VH Global Energy Infrastructure (LSE:ENRG) — Interim Results

0:00 Good morning, and welcome to the VH GLOBAL Sustainable Energy Opportunities PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll, and I'd now like to play a short introductory video on behalf of the

0:31 company. I'd now like to hand you over to

2:20 Navin Chelhan, CEO, Commercial Officer. Good morning, sir. Good morning, and good morning, everyone, and welcome to the interim presentation of VH GLOBAL STENDBENG opportunities or GSCO. With me, I have on the line Richard Lum, our co CIO and portfolio manager for the fund Mike Egan, our CFO and Eleanor Fraser Smith, our head of sustainability. As it may be the first time for many of you, we will touch, just give you a brief overview and introduction to the fund itself and the process that we go through, when when selecting investments before going into the financials, where we will touch on on the numbers. Hopefully, no surprises given, the q one and q two NAVs have already been published. We'll also discuss the post productivity where we have been active in the market with our latest acquisition and give you an overview of the portfolio and current updates around construction operational assets.

3:15 And, of course, we'll touch, on the impact and sustainability metrics that the fund provides. As previously mentioned, questions, we will we will take these throughout. Some have already been submitted, so thank you for that. And I hope most of them actually will be answered as we go through the presentation. But with that, I will pass over to Richard for a quick introduction into the fund.

3:39 Navin, and good morning, everybody. Thank you so much for making, time out to join us, today. I just wanted to give you, some background to, GSEO and, you know, how it is that we are approaching, the energy transition and enabling the energy transition to net zero, allowing investors by doing so to get access, to facilitating this and getting a differentiated return, as well. I think as a group, we have a significant amount of experience in originating global private market energy investments across the world. We believe the energy transition is a global phenomenon, which is why we've designed GSEO to have an exposure to different investments across across the world because only by approaching, the energy transition in a global context can you actually make a a real sustainability impact, but also be able to comprise a portfolio that provides investors with a differentiated return as well.

4:46 Now GSEO as an overview, I've alluded to some of the characteristics of the strategy at the beginning. We purposefully designed the strategy to provide investors with a diverse opportunity set. This means from a geographic perspective as well, the fund is invested in EU OECD and OECD partner countries as well as succession countries. That's for 90% of the portfolio. We leave 10% to be exposed to those countries that are not within this characteristic, but I think it's fair to say that, most of the exposure that we have are in developed markets. We invest in energy... Sustainable energy infrastructure that is both in operations, but also in construction periods as well as in order to enable the energy transition, we have to build new sustainable energy infrastructure as well.

5:40 There are... There's a broad mandate, with the flexibility actually to adopt to challenging market conditions that we've recently faced. And I think one of the, ways that we sought to do this is, entering into long term revenue contracts in our... The assets that we hold, that have linkage, to inflation as well. They're inflation linked revenue contracts protecting real returns. About 90% of the portfolio currently are contracted under these long term PPAs with credit worthy counterparties. And I think if you were to compare this strategy to some of the others in the investment trust market at the moment, you'll see that we have some of the lowest gearing in the sector as well. And my colleague, Michael Legan, our CFO, comment on that in the subsequent slides.

6:30 There is also a high impact value of the strategy. It's an SFDR article nine fund. The UN sustainable development goals provides a blueprint of what we do on the investment side. And indeed, my colleague, Eleanor Fraser Smith, our head of, sustainability, will take you through some of the work that we undertaken on that in the future slides.

6:54 Now I just wanted to touch in, in terms of, the way that we look at investments, because I think this is very important. It should leave you the impression that, obviously, we are very much committed to global sustainability, but also we look for real opportunities to provide a differentiated return as well. In this graph, what you see is starting from the left hand side, when we look at a potential investment opportunity, we assess that opportunity to see whether it fits within six of the 17 UN sustainable development goals. These are UN SDGs that we selected that are much, most closely aligned to investment in infrastructure. UN SDGs three, seven, and 13 relate specifically to investments in energy infrastructure, and the following, UN SDGs eight, nine, and 17 relates more broadly to the positive consequence on society of investing in, infrastructure more broadly speaking. So the investment has to fit through one of these six UN SDG mandates. If it does, then we see how we would characterize it, within the context of the energy transition. And we see the energy transition to net zero.

8:02 We we... We've delineated it into four main phenomena. It either has to do with addressing climate change, meaning investments in renewable technology, or providing access to clean and affordable energy, which is the second, criteria. The third criteria being the way that we use the electrons in the most efficient ways as possible. The way that we use energy in the most efficient way reduces the amount of energy we use, and, of course, that has a positive sustainability impact.

8:28 And lastly, market liberalization. It's only through liberalizing, energy markets throughout the world that, private capital can come in and help seek to, invest in infrastructure to be... Make it more sustainable. Once we've characterized the particular investment in one of those four manifestations, then we go to the second gate on the left... On the right hand side you see there, which is where we assess the opportunity to see whether it runs foul of the remaining 11 UN SDGs. Because remember, we use six to see whether it makes sense for us to invest in it, but it also... There are remaining 11 SDGs that are not directly related to infrastructure investments. The likes of, for example, you know, having, you know, equality, gender equality in terms of, you know, labor force, etcetera.

