HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — FY2017 Earnings Presentation
65 slides from HICL Infrastructure's earnings presentation, May 24, 2017
Slide 1: HICL Infrastructure Company Limited Annual Results Presentation
HICL Infrastructure Company Limited Annual Results Presentation: Year to 31 March 2017 24 May 2017 hicl.com |
Slide 2: Agenda
Agenda Section Page Annual Results 3 Case Study: A Decade of Outperformance 13 Investment Activity 16 Case Studies: Recent Acquisitions 19 Portfolio, Asset Management and Risk 22 Investment Proposition and Business Model 28 Performance and Summary 32 Appendices 37 This presentation and subsequent di
Slide 3: Annual Results
Aquasure Desalination Plant, Melbourne, Australia
Slide 4: Highlights for the year to March 2017
Highlights For the year to 31 March 2017 149.0p £2,380.0m 10.3% NAV per share Directors’ Valuation1 annual shareholder return2 Increased by 6.8p (4.8%) from NAV per Value of the Company's investment based on interim dividends paid plus share of 142.2p at portfolio up 17.2% in the year from uplift in
Slide 5: Highlights
Highlights For the year to 31 March 2017 Performance ▲ Portfolio performance exceeded expectations ▲ Robust cashflow New Investments1 ▲ 10 new and five follow-on investments committed in the year ▲ Total new investments of £266.6m ▲ Post year-end, £269m2 Affinity Water acquisition – HICL’s first UK
Slide 6: Summary Financials I
Summary Financials I Figures presented on an Investment Basis1 Income Statement (year ended) 31 March 2017 31 March 2016 Total income £207.6m £182.9m Fund expenses & finance costs (£30.5m) (£25.5m) Profit before tax £177.1m £157.4m Earnings per share2 12.4p 11.9p Ongoing charges3 1.06% 1.12% Balance
Slide 7: Summary Financials II
Summary Financials II Figures presented on an Investment Basis1 Cashflow (year ended) 31 March 2017 31 March 2016 Opening net cash £52.7m £33.5m Net operating cash flow £122.8m £107.3m2 Investments (net of disposals) (£339.5m) (£165.7m) Equity raised (net of costs) £369.7m £176.8m Forex movements an
Slide 8: Portfolio Overview – Cashflow Profile
Portfolio Overview – Cashflow Profile1 £300m £3,000m The valuation of the Current Portfolio (RHS) at any time is a function of the present value £250m £2,500m of the expected future cash flows1,2 Annual Project distributions £200m £2,000m Portfolio Value £150m £1,500m £100m £1,000m £50m £0,500m £0m
Slide 9: Analysis of Change in Directors' Valuation
Analysis of Change in Directors’ Valuation Future commitments £2,500m £2,400m 2,380.02 40.4 (7.2) 17.8 £2,300m 272.73 (148.9) 173.3 £2,200m 2,154.1 £2,100m 2,030.3 £2,000m £1,900m £1,800m 1,932.9 2,123.2 2,347.5 £1,700m 1 8.2% 1.9% (0.3%) 0.8% £1,600m £1,500m 31 Mar 2016 Investments Cash Rebased Ret
Slide 10: Discount Rate Analysis
Discount Rate Analysis Market valuation of assets increased in Appropriate Total Discount Rate2 the year long-dated Risk government Premium ▲ Discount rates for investments range between bond yield1 31 March 2017 30 September 2016 31 March 2016 5.6% and 9.8% (March 2016: 7.0% and 10.1%) UK 1.7% + 5.
