HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — H1 FY2024 Earnings Presentation
46 slides from HICL Infrastructure's earnings presentation, Nov 22, 2023
Slide 1: HICL Infrastructure PLC Interim Results Presentation
HICL Infrastructure PLC Interim Results Presentation 22 November 2023
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: Interim Results Highlights & Investment Proposition
Interim Results Highlights & Investment Proposition hicl.com | 3
Slide 4: Our proposition
Our proposition 1. 2. 3. Core Active Established positioning management pedigree ▪ Essential infrastructure ▪ Hands-on approach ▪ Specialist management ▪ Inflation protection ▪ Active asset rotation ▪ Long track record ▪ Lower end of risk spectrum ▪ Driving outperformance ▪ Global capability hicl.co
Slide 5: Key themes in the period
Key themes in the period Strategic asset Disciplined capital Increased long rotation management term returns £208m / £324m1 c. £380m2 8.0% p.a. acquisitions / disposals reduction in RCF drawings weighted average discount rate ∆ Enhanced portfolio composition ∆ RCF drawings to reduce to c.£115m2 ∆ Di
Slide 6: Solid performance amidst volatile financial markets
Solid performance amidst volatile financial markets 159.4p 8.2% NAV per share Annualised underlying portfolio return1 31 March 2023: 164.9p 30 September 2022: 13.0% 8.25p 1.35x3 / 1.05x Dividend per share Dividend cash cover guidance2 for FY24 & FY25 including3 / excluding profits on disposal Septem
Slide 7: Attractive long-term real returns from income and capital growth
Attractive long-term real returns from income and capital growth HICL’s long-term UK inflation assumption is Discount rate implies portfolio return2 below market implied levels (net of costs) of inflation + 6.4% 4.00% Long-term expected return2: 3.75% 8.9% 3.50% UK gilt market implied inflation1 3.2
Slide 8: Financial Performance
Financial Performance hicl.com | 8
Slide 9: Portfolio’s strong inflation correlation offsets increased discount rates
Portfolio’s strong inflation correlation offsets increased discount rates 180.0 p Net debt2 ▲0.5 ▼(6.2) £496.8m / c. £115m 170.0 p ▲6.4 ▼(0.2) ▼(1.9) Pre / post committed disposals ▼(4.1) 160.0 p Fund gearing3 150.0 p 16% / c.10% Pre / post committed disposals 164.9 140.0 p 159.4 OCR4 130.0 p 1.11%
Slide 10: Solid portfolio performance
Solid portfolio performance £4,300m Directors’ Valuation1 of £3,536.1m as at 30 September 2023 £4,100m ▲206.8 ▼(324.4) £3,900m 3,772.8 ▼(121.6) ▲138.2 ▼(280.3) £3,700m 3,533.6 ▲156.7 ▼(11.3) ▼(0.8) 3,536.1 £3,500m £3,300m 4.0% (8.1)% 4.5% (0.3)% £3,100m 3,655.2 3,533.6 3,498.6 3,533.6 Income Stateme
Slide 11: Significant private / public dislocation in infrastructure valuations
Significant private / public dislocation in infrastructure valuations Private Infrastructure Market Remains Active Total Infrastructure deals1 Core Infrastructure deals2 800 120 9 assets / £324m 700 100 600 500 80 400 60 300 200 40 of HICL disposals all at or above 100 20 carrying value since 31 Mar
Slide 12: Weighted average discount rate of 8%
Weighted average discount rate of 8% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep 06 06 07 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 15 15 16 16 17 17 18 18 19 19 2
Slide 13: Balanced portfolio construction
Balanced portfolio construction Discount Rate +/- 0.5% (8.7) 9.6 HICL’s inflation correlation provides an offset to adverse discount rate movements Inflation -/+ 0.5% (7.8) 9.2 Tax Rate +/- 5% (4.4) 4.4 GDP -/+ 0.5% (3.6) 3.2 The portfolio is relatively Cash Deposit Rate -/+ 1% (2.4) 2.4 insensitive
Slide 14: Cashflows benefitting from high inflation correlation
Cashflows benefitting from high inflation correlation Near-term cashflow impact influenced by: Expected cash Cumulative impact of higher inflation1 since first Contractual +£1.3bn project cash flow inflation uplift in Sep-21 structure +17% since Sept 21 Operational considerations Cumulative expected
Slide 15: Limited portfolio refinancing exposure
Limited portfolio refinancing exposure HICL’s portfolio Portfolio Debt 0.3% gearing¹ 67% 3.0% 1-2 years 2.8% 3-5 years Average gearing 49% 86% 14% 5-13 years of assets with 8.2% >13 years refinancing risk² Refinancing required Opportunities exist to deliver Fixed until concession end value from refi
Slide 16: Portfolio Performance
Portfolio Performance hicl.com | 16
