HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — FY2021 Earnings Presentation
66 slides from HICL Infrastructure's earnings presentation, May 26, 2021
Slide 1: HICL Infrastructure PLC Annual Results Presentation
HICL Infrastructure PLC Annual Results Presentation: Year to 31 March 2021 26 May 2021 hicl.com |
Slide 2: Important information
Important information For Investment Professionals (as defined under FSMA 2000). Individuals without professional experience in matters relating to investments should not rely on this information By attending the meeting where this presentation is made, or by reading the presentation slides, you agr
Slide 3: Agenda
Agenda Section Page Highlights and Investment Proposition 4 Valuation Overview 10 Portfolio Performance and Asset Management 16 Market, Investment Activity and Investment Outlook 24 Concluding Remarks 28 Appendices 30 hicl.com | 3
Slide 4: Highlights and Investment Proposition
Highlights and Investment Proposition hicl.com |
Slide 5: Performance Highlights
Performance Highlights Resilient performance for the year to 31 March 2021 152.3p 5.5% 8.25p NAV per share1 Total Shareholder Return2 Dividend per share Steady versus 1.9% for the year to Declared for 2021, guidance for 2022 31 March 2020 31 March 2020 and 20231,3 1.07% 6.8% 0.9x Ongoing charges Wei
Slide 6: Results Overview
Results Overview Resilient financial and operational performance Performance ▲ NAV per share steady at 152.3p. The valuation was supported by robust performance from underlying portfolio and continued demand for the asset class lowering discount rates. This was offset by external factors: the UK bud
Slide 7: Long-term Income from Core Infrastructure
Long-term Income from Core Infrastructure A portfolio positioned at the lower end of the risk spectrum 1 3 Core infrastructure investment characteristics Actively managed to deliver sustainable income 0.8 28.6 yrs Outperformance Enhance communities’ High correlation of portfolio Weighted returns to
Slide 8: HICL's Track Record
HICL’s Track Record1 Consistent delivery over 15 years Dividend increased by 35% over 15 years Total Return (NAV growth and dividends) of 8.9% p.a. since IPO 9.0p 250p 8.0p 7.0p 200p 6.0p 5.0p 150p 4.0p 3.0p 100p 2.0p 50p 1.0p 0.0p IPO FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE
Slide 9: Sustainable Thinking
Sustainable Thinking A long-term approach to investing in and managing core infrastructure Stewardship Reporting Action ▪ HICL voluntarily reported against all 11 recommended disclosures of A+ the Taskforce on Climate-related for sixth Financial Disclosure (TCFD) consecutive year2 ▪ InfraRed is a si
Slide 10: Valuation Overview
Valuation Overview hicl.com |
Slide 11: Portfolio Overview – Cash Flow Profile
Portfolio Overview – Cash Flow Profile1,2,3 Sustainable long-term cash flows and a stable portfolio valuation in the medium term ▲ Portfolio cash flows underpin forward dividend guidance ▲ Hollow bars represent reductions in forecast cash flows, mainly from reforecasting the demand-based assets due
Slide 12: Key Valuation Assumptions
Key Valuation Assumptions Movement 31 March 2021 31 March 2020 Discount Rate Weighted Average 6.8% 7.2% UK (RPI2 & RPIx2) 2.75% to 2030, 2.0% thereafter 2.75% CPIH3 2.0% 2.0% Inflation1 Eurozone (CPI) 2.0% 2.0% (p.a.) Canada (CPI) 2.0% 2.0% USA (CPI) 2.0% 2.0% UK 0.25% to March 2025, 1.25% thereafte
Slide 13: Analysis of Change in Directors' Valuation
Analysis of Change in Directors’ Valuation Directors’ Valuation1 of £3,011.9m as at 31 March 2021 ▲141.1 ▼(113.7) £3,100m ▲150.5 ▼(27.5) ▼(166.2) 3,011.9 ▲213.2 ▼(34.4) ▼(36.4) £3,000m 2,888.5 £2,900m 2,845.3 £2,800m £2,700m £2,600m £2,500m £2,400m £2,300m 2,974.5 2,811.5 3,011.5 2,845.4 2,947.1 2,9
Slide 14: Discount Rate Analysis
Discount Rate Analysis Discount rate compression due to low bond yields and market demand for core infrastructure ▲ Discount rates for investments range Total Discount Rate3 between 5.8%1 and 8.7% Appropriate Long-Term Risk ▲ Discount rates have decreased by 0.4% in Government Premium 31 30 31 Bond
Slide 15: Key Valuation Sensitivities