9:17 These are still very important. We need to make sure that our investment does not run foul of those, so we use an external consultant to undertake, some diligence work for us on the investments. And it's only once we get through those two gates, then we look at the underlying investments in terms of seeing whether it meets our commercial, considerations. And there are three core criteria that we look at on the next slide that demonstrates really what we're looking for from a commercial basis on an investment. The first is the investment needs to meet a structural demand gap in the energy market that we are actually investing in. This is our worldview. It is that the energy transition, as it gets internalized, by liberal... Liberalized energy markets throughout the world, it creates something in short supply.

10:04 And if we're able to invest in a way that helps meet, helps bridge that, that thing in short supply, we will make a positive sustainability impact, and we also get a differentiated return for our shareholders. And I'll take you through what that specifically means in some of our investments a bit later on. Secondly, the asset that we actually acquire or we actually build needs to have the ability for us to further optimize it. We're very active managers, and we like actually recommercializing contracts if they're not optimal enough now in our view, if we can get more bang for your buck or indeed putting our capital to use to further expanding, the assets and getting more income for our shareholders. That's the second point. And the third point that we look for in investments is it needs to have positive environmental and social impact because, of course, you know, we are sustainability driven, managers ourselves.

11:00 Now, GSEO has a very unique operating model. It is centered around, our operations currently based in London. We have significant track record of investing and, financing energy projects throughout the world in excess of twenty five years experience as a group. Myself, I've done this for the last thirty years across different, technologies and different geographies. However, our analysis in the investment side, and what we do is we tie up with operating partners. These are the technical,

11:30 and the engineering, and the commercial people, the developers who we interact with in different geographies throughout the world, they provide us with access to their pipeline of opportunities to invest in. And currently, we have five operating partners across four geographies right now, and we tie up with them in joint venture arrangements where they dedicate their boots on the ground, their headcount on the ground, that are dedicated to actually operating and implementing the assets of the fund.

12:02 The five we currently have there are Parachee, Birdwood, Landmark, MOTUS, and ENERGY INFRASTRUCTURE. That was during the period under the review, and, of course, we've entered into a new arrangement post period that we'll talk about shortly across four energy markets, liberalized energy markets throughout the world, which is Brazil, Australia, The UK, and, The US as well. So you can see from a very, small concentrated, highly specialized team in London, we were able to have a significant reach across different liberalized energy markets throughout the world.

12:34 Thanks for just a quick question before we before we, carry on. I guess, what are the benefits of the geographical and technological diversification within the fund?

12:46 Now, of course, one of the things that, diversification allows us to do is offer investors a risk mitigation strategy. So you wouldn't have, overexposure to a particular technology that may come under or a particular geography or energy markets, and so forth. It is a naturally built in hedge, and we have specific, maximum limits for country and technologies and developers that we actually... Operating partners that we we actually interact with to ensure investors have that level of comfort that we are diversified and there is an inbuilt hedge. Separately, if we were to invest only in one particular technology, let's just say solar or solar and wind, in one particular geography, let's just say The UK or indeed perhaps just Western Europe, where there's been significant amounts of investments in this area already, it is likely we would get only a a compressed return for shareholders.

13:45 We believe the real value in terms of making an impact in sustainability is to address it on a global basis, which is why we do so. And, also, it offers us a diff... A way to access differentiated returns, and I can take you through that in specific, examples as we move forward. One other thing that is, very important to note from our perspective, and I've alluded to it earlier, is our, desire to actually get involved in better commercializing opportunities, optimizing opportunities that we acquired. And here's a very good example of this. It's not traditional renewables. It's actually US terminal fuel storage, assets in, in Texas, in a town called Brownsville, on the border with Mexico.

14:32 But the reason we got involved in that is to help decarbonize, actually Mexico's fuels value chain in in that region. Now what we did, and I'll go into this asset in more details a bit later on, but what I want to point out to you here is since we acquired the asset, which was producing about, $6,000,000 a year EBITDA, we renegotiated the contracts with the key, clients that we had, key tenants that was, that were renting capacity in the in the terminal. The Mexican energy, giant Pemex, was the largest client we had. Renegotiated the contracts on better terms, better pricing. We increased their utilization of the facility, which enabled us to access greater ancillary revenues as well, and we also dedicated further capital to expand the facility itself, thereby lifting the EBITDA from $6,000,000 a year to expected there thereabouts $15,000,000 a year. That's more than doubling the EBITDA there through active management on a particular asset.

15:36 And if you were to compare that to where we have currently seen the equities market languishing in terms of the investment trust market between, you know, the the discount to the share price, It shows that actually applying capital and actively managing assets in this sector can yield very interesting long term results for shareholders. Thank you, Richard. And probably a good time to ask this question. How do you source investment opportunities? And do we have any advantages over other investors? Yes. So, again, one of the points I made earlier on is, you know, we've been doing this work, meaning getting involved in cross border energy transactions, private market transactions for most of our careers.

