HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — H1 2020 Earnings Presentation
64 slides from HICL Infrastructure's earnings presentation, Nov 20, 2019
Slide 1: HICL Infrastructure PLC Interim Results Presentation
HICL Infrastructure PLC Interim Results Presentation: six months to 30 September 2019 20 November 2019 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 Investment Proposition 4 Interim Results 6 Valuation Overview and Sensitivities 9 Portfolio Performance and Asset Management 14 Investment Activity 21 Risk and Risk Management 23 Market, Outlook and Concluding Remarks 26 Appendices 29 HICL’s entire investment business was transfe
Slide 4: Sustainable Business Model Delivers Long-term Income
Sustainable Business Model Delivers Long-term Income HICL is differentiated, delivering core infrastructure investment characteristics DELIVERING SUSTAINABLE INCOME FROM A DIVERSIFIED PORTFOLIO OF CORE INFRASTRUCTURE INVESTMENTS AT THE LOWER END OF THE RISK SPECTRUM Outperformance Enhance communitie
Slide 5: HICL's Track Record
HICL’s Track Record1 Consistent delivery over 13 years Dividend increased by 32% over 12 years Total Return (NAV growth and dividends) of 9.3% 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 FYE F
Slide 6: Interim Results
Interim Results hicl.com |
Slide 7: Strategic Focus
Strategic Focus Delivering sustainable income from a diverse portfolio of core infrastructure investments Performance ▲ Resilient portfolio performance underpinning continued NAV growth despite headwinds ▪ NAV growth of 0.3p per share to 157.8p for the six months to 30 September 2019 1 ▪ Solid cash
Slide 8: Performance Highlights
Performance Highlights Resilient performance for the six months to 30 September 2019 New Dividend Guidance2,4 157.8p 5.7% 8.65p for 2022 NAV per share Annualised Shareholder Return1 Up 0.3p from 157.5p at 31 March 2019 15.0% for the six months to Reaffirmed Dividend Guidance2,4 30 September 2018 8.4
Slide 9: Valuation Overview and Sensitivities
Valuation Overview and Sensitivities hicl.com |
Slide 10: Portfolio Overview – Cash Flow Profile
Portfolio Overview – Cash Flow Profile1,2,3 ▲ Forecast shows steady long-term cash flows combined with a stable portfolio valuation in the medium term ▲ Portfolio cash flows underpin two years of forward dividend guidance 400 The valuation of the Current Portfolio (RHS) 4,000 at any time is a functi
Slide 11: Analysis of Change in Directors' Valuation
Analysis of Change in Directors’ Valuation Directors’ Valuation of £2,966.2m as at 30 September 2019 2,998.9 2.1 (51.8) 2 £3,000m (95.2) 2,966.2 113.2 (39.9) (2.0) 26.4 2,854.0 12.2 £2,800m £2,600m Value Enhancement Accretive Investment Value Preservation £2,400m 2,909.6 2,889.3 £2,200m 2,779.4 £2,0
Slide 12: Discount Rate Analysis
Discount Rate Analysis 0.1% reduction in weighted average discount rates from 31 March 2019 ▲ Discount rates for investments range between Total Discount Rate3 6.2%1 and 9.3% Appropriate Long-Term Risk ▲ UK discount rate up 0.1% compared to 31 Government Premium 30 31 30 March 2019 due to a rise in
Slide 13: Key Valuation Sensitivities
Key Valuation Sensitivities Sensitivity to key macroeconomic assumptions ▲ The FX rate and GDP sensitivities are based on Discount Rate +/- 0.5% (8.2) 9.1 the relevant affected assets, and the discount rate sensitivities are based on analysis of the whole portfolio. Inflation -/+ 0.5% (7.5) 8.3 ▲ Re
Slide 14: Portfolio Performance and Asset Management
Portfolio Performance and Asset Management hicl.com |
Slide 15: Portfolio Metrics
Portfolio Metrics Ten largest assets accounted for c. 46% of the portfolio1,2 30 September 20191,2 31 March 2019 10 Largest Investments1,2 High Speed 1 7% Number of 116 118 investments Remaining A63 7% Investments 54% Percentage of Northwest Parkway 6% portfolio by value – 46% 45% 10 largest assets
Slide 16: 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 17: Portfolio Performance II
Portfolio Performance II Demand-based assets represent 22% 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 ▲ Long-dated, good inflation correlation and returns
Slide 18: Portfolio Performance III
Portfolio Performance III Regulated assets represent 7% of the portfolio, by value Investment rationale ▲ Essential assets that are regulated due to monopoly market positions ▲ Regulated assets have a complementary risk profile to PPP projects and demand-based assets ▲ Assets are subject to licence
Slide 19: Portfolio Characteristics I
Portfolio Characteristics I1,2 A diversified investment proposition MARKET SEGMENT GEOGRAPHIC LOCATION Sep-19 Sep-19 Mar-19 Mar-19 Sep-19 Mar-19 Sep-19 Mar-19 ▲ PPP Projects 71% 71% ▲ UK 75% 77% ▲ Demand-based Assets 22% 21% ▲ Europe (exc UK) 17% 15% ▲ Regulated Assets 7% 8% ▲ North America 8% 8% IN
