HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — H1 2019 Earnings Presentation
62 slides from HICL Infrastructure's earnings presentation, Nov 21, 2018
Slide 1: HICL Infrastructure Company Limited Interim Results Presentation
HICL Infrastructure Company Limited Interim Results Presentation: six months to 30 September 2018 21 November 2018 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 5 Valuation Overview and Sensitivities 11 Portfolio Performance and Asset Management 15 Risk and Risk Management 22 Investment Activity 25 Performance and Summary 28 Appendices 31 hicl.com | 3
Slide 4: Delivering Income from a Portfolio of Infrastructure Investments
Delivering Income from a Portfolio of Infrastructure Investments Investment Proposition and Business Model DELIVERING LONG-TERM, STABLE INCOME FROM A DIVERSIFIED PORTFOLIO OF INFRASTRUCTURE INVESTMENTS AT THE LOWER END OF THE RISK SPECTRUM Relatively low 47% VALUE single asset Ten largest assets as
Slide 5: Interim Results
way < "interim Results Allenby and Connaught, UK
Slide 6: Highlights I
Highlights I Strong performance for the six months to 30 September 2018 156.4p £2,905m 15.0% NAV per share Directors’ Valuation1 Annualised shareholder return2 Up 6.8p from NAV per share of 149.6p Value of the Company’s 117 investments 8.9% annualised shareholder at 31 March 2018 (£2,837m at 31 Marc
Slide 7: Highlights II
Highlights II Additional dividend guidance to 2021 underpinned by robust cash flow forecasts Strategic ▲ Annualised total return was ahead of expectations at 15.0%1 progress ▲ Value delivered through active portfolio management Divestments of AquaSure Desalination PPP and Highland Schools PPP2 pro
Slide 8: Highlights III
Highlights III Figures presented on an Investment Basis1 £193m 7.2% £94m Profit before tax Weighted average discount rate Operating cash flow £88m for the six months to 7.4% at 31 March 2018 £78m for the six months to 30 September 2017 30 September 2017 10.8p 1.09% c. £70m Earnings per share Ongoing
Slide 9: Track Record
Track Record Consistent and steady delivery over 12 years Dividend increased by 32% over 12 years Total Return (NAV growth and dividends) of 9.5% p.a. since IPO 9.0p 250p 8.0p 7.0p 200p 6.0p 5.0p 150p 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 FYE FYE FYE FY
Slide 10: Forecast Cashflow Profile
Forecast Cashflow Profile1,2,3 Long-term, stable income ▲ 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
Slide 11: Valuation Overview and Sensitivities
Valuation Overview and Sensitivities hicl.com |
Slide 12: Analysis of Change in Directors' Valuation
Analysis of Change in Directors’ Valuation Annualised return1 of 9.0% from the underlying portfolio £3,000m (146.4) 91.0 2,904.9 2 61.4 21.1 2,836.5 5.9 (92.2) 116.9 10.1 £2,800m 2,688.9 £2,600m Accretive Investment £2,400m Value Preservation Value Enhancement 2,794.6 2,848.5 2,869.6 £2,200m 2,842.6
Slide 13: Discount Rate Analysis
Discount Rate Analysis 20 basis points reduction in weighted average discount rates ▲ Weighted-average discount rate of 7.2%, down Appropriate Total Discount Rate3 from 7.4% at 31 March 2018, mostly driven by Long-Term Risk increased market asset pricing Government Premium 30 31 30 Bond Yield2 Septe
Slide 14: Key Valuation Sensitivities
Key Valuation Sensitivities Sensitivity to key macroeconomic assumptions ▲ The discount rate, FX rate and GDP sensitivities Discount Rate +/- 0.5% (8.3) 9.1 are based on analysis of the whole portfolio ▲ Remaining sensitivities are based on the largest 35 investments in the HICL portfolio by value,
Slide 15: Portfolio Performance and Asset Management
Portfolio Performance and Asset Management hicl.com |
Slide 16: Portfolio Metrics
Portfolio Metrics Ten largest assets account for c. 47% of the portfolio1 30 September 20181 31 March 2018 10 Largest Investments1 Number of Affinity Water 8% 117 116 investments High Speed 1 7% Percentage of A63 Motorway 6% portfolio by value – 47% 45% 10 largest assets Northwest Parkway 6% Weighte
Slide 17: Portfolio Performance I
Portfolio Performance I PPP projects Investment rationale ▲ Long-term contracts with strong public sector clients ▲ Availability-based revenue mechanisms ▲ Long-term funding arrangements and maintenance contracts, which allocate risk to those parties that are best placed to manage it Value preservat
Slide 18: Portfolio Performance II