16:22 And myself and, my co, chief investment officer at Varde Montero have between us on average about twenty five years experience, significant amount of track record interacting with different projects, different infrastructure projects, different developers, engineering, consultants, and and also advisers throughout different geographies, through the world. And by doing so, we've built up relationships with potential sources of deal flow, throughout the last several decades. And that has come home, actually, to allow us to be able to access, these opportunities. We don't have to try very hard, and we get a lot of reverse inquiries. I think what we're good at doing is to be able to assess those, types of opportunities to understand which really provide us with unique opportunities into a particular market and which type of opportunities are really at heart just me too type of opportunities.

17:21 They're just, you know, developers who believe they can, develop something at the cheapest marginal cost, but don't really see the inherent value, that you can access in a particular energy market. So we're very discerning in what we actually go ahead with. We don't tend to like getting involved in public auctions, you know, where, there's an M and A adviser that is seeking, the best possible price from an array of bidders. That's not where we want to get involved in. We wanna get involved in bilateral conversations with potential sellers. Thank you, Richard. Good morning, ladies and gentlemen.

18:00 Just take you through the interim highlights for the period... Six month period to 06/30/2024. The NAV is 110p per share or total NAV of $447,000,000 What's pleasing to see is underlying EBITDA has increased by 9% on a currency adjusted basis, and we're really beginning to see projects as they move from construction to operation and the underlying earnings coming through. Dividend coverage has remained at 1.1x in the period, and this has put in light in the fact that 61% of the portfolio is currently operational, and we'd expect this to strengthen going forward.

18:45 We've maintained our dividend target of 5p or 5.68p per for this year, and dividends are paid in a on a quarterly basis. The total return of 8%, it's come in slightly because in this period, we've seen some significant sterling strength against the geographies where we are exposed. These are unrealized exchange losses and hopefully will revert in the future. To date, exchange gains have been positive, and this is the first period we've seen a negative result. As Richard's alluded to, the portfolio remains highly ungeared at this point in time. Gearing is 1.9%. This is primarily on one asset in The U. S.

19:32 And going forward, given the balance sheet flexibility, there's a significant opportunity to increase gearing at project level and possibly at the fund level. Eleanor will take you through the sustainability metrics in her section of the presentation.

19:51 If we move through the NAV bridge, dividends have been paid in the period of £11,600,000 and share buybacks of £8,400,000 resulting in a total return to shareholders of £20,000,000 in this half year. Fund expenses have come in line with expectations, and the ongoing cost charge ratio is 1.5%, as we have disclosed in the kit. Exchange rate or fair value movements in the portfolio are benign in this period, and this is really due to the stability we're beginning to see in discount rates as we push past the inflation bubble that came through the system in the past couple of years. And hopefully, going forward, discount rates beginning to come in will have a positive influence on this portfolio.

20:41 As I mentioned, ForEx has been negative in this particular half. It's important to note these are unrealized ForEx losses. And as I said, they have been positive in prior periods. Moving through to discount rates. What we see this is a quarter by quarter discount rate analysis per each project.

21:04 And what we see the high discount rates seen four quarters ago are beginning to subside and stability coming through in discount rates for the portfolio. Discount management is a key topic at this point in time, where share prices are depressed across the sector. The Board and the investment manager were constantly monitoring and considering capital allocation. The company is balancing medium- to long term returns with the short term market liquidity constraints. And that's why in this period, we increased the share buyback from $10,000,000 to $20,000,000 And at June 30, 13,800,000 shares have been bought or value of shares have been bought back or just shy of 19,000,000 shares.

21:50 As I've mentioned, the ungeared balance sheet provides significant financial flexibility going forward. It will be an opportune time to assess these opportunities as the remainder of the portfolio comes online.

22:03 We are continuously raising the profile of the Fund to attract new retail and institutional investors to strengthen the share register of the company. Thanks, Mike. Just a question here. If we were to increase leverage, what do you think would be the optimal debt to NAV ratio for maintaining the balance between risk and return? So we've got a strategy where we're targeting capital growth as well as returns and distributions to shareholders. Optimal gearing is probably around the 50% mark to ensure that we do not overgear these projects and make sure that gearing is sustainable going forward. Thank you, Mike. And I guess another one more on this slide probably for Richard.

22:50 When we talk about capital recycling, as we're sounding at the market, if we were to capital recycle or sell an asset, could we expect these to be in line or premiums to NAV? Yes. I think the expectation is that it would be premium to NAV because the way that we approach our investments, and I've, you know, made some comments around this just just very recently, is that we're looking to enhance, provide that growth element into investments that investors would see. So comprising portfolios of distributed solar, for example, in in Australia, where we hybridize those with battery storage as well, creates further value that we can access from our investments. And,

23:35 really, we're looking to comprise portfolios so that others might find more challenging to put together. And there is an inherent value there that we want to ensure that we're able to crystallize if we were to recycle our capital. Thank you, Richard. And another question, I guess, while we're on this slide. It's been noted that we pay an attractive dividend via GSEO. How sustainable do we believe this dividend is? Well, we believe it's very sustainable. The dividend has been covered based on the portfolio being 61% operational. And as we go through this year and into next year, a significant portion of the construction will run off and the portfolio become operational and underlying cash flow is being generated by the assets.

