HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — H1 2021 Earnings Presentation
69 slides from HICL Infrastructure's earnings presentation, Nov 25, 2020
Slide 1: HICL Infrastructure PLC Interim Results Presentation
HICL Infrastructure PLC Interim Results Presentation: Six months to 30 September 2020 25 November 2020 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 7 Valuation Overview and Sensitivities 10 Market, Investment Activity and Investment Outlook 15 Portfolio Performance, Asset Management and Risk 21 Concluding Remarks 28 Appendices 30 hicl.com | 3
Slide 4: A diversified portfolio positioned at the lower end of the risk spectrum
A diversified portfolio positioned at the lower end of the risk spectrum 1 3 Core infrastructure investment characteristics Actively managed to deliver sustainable income 0.8 27.8 yrs Outperformance Correlation of portfolio Weighted avg ▲ Enhance communities’ returns to inflation1 asset life at 30 S
Slide 5: HICL's Track Record
HICL’s Track Record1 Consistent delivery over 14 years Dividend increased by 35% over 13 years Total Return (NAV growth and dividends) of 9.0% 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: Sustainable Thinking
Sustainable Thinking A long-term approach to investing in, and managing, core infrastructure Case Study: The operational Investment Manager’s approach response to Covid-19 ▪ Sustainability factors are embedded in InfraRed’s investment processes Focus on the immediate needs of HICL’s clients, end use
Slide 7: Interim Results
% Interim Results PSBP. NE Batch, UK
Slide 8: Overview
Overview Delivering sustainable income from a diverse portfolio of core infrastructure investments Performance ▲ Solid performance driven by a resilient, diversified portfolio of 117 core infrastructure investments ▲ NAV growth of 1.7p per share to 154.0p for the six months to 30 September 2020, wit
Slide 9: Performance Highlights
Performance Highlights Solid performance for the six months to 30 September 2020 154.0p 7.8% 8.25p for 2022 NAV per share Annualised Shareholder Return2 New Dividend Guidance1,3 Up 1.7p from 152.3p 5.7% for the six months to Reaffirmed Dividend Guidance1,3 at 31 March 2020 30 September 2019 8.25p fo
Slide 10: Valuation Overview and Sensitivities
Valuation Overview and Sensitivities hicl.com |
Slide 11: Portfolio Overview – Cash Flow Profile
Portfolio Overview – Cash Flow Profile1,2,3 Forecast steady long-term cash flows and a stable portfolio valuation in the medium term ▲ Portfolio cash flows underpin forward dividend guidance 400 4,000 The valuation of the portfolio (RHS) at any time is a function of the present value of 350 the expe
Slide 12: Analysis of Change in Directors' Valuation
Analysis of Change in Directors’ Valuation Directors’ Valuation1 of £3,073.2m as at 30 September 2020 £3,100m ▲140.4 ▼(82.6) ▲61.4 ▼(26.0) ▲4.6 3,073.2 2,946.3 ▲105.6 ▼(20.5) 78.7 £3,000m 2,888.5 £2,900m 76.9 77.0 £2,800m £2,700m £2,600m £2,500m £2,400m £2,300m 2,989.9 2,946.3 2,869.4 2,954.5 2,954.
Slide 13: Discount Rate Analysis
Discount Rate Analysis Weighted average discount rate decreased to 7.0% from 7.2% at 31 March 2020 ▲ Discount rates for investments range between 6.0%1 and 9.1% Appropriate Total Discount Rate3 Long-Term Risk ▲ Discount rates have seen reductions in all Government Premium 30 31 30 regions since Marc
Slide 14: Key Valuation Sensitivities
Key Valuation Sensitivities Sensitivity to key macroeconomic assumptions ▲ The FX rate and GDP sensitivities are based on Discount Rate +/- 0.5% (7.7) 8.4 the relevant affected assets, and the discount rate sensitivities are based on analysis of the whole portfolio Inflation -/+ 0.5% (p.a.) (7.1) 7.