Slide 20: Portfolio Characteristics II
Portfolio Characteristics II1,2 A diversified investment proposition OWNERSHIP STAKE SECTOR Sep-19 Sep-19 Mar-19 Mar-19 Sep-19 Mar-19 Sep-19 Mar-19 ▲ 100% ownership 26% 25% ▲ Accommodation 11% 11% ▲ 50% - 100% ownership 32% 32% ▲ Education 14% 15% ▲ Less than 50% ownership 42% 43% ▲ Electricity, Gas
Slide 21: Investment Activity
Investment Activity hicl.com |
Slide 22: Acquisition Activity
Acquisition Activity Market coverage filtered by focused acquisition strategy and investment discipline Evaluation 21 new deals reviewed in the period Due 9 diligence transactions subject to detailed due diligence CompletedBid 2 investments completed1 for HICL Acquisitions Net Stake Overall Type Sta
Slide 23: Risk and Risk Management
Risk and Risk Management hicl.com |
Slide 24: Risk and Risk Management
Risk and Risk Management1 Political and ▲ A UK general election will be held in December 2019 and the outcome is uncertain Regulatory Risk ▲ During the period, the Investment Manager submitted evidence to the National Infrastructure Commission for its The Future of Regulation Study and a response to
Slide 25: Creating Sustainable Partnerships
Creating Sustainable Partnerships HICL’s portfolio of investments is in infrastructure at the heart of communities The Investment Manager creates sustainable partnerships for HICL that develop innovative infrastructure and build resilient cities and communities, aligned to the UN’s Sustainable Devel
Slide 26: Market, Outlook and Concluding Remarks
Market, Outlook and Concluding Remarks hicl.com |
Slide 27: Market and Outlook
Market and Outlook Market ▲ Continued high levels of demand from unlisted investors for good quality core infrastructure assets ▲ HICL is a long-term, buy-and-hold investor, but may take advantage of current favourable market conditions to undertake selective strategic disposals that improve portfol
Slide 28: Concluding Remarks
Concluding Remarks Delivering Real Value. ▲ Resilient portfolio performance underpinning continued NAV growth ▪ Significant value enhancement initiatives at both asset and portfolio level ▪ Accretive investments and strategic disposals improved portfolio metrics while managing funding position ▲ A d
Slide 29: Appendix I: The Investment Manager
Appendix I The Investment Manager hicl.com |
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 19 infrastructure and real estate funds (including HICL and TRIG) Currently over US$12bn of equity under management1 Independent manager owned by senior m
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, Latin America and Australia / New Zealand ▲ Focused teams including: − Origination and Execution Team responsible for sourcing, diligencing and acquiring new investment opportun
Slide 32: 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 33: Fund Management
Fund Management InfraRed’s dedicated team with day-to-day responsibility for HICL ▲ The HICL Fund Management Team represents the interface between the Investment Manager and HICL’s stakeholders ▲ The team has day-to-day responsibility for the activities that support HICL, including strategy developm
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, 12 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 accommodation and availability transport and distribution; water utilities; (e.g. road/rail) district heating Examples: operational toll roa
Slide 37: HICL Infrastructure PLC Group Structure Diagram
HICL Infrastructure PLC Group Structure Diagram Equity Independent Directors1 dividends HICL’s Shareholders interest ▪ Governance (predominantly UK) ▪ Oversight ▪ Strategy HICL Infrastructure Investment Manager PLC EEA AIF2 subject to the full scope ▪ HICL's AIFM of the AIFMD3 ▪ Management (UK Inves
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: 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 Frances Davies Simon Holden Kenneth D. Reid Mike Bane Director Risk Committee Chair Director Director Frances has more than 30 years of Simon, a Guernsey resident, brings Kenneth, a Singapore r
Slide 41: Key Performance Indicators (KPIs)
Key Performance Indicators (“KPIs”) KPI Measure1 30 September 2019 30 September 2018 Objective Commentary Aggregate interim An annual distribution of at Dividends2 dividends declared per 4.12p 4.02p least that achieved in the Achieved share in the period prior year NAV growth and A long-term IRR tar
Slide 42: Analysis of Change in NAV per Share