24:25 So we believe dividend coverage will strengthen going forward as these new assets come on stream. And what we've seen in this period with the increase in EBITDA is that the assets are beginning to generate returns and show that the true power of the underlying cash flow generation that they can deliver. Thank you, Mike. Let's move on to the portfolio update. Over to you, Richard. Thank you, Lavin. Before I dive into, characterizing the portfolio as it currently stands, I just wanted to, pause for a minute, and reflect on what is the opportunity opportunity set that we're facing off to at the moment, particularly as it relates to investments in in energy globally. And I think what we found, fundamentally is there is a change in the behavior of how, energy is finally consumed.

25:16 Now what do I mean by that? I mean, the electrification of our economies and our lives has has come to the fore, and it is actually, seen that electricity share of final energy, that we consume is set to rise to 30% from 20, currently by 2030. And that creates a huge opportunity to invest in energy infrastructure globally. In fact, it's expected that in 2024, by the end of the year, expected that investment in energy as a whole will top $3,000,000,000,000 for the first time ever. And of that percentage, 60% of that will go into investments in clean energy and infrastructure.

26:01 And that is the opportunity set that we are facing off to. And because our strategy doesn't depend on one or two sole technologies such as wind or wind and solar in terms of sustainable energy. We're very open into... We're technologically agnostic as a strategy and also geographically diverse. It means that whole 60% of $3,000,000,000,000 fundamentally, that is the opportunity set that we're facing off to in terms of applying our capital to enabling the transition. Second thing to note, as things become more electrified, who are the biggest demand centers? What what are the biggest demand centers for those those electrons? And, actually, what we've seen, certainly, in the recent past, and I'm saying the recent past probably over only the last couple of years, is really the predominance of data centers as a key user of those electrons. Now it used to be seen that, you know, the the energy transition would be, you know, renewable electrons going into decarbonizing our homes, decarbonizing industry, and decarbonizing transportation.

27:08 And, of course, those will continue to be key parts of those renewable electrons. But here's a fourth, you know, area that's coming, which is... Which are data centers. The amount of energy that these data centers will require to power AI applications is significant. In fact, if you were to look at it within the context of electricity consumption by data centers, it's expected to more than double to a thousand terawatt hours in 2026, and that's roughly the size of Japan's demand, for power as a country. And the reason that it's so energy intensive is that, AI applications are so energy intensive. It's actually estimated that if you were to do a particular task on, an AI, technology platform, such as, for example, ChatGPT, and the same tasks were applied to a Google platform, the AI platform would take at least six to 10 times more energy to complete, than the Google platform. And these types of platforms, in fact, most of the platforms that we see in front of us these days are being back ended by AI technology as well. Within the context of Europe, power demand is expected to rise by 220 terawatt hours of electricity as we move through to the next decade.

28:26 That is an opportunity set for us to invest in further sustainable energy to stimulate that supply of electrons. And that's why the boost in electrons is creating investment opportunities in the most liberalized energy markets, those that we're currently involved in, including parts of Europe or The EU, The US, The UK, and Australia. Now, as it currently stands, you know, the portfolio as it is comprises of 36 assets across seven jurisdictions and six technologies. These... This incorporates the acquisition we made post the first half of the year, and you can see there the types of geographies we're involved in now, as I mentioned earlier, including The US, The UK, Australia, and Brazil, now incorporates the likes of Sweden, Spain in particular, and also Portugal.

29:16 By status, in terms of whether the portfolio is operating and generating yield, or is currently in construction, the portfolio is currently 61% operational as of, the first half of this year. Now this is important for you to note. We are enabling the energy transition, and that means we don't just acquire operating assets. Because if you only did that, you wouldn't be enabling it as such. You need to create new energy infrastructure in order for you, shareholders to fully participate in the energy transition. And that accounts for about a third of our current portfolio, and we believe that's a fair estimate as moving forward on a steady state basis, a third would be the maximum amount of construction that we would have in this portfolio. In fact, as we go into the year end period, we're expecting that operational, percentage to rise from 61% to 80% as further projects come on stream.

30:18 One other thing for you to notice, shareholders, is as assets go from the construction phase into being valued as operational assets, there is a natural movement in the NAV, a a NAV pop, as you will, that can be experienced by the portfolio as it grows and, the assets are valued based upon the expected returns it would get on its operational cash flow. And that is something in a growing portfolio in a strategy that has construction elements to it allows investors to feel the growth in the portfolio. It's highly diversified as you see in the bottom pie chart there in terms of technology. We have an array of solar, wind, hybridized solar, and battery storage, hydro facilities, a really unique program in The UK, which is a gas fired power plant with carbon capture fuel storage terminals.

31:12 This offers investors, as I mentioned earlier, a real hedge against overreliance on a particular technology or geography. Just an outline of the different assets that we have currently in the portfolio, including on the bottom right hand side, the post period acquisition that we made on Spanish Portuguese and Swedish solar and onshore wind assets. You'll see there on the top left hand side, the first acquisition that we, completed after IPO in 2021, the acquisition of the fuel storage terminals in in in in Texas. That's helping to decarbonize the Mexican fuels value chain. The interesting part there is Mexico, as an economy, is not going to go, electrified anytime soon.