Portfolio Performance II Demand-based assets Investment rationale ▲ Operational assets are at the lower end of the risk spectrum when accompanied by strong usage history or limited uncertainty in forecast demand ▲ Long-dated, good inflation correlation and returns at a premium to PPP projects ▲ Gene
Slide 19: Portfolio Performance III
Portfolio Performance III Regulated assets Investment rationale ▲ Monopoly characteristics with regulatory price controls that balance performance standards and affordable pricing for end users ▲ Where the asset is subject to periodic regulatory reviews, this: Protects investors over the long-term
Slide 20: Portfolio Characteristics I
Portfolio Characteristics I At 30 September 2018 MARKET SEGMENT GEOGRAPHIC LOCATION Sep-18 Sep-18 Mar-18 Mar-18 Sep-18 Mar-18 Sep-18 Mar-18 ▲ PPP Projects 70% 74% ▲ UK 79% 80% ▲ Demand-based Assets 22% 18% ▲ EU 13% 10% ▲ Regulated Assets 8% 8% ▲ Australia - 3% ▲ North America 8% 7% A diversified inv
Slide 21: Portfolio Characteristics II
Portfolio Characteristics II At 30 September 2018 OWNERSHIP STAKE SECTOR Sep-18 Sep-18 Mar-18 Mar-18 Sep-18 Mar-18 Sep-18 Mar-18 ▲ 100% ownership 25% 27% ▲ Accommodation 10% 10% ▲ 50% - 100% ownership 30% 28% ▲ Education 16% 18% ▲ Less than 50% ownership 45% 45% ▲ Electricity, Gas & Water 8% 11% ▲ H
Slide 22: Risk and Risk Management
Risk and Risk Management hicl.com |
Slide 23: Risk and Risk Management I
Risk and Risk Management I Political risk remains; HICL is well-positioned to withstand economic consequences of Brexit Political Risk ▲ Due to the contractual relationship that infrastructure assets have with public sector counterparties and regulators, political and regulatory risks are inherent i
Slide 24: Risk and Risk Management II
Risk and Risk Management II Construction quality and counterparty risks remain key areas of focus Construction ▲ Construction quality remains a key focus, particularly in relation to fire-stopping, cladding systems and Quality wall-ties ▲ As a result of a detailed review of the portfolio’s fire safe
Slide 25: Investment Activity
Investment Activity hicl.com |
Slide 26: Acquisition Strategy
Acquisition Strategy Investment Policy unchanged since IPO in 2006 ▲ Origination activity continued across all core market segments during the six months ▲ Infrastructure market dynamics continue (principally competition for assets) - pricing discipline remains fundamentally important ▲ Will conside
Slide 27: Summary Investment Activity
Summary Investment Activity Six transactions completed in the period and one post-period end Acquisitions Net Stake Overall Type Stage Project Segment Sector Date Amount Acquired Stake Paris-Sud University €21m New Greenfield PPP Education 85% 85% Apr-18 (France) Electricity, Gas & £10m New Operatio
Slide 28: Performance and Summary
Performance and Summary hicl.com |
Slide 29: Analysis of Change in NAV per Share
Analysis of Change in NAV per Share Outperformance of the underlying portfolio core to delivering NAV accretion 165.0 p 160.0 p (2.0) 1.0 0.6 155.0 p 4.5 0.9 0.3 3.5 150.0 p (2.0) - 145.0 p 140.0 p 156.4 152.3 157.8 156.4 152.0 135.0 p 149.6 147.6 147.6 147.6 130.0 p 125.0 p 120.0 p 31 March 2018 Di
Slide 30: Outlook
Outlook Delivering long-term, stable income ▲ HICL offers a differentiated investment proposition combining: − Relatively low single asset concentration risk; − Strong correlation between portfolio returns and inflation; and − Good cashflow longevity ▲ Continue to focus on enhancing value from the e
Slide 31: Appendix I: The Investment Adviser
Appendix I The Investment Adviser hicl.com |
Slide 32: 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 16 infrastructure and real estate funds (including HICL and TRIG) Currently over US$10bn of equity under management Independent manager owned by senior ma
Slide 33: 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 Transaction team responsible for sourcing, diligencing and acquiring new investment opport
Slide 34: Appendix II: The Company and Group
Appendix II The Company and Group hicl.com |
Slide 35: 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 ▲ 12 successive years of dividend growth since IPO in 2006
Slide 36: Infrastructure Market Map
Infrastructure Market Map Schematic showing HICL’s target markets and 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:
Slide 37: 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 38: 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 39: 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 Susie Farnon Chairman Senior Independent Director Audit Committee Chair Ian, HICL’s Chairman, is resident in the Frank, a UK resident, is a qualified Sally-Ann (kno