Key Valuation Sensitivities Sensitivity to key macroeconomic assumptions ▲ The FX rate, Lifecycle and GDP sensitivities are Discount Rate +/- 0.5% (7.6) 8.4 based on the relevant affected assets, and the discount rate sensitivities are based on analysis of the whole portfolio Inflation -/+ 0.5% (p.a
Slide 16: Portfolio Performance and Risk Management
Portfolio Performance and Risk Management hicl.com |
Slide 17: Portfolio Metrics
Portfolio Metrics Ten largest assets accounted for c. 46% of the portfolio1 31 March 20211,2 31 March 2020 10 Largest Investments1 Number of 116 117 Affinity Water, 8% investments Remaining Investments, 54% A63, 7% Percentage of portfolio by value – 46% 44% Northwest Parkway, 5% 10 largest assets So
Slide 18: Portfolio Diversification
Portfolio Diversification HICL’s Portfolio, as at 31 March 20211 MARKET SEGMENT GEOGRAPHIC LOCATION Mar-21 Mar-21 Mar-20 Mar-20 Mar-21 Mar-20 Mar-21 Mar-20 ▲ UK 74% 76% ▲ PPP Projects 71% 72% ▲ Europe (exc UK) 18% 17% ▲ Demand-based Assets 19% 20% ▲ North America 8% 7% ▲ Regulated Assets 10% 8% INVE
Slide 19: Portfolio Performance I
Portfolio Performance I PPP projects represent 71% of the portfolio, by value Investment rationale ▲ Long-term contracts with strong public sector clients in developed economies ▲ Availability-based payment mechanisms produce revenues that are uncorrelated to the wider economy ▲ Long-term funding ar
Slide 20: Portfolio Performance II
Portfolio Performance II Demand-based assets represent 19% of the portfolio, by value Investment rationale ▲ Operational assets are at the lower end of the risk spectrum when featuring strong usage history or limited uncertainty in forecast demand (absent widespread movement restrictions) ▲ Long-dat
Slide 21: Portfolio Performance III
Portfolio Performance III Regulated assets represent 10% of the portfolio, by value Investment rationale ▲ Essential assets that are regulated due to monopoly market positions ▲ Complementary risk profile to PPP projects and demand-based assets ▲ Assets are subject to licence periods, where operatio
Slide 22: Climate Change Impact Assessment
Climate Change Impact Assessment ▲ The Investment Manager has undertaken a detailed climate change impact assessment, supported by Willis Towers Watson, which enables reporting against all 11 recommended disclosures of the Taskforce on Climate-related Financial Disclosure (TCFD) ▲ Covering the entir
Slide 23: Risk and Risk Management
Risk and Risk Management1 Political and ▲ Following significant fiscal programmes in HICL’s key markets to respond to the impact of the pandemic, there is potential regulatory risk for national governments to follow the example of the UK government and increase corporation tax increases; the sensiti
Slide 24: Market, Investment Activity and Investment Outlook
Market, Investment Activity and Investment Outlook hicl.com |
Slide 25: HICL's Core Infrastructure Focus
HICL’s Core Infrastructure Focus ▲ Core infrastructure is a distinct market segment at the lower end of the risk spectrum. By its nature it is generally visible / located in the heart of communities, underpins economic activity and comprises long-life, capital intensive assets ▲ Core infrastructure
Slide 26: Investment Activity
Investment Activity Market coverage filtered by focused acquisition strategy and investment discipline New deals reviewed in the EVALUATION 28 period Transactions subject to DUE DILIGENCE 22 detailed due diligence in the period Transactions completed for HICL INVESTMENT 5 and 9 live opportunities1 A
Slide 27: Market and Outlook
Market and Outlook ▲ The defensive characteristics and predictable long-term yields from core infrastructure remain attractive to institutional investors; ongoing IRR compression in HICL’s target markets as a result ▲ Infrastructure procurement central to post-pandemic government stimulus measures a
Slide 28: Concluding Remarks
Concluding Remarks hicl.com |
Slide 29: Concluding Remarks
Concluding Remarks Delivering Real Value. ▲ Resilient results amidst a challenging global environment, underpinned by the portfolio’s diversification, inflation correlation and core infrastructure positioning ▲ HICL continues to pay the highest dividend in the core infrastructure peer group. Dividen