32:00 It still requires fuels, in its economy. The problem is a lot of the fuels that are produced in Mexico are produced by domestic refineries. These were... Some of them, like, constructed, over a hundred years ago by standard... Likes of standard oil. They produce products, refined products that are heavy in sulfur content such that when they're combusted in either power generation or transportation, they create immediate public health issues, respiratory issues, the likes of acid rain even occurring in in conurbation areas in Mexico. That's not been seen in Western Europe, certainly for the last forty years or so. So what we're doing is assisting the Mexicans themselves to shift that dirty fuels northwards across the border into Texas and into Louisiana, into The US, basically, where there are state of the art refineries that can take out this heavy sulfur content, make the product more Euro compliant, and then ship them back down south across the border into Mexico to be... To displace the usage of the dirty heavy sulfur fuels. Mexicans themselves cannot afford to upgrade their own refineries because the fiscal under station is just too huge for them. And as I mentioned earlier, we've had a success story here in terms of expanding, the facility and creating further returns from the, from the investments ourselves.

33:21 This is the only asset that has leverage on it. It's about 7.5% leverage in the whole portfolio, as it currently stands. We have a program in Brazil, distributed, solar PV assets in Brazil that really supply electrons to remote communities. However, as an investor and as an operator, we get paid, not by those remote communities, but by investment grade blue chip counterparties, the likes of Telefonica, that owns the o two, that is also invested in in in Brazil through a really unique scheme, of distributed solar there. So we provide electrons to the local, community, but we get paid from a user on the other side of the grid such as Telefonica. They get a rebate on their on on their bills by contracting with the likes of our solar farms.

34:13 In Brazil also, we acquired in 2022 a hydro facility. Brazil has the largest hydro resources in the world in any one country. Hydro is a very important part of their energy mix because as the, as the economy becomes decarbonized with renewable technology coming on board, Renewable technology are generally speaking intermittent, meaning if the wind doesn't blow, the sun doesn't shine, you get stuck for, the supply power. But if you have hydro in place as well, you can switch on and switch off, the flow of water in hydro facilities and dispatch the power when you need to do so to intervene if there is insufficient power. So it's a very attractive asset to have. It's actually operating, above our, current budgeted levels at the moment. Very, very good asset to have within the portfolio.

35:03 In The UK, I alluded to this before, we have a really unique program here also addressing the point of intermittency in The UK system. Now you would ask perhaps why haven't we invested in core renewable assets in The UK? The reason for that is because it is so highly compressed. There is no shortage of money looking to invest in core renewables, And the types of returns you get, you know, investors get, are very compressed as a result of the fact that the marginal cost of renewables in The UK and the types of tariffs that you would get have been compressed over the years. That's due to the success of renewables. However, again, when the wind doesn't blow or the sun doesn't shine, the system operator gets stuck for the supply of power, and the system operator still has to call on the lights of coal fired power plants to make up the difference in that imbalance. And we've seen, indeed, over the last week, that there's been at least four or 500 megawatts of coal still supplying power to the grid even though the government says that there shouldn't be any coal on the grid at all. That's because there's been low wind yields at this point in time, and the system operator needs dependable power. So the way that we address this is not to invest in more renewables, but it's to try to address that imbalance through investing in a flexible power plant that can be switched on and switched off to intervene as necessary or indeed left on all the time under base load conditions that uses natural gas, which is a highly dependable fuel source.

36:33 But it is also emitted, much less emitted than coal, a quarter of the emitted value of coal. And what we do there is when the natural gas is combusted to make the power, we capture the c o two. It's fully abated. We have a carbon capture technology on the site, and we scrub the c o two into a purified food grade c o two that then gets sold into the food and beverage market because in The UK, there is a structural shortage of this actually highly specialized and highly sought after industrial gas called c o two, and we use this in our food and beverage industry. So we're abating c o two when we're dispatching the power, and we're creating in a more sustainable way a really precious industrial gas for the food and beverage industry as well. Within the context of Australia, we have, again, a a a program here of distributed solar, but what what we're doing there is we're putting battery storage, on, on the solar sites in order for us to, again, allow those solar sites to intervene and to supply power when it's needed most. Now one thing about Australia is it's undertaking the, energy transition in a very disorderly way, meaning it was predominantly being supplied with power produced by coal fired power plants, highly dependable, but highly emitted, and that's now being run off as more, renewables come on stream, which are not emitted, but highly intermittent.

37:55 So during the mornings and the evenings where there is peak demand, but there is insufficient renewable resource to supply it, the prices the prices peak, and there is significant amounts of, demand and a shortage of supply in the system. But if you have battery storage in the system, you can capture the very cheap or negative price solar from the grid. Or indeed, if you do as we do, which is to connect it with your own solar sites, you get free solar that you, that you store on your battery, and you dispatch it at the mornings and the evenings or when there is, high pricing, and you can achieve very interesting margins, you know, through your investment, you know, in this way. And that's set to continue in the medium to long term because Australia is a constrained island market as it relates to, the supply of energy. And finally, in terms of Spain, Portugal, and Sweden, the first thing I would say is, and I'll touch, on it in... On on the subsequent slides is, Western Europe is a particularly interesting market for us, but we're not interested in participating in a very conventional way as it relates to renewables. We don't believe this is a conventional way of looking at the market, and I'm gonna take you through why that is on the subsequent slides.