Slide 11: Key Valuation Assumptions
Key Valuation Assumptions Movement 31 March 2017 31 March 2016 Discount Rate Weighted Average 7.4% 7.5% UK (RPI2 & RPIx2) 2.75% 2.75% Eurozone (CPI) 1.0% to 2019 and 2.0% thereafter 1.0% until 2018 and 2.0% thereafter Inflation1 Canada (CPI) 2.0% 2.0% (p.a.) Australia (CPI) 2.5% 2.5% (except EU) USA
Slide 12: Key Valuation Sensitivities
Key Valuation Sensitivities Sensitivity to key macroeconomic assumptions ▲ Sensitivities presented in the chart, with the Discount Rate +/- 0.5% (6.9) 7.5 exception of the discount rate, FX rates and GDP analysis, are based on the largest 25 investments in the HICL portfolio by value, and then extra
Slide 13: Case Study: A Decade of Outperformance
Case Study: A Decade of Outperformance hicl.com |
Slide 14: A Decade of Outperformance I
A Decade of Outperformance I Significant NAV growth – IPO to 31 March 2016 NAV growth to 31 March 2016 of 44.2p per share higher than expected at IPO NAV growth comprised of 30.0p due to Portfolio Outperformance and 14.2p due to economic factors and discount rates Economic factors largely driven by
Slide 15: A Decade of Outperformance II
A Decade of Outperformance II Portfolio Outperformance – IPO to 31 March 2016 30.0p per share of NAV outperformance Portfolio Outperformance1 Delivered by the Investment Adviser’s team Other Lifecycle savings Distribution efficiency Wide range of small incremental initiatives (see chart right) contr
Slide 16: Investment Activity
Investment Activity hicl.com |
Slide 17: Summary Investment Activity
Summary Investment Activity Investment activity during the year ▲ 10 new and five incremental investments during the year for £266.6m (set out below and on page 18) Investment Activity Stake Overall Amount Type Stage Project Sector Market Segment Date Acquired Stake £14.5m New Operational M1-A1 Link
Slide 18: Summary Investment Activity II
Summary Investment Activity II Investment activity during the year (continued) and since year end Investment Activity Stake Overall Amount Type Stage Project Sector Market Segment Date Acquired Stake New Construction A9 Road Transport PPP 20.0% 20.0% Dec-16 £19.8m Follow-on Operational Zaanstad Pris
Slide 19: Case Studies: Recent Acquisitions
Case Studies: Recent Acquisitions hicl.com |
Slide 20: Case Study – Toll Roads
Case Study – Toll Roads Two recent acquisitions of operational demand-based assets During 2016 and 2017, HICL invested in two Sensitivities on combined equity returns operational toll-roads: the A63 Motorway in France and Northwest Parkway in Colorado, USA Inflation -/+ 1% p.a. ▲ Strategic positioni
Slide 21: Affinity Water
Affinity Water HICL’s first investment in a regulated asset £269m1 investment completed in May 2017 Affinity Water Group: Key Facts ▲ Good inflation correlation − Increases portfolio inflation correlation by approximately 0.1% (from 0.7% to 0.8%) ▲ Long-term income − Increases average concession lif
Slide 22: Portfolio, Asset Management and Risk
Portfolio, Asset Management and Risk hicl.com |
Slide 23: The Portfolio, Performance and Asset Management I
The Portfolio, Performance and Asset Management I Two projects completed ▲ Priority Schools North East Batch (UK) construction during the year ▲ RD 901 Road (France) Five projects under construction at ▲ Ecole Centrale Superlec (France) – operations due to commence in H2 2017 31 March 2017 ▲ Irish P
Slide 24: Portfolio Characteristics I
Portfolio Characteristics I At 23 May 2017 (31 March 2017 Portfolio Value plus Affinity Water) MARKET SEGMENT GEOGRAPHIC LOCATION This year (2017) This year (2017) Previous year (2016) Previous year (2016) 2017 2016 2017 2016 ▲ PPP Projects 80% 95% ▲ UK 80% 84% ▲ Demand-based Assets 10% 5% ▲ EU 10%
Slide 25: Portfolio Characteristics II
Portfolio Characteristics II At 23 May 2017 (31 March 2017 Portfolio Value plus Affinity Water1) OWNERSHIP STAKE SECTOR This year (2017) This year (2017) Previous year (2016) Previous year (2016) 2017 2016 2017 2016 ▲ 100% ownership 29% 38% ▲ Accomodation 11% 14% ▲ 50%-100% ownership 29% 35% ▲ Educa