Slide 30: Appendix I: The Investment Manager
Appendix I The Investment Manager hicl.com |
Slide 31: Overview of InfraRed Capital Partners Ltd
Overview of InfraRed Capital Partners Ltd (“InfraRed”) InfraRed is the Investment Manager and Operator Strong, 25+ year track record of launching 19 infrastructure and real estate funds (including HICL and TRIG) Currently over US$12bn of equity under management1 London based, with offices in Hong Ko
Slide 32: InfraRed – Infrastructure Team Skills and Experience
InfraRed – Infrastructure Team Skills and Experience ▲ Proven track record in target markets of UK, Europe, North America, Latin America and Australia / New Zealand ▲ Focused teams including: − Origination and Execution Team responsible for sourcing, diligencing and acquiring new investment opportun
Slide 33: Investment Committee
Investment Committee Senior InfraRed team, experienced in making and managing infrastructure investments Werner von Guionneau - Chief Executive Officer Werner is the Chief Executive Officer of InfraRed and is one of InfraRed’s Managing Partners. He is focused on developing strategy and driving the e
Slide 34: Appendix II: Company Information
Appendix II Company Information hicl.com |
Slide 35: HICL's Characteristics
HICL’s Characteristics Objective ▲ To deliver long-term, stable income from a diversified portfolio of core infrastructure investments ▲ Focused on investments at the lower end of the risk spectrum, which generate inflation-correlated long-term returns History ▲ IPO in 2006, 13 successive years of d
Slide 36: Infrastructure Market Map
Infrastructure Market Map Schematic showing HICL’s Investment Policy1 Scope Examples: hospitals, schools, government Examples: gas and electricity transmission and accommodation and availability transport distribution; water utilities; district heating (e.g. road/rail) Chart Key - Inner wheel denote
Slide 37: HICL Infrastructure PLC Group Structure Diagram
HICL Infrastructure PLC Group Structure Diagram Equity Independent Directors1 HICL’s Shareholders dividends ▪ Governance (predominantly UK) Interest and ▪ Oversight principal ▪ Strategy Investment Manager HICL Infrastructure PLC ▪ HICL's AIFM AIF2 subject to the full scope of the AIFMD3 ▪ Fund Manag
Slide 38: Governance
Governance Independent board of non-executive Directors ▲ Approves and monitors adherence to strategy ▲ Monitors risk through Risk Committee ▲ Additional committees in respect of Audit, Remuneration, Management Engagement, Nomination and Market Disclosure ▲ Monitors compliance with, and implementati
Slide 39: Sustainable Thinking
Sustainable Thinking A long-term approach to investing and managing core infrastructure The Board has overall responsibility InfraRed applies for HICL’s Sustainability Policy HICL’s Sustainability Policy including the potential impact applies to making new investments and of climate change the manag
Slide 40: Board of Directors I
Board of Directors I Non-executive Directors with a broad range of relevant experience and qualifications Ian Russell, CBE Frank Nelson Rita Akushie Mike Bane Chairman Senior Independent Director Director Director Ian, HICL’s Chairman, is resident in the Frank, a UK resident, is a qualified Rita Aku
Slide 41: Board of Directors II
Board of Directors II Non-executive Directors with a broad range of relevant experience and qualifications Frances Davies Susie Farnon Simon Holden Kenneth D. Reid Director Audit Committee Chair Risk Committee Chair Director Frances, a UK resident, has more than Sally-Ann (known as Susie), a Guernse
Slide 42: Key Performance Indicators (KPIs)
Key Performance Indicators (“KPIs”) KPI Measure1 31 March 2021 31 March 2020 Objective Commentary Aggregate interim An annual distribution of at Dividends dividends declared per 8.25p 8.25p least that achieved in the prior Achieved share in the period year Total NAV growth and A long-term IRR target
Slide 43: Key Quality Indicators (KQIs)
Key Quality Indicators (“KQIs”) KQI Measure1 31 March 2021 31 March 2020 Objective Commentary Percentage of portfolio value 46% 44% Maintain a diversified portfolio of represented by the ten largest investments (thereby mitigating Investment investments concentration risk) and, at all times, Within