Analysis of Change in NAV per Share1 Six months to 30 September 2019 165.0 p Value Enhancement 0.6 2.2 Accretive Investment 2.1 160.0 p 2.0 4.6 0.9 0.1 0.6 155.0 p 150.0 p Value Preservation 145.0 p 140.0 p 157.5 157.8 155.5 135.0 p 130.0 p 125.0 p 120.0 p 31 March 2019 Dividend paid 31 March 2019 C
Slide 43: Summary Financials I
Summary Financials I Figures presented on an Investment Basis1 Six months to Six months to Income Statement 30 September 2019 30 September 2018 Total income £97.9m £211.0m Fund expenses & finance costs (£18.4m) (£18.2m) Profit before tax £79.5m £192.8m Earnings per share2 4.4p 10.8p Ongoing charges3
Slide 44: Summary Financials II
Summary Financials II Figures presented on an Investment Basis1 Six months to Six months to Cash Flow 30 September 2019 30 September 2018 Opening net cash (£84.3m) (£115.2m) Net operating cash flow £76.5m £93.6m Investments (net of disposals) (£18.0m) (£60.5m) Equity raised (net of costs) (£0.7m) (£
Slide 45: 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 46: Acquisition Strategy
Acquisition Strategy Investment Policy unchanged since IPO in 2006 ▲ Origination activity continued across all core market segments during the year ▲ Market dynamics continue (principally, strong competition for assets) - pricing discipline remains crucial ▲ Will consider opportunities to enhance sh
Slide 47: Appendix III: The Investment Portfolio
Appendix III The Investment Portfolio hicl.com |
Slide 48: Portfolio I
Portfolio I Portfolio of 116 assets1 Education 14% of Directors’ Valuation2 Bangor & Nendrum Schools Ealing Schools Manchester School Rhondda Schools Barking & Dagenham Schools East Ayrshire Schools Newham BSF Schools Salford & Wigan BSF Phase 1 Belfast Metropolitan College Ecole Centrale Supelec (F
Slide 49: Portfolio II
Portfolio II Portfolio of 116 assets1 Health 29% of Directors’ Valuation2 Barnet Hospital Doncaster Mental Health Hospital Oxford John Radcliffe Hospital South West Hospital Enniskillen Birmingham Hospitals Ealing Care Homes Oxford Nuffield Hospital Staffordshire LIFT Birmingham & Solihull LIFT Glas
Slide 50: 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 HY FYE FYE FYE FYE FYE FYE FYE FYE HY 2012 2013 2014 2015 2016 2017 2018 2019 2020 2012 2013 2014 2015
Slide 51: Facilities Management and Operations Counterparty Exposure
Facilities Management and Operations Counterparty Exposure 10 Largest Facilities Management and Operations Counterparty Exposures1 ▲ Exposure is reviewed quarterly and reported to the Risk Committee by InfraRed Bouygues 15% ▲ Contingency plans are in place to address scenarios Other where material i
Slide 52: 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 2019, 35% of the portfolio1 benefited fro
Slide 53: Appendix IV: Valuation Methodology
Appendix IV Valuation Methodology hicl.com |
Slide 54: 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 ▲ Final valuation approved by Directors Non traded - DCF m
Slide 55: Key Valuation Assumptions
Key Valuation Assumptions Movement 30 September 2019 31 March 2019 Discount Rate Weighted Average 7.1% 7.2% UK (RPI2 & RPIx2/CPIH3) 2.75% / 2.0% 2.75% / 2.0% Inflation1 Eurozone (CPI) 2.0% 2.0% (p.a.) Canada (CPI) 2.0% 2.0% USA (CPI) 2.0% 2.0% UK 1.0% to 2022, 2.0% thereafter 1.0% to 2022, 2.0% ther
Slide 56: Portfolio Cash Flow Sensitivity I
Portfolio Cash Flow Sensitivity I Inflation-correlated returns for long-term investors1,2 If outturn inflation was 1.0% p.a. higher in all future periods than the rates in the valuation assumptions set out on slide 55, the expected return from the portfolio3 (before Group expenses) would increase by
Slide 57: Portfolio Cash Flow Sensitivity III
Portfolio Cash flow Sensitivity III Impact of changes in Gross Domestic Product on portfolio cash flows1,2 If GDP assumptions were 0.5% p.a. lower for all future periods, expected return from the portfolio 3 (before Group expenses) decreases 0.2% from 7.1% to 6.9% Sensitivity based on forecast gross
Slide 58: Hedging Foreign Exchange Risk
Hedging Foreign Exchange Risk HICL hedges foreign exchange (“FX”) risk in relation to Hedging at 30 September 2019 assets it owns where cash flows are denominated in 700 currencies other than British Pounds 600 Hedging provides confidence in the near term yield and 500 400 helps mitigate the impact
Slide 59: Appendix V: The Infrastructure Asset Class
Appendix V The Infrastructure Asset Class hicl.com |
Slide 60: 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 Construc
Slide 61: 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 62: 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 63: 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 64: 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