Slide 15: Market, Investment Activity and Investment Outlook
Market, Investment Activity and Investment Outlook hicl.com |
Slide 16: Current Market
Current Market ▲ Amid the global disruption associated with Covid-19, the predictable long-term yields from core infrastructure remain highly attractive to institutional investors ▲ Significant inflows of capital to listed and unlisted funds focused on core infrastructure investments, with evidence
Slide 17: HICL's Core Infrastructure Focus I
HICL’s Core Infrastructure Focus I ▲ Core infrastructure is a distinct market segment at the lower end of the risk spectrum, comprising essential infrastructure assets that deliver resilient cash flows from a protected market position ▲ By its nature, such infrastructure is generally visible / locat
Slide 18: HICL's Core Infrastructure Focus II
HICL’s Core Infrastructure Focus II GEOPOLITICAL ENVIRONMENTAL LANDSCAPE CHANGE DEMOGRAPHIC CHANGE Investment TECHNOLOGICAL Themes DISRUPTION CONNECTIVITY & DIGITISATION ENERGY URBANISATION TRANSITION Examples below Regardless of sector, core infrastructure characteristics must remain constant: Exam
Slide 19: Investment Activity
Investment Activity Market coverage filtered by focused acquisition strategy and investment discipline EVALUATION 16 New deals reviewed in the period DUE Transactions subject to detailed DILIGENCE 13 due diligence in the period Investments completed for HICL INVESTMENT 3 9 live opportunities1 Acquis
Slide 20: Investment Outlook
Investment Outlook ▲ InfraRed, on behalf of HICL, has developed an attractive pipeline of diversified core infrastructure investment opportunities: ▪ Greenfield PPP investments (e.g. PPP roads); ▪ Operational PPP and regulated assets; ▪ Opportunities within sectors that support the modern economy (e
Slide 21: Portfolio Performance, Asset Management and Risk
Portfolio Performance, Asset Management and Risk hicl.com |
Slide 22: Portfolio Metrics
Portfolio Metrics Ten largest assets accounted for c. 45% of the portfolio1 30 September 20201,2 31 March 2020 10 Largest Investments1 Affinity Water 7% Number of 117 117 Remaining A63 6% investments Investments 55% High Speed 1 5% Percentage of portfolio by value – 45% 44% Northwest Parkway 10 larg
Slide 23: Portfolio Diversification
Portfolio Diversification HICL’s Portfolio, as at 30 September 20201 MARKET SEGMENT GEOGRAPHIC LOCATION Sep-20 Sep-20 Mar-20 Mar-20 Sep-20 Mar-20 Sep-20 Mar-20 ▲ PPP Projects 72% 72% ▲ UK 74% 76% ▲ Demand-based Assets 19% 20% ▲ Europe (ex UK) 19% 17% ▲ Regulated Assets 9% 8% ▲ North America 7% 7% IN
Slide 24: Portfolio Performance I
Portfolio Performance I PPP projects represent 72% 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 25: Portfolio Performance II
Portfolio Performance II Demand-based assets represent 19% 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 (absent widespread movement restrictions) ▲ Long-dat
Slide 26: Portfolio Performance III
Portfolio Performance III Regulated assets represent 9% 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 27: Risk and Risk Management
Risk and Risk Management1 Political and ▲ Easing of UK political and regulatory risk since the December 2019 general election, the conclusion of Price regulatory risk Review (“PR19”) in the water sector and positive messaging from the CMA on the PR19 process ▲ Governments may respond to increased le
Slide 28: Concluding Remarks
Concluding Remarks hicl.com |
Slide 29: Concluding Remarks
Concluding Remarks Delivering Real Value. ▲ Solid portfolio performance driven by a resilient and diversified portfolio: ▪ NAV increase of 1.7p ▪ Annualised total shareholder return1 of 7.8% ▲ The Company remains on track for the target dividend of 8.25p per share2 for the year ending 31 March 2021
Slide 30: Appendix I: The Investment Manager
Appendix I The Investment Manager hicl.com |
Slide 31: 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) Over US$12bn of equity under management at 30 September 2020 London based, with offices
Slide 32: 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 33: HICL Investment Committee
HICL 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 Management Committee. He is focused on developing strategy and drivi