39:08 Thank you, Richard. Just while we have this, and I think you alluded to this, on Australia, but what determines whether it is worth adding best to solar assets?

39:19 Well, the interesting thing for solar assets is during the day, there is obviously significant amount of, irradiation resources or solar resources in particular. And there are many rooftop solar schemes in the Australian market, including in the likes of, South Australia, such that the type of pricing you would get actually is negative, and actually a lot of solar producers curtail their production. So one way of getting around that is actually to be able to store

39:50 that cheap or or free source of, solar and dispatch it when you need the electrons most. And that's really what drives the idea of, putting battery storage, with solar sites. Thank you, Richard. And I think as we go to the next slide, probably just to to note, one of the questions we had or notes, made were around buybacks and further investments. As long term shareholders, they would or at least, this interview would prefer us to make further investments. And Rich will talk you through the latest investment we made, in in Europe, versus the buyback. So, Rich, over to you. Thank you. I'm gonna take you through, excuse me, why I felt this particular investment was interesting for us. And I think I'll point to, my colleague, Mike Egan, that can more, articulate to you the, capital allocation policy we have. How do we determine between, you know, investments and buybacks, after I've given you a little bit of a, a color on this particular investment. Now, this investment, incorporates two legs. We initially acquired, and that's what we announced post period, the acquisition of, close to 60 megawatts, five assets of renewable power assets in Spain, Portugal, and Sweden. This comprised of two operational assets and three assets currently under construction at the moment. A second leg is due to be completed, you know, relatively soon.

41:18 Watch this space. And that involves us crowding in a European strategic fund as well to be our partner in this program such that we would, on average, they're they're about allocate about 50%, you know, about half and half in terms of interest in the combined portfolio of two hundred and forty nine forty eight megawatts of assets, nine assets in across these geographies. Now the predominant assets sit within Spain. Spain is a new entry for us. We've not traditionally invested in that region. I'm gonna tell you why in the next phase. But for the minute, I... What I would say

41:54 is this is a highly attractive asset from our perspective. We're entering into a new relationship. Remember I mentioned earlier the concept of operating partners that GSEO has. We have a new operating partner now, a Spanish one called Spanish Power, a specialized developer and operator of assets. They've been doing this for several decades, and they have, developed and sold around 1.8 gigawatts of renewable assets in the, in the region itself. And we're also creating a sustainability impact through this investment as well with about 489,000,490,000 of clean energy per year, equivalent of powering a 100,000, Spanish homes, as well. Now why do we find Spain, Portugal and Sweden interesting? Well, I'm gonna focus on Spain because close to 90% of the portfolio is situated in Spain, and we found this a very interesting way for us to get involved in the market. So here's a couple of things.

42:53 Spain is very interesting because it is one of the frontier markets for the production of renewable electrons in in in Europe and indeed the world. And if you were to consider my prior point about the predominance and the growth of AI driven data centers as stimulating demands for electrons as we move forward. Spain's one of those markets where, you know, data centers are now starting to invest in quite heavily because they realize actually there are lots of cheap electrons out there for them to use, and goodness knows they need to use a lot of electrons. From our perspective as an investor into the producers of those electrons, what we see are three things. The first thing is Spain as a a power market is pretty much like an island. Much like Australia, it is a constrained market. The reason for that is the power interconnectors to the rest of Europe, particularly those interconnectors into France, for example, there where are highly dependable nuclear fleets there to produce electrons, is very limited.

43:52 So if there is any shortage of electrons

43:54 within the context of Spain, they can't get supplied with power to the extent that the likes of The UK can. The UK is heavily connected to the rest of Europe, both in terms of power interconnectivity and also in terms of natural gas interconnectivity, such that at any given time, you can draw on sources of power if you don't have sufficient power in The UK from the rest of Europe. In Spain, that's not the case. And what the Spanish government has said that is that from 2035, actually, the nuclear fleet, which is highly dependable

44:29 source of power, will be run off. The mandate has been removed for nuclear in Spain and will be wholly replaced by renewables, meaning wind and solar. Now that's great from an emotive perspective because it's gonna be zero emissions, but it's not so great if you were to consider you... You're now replacing a dependable source of power with highly intermittent source of power that is renewables. And in our view, that will create a constraint on the supply of power again, at peak hours if there were this insufficient irradiation or solar levels or indeed wind deals are low. That creates a natural type of constraints on the supply. On the demand side, however, as I've mentioned earlier, because data centers are investing heavily in areas such as Spain, such as Sweden, such as France, where electrons are very cheap, they're sucking up a lot of those electrons and creating some tightness between the supply and demand in the country. That is the reason why we've invested in Spain because we foresee there being potential interesting, revenue opportunities, commercial opportunities with our assets as the market experiences tightness between the supply and the demand of power. Now you'll see there on the right hand side, we modeled a base case investment, based on a power price of about 49, megawatt, euros per megawatt on average. And that compares to... They're they're about €73 per megawatt for the last three months average, that we saw in the Spanish power market.

