Bluefield Solar Income Fund Limited (DRX) Earnings Call Transcript

Good morning, everyone, and thank you for joining the interim results presentation for the Bluefield Solar Income Fund for the period ending December 2025. I'm joined, as usual, by Neil Wood. So if we can go to Page 5, what have the priorities been in the period? So it continues to be the strategic partnership with GLIL, very good progress made there and also with the development pipeline and the recent AR7 auctions. And we've also been focused on the strategic initiative and formal sale process announced on the 5th of November. On Page 6, progress with the strategic partnership, as mentioned, with GLIL. So we've agreed Phase 3 of that program, which is a portfolio of 183 megawatts of development assets. We've also recycled some capital, and we've had the acquisition by BSIF of 249 megawatts of solar assets in the Northeast of England around [ BLive ]. So very much the protection and also value creation for BSIF shareholders centered around development assets. Page 7, just a quick reminder of the GLIL strategic partnership. It continues to be a standout achievement for BSIF and also the success shows the attraction of Bluefield Group's end-to-end platform and its development pipeline. So we established the partnership just over 2 years ago, and it already comprises over 400 megawatts of operational assets and over 200 megawatts of assets either in construction or in development. And as I say, the reason for the partnership is the Bluefield Group's end-to-end platform and capabilities. And it's a really good example of the interest private capital has in platforms such as the Bluefield Group, which can do development, investment and operational capability under one roof. So to the key financial highlights on Page 8. So top row, we're seeing the gross asset value is just shy of -- just over GBP 1.1 billion. And we've seen the NAV drop, which is a function where we're in what could be described as sort of runoff where we're paying out dividends, but we've got no new assets coming on stream and the asset life is reducing. And we've also had a bit of a falling power market in that period. So you're seeing on that top row, a reduction in the top row in the middle of NAV, which has been seen actually across the sector. Operational cash flow for the half year is just in excess of GBP 37 million. And so extrapolating that for the full year, maybe a little bit down on the record of GBP 95 million in financial year ending 2025, but very still a good solid performance. Middle row, continue to see very prudent overall levels of gearing. So low levels of gearing, but also a fixed -- overwhelming a fixed price, which is just in excess of 4% all in with 10 years average maturity across the whole piece. And then the bottom row there continues to be a very attractive dividend. We're targeting 9p per share for the full year, up from 8.9p per share, and that continues to be across the whole infrastructure, listed infrastructure space, one of the highest dividends in the sector and the dividend yield today of in excess of -- certainly at the time of the end of the year was in excess of 12%. On Page 9, so a very simple business model that we have developed over time. We've got debt in the right place, as we've spoken about before. So it's above the SPV level at the U.K. hold holdco level, which is creating very protective high levels of debt service cover and backed by stable, largely regulated and indexed revenues. And again, that's matched to a very defensive portfolio as BSIF watches, are aware of. And you've got, again, a very stable, attractive generation of cash flowing through that middle part in terms of the ability to deliver the dividend. And on Page 10, just before I hand over to Neil, not much change in the portfolio. So it's a business model which has got a big focus, obviously, on solar. And the main introduction there, which we mentioned actually in the annual results in October is we've got -- when you're looking at the doughnut chart on the right-hand side, where you've got the revenue split. You've got the first of the CFDs, which is Yelvertoft. And if we were projecting forward into the future, we've got over 600 megawatts of sites, including Yelvertoft, across BSIF and Lyceum. So a very healthy pipeline, which I will come back to in just a few moments. But with that, I will hand over to Neil.