Slide 26: The Portfolio, Performance and Asset Management II
The Portfolio, Performance and Asset Management II 31 March 2017 31 March 2016 10 Largest Investments Number of investments 1141 104 Northwest Parkway Southmead Hospital Percentage of portfolio by value – Home Office 10 largest assets 40% 39% Pinderfields & Pontefract Hospital Weighted average conce
Slide 27: Risk Management and Reporting
Risk Management and Reporting Implementation of new tools following external advice Residual Risk Valuation Impact 12 months Cashflow Rating (NAV/share) Impact Residual v Inherent (Dividend/share) Residual v Inherent Key: Inherent Risk Political risk Medium Residual Risk Financial/market risk Low Po
Slide 28: Investment Proposition and Business Model
Investment Proposition and Business Model hicl.com |
Slide 29: Investment Proposition and Business Model
Investment Proposition and Business Model Delivering Real Value. TO DELIVER TO SHAREHOLDERS A LONG-TERM, STABLE INCOME FROM A PORTFOLIO OF INFRASTRUCTURE INVESTMENTS THAT IS POSITIONED AT THE LOWER END OF THE RISK SPECTRUM ACCRETIVE INVESTMENT VALUE ENHANCEMENT VALUE PRESERVATION Purchasing assets t
Slide 30: Accretive Investment – Current Acquisition Strategy
Accretive Investment – Current Acquisition Strategy ▲ Acquisition Strategy reviewed and agreed between Board and Investment Adviser in October 2016 – confirmed existing focus ▲ Progressed origination activity across all core market segments during the year ▲ Infrastructure market dynamics continue (
Slide 31: Infrastructure Market Map
Infrastructure Market Map Showing HICL Investment Policy Scope INCREASING RISK Examples: hospitals, schools, government Examples: gas and electricity accommodation and availability transport transmission and distribution; water (e.g. road/rail) utilities; district heating INCREASING RISK INCREASING
Slide 32: Performance and Summary
Performance and Summary hicl.com |
Slide 33: Analysis of Change in NAV per Share
Analysis of Change in NAV per Share 160.0 p Value Enhancement Accretive Investment 1.6 (5.7) 155.0 p 150.0 p Value Preservation (1.9) 8.4 2.8 (0.5) 145.0 p (1.9) 2.1 140.0 p 135.0 p 130.0 p 142.2 140.3 149.0 147.1 125.0 p 120.0 p 115.0 p 110.0 p 1. The sum of the movements (grey and light purple) ma
Slide 34: Company's Key Performance Indicators
Company’s Key Performance Indicators (“KPIs”) KPI Measure 31 March 2017 31 March 2016 Objective Commentary Aggregate interim An annual distribution Dividends dividends declared per 7.65p 7.45p of at least that achieved Achieved share in the year in the prior year NAV growth and A long-term IRR targe
Slide 35: Company's Key Quality Indicators
Company’s Key Quality Indicators (“KQIs”) KQI Measure 31 March 2017 31 March 2016 Objective Commentary Percentage of the portfolio represented by the ten largest 40% 39% Maintain a diversified portfolio of Investment investments1 investments (thereby mitigating Concentration concentration risk) and,
Slide 36: Concluding remarks
Concluding remarks ▲ Portfolio performance exceeded expectations ▲ Robust cashflow performance ▲ Significant capital both raised and deployed ▲ Clear strategy to deliver sustainable long-term income through investing in a portfolio of infrastructure investments positioned at the lower end of the ris
Slide 37: Appendix I: The Infrastructure Asset Class
Appendix I The Infrastructure Asset Class hicl.com |
Slide 38: Typical PPP project structure
Typical PPP project structure Client Project agreement HICL Infrastructure Company Limited Project Construction Shareholder Financing Company Bonds/Loans Partner agreement agreement (“SPV”) Operational Partner Construction Operating MSA contract sub-contract sub-contract Maintenance Project Company
Slide 39: Illustrative Investment Cashflow Profile – PPP Project
Illustrative Investment Cashflow Profile – PPP Project Example: Social infrastructure return derived from an ‘availability’ revenue stream Typical PPP Project Investment Cashflow Profile Bidding Construction Operation & Maintenance Phase Phase Phase Value Typical timing for Illustrative Chart invest
