastman Kodak, with a conclusion now 
expected in the second quarter of 2025, and continue to work closely with Li-Cycle,
a customer for RED-Rochester that is expected to significantly increase its energy
requirements with the construction of a new hub processing centre. Whilst this centre
has experienced some challenges and delays, Li-Cycle has secured a fully committed
loan from the Department of Energy, and it is understood that Glencore, one of their
main strategic investors, has filed an interest in buying the company. Construction
is expected to continue in due course.

_Onyx_

Onyx, which provides on-site solar and storage for commercial and industrial buildings
across the US, has continued to hit or exceed its development targets during the
Period.

As previously reported, Onyx has undergone a period of capital-intensive growth,
developing and constructing its growing pipeline. The output of this growth is portfolios
of assets becoming operational and growth in revenue. During the second half of 
2024, 53MW of power has been brought to mechanical completion, up from 14MW during
the prior period.

_EVN_

EVN, the electric vehicle (“EV”) charging infrastructure development company has
made a further five sites operational during the Period, bringing the total to 31.
Operational sites continue to achieve EBITDA in line with expectations.

_Oliva_

Oliva, a circular economy solution generating efficient heat for the Spanish olive
oil industry, ended the year with EBITDA on budget. During the Period, there was
a strong harvest, which will positively impact feedstock prices. The anticipated
improved predictability of the Spanish Ro scheme has been delivered, and the team
are focused on further optimising the hedging strategy in order to maximise margins
whilst continuing to meaningfully de-risk exposure to merchant energy prices.

_Driva_

Driva, (formally named Vartan Gas) a biogas distribution business in Stockholm has
delivered solid operational performance during the Period, with EBITDA, for the 
year to 31 December 2024, on budget and significantly ahead of the previous year.
The team has a strong focus on growth, launching the Energy-as-a-Service business
with a number of early contract wins.

**Shareholder dividend**

During the Period, the portfolio’s stable operational performance has supported 
distributions to SEEIT that have covered the target dividend of 6.32p per share,
with a cash cover in line with the previous year.

**Total return growth**

SEEIT’s portfolio was built to target the largest and fastest growing opportunities
for energy efficiency. While it is diversified by industry, technology and geography,
and each investment is structured to deliver stable and growing income as well as
the potential for meaningful NAV growth.

As previously reported, some of this portfolio growth requires ongoing capital support.
During the year to 31 March 2025, SEEIT invested c.£165 million into the organic
opportunities presented by the portfolio. Much of this was to address Onyx’s pipeline
of commercial solar projects that deliver low cost, more reliable energy to its 
customers across the US.

The Board and the Manager continue to apply a disciplined focus to the capital allocation
policy. This means that any use of capital must meet or exceed the return threshold
implied by the alternative of buying back shares at the time of deployment. In practice,
investments are expected to yield a mid to high teens return on NAV.

During the Period, this investment into the portfolio has been funded through a 
combination of capital recycling and debt. The Manager remains committed to reducing
the RCF over time as well as lengthening the portfolios debt term by extending or
adding project level financing that is aligned with the duration of the contracts.
In the near term this is targeting new financing facilities at its Oliva and Zood(
the Asset Co of EVN) investments. Both processes are progressing, with advisers 
appointed.

**Company level RCF and outlook**

The Manager refinanced SEEIT’s Revolving Credit Facility (RCF) in March, securing
terms for three years with the option of two one-year extensions. In addition to
agreeing a competitive margin of 275 basis points over SONIA (up from 265 basis 
points for the previous facility), the Manager has extended the facility to £240
million. The RCF is c.£235 million drawn, as of 31 March 2025.

**Disposals**

The Manager continues to seek opportunities to balance the portfolio and release
capital from targeted disposals to pay down the RCF, recycle into the remaining 
portfolio and return to shareholders where appropriate.

The Manager previously announced formal processes to sell both part or all of Onyx
in the US, and EVN in the UK, committing to a further update by the end of the financial
year.

Selling part or all of Onyx remains the primary focus. Lazard continues to manage
the process, with bidders taken through to the second round and due diligence ongoing.
The Manager expects this process to conclude before the announcement of SDCL Energy
Efficiency Income Trust’s annual results.

As one of the highest growth investments in the portfolio, EVN had both been one
of SEEIT’s more CAPEX intensive investments and elicited inbound enquiries from 
potential buyers. However, as EVN offers significant potential for further growth,
the Manager considers a project level financing solution for Zood to be the most
likely source of near-term capital release.

**Market update and discount rates**

During the Period, markets have continued to present a challenging environment following
widespread geo-political and macroeconomic uncertainty. This is expected to result
in an increase in risk free rates across the portfolio.

In September 2024 risk free rates had decreased. However, against the uncertain 
economic and geopolitical backdrop, the Manager felt it prudent not to reflect that
reduction, instead materially absorbing into the risk premiums. This presents the
opportunity to now unwind some of those risk premium adjustments as rates return
towards March 2024 levels. The Manager’s current expectation is that the discount
rates to be used for the 31 March 2025 valuation will be similar to those used for
the 31 March 2024 valuation.

The ongoing developments in the US are being closely monitored, with particular 
attention paid to any potential risks to the SEEIT portfolio.

**Strategic options**

The Board and the Manager have listened closely to recent feedback from shareholders.
The Board is acutely aware of the unprecedented market challenges which SEEIT and
its peers are currently experiencing. As such, they are in regular dialogue with
the Manager and their advisers about how to address this issue, including conducting
a review of the management fee structure. The Board remains alert to all potential
opportunities available to deliver value for all shareholders in an effective and
efficient manner.

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