Slide 44: Analysis of Change in NAV per Share
Analysis of Change in NAV per Share1 Year to 31 March 2021 170p ▲7.4 ▼(6.0) 165p ▲0.5 ▼(1.8) ▼(0.9) 160p ▼(6.2) 155p ▼(2.1) 8.8 ▲0.3 150p 145p 159.4 140p 158.1 158.1 158.5 150.3 152.4 152.3 150.2 152.3 135p 150.2 130p 125p 120p 31 March 2020 Dividend paid 31 March 2020 Accretive Tap Performance Covi
Slide 45: Summary Financials I
Summary Financials I Figures presented on an Investment Basis1 For the year ended For the year ended Income Statement 31 March 2021 31 March 2020 Total income £188.7m £86.7m Fund expenses & finance costs (£36.6m) (£36.7m) Profit before tax £152.1m £50.0m Earnings per share2 7.9p 2.7p Ongoing charg
Slide 46: Summary Financials II
Summary Financials II Figures presented on an Investment Basis1 For the year ended For the year ended Cash Flow 31 March 2021 31 March 2020 Opening net debt £28.7m (£84.3m) Net cash flow £142.9m £169.1m Investments (net of disposals) (£135.0m) (£16.0m) Equity raised (net of costs) £118.6m £115.2m Fo
Slide 47: Investment and Capital Raising
Investment and Capital Raising ▲ Acquisitions are identified which fit the Acquisition Strategy; facilitated by demand for HICL shares ▲ Acquisitions are initially debt-funded (using £400m committed Revolving Credit Facility at Group level), to avoid cash drag and to give shareholders visibility ove
Slide 48: Appendix III: The Investment Portfolio
Appendix III The Investment Portfolio hicl.com |
Slide 49: Portfolio I
Portfolio I Portfolio of 116 assets Education 16% of Directors’ Valuation1 Bangor & Nendrum Schools Derby Schools Manchester School Salford & Wigan BSF Phase 1 Barking & Dagenham Schools Ealing Schools Newham BSF Schools Salford & Wigan BSF Phase 2 Belfast Metropolitan College East Ayrshire Schools
Slide 50: Portfolio II
Portfolio II Portfolio of 116 assets Health 29% of Directors’ Valuation1 Barnet Hospital Central Middlesex Hospital Newton Abbot Hospital Salford Hospital Birmingham Hospitals Doncaster Mental Health Hospital Oxford Churchill Oncology Sheffield Hospital Birmingham & Solihull LIFT Ealing Care Homes O
Slide 51: Portfolio Analysis
Portfolio Analysis HICL’s Portfolio, as at 31 March 20211 OWNERSHIP STAKE SECTOR Mar-21 Mar-21 Mar-20 Mar-20 Mar-21 Mar-20 Mar-21 Mar-20 ▲ 100% ownership 31% 26% ▲ Accommodation 11% 11% ▲ 50% - 100% ownership 29% 34% ▲ Education 16% 14% ▲ Less than 50% ownership 40% 40% ▲ Electricity, Gas & Water 10
Slide 52: Portfolio – Key Attributes
Portfolio – Key Attributes Evolution of the Group’s portfolio Geographically Diverse Portfolio Diverse Sector Spread 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012
Slide 53: Facilities Management and Operations Counterparty Exposure
Facilities Management and Operations Counterparty Exposure ▲ Exposure is reviewed quarterly and reported to the 10 Largest Facilities Management Risk Committee by InfraRed and Operations Counterparty Exposures1 ▲ Contingency plans are in place to address scenarios where material issues lead to a fai
Slide 54: Construction Counterparty Exposure
Construction Counterparty Exposure ▲ Following construction completion, the construction contractors are required to remediate construction defects for a specified period of time; in the UK the statutory period of limitations is 12 years ▲ As at 31 March 2021, 27% of the portfolio1 benefited from th
Slide 55: Appendix IV: Valuation Methodology and Cash Flow Sensitivities
Appendix IV Valuation Methodology and Cash Flow Sensitivities hicl.com |
Slide 56: Valuation Methodology
Valuation Methodology HICL’s valuation methodology is rigorous and closely scrutinised Semi-annual valuation and NAV reporting: ▲ Carried out by Investment Manager ▲ Independent opinion for Directors sourced from third-party valuation expert ▲ Audited by the Company’s auditor ▲ Final valuation appro
Slide 57: Portfolio Cash Flow Sensitivity I
Portfolio Cash Flow Sensitivity I Inflation-correlated returns for long-term investors1 If outturn inflation was 1.0% p.a. higher in all future periods than the rates in the valuation assumptions set out on page 12, the expected return from the portfolio2 (before Group expenses) would increase by 0.