Slide 40: Board of Directors II
Board of Directors II Non-executive Directors with a broad range of relevant experience and qualifications Mike Bane Simon Holden Kenneth D. Reid Chris Russell Director Risk Committee Chair Director Director Mike, a Guernsey resident, is a Simon, a Guernsey resident, brings Kenneth, a Singapore resi
Slide 41: Summary Financials I
Summary Financials I Figures presented on an Investment Basis1 Income Statement Six months to Six months to £m 30 September 2018 30 September 2017 Total income 211.0 108.1 Expenses & finance costs (18.2) (20.3) Profit before tax 192.8 87.8 Earnings per share2 10.8p 5.1p Ongoing charges3 1.09% 1.06%
Slide 42: Summary Financials II
Summary Financials II Figures presented on an Investment Basis1 Cashflow Six months to Six months to £m 30 September 2018 30 September 2017 Opening net (debt) / cash (115.2) 82.2 Net operating cashflow 93.6 77.9 Investments (net of disposals) (60.5) (450.1) Equity raised (net of costs) (0.2) 265.5 F
Slide 43: Company's Key Performance Indicators
Company’s Key Performance Indicators (“KPIs”) KPI Measure 30 September 2018 30 September 2017 Objective Commentary Aggregate interim An annual distribution of at Dividends dividends declared per 4.02p 3.92p least that achieved in the Achieved share in the period prior year NAV growth and A long-term
Slide 44: 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 45: Appendix III: The Investment Portfolio
Appendix III The Investment Portfolio hicl.com |
Slide 46: 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 In House ▲ Profit warnings from a number of UK construction and 13% facilities management companies dur
Slide 47: 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 30 September 2018, 42% of HICL’s portfolio1 benefited
Slide 48: 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 FYE FYE FYE FYE FYE FYE HY FYE FYE FYE FYE FYE FYE FYE HY 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017
Slide 49: Current Portfolio I
Current Portfolio I Portfolio of 117 assets at 30 September 20181 Education 16% of Directors’ Valuation2 Fire, Law & Order 7% Bangor & Nendrum Renfrewshire Addiewell Prison Exeter Crown and Metropolitan Police Sussex Custodial Ealing Schools Kent Schools Schools Schools County Court Training Centre
Slide 50: Current Portfolio II
Current Portfolio II Portfolio of 117 assets at 30 September 20181 Health 29% of Directors’ Valuation2 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 S
Slide 51: Appendix IV: Valuation
Appendix IV Valuation 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 – discounted cash flow
Slide 53: Key Valuation Assumptions
Key Valuation Assumptions Movement 30 September 2018 31 March 2018 Discount Rate Weighted Average 7.2% 7.4% UK (RPI2 & RPIx2 / CPIH3) 2.75% / 2.0% 2.75% / 2.0% Inflation Rates1 Eurozone (CPI) 1.0% to 2019 and 2.0% thereafter 1.0% to 2019, 2.0% thereafter (p.a.) Canada (CPI) 2.0% 2.0% USA (CPI) 2.0%
Slide 54: 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 53, the expected return from the portfolio3 (before Group expenses) would increase by 0.
Slide 55: Portfolio Cashflow Sensitivity II
Portfolio Cashflow Sensitivity II Robust under stress scenarios1,2,3 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 7.7p (6.0p as 31 March 2018) If the largest PPP project in the Grou
Slide 56: Portfolio Cashflow Sensitivity III
Portfolio Cashflow Sensitivity III Gross Domestic Product1,2,3 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 7.2% to 7.4% 400 Annual project distributions (£m) 300 200 100 0 2019 2021 2023 2025 2027 202
Slide 57: Appendix V: The Infrastructure Asset Class
Appendix V The Infrastructure Asset Class hicl.com |
Slide 58: Typical PPP Project Structure
Typical PPP Project Structure Client Project agreement HICL Infrastructure Company Limited Construction Shareholder Project Financing Bonds / Loans Partner agreement Company agreement Operational Partner Construction Operating MSA contract sub-contract sub-contract Maintenance Project Company Constr
Slide 59: 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 60: 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 61: 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 62: 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 Rates Project £40m Interest Rates Inflows £20m • Whole-of-life concessi
HICL Infrastructure Company — H1 2019 Earnings Presentation on 6ix