Slide 17: HICL’s core infrastructure focus
HICL’s core infrastructure focus HICL invests in core infrastructure assets with highly defensive qualities, attractive in volatile markets Cash Flow Quality Market Positioning Criticality Stable revenues Defensive positioning Essential assets Lower operational Stable, high barriers to Social licenc
Slide 18: Highly diversified portfolio
Highly diversified portfolio Communications Affinity Water 7.7% A63 Motorway 6.6% Electricity Health & Water Fortysouth 6.2% 9% 48% Texas Nevada 21% Top 10 assets Transmission 5.4% 17% represent less Education than half of High Speed 1 4.4% Fire, Law & 10% portfolio value1 4% Northwest Parkway 4.0%
Slide 19: Operational update – Affinity Water (7.7% of portfolio)
Operational update – Affinity Water (7.7% of portfolio) ∆ Water-only company (non-sewage) serving over 3.8m customers across London, the South and South East of the UK ∆ Experienced management team led by Keith Haslett ∆ Operational performance slightly ahead of expectations as a result of effective
Slide 20: Operational update – key demand-based assets
Operational update – key demand-based assets A63 Motorway Northwest Parkway High Speed 1 (6.6% of portfolio) (4.0% of portfolio) (4.4% of portfolio) ∆ Light vehicle traffic 5% higher than in ∆ Traffic in H1 FY24 increased by 6% vs ∆ Shareholder distributions resumed in H1 FY23 H1 FY23 and was slight
Slide 21: Operational update – modern economy assets
Operational update – modern economy assets Fortysouth Texas Nevada Transmission (6.2% of portfolio) (5.4% of portfolio) ∆ Carved-out TowerCo fully staffed with c.30 full time ∆ Operational performance in line with acquisition assumptions employees, ahead of schedule with both networks achieving > 99
Slide 22: Investment Activity and Market Outlook
Investment Activity and Market Outlook hicl.com | 22
Slide 23: Focused strategy underpinned by investment discipline
Focused strategy underpinned by investment discipline Acquisitions1 Disposals1 Altitude Infra Hornsea II OFTO PSPB North-East Northwest Parkway Romford Hospital FR UK UK US UK Cross London Trains Fortysouth Bradford Schools I Bradford Schools II Sheffield Student Accommodation UK NZ UK UK UK B247 Ro
Slide 24: Track record of highly selective divestments
Track record of highly selective divestments Disposal track record: 25 c.£830m >7.5p Asset disposals Total proceeds since NAV outperformance since IPO IPO since IPO Disposal methodology: Result in an overall positive impact on HICL accretion metrics; Disposal process only Improve sector or geographi
Slide 25: A disciplined and responsible approach to capital allocation
A disciplined and responsible approach to capital allocation Sources Uses Distributions from portfolio companies Shareholder De-gearing and reducing dividends floating rate debt Current priorities Selective asset sales Accretive Share repurchases investment Rotation into higher returning investments
Slide 26: Increasing global competition for quality infrastructure investment
Increasing global competition for quality infrastructure investment Near-term Macroeconomic volatility Underlying asset quality Opportunity: selective portfolio rotation ▪ Elevated inflation ▪ Inflation correlation as pockets of value emerge ▪ Elevated sovereign bond yields ▪ Contracted cashflows ▪
Slide 27: Concluding Remarks
Concluding Remarks hicl.com | 27
Slide 28: HICL well positioned to navigate challenging external environment
HICL well positioned to navigate challenging external environment Strategic asset rotation Robust portfolio performance Increased long term returns Supportive strategic backdrop hicl.com | 28
Slide 29: Appendix I: The Investment Manager
Appendix I The Investment Manager
Slide 30: 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 11 infrastructure funds (including HICL and TRIG) ∆ Currently over US$14bn of equity under management1 ∆ London headquartered, with offices in New York,
Slide 31: InfraRed – Infrastructure Team Skills and Experience
InfraRed – Infrastructure Team Skills and Experience ∆ Proven track record in target markets of UK, Europe, North America and Australia / New Zealand ∆ Focused teams including: – Origination and Execution Team responsible for sourcing, diligencing and acquiring new investment opportunities; – Asset
Slide 32: Appendix II: Company Information
Appendix II Company Information
Slide 33: Compelling Investment Proposition