Slide 58: Portfolio Cash Flow Sensitivity II
Portfolio Cash Flow Sensitivity II Impact of changes in Gross Domestic Product on portfolio cash flows1 If GDP assumptions were 0.5% p.a. lower for all future periods, expected return from the portfolio 2 (before Group expenses) would decrease 0.2% from 6.8% to 6.6% GDP sensitivity for 0.5% higher /
Slide 59: High Speed 1 (UK) Revenue Modelling
High Speed 1 (UK) Revenue Modelling ▲ High Speed 1 (“HS1”) has strong strategic positioning as the UK’s only high-speed rail link and the only rail connection between London and Europe, and is uniquely positioned to take advantage of a future transition to a low-carbon economy ▲ International travel
Slide 60: Hedging Foreign Exchange Risk
Hedging Foreign Exchange Risk HICL hedges foreign exchange (“FX”) risk in relation to Hedging at 31 March 2021 assets it owns where cash flows are denominated in currencies other than British Pounds Hedging provides confidence in the near-term yield and helps mitigate the impact on NAV per share of
Slide 61: Appendix V: The Infrastructure Asset Class
Appendix V The Infrastructure Asset Class hicl.com |
Slide 62: Typical PPP Project Structure
Typical PPP Project Structure Client Project agreement HICL Infrastructure PLC Construction Shareholder Project Financing Bonds/Loans Partner agreement Company agreement Operational Partner Construction Operating MSA contract sub-contract sub-contract Maintenance Project Company Construction and FM
Slide 63: Illustrative Investment Cash Flow Profile – PPP Project
Illustrative Investment Cash Flow Profile – PPP Project Example: Social infrastructure return derived from an ‘availability’ revenue stream Typical PPP Project Investment Cash Flow Profile Bidding Construction Operation & Maintenance Phase Phase Phase Value (3) (2) (1) - 1 2 3 4 5 6 7 8 9 10 11 12 1
Slide 64: Illustrative Investment Cash Flow Profile – Demand-based Asset
Illustrative Investment Cash Flow Profile – Demand-based Asset Example: Toll road return derived from a demand-based asset revenue stream Typical Toll Road Investment Cash Flow Profile Bidding Construction Ramp- Phase Phase Up Operation & Maintenance (Steady State) Illustrative Chart Value Typical t
Slide 65: Illustrative Investment Cash Flow Profile – Regulated Asset
Illustrative Investment Cash Flow Profile – Regulated Asset Example: Utility company return derived from a regulated revenue stream Typical Regulated Asset Investment Cash Flow Profile Operational Network Illustrative Chart Value 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 2
Slide 66: Valuation – Methodology
Valuation – Methodology Determining the net asset value of the portfolio and the Group (PPP project example) £100m Concession Contract Revenue + Deposit Interest Key Variables / Assumptions £80m Forecast £60m Long-term Inflation Rate Project £40m Interest Rate Inflows £20m • Whole-of-life concession