HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — H1 FY2018 Earnings Presentation
58 slides from HICL Infrastructure's earnings presentation, Nov 22, 2017
Slide 1: HICL Infrastructure Company Limited Interim Results Presentation
HICL Infrastructure Company Limited Interim Results Presentation: six months to 30 September 2017 22 November 2017 hicl.com |
Slide 2: Important information
Important information By attending the meeting where this presentation is made, or by reading the presentation slides, you agree to be bound by the following limitations: This document is an advertisement and is not a prospectus. Any decision to purchase shares in HICL Infrastructure Company Limited
Slide 3: Agenda
Agenda Section Page Interim Results 4 Portfolio Performance, Asset Management and Risk 17 Investment Activity 25 Case Studies: High Speed 1 and Co-investment 28 Performance and Summary 31 Appendices 35 hicl.com | 3
Slide 4: Interim Results
MEAN Infrastructure =—Birmingham New Hospital, UK
Slide 5: 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 Business Model Low asset 45% ACCRETIVE Ten largest assets as a INVESTMENT con
Slide 6: Highlights I
Highlights I For the six months to 30 September 2017 151.6p £2,844.4m 8.9% NAV per share Directors’ Valuation1 Annualised shareholder return2 Up 2.6p (1.7%) from NAV per share of Value of the Company's investment Based on interim dividends paid plus 149.0p at 31 March 2017 portfolio (£2,380.0m at 31
Slide 7: Highlights II
Highlights II For the six months to 30 September 2017 Performance ▲ Solid portfolio performance overall ▲ Annualised total return was ahead of expectations at 8.9% 1 ▲ Good cashflow, with dividend cover of 1.26x (September 2016: 1.26x) New Investments ▲ £452m invested in Affinity Water and High Spee
Slide 8: Summary Financials I
Summary Financials I Figures presented on an Investment Basis1 Six months to Six months to Income Statement 30 September 2017 30 September 2016 Total income £108.1m £99.5m Fund expenses & finance costs (£20.3m) (£13.9m) Profit before tax £87.8m £85.6m Earnings per share2 5.1p 6.1p Ongoing charges3 1
Slide 9: Summary Financials II
Summary Financials II Figures presented on an Investment Basis1 Six months to Six months to Cashflow 30 September 2017 30 September 2016 Opening net cash £82.2m £52.7m Net operating cashflow £77.9m £60.9m Investments (net of disposals) (£450.1m) (£75.8m) Equity raised (net of costs) £265.5m £112.5m
Slide 10: Portfolio Overview – Cashflow Profile
Portfolio Overview – Cashflow Profile1 ▲ Forecast shows steady long-term cashflows combined with a stable portfolio valuation in the medium term ▲ Portfolio cashflows underpin the dividend and two years of forward dividend guidance The valuation of the Current Portfolio (RHS) at any time is a functi
Slide 11: Analysis of Change in Directors' Valuation
Analysis of Change in Directors’ Valuation £3,000m 2 451.7 91.3 98.4 6.2 1.6 3.3 2,844.4 £2,800m 2,740.4 £2,600m £2,400m 2,380.0 £2,200m 2,813.7 2,710.8 £2,000m 2,347.5 £1,800m 3.6% 0.2% 0.1% (0.1%) £1,600m 1 31 Mar 2017 Net Cash Rebased Return Change in Change in Change in FX 30 Sep 2017 Valuation
Slide 12: Discount Rate Analysis
Discount Rate Analysis Discount rate unchanged overall Appropriate Total Discount Rate2 long-term Risk ▲ Discount rates for investments range 30 30 government Premium 31 March between 4.9% and 9.8% bond yield1 September 2017 September 2017 2016 ▲ Weighted-average discount rate of 7.4%, UK 1.8% + 5.5
Slide 13: Key Valuation Assumptions
Key Valuation Assumptions Movement 30 September 2017 31 March 2017 Discount Rate Weighted Average 7.4% 7.4% UK (RPI2 & RPIx2) 2.75% 2.75% Eurozone (CPI) 1.0% to 2019 and 2.0% thereafter 1.0% to 2019 and 2.0% thereafter Inflation1 Canada (CPI) 2.0% 2.0% (p.a.) Australia (CPI) 2.5% 2.5% USA (CPI) 2.0%
Slide 14: Key Valuation Sensitivities
Key Valuation Sensitivities Sensitivity to key macroeconomic assumptions Discount Rate +/- 0.5% (8.1) 8.8 ▲ The discount rate, FX rate and GDP sensitivities are based on analysis of the whole portfolio ▲ Remaining sensitivities are based on the largest Inflation -/+ 0.5% (7.4) 8.5 25 investments in
Slide 15: Portfolio Cashflow Sensitivity I
Portfolio Cashflow Sensitivity I Inflation correlated returns for long-term investors1,2 If outturn inflation is 1.0% p.a. higher in all future periods than the rates in the valuation assumptions set out on page 13, the expected return from the portfolio3 (before Group expenses) would increase by 0.