Slide 40: Illustrative Investment Cashflow Profile – Demand-based Asset
Illustrative Investment Cashflow Profile – Demand-based Asset Example: Toll road return derived from a demand-based asset revenue stream Typical Toll Road Investment Cashflow Profile Bidding Construction Ramp- Phase Phase Up Operation & Maintenance (Steady State) Illustrative Chart Value Typical tim
Slide 41: Illustrative Investment cashflow profile – Regulated Asset
Illustrative Investment cashflow profile – Regulated Asset Example: Utility company return derived from a regulated revenue stream Typical Regulated Asset Investment Cashflow 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 27
Slide 42: Valuation – Methodology
Valuation – Methodology Determining the net asset value of the portfolio and the Group (illustrative example) £100m Concession Contract Revenue + Deposit Interest Key Variables/Assumptions £80m Forecast £60m Long-term Inflation Rate Project £40m Deposit Interest Rate Inflows £20m • Whole-of-life con
Slide 43: Appendix II: Valuation Methodology and Sensitivities
Appendix II Valuation Methodology and Sensitivities hicl.com |
Slide 44: Valuation Methodology
Valuation Methodology The Company’s valuation methodology is consistent with industry standard Semi-annual valuation and NAV reporting: ▲ Carried out by Investment Adviser ▲ Independent opinion for Directors from third-party valuation expert ▲ Approved by Directors Non traded - DCF methodology on in
Slide 45: Portfolio Cashflow Sensitivity I
Portfolio Cashflow Sensitivity I Inflation1,2 If the inflation assumptions were 1.0% p.a. higher for all future periods than the rates set out on page 11, the expected return from the portfolio (before Group expenses) would increase 0.7% from 7.4% to 8.1% Sensitivity based on forecast gross portfoli
Slide 46: Portfolio Cashflow Sensitivity II
Portfolio Cashflow Sensitivity II Impact of excluding the Group's largest investment in a PPP Project1, 2 If largest PPP Project is excluded, expected return from the portfolio (before Group expenses) decreases 0.4% from 7.4% to 7.0% NAV per share impact would be a 7.5p reduction Sensitivity based o
Slide 47: Portfolio Cashflow Sensitivity III
Portfolio Cashflow Sensitivity III Gross Domestic Product1, 2 If GDP assumptions were 0.5% p.a. higher for all future periods, expected return from the portfolio (before Group expenses) increases 0.2% from 7.4% to 7.6% Sensitivity based on forecast gross portfolio cash flows as at 31 March 2017 £300
Slide 48: Case Study: Hedging Foreign Exchange Risk
Case Study: Hedging Foreign Exchange Risk HICL hedges foreign exchange (“FX”) risk in relation to Hedging at 31 March 2017 assets it owns where cash flows are denominated in 600 currencies other than British Pounds 500 Hedging provides confidence in the near term yield and 400 helps mitigate the imp
Slide 49: Appendix III: The Investment Adviser
Appendix III The Investment Adviser hicl.com |
Slide 50: Overview of InfraRed Capital Partners Ltd
Overview of InfraRed Capital Partners Ltd (‘InfraRed’) InfraRed is the Investment Adviser and Operator Strong, 15+ year track record of launching 17 value-add infrastructure and real estate funds (including HICL and TRIG) Currently over US$9bn of equity under management – infrastructure and real est
Slide 51: Appendix IV: The Company and Group
Appendix IV The Company and Group hicl.com |
Slide 52: HICL's Characteristics
HICL’s Characteristics Mandate ▲ To generate long-term, stable income from a portfolio of infrastructure investments ▲ Focused on assets at the lower end of the risk spectrum, which generate inflation-linked returns History ▲ Over eleven years since IPO, ten successive years of dividend growth ▲ Fir
Slide 53: Historic Performance