Great. Thank you very much, James. So just on Slide 12 and capital structure. Now since its IPO in 2013, the company is focused on a simple and deliberate debt strategy. Long-term debt is secured against portfolios of assets with fully amortizing profiles within the life of regulated revenues on a fixed interest rate basis and at conservative gearing levels. Now deliberately structuring long-term financing across the portfolio in this way delivers three crucial advantages. Firstly, it removes both interest rate and refinancing risk. Secondly, it drives out lower debt costs and shorter tenor financings. And thirdly, as the bar chart illustrates, it ensures annual deleveraging of the portfolio so that by the mid-2030s, the company will have reduced portfolio leverage to close to 0%. And this will be despite the portfolio still having 10 to 15 years of remaining operational life. Most importantly of all, though, the debt structure today provides the perfect platform for the future as the natural de-gearing inherent in current financings provides the company with material headroom for utilizing debt to support future asset base growth. Turning over to Slide 13 and valuation factors. Our high debt costs and a combination of wider economic and policy uncertainties has continued to reduce transaction activity for aging renewable operating portfolios, with demand shifting almost exclusively towards combined opportunities. Now these are portfolios of companies that contain operational assets alongside a pipeline of development projects, and so enable an investor to marry the benefits of steady cash flows from operating portfolios with the reinvestment and growth opportunity development pipelines offer. Now as James mentioned, the company was first to identify this transition with the establishment of its strategic partnership with GLIL in December '23. And since then, the company has sold a rock-backed operational portfolio of 112 megawatts in August '24, followed by a 210-megawatt collection of ready-to-build projects in September '25 into this joint venture, which, as James has referenced earlier on his slides, has resulted in proceeds of north of GBP 100 million being achieved. However, stepping back and taking into account continuing low transaction volumes, U.K. GLIL yields remaining elevated over the course of the last 12 months. And of course, as mentioned, increased market uncertainty as a result of [ ROC and FiT ] indexation consultations, the decision has been made at this point by the directors to increase the discount rate by 50 basis points to 8.5%, and that is with a view to continuing to monitor any further changes in future quarters. So turning over the page to Slide 14 and the NAV movement over the period. With the company set up as a full payout model distributing all earnings generated to shareholders, the NAV of the company, assuming all valuation assumptions remain equal, will naturally fall each year. And so without the addition of future cash flows from new build assets, the company and thus, its NAV is currently in slow runoff. It is indeed the scenario that is illustrated by the movements in the NAV bridge as the overall reduction of GBP 52 million between June '25 to December '25 is essentially characterized by cash and noncash movements in the period. Negative cash movements equate to circa GBP 27 million of dividends being paid and circa GBP 4.5 million from generation being slightly below forecast. Whilst negative noncash movements have been driven principally by an increase to the discount rate as discussed on the previous slide and adoption of the latest set of power forecasts, which have power prices trending lower in the near term versus those used in the June '25 and September '25 net asset values. And with that, I will hand over to you, James.

Thank you, Neil. So Page 16, just a few words about the key strengths and also differentiators for our strategy is centered around an active management strategy where there is a 140-person team that drives performance enhancement protection and growth. And if we go on to Page 17, a very good example of this has been the power strategy. So we have consistently optimized power sales, which comes from the capital structure that Neil has just spoken about, where we have maximum flexibility to target the short end of the power curve, which is the most liquid and where we can maximize the value of the prevailing power market to its utmost. And it's something which has proven to be incredibly resilient in all different environments in the 12/13 years that we have been running the company. So Page 18, just a quick update on the very valuable development pipeline that we've got, which has moved from a concept in 2020 to over 1.2 gigawatts of consented sites today with over 500 megawatts of CfDs. And I think what's a great bit of progress across the -- in the last 6 months has been the success in the most recent CfD auctions, which was AR7, where we have over 200 megawatts of sites being granted, being successful in the AR7 auction, which made BSIF one of the largest contributors to that particular auction. So Page 20, the penultimate slide, which is -- just reiterates the statement made by Michael Gibbons, Chair of BSIF regarding the formal sale process, which he made in the Chair's statement. And as has been, people will be aware, nothing more can be added at this time. So to conclude, very good progress on the strategic partnership with GLIL. Likewise, very encouraging developments with the development pipeline. And the -- as has been said in Michael's statement, the formal sale process is in line with expectations. And with that, we conclude the interim update for the period ending December 2025.