Slide 16: Portfolio Cashflow Sensitivity II
Portfolio Cashflow Sensitivity II Robust under stress scenarios 1,2,3 In a recession stress scenario, which assumes a 10% reduction in revenues in all periods for the GDP correlated assets in the portfolio4, NAV/share would reduce by 5.1p (as at 30 September 2017) If the largest PPP project in the G
Slide 17: Portfolio Performance, Asset Management and Risk
Portfolio Performance, Asset Management and Risk hicl.com |
Slide 18: Portfolio Performance and Asset Management
Portfolio Performance and Asset Management Highlights for the period to 30 September 2017 Portfolio wide ▲ Lifecycle efficiencies recognised across a number projects from historic savings and new forecast initiatives budgets for the future ▲ Ongoing initiatives to reorganise PPP projects’ management
Slide 19: Risk and Risk Management I
Risk and Risk Management I Political risk a key risk faced by the Company Heightened political uncertainty in the UK due to June 2017 election result, the continuing process to leave the EU and recent political statements regarding termination of PFI contracts and nationalisation of utilities PPP co
Slide 20: Risk and Risk Management II
Risk and Risk Management II Construction Quality ▲ InfraRed continues to work closely to prioritise safety with management teams of the PPP projects and Fire Safety in which the Group has invested ▲ A key focus in the period was on construction quality, particularly fire-stopping, cladding systems a
Slide 21: Counterparty Exposure
Counterparty Exposure ▲ Exposure is reviewed quarterly and exposure 10 Largest Facilities Management reported to the Risk Committee by the Investment and Operations Counterparty Exposures1 Adviser Carillion ▲ Profit warnings from a number of UK construction and facilities management companies during
Slide 22: Portfolio Metrics
Portfolio Metrics Ten largest assets account for c.45% of the portfolio1 30 September 31 March 10 Largest Investments1 2017 2017 Affinity Water Number of 116 114 investments HS1 Northwest Parkway Percentage of portfolio by value – 45% 40% 10 largest assets Southmead Hospital Home Office Weighted ave
Slide 23: Portfolio Characteristics I
Portfolio Characteristics I At 30 September 2017 MARKET SEGMENT GEOGRAPHIC LOCATION Sep-17 Sep 17 Sep-17 Sep 17 Mar-17 Mar-17 Mar 17 Mar 17 Sep-17 Mar-17 Sep-17 Mar-17 ▲ PPP Projects 74% 88% ▲ UK 80% 77% ▲ Demand-based Assets 17% 12% ▲ EU 10% 11% ▲ Regulated Assets 9% 0% ▲ Australia 3% 4% ▲ North Am
Slide 24: Portfolio Characteristics II
Portfolio Characteristics II At 30 September 2017 OWNERSHIP STAKE SECTOR Sep-17 Sep 17 Sep-17 Sep 17 Mar-17 Mar-17 Mar 17 Mar 17 Sep-17 Mar-17 Sep-17 Mar-17 ▲ 100% ownership 28% 33% ▲ Accommodation 10% 12% ▲ 50% - 100% ownership 27% 32% ▲ Education 17% 20% ▲ Less than 50% ownership 45% 35% ▲ Health
Slide 25: Investment Activity
Investment Activity hicl.com |
Slide 26: Accretive Investment – Current Acquisition Strategy
Accretive Investment – Current Acquisition Strategy ▲ Acquisition Strategy reviewed between Board and Investment Adviser in October 2017 - confirmed existing focus ▲ Origination activity progressed across all core market segments during the year ▲ Infrastructure market dynamics continue (principally
Slide 27: Summary Investment Activity
Summary Investment Activity Investment activity during the period Investment Activity Net Stake Overall Type Stage Project Segment Sector Date Amount Acquired Stake £250m New Operational Affinity Water Regulated Water 36.6% 33.2%1 May-17 £202m New Operational High Speed 1 Demand Transport 21.8% 21.8
Slide 28: Case Studies: High Speed 1 and Co-investment
Case Studies: High Speed 1 and Co-investment hicl.com |
Slide 29: Case Study – High Speed 1 (HS1)
Case Study – High Speed 1 (HS1) Acquisition of operational demand-based high speed rail asset completed in September 2017 Essential, high-profile UK infrastructure Sensitivities of Base Case IRR to Key Value Drivers1 Domestic train paths Annual growth +/- 33% Base Case Proven Strong Experienced Inte
Slide 30: Case Study – Co-investment
Case Study – Co-investment Facilitating access to attractive investments in larger assets whilst managing concentration risk c. £145m co-investment alongside HICL in Affinity Water and High Speed 1 acquisitions ▲ Modest co-investment secured by the Investment Adviser for Affinity Water from UK local
Slide 31: Performance and Summary
Performance and Summary hicl.com |
Slide 32: Analysis of Change in NAV per Share
Analysis of Change in NAV per Share 160.0 p 155.0 p 0.6 2.0 2.0 150.0 p 1.9 0.4 4.2 1.3 - 145.0 p 140.0 p 135.0 p 151.6 149.0 149.7 147.1 130.0 p 125.0 p 120.0 p 1. The sum of the movements (grey and light purple) may not equate to the overall change (dark purple bars), due to rounding hicl.com | 32
Slide 33: Company's Key Performance Indicators