Compelling Investment Proposition >100 assets InfraRed - specialist infrastructure investment manager Diversification Largest asset 7.7%1 $14bn+ 25+ Sustainability 20m+ people Equity under Years of investment access HICL’s infrastructure management experience Total return 8.7% p.a. since IPO Yield ~
Slide 34: HICL’s Vision
HICL’s Vision 44% of portfolio Developing strong social foundations 39% of portfolio connecting communities 17% of portfolio supporting sustainable modern economies By value based on the Directors Valuation of £3,536.1m at 30 September 2023 hicl.com | 34
Slide 35: Board of Directors I
Board of Directors I Non-executive Directors with a broad range of relevant experience and qualifications Mike Bane Kenneth D. Reid Rita Akushie Liz Barber Chair Senior Independent Director Audit Committee Chair Director Mike is a chartered accountant with over 35 years of Kenneth, a Singapore resid
Slide 36: Board of Directors II
Board of Directors II Non-executive Directors with a broad range of relevant experience and qualifications Frances Davies Martin Pugh Simon Holden Remuneration Committee Chair Director Risk Committee Chair Frances has more than 30 years of experience Martin Pugh has over 35 years in the infrastructu
Slide 37: Investment Manager
Investment Manager Senior InfraRed team, experienced in making and managing infrastructure investments HICL’s Investment Committee HICL’s Senior Leadership HICL’s Investment Committee is the principal executive decision making body for HICL within InfraRed and is comprised of: Edward Hunt Jack Paris
Slide 38: Appendix III: The Investment Portfolio
Appendix III The Investment Portfolio
Slide 39: HICL’s Top 10 Assets I
HICL’s Top 10 Assets I Sector: Electricity & Water Affinity Water (UK) % of portfolio: 7.7% (March 2023: 7.3%) HICL holding: 33.2% 1 Affinity Water Limited is the largest water-only supplier in the UK by revenue and population served covering an area of 4,515 square kilometres. Concession life remai
Slide 40: HICL’s Top 10 Assets II
HICL’s Top 10 Assets II Sector: Transport Northwest Parkway (USA) % of portfolio: 4.0% (March 2023: 6.0%) HICL holding: 23.3% 6 The Northwest Parkway is a 14km, four-lane toll road that forms part of the ring road around the city of Denver, Colorado, USA. Concession life remaining: 83 years Status:
Slide 41: Portfolio Diversification
Portfolio Diversification HICL’s Portfolio, as at 30 September 20231 REVENUE TYPE GEOGRAPHIC LOCATION ▲ Contracted Revenues 63% ▲ UK 63% ▲ Demand-based Revenues 17% ▲ Europe (exc UK) 20% ▲ Regulated Revenues 20% ▲ North America 11% ▲ New Zealand 6% INVESTMENT STATUS SECTOR ▲ Fully operational 97% ▲
Slide 42: Investment Activity
Investment Activity Market coverage filtered by focused acquisition strategy and investment discipline Investment Activity Type Project Sector Description % portfolio1 Stake Date2 Transactions completed in the period New Texas Nevada Transmission Electricity & Water Two electricity transmission syst
Slide 43: Sustainability highlights
Sustainability highlights HICL has a role in society that extends beyond its shareholders 2030 interim net zero targets set Excellence in governance Article 8 SFDR categorisation 50% of portfolio to be aligned or aligning Enhanced application of InfraRed Full compliance with level 2 disclosure Exclu
Slide 44: Financial Performance
Financial Performance Income Statement Six months to 30 September 2023 Six months to 30 September 2022 Investment Basis1 £m £m Total income 10.9 125.8 Fund expenses (20.5) (19.6) Finance costs (18.0) (3.6) Tax - - Total return (27.6) 102.6 (Loss) / Earnings per share (1.4)p 5.2p Ongoing charges2 1.1
Slide 45: Key Valuation Assumptions
Key Valuation Assumptions 30 September 2023 31 March 2023 Discount Rate Weighted Average 8.0% 7.2% UK (RPI2 & RPIx2) 6.50% to March 2024, 5.00% to March 2024, 3.50% to March 2025, 3.25% to March 2030, 2.50% thereafter 2.75% to March 2030, 2.00% thereafter UK (CPI/CPIH)3 5.75% to March 2024, 2.75% to
Slide 46: Summary Cash Flow Statement
Summary Cash Flow Statement Figures presented on an Investment Basis1 Six months to 30 September 2023 Six months to 30 September 2022 £m £m Opening net (debt) / cash (147.6) (46.2) Net cash flow before capital movements 88.2 84.3 Investments (415.5) (126.7) Disposals 66.3 96.8 Debt arrangement fees
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