Historic Performance HICL has grown its dividend for last 10 years Total Return (NAV growth and dividends) of 9.6% p.a. since IPO 9.0p 250p 8.0p 7.0p 200p 6.0p 150p 5.0p 4.0p 100p 3.0p 2.0p 50p 1.0p 0.0p 0p IPO FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE IPO FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE F
Slide 54: Group Structure Diagram
Group Structure Diagram Services Equity Management HICL’s Shareholders Independent Directors1 Self managed non-EEA AIF Investment ▪ Governance Company Secretary ▪ Oversight HICL – Listed Company ▪ Strategy Aztec Financial Services (Guernsey) Limited Investment Advisor Other Company Advisers and Serv
Slide 55: Governance
Governance Independent board of non-executive Directors ▲ Approves and monitors adherence to strategy ▲ Fulfils Company’s AIFM responsibilities under the European Commission’s Alternative Investment Fund Managers Directive ▲ Monitors risk through Risk Committee ▲ Additional committees in respect of
Slide 56: Board of Directors I
Board of Directors I Non-executive Directors with a broad range of relevant experience and qualifications Ian Russell CBE, Chairman Frank Nelson, SID Susie Farnon, Director Ian, HICL’s Chairman, is resident in the Frank, a UK resident, is a qualified Sally-Ann (known as Susie), a Guernsey UK and is
Slide 57: Board of Directors II
Board of Directors II Non-executive Directors with a broad range of relevant experience and qualifications Simon Holden, Director Kenneth D. Reid, Director Chris Russell, Director Simon, a Guernsey resident, has over 15 Kenneth, a Singapore resident, has more Chris, a Guernsey resident, is a non- ye
Slide 58: Investment and Capital Raising
Investment and Capital Raising ▲ Acquisitions driven by demand for HICL shares and availability of further investments which fit the Investment Strategy ▲ Acquisitions are initially debt-funded (using £400m committed revolving credit facility at Group level), to avoid cash drag and to give sharehold
Slide 59: Appendix V: The Investment Portfolio
Appendix V The Investment Portfolio hicl.com |
Slide 60: Current Portfolio I
Current Portfolio I Portfolio of 114 assets at 31 March 2017 Education 20% of Directors’ Valuation Fire, Law & Order 7% Northern European Bangor & Nendrum Gloucester Project Tyne & Wear Fire Ealing Schools Kent Schools Rhondda Schools Addiewell Prison Schools Fire & Rescue (details subject to Statio
Slide 61: Current Portfolio II
Current Portfolio II Portfolio of 114 assets at 31 March 2017 Health 35% of Directors’ Valuation Accommodation 12% Allenby & Doncaster Mental Oxford John South West Connaught Miles Platting Northwood MoD Royal School of Military Barnet Hospital Health Hospital Radcliffe Hospital Hospital Enniskillen
Slide 62: Current Portfolio – Key Attributes
Current Portfolio – Key Attributes Evolution of the Group’s portfolio Geographically Spread Portfolio Good Sector Spread 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% FYE 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017 FYE 2011 FYE 2012 FYE 2013 F
Slide 63: Portfolio Overview - Contractor Counterparty Exposure
Portfolio Overview - Contractor Counterparty Exposure Ensuring diversification of supply chain providers Counterparties continue to perform 10 Largest Exposures1 Diversity of contractors ensures no over-reliance on any Carillion single entity Other contractors Quarterly reviews by Investment Adviser
Slide 64: Portfolio Characteristics I
Portfolio Characteristics I At 31 March 20171 MARKET SEGMENT GEOGRAPHIC LOCATION This year (2017) This year (2017) Previous year (2016) Previous year (2016) 2017 2016 2017 2016 ▲ PPP Projects 88% 95% ▲ UK 77% 84% ▲ Demand-based assets 12% 5% ▲ EU 11% 10% ▲ Regulated assets 0% 0% ▲ Australia 4% 3% ▲
Slide 65: Portfolio Characteristics II
Portfolio Characteristics II At 31 March 20171 OWNERSHIP STAKE SECTOR This year (2017) This year (2017) Previous year (2016) Previous year (2016) 2017 2016 2017 2016 ▲ 100% ownership 33% 38% ▲ Accomodation 12% 14% ▲ 50%-100% ownership 32% 35% ▲ Education 20% 21% ▲ Less than 50% ownership 35% 27% ▲ H
HICL Infrastructure Company — FY2017 Earnings Presentation on 6ix