Company’s Key Performance Indicators (“KPIs”) KPI Measure 30 September 2017 30 September 2016 Objective Commentary Aggregate interim An annual distribution Dividends dividends declared per 3.92p 3.82p of at least that achieved Achieved share in the period in the prior year NAV growth and A long-term
Slide 34: Outlook and Concluding Remarks
Outlook and Concluding Remarks ▲ A differentiated investment proposition combining: − Low asset concentration risk; − Strong correlation between portfolio returns and inflation1; and − Good cashflow longevity ▲ Annualised total return ahead of expectations; good cashflow generation from the portfoli
Slide 35: Appendix I: The Investment Adviser
Appendix I The Investment Adviser hicl.com |
Slide 36: Overview of InfraRed Capital Partners Ltd
Overview of InfraRed Capital Partners Ltd (“InfraRed”) InfraRed is the Investment Adviser and Operator Strong, 25+ year track record of launching 17 infrastructure and real estate funds (including HICL and TRIG) Currently over US$10bn of equity under management Independent manager owned by senior ma
Slide 37: 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, Australia and New Zealand ▲ Focused teams including: − Origination and Transaction team responsible for sourcing, diligencing and acquiring new investment opportu
Slide 38: Appendix II: The Company and Group
Appendix II The Company and Group hicl.com |
Slide 39: HICL's Characteristics
HICL’s Characteristics Objective ▲ To generate long-term, stable income from a diversified portfolio of infrastructure investments ▲ Focused on assets at the lower end of the risk spectrum, which generate inflation-correlated returns History ▲ IPO in 2006, 11 successive years of dividend growth ▲ Fi
Slide 40: Infrastructure Market Map
Infrastructure Market Map Schematic showing HICL’s Investment Policy1 Scope Examples: hospitals, schools, government Examples: gas and electricity accommodation and availability transport transmission and distribution; water (e.g. road/rail) utilities; district heating Examples: operational toll roa
Slide 41: Cumulative Total Return
Historic Performance HICL has grown its dividend for each of the last 11 years Total Return (NAV growth and dividends) of 9.5% 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 HYE IPO FYE FYE FYE FYE FYE FYE F
Slide 42: Group Structure Diagram
Group Structure Diagram Services Equity Management HICL’s Shareholders Independent Directors1 ▪ Governance Investment ▪ Oversight Company Secretary ▪ Strategy HICL – Listed Company Aztec Financial Services (Guernsey) Limited Investment Adviser Other Company Advisers and Service Providers HICL Infras
Slide 43: Governance
Governance Independent board of non-executive Directors ▲ Approves and monitors adherence to strategy ▲ Fulfils Company’s AIFM1 responsibilities under the European Commission’s Alternative Investment Fund Managers Directive ▲ Monitors risk through Risk Committee ▲ Additional committees in respect of
Slide 44: 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 UK and is a qualifi
Slide 45: 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 Kenneth, a Singapore resident, has Chris, a Guernsey resident, is a non- 15 years o
Slide 46: 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 47: Appendix III: The Investment Portfolio
Appendix III The Investment Portfolio hicl.com |
Slide 48: Current Portfolio I
Current Portfolio I Portfolio of 116 assets at 30 September 2017 Education 17% of Directors’ Valuation1 Fire, Law & Order 6% Northern European Bangor & Nendrum Gloucestershire Tyne & Wear Fire Ealing Schools Kent Schools Rhondda Schools Addiewell Prison2 Project Schools Fire & Rescue Stations (subje
Slide 49: Current Portfolio II
Current Portfolio II Portfolio of 116 assets at 30 September 2017 Health 29% of Directors’ Valuation1 Accommodation 10% Allenby & South West Doncaster Mental Oxford John Connaught Miles Platting Northwood MoD Royal School of Military Barnet Hospital Hospital Health Hospital Radcliffe Hospital MOD So
Slide 50: Current Portfolio – Key Attributes
Current Portfolio – Key Attributes Evolution of the Group’s portfolio Geographically Spread Portfolio Good Sector Spread 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% FYE 2011FYE 2012FYE 2013FYE 2014FYE 2015FYE 2016FYE 2017 HYE FYE 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017HYE 2018
Slide 51: Appendix IV: Valuation Methodology
Appendix IV Valuation Methodology hicl.com |
Slide 52: 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 53: Appendix V: The Infrastructure Asset Class
Appendix V The Infrastructure Asset Class hicl.com |
Slide 54: 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 55: 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 (3) (2) (1) - 1 2 3 4 5 6 7 8 9 10 11 12 13
Slide 56: 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 57: 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 58: 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 Deposit Interest Rate Inflows £20m • Whole-of-life co
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