45:57 That just demonstrates really the conservative approach that we took to the investment. And based on that assumption, we're likely to generate... We're looking to generate a target levered IRR of about 10%, over this program. The interesting thing for investors is, again, remember I talked to you earlier about the, like, about the fact that we're, really interested in optimizing our investments. We don't just wanna construct or build assets and go away on holiday for fifteen, twenty years. We want to see what more we can get out of those assets within the context of Spain, that 10% IRR as a starting point. We're now gonna be looking in the next phase of actually investing and putting battery storage together with our, solar generation,

46:41 assets in the countries. We're hybridizing those assets because we believe there is more value to be had with battery storage in a constrained market where the supply and demand will have some tightness much like in Australia. And we think over time, we're going to be able to achieve our IRRs, levered IRRs, grow that to 15% levered IRRs in this particular investment. Thank you, Richard. I think we've gone through the assets, we'll just spend a few minutes, just a couple of minutes quickly to just give updates as to where we are. And the updates on the solar PV assets, you recall, I was talking about Australia being, you know, a constrained market and the likelihood that there's going to be interesting price, phenomena occurring. And we've seen those types of events occur in the first half year, on on the Australian market. In particular, we've seen prices spike, up to, there thereabouts a thousand Aussie dollars per megawatt hour at any given time because coal fired power plants, that is the backbone of, of the power system there.

47:44 Some of those facilities had gone down for maintenance or unexpected maintenance because they're an aging fleet there, and that creates, the ability for us to access those really interesting prices with our battery storage on one of the first projects that we acquired in the country in South Australia. And indeed, the types of margins we've generated from there based on a base case assumed price of about 80 to 100 Aussie dollars per megawatt hour, we were registering anywhere in excess of 200 to 300, Aussie dollars per megawatt hour. That gives you context in terms of the market dynamics we're looking to access. There are seven investments we made in that particular country. Five of those assets are currently in construction. Three of them are due to be hybridized with solar and batteries by the end of this year. The following two are being constructed from scratch with both solar and battery storage together. That's likely to come on stream on the other end of summer next year. In the context of The UK flexible power plant

48:41 and carbon capture and reuse project, highly, unique project here, we're very excited by the fact that the four Rolls Royce engines producing the power were fully commissioned and have been generating power during the, the period under review. And, actually, we're expecting the full, integrated project with the carbon capture and reuse coming on stream, before the end of this year as well.

49:08 A couple of things to note within the context of Brazil. There's two, investment programs there. The first one related to the hydro facility. You know, it remains a strong performer, within portfolio. You know, the production levels in terms of, you know, the resource we have there has been above budgeted levels in the period under review. And there's been several things that have been conducted in terms of optimization of the facility by our operating partners to make improvements on the facilities, etcetera. I'm going to hand over now to my colleague, Elena Fraser Smith, our Head of Sustainability, just to comment on a couple of those. Thanks, Richard, and good morning, everyone. As Richard mentioned earlier, this is a fund with a sustainable investment objective.

49:56 And I'll talk through a little bit about the impact we've had over the half year a bit later. Additionally, we work with our operating partners to drive sustainable value through the operations. So we have asset specific sustainable action plans looking at the operating procedures on the ground and that interaction with the local communities and the local environment, and we try and drive that additional sustainable value. A really good example of this is actually the hydro facility. They have worked extremely hard over the last year, year and a half to obtain the hydropower sustainability standards, we're looking to get that certification by the end of the year.

50:46 Now a substantial focus of that has been building relations with the local community, the relationship that wasn't there when we acquired the plant at the end of twenty twenty two. And that came to a combination earlier this year when we had a fiftieth anniversary celebration for the plant, of which over 200 community members attended previous employees and their families and existing employees. It was a significant milestone for the plant, and it demonstrated to us the efforts that our operating partner put in into building those relationships. So we were very pleased to see that.

51:31 Thank you, Eleanor. Moving on to our distributed solar assets, in in Brazil as well. Now there are 16 assets in total that we've we've allocated investments for. 10 of those assets are operational, and we're really pleased to to report that they've been... The operations and the production levels on those solar assets have been settling down to the expected p 50 levels that we had initially invested against. So that's great news on that side of things. The remaining six assets, three of which are currently under construction, we had to replace a contractor working on those three assets because we wanted to get those assets up and running, for investors before the end of the year. And we felt that the progress that was made by the incumbent contractor at that period of time was insufficient, was below expected performance. And therefore, in order to prevent further delays, we replaced that contract with a new one. So we're pretty confident at the moment that those first three of the six assets are gonna come on stream before the end of the year, and then we'll move on to constructing the final three assets in the portfolio itself. Performance, as I mentioned, is improving

52:36 over that reported period, but post period is actually being there thereabouts to where we expected it to be. And finally, in terms of The US terminal storage assets, I may have alluded to this, but, implementation of operational efficiencies, has been undertaken on the terminal. There is a t one terminal as one of the tanks, a group of tanks that we have. Inspections were undertaken there. Preventative services were implemented, on those tanks to provide us, with on the operations of it and to ensure there's no, you know, unexpected downtimes there. That's super important for us, given that, you know, we want to increase the amount of, operations and capacity operations that we have on those.

53:24 Yeah. So that's that's been really well, going really well. We're currently assessing further opportunities to further expand that plant because when we initially acquired the assets, that plant was about 500,000 barrels capacity. We used our capital to further increase it by about 300,000 barrels, and we believe there is further capacity expansion that can also be achieved. And we're currently working with our, developer partner, our operating partner on the ground there to assess the particular commercial opportunity that would allow us to actually increase that. We... It is likely that we would use some bank debt to be able to be able to finance that side of it. And just to mention on the terminal storage assets, our operating partner met a sustainable action plan requirement of obtaining ISO certification at the beginning of this year on their environmental management system and their health and safety management system, which we were really pleased to see. And to put that into context, the membership of the International Liquid Terminal Association, only 10% of that certification demonstrating our... The commitment of our operating partner towards that that asset management and and that safety standard, something that the ILTA actually recognized when they they gave the terminal their twenty twenty four safety award earlier this year as well.

54:50 So as I mentioned, the the fund has a sustainable investment objective and as Richard said, we are... We're disclosing to Article nine into the EUS FDR regulation. I put here some of the highlights in terms of the sustainability impact for the half year. We've got the renewable energy generated separated here by solar and hydro and some equivalency calculations in terms of what that means if that power is generated into The UK. That's over a 130,000 average homes in The UK, the amount of

55:27 power. That renewable energy is injected into the grids, displacing some more, traditional forms of energy. And so we've got the, avoided emission calculations here as well, as well as equivalency. So that eight... Over 80,000 tons of c o two is equivalent to removing around 44,000, average cars from UK roads. And then the final, column here, we've got the, air emissions avoided from displacing that high sulfur fuel oil from the Mexican value chain. So we've got the sulfur, nitrogen, and particulate matter, emissions avoided. Really pleased with the performance so far this year, which is very much commensurate with last half year. Finally, I just wanted to touch upon some of these increasing regulations we're seeing.

56:18 Something that that we welcome is the fund with a sustainable investment objective, so anything that gives clarity to investors is welcome. We'll continue reporting under the SFDR. We've got the new SDR regime. We're in the process of applying an SDR label to the fund and have updated the investment objective to reflect that and and in the process of getting all our documentation and disclosures disclosures in order. So that will be meet the deadline of the end of the year for that. We've also seen in the half year, ESMO released some guidance on fund names. So we're looking at how those prescriptions relate to the fund and our underlying investments with with the intent to be fully compliant by the deadline next year.

57:09 So as the regulatory regimes, no doubt, will change, we will continue with the fund's intent sustainability impact on the energy transition. That will not change. Thank you. Back to you, Navin. Thank you, Lynne. I'm just conscious of time, so just maybe time for maybe one or two questions before we hand it back. On the dividend cover, Mike, so we give 1.1x. But as the portfolio comes, we'll become operational and fully operational towards the

57:41 end of twenty twenty five. What could we expect this number to be? Sure. Obviously, dividend cover, it depends on the underlying cash generation of the assets. And as we shift from the construction heavy piece to an operational piece towards the end of this year. We'll see those earnings start coming through in 2025, and we expect on an unlevered basis the dividend cover to be 1.3 to 1.5 times. Thank you, Mike. Still with you, would we utilize portfolio level debt at any point?

58:20 We're constantly assessing whether to use portfolio level debt or not. In terms of the fund mandates, we're restricted to 30% debt, and this needs to be short term debt. When looking at the financial flexibility and where is the optimum areas to deploy debt into the portfolio, We're seeing significantly better pricing at the investment level at the end of... Against the assets. So there's a there's a balance between getting portfolio debt, which is short term,

58:55 and potentially, you know, if equity markets are not open to to refinance this debt, could put risk in the portfolio. So it's likely that we'd look more at the asset level to to introduce debt at that level at sustainable levels. Thank you, Mike. And and with that, I'd just like to thank everyone for your time and questions.

59:17 You know, hopefully, over the last hour, you'd have, grasped that this is a a very differentiated portfolio amongst the sector and offers real diversification within your portfolios, whether it's through technology, geography, the low leverage and given the flexibility for us to to to increase that as well as the the higher target returns, again, amongst amongst the peer group. At the end of the period, the the trust was yielding around seven and a half percent, which is quite attractive, I guess, versus,

59:48 where interest rates are going now, which has actually been a been a hindrance to much of the sector. But I think we are seeing this turnaround as the rate cutting cycle, but we know the direction of travel. And much of these cash flows, are inflation linked and backed by real assets to sustain that that cash generation and the dividend that we that we are paying to to investors. And of course, this morning, I'm sure some of you may have read announcements from the cost disclosures, which again should be positives to the fund. So with that, I just want thank you again for your time. And I'll pass over to Lily for closing comments. Thank you all for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations?

1:00:35 This will only take a few moments to complete, and I'm sure be greatly valued by the company. On behalf of the management team of VH GLOBAL sustainable energy opportunities PLC, we'd like to thank you for attending today's presentation, and good morning to you all.