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 and first infrastructure
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 Chart Key Lower - Inner wheel
Slide 37: HICL Infrastructure PLC Group Structure Diagram
HICL Infrastructure PLC Group Structure Diagram Equity Independent Directors1 HICL’s Shareholders dividends ▪ Governance (predominantly UK) interest ▪ Oversight ▪ Strategy Investment Manager HICL Infrastructure PLC ▪ HICL's AIFM EEA AIF2 subject to the full scope of the AIFMD3 ▪ Fund Management (UK
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: Sustainable Thinking
Sustainable Thinking A long-term approach to investing and managing core infrastructure The Board has overall responsibility InfraRed applies for HICL’s Sustainability Policy HICL’s Sustainability Policy including the potential impact to making new investments and to of climate change the management
Slide 40: 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 Rita Akushie Mike Bane Chairman Senior Independent Director Director Director Ian, HICL’s Chairman, is resident in the Frank, a UK resident, is a qualified Rita, a
Slide 41: Board of Directors II
Board of Directors II Non-executive Directors with a broad range of relevant experience and qualifications Frances Davies Susie Farnon Simon Holden Kenneth D. Reid Director Audit Committee Chair Risk Committee Chair Director Frances, a UK resident, has more than Sally-Ann (known as Susie), a Guernse
Slide 42: Key Performance Indicators (KPIs)
Key Performance Indicators (“KPIs”) KPI Measure1 30 September 2020 30 September 2020 Objective Commentary Aggregate interim An annual distribution of at Dividends dividends declared per 4.12p 4.12p least that achieved in the Achieved share in the period prior year Total NAV growth and A long-term IR
Slide 43: Analysis of Change in NAV per Share
Analysis of Change in NAV per Share1 Six months to 30 September 2020 160.0 p Value Enhancement Accretive Investment ▲3.2 ▼(1.4) ▲0.2 ▼(2.1) ▲0.2 ▼(1.1) 155.0 p ▼(2.0) ▲0.3 4.4 150.0 p Value Preservation 145.0 p 140.0 p 155.9 155.9 154.0 150.3 150.3 154.1 154.1 154.0 152.3 135.0 p 150.3 130.0 p 125.0
Slide 44: Summary Financials I
Summary Financials I Figures presented on an Investment Basis1 For the six months to For the six months to Income Statement 30 September 2020 30 September 2019 Total income £121.9m £97.9m Fund expenses & finance costs (£17.8m) (£18.4m) Profit before tax £104.1m £79.5m Earnings per share2 5.5p 4.4p O
Slide 45: Summary Financials II
Summary Financials II Figures presented on an Investment Basis1 For the six months to For the six months to Cash Flow 30 September 2020 30 September 2019 Opening net cash/(debt) £28.7m (£84.3m) Net operating cash flow £65.1m £76.5m Investments (net of disposals) (£140.6m) (£18.0m) Equity raised (net
Slide 46: 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 47: Demand-based Assets Impacted by Covid-19 I
Demand-based Assets Impacted by Covid-19 I Differing recovery trajectories ▲ HICL has demand-based assets correlated to GDP (18% of portfolio), predominantly accounted for by three assets: High Speed 1 (UK), Northwest Parkway (USA) and A63 Motorway (France) ▲ Northwest Parkway and A63 have experienc
Slide 48: Demand-based Assets Impacted by Covid-19 II
Demand-based Assets Impacted by Covid-19 II A63 Motorway (France) revenue modelling ▲ The A63 Motorway in southwest France performs an important strategic link as part of the TEN-T trans-European network of roads, airports, railways and water infrastructure, establishing intermodal, long-distance an
Slide 49: Demand-based Assets Impacted by Covid-19 III
Demand-based Assets Impacted by Covid-19 III High Speed 1 (UK) revenue modelling ▲ High Speed 1 (“HS1”) has strong strategic positioning as the only direct rail connection between the UK and mainland Europe ▲ Contracted track access revenues for domestic and international train paths have supported
Slide 50: Demand-based Assets Impacted by Covid-19 IV
Demand-based Assets Impacted by Covid-19 IV Northwest Parkway (USA) revenue modelling ▲ The Northwest Parkway forms part of the orbital road around Denver, Colorado providing access to providing access to residential and employment centres within the north-western metropolitan area and the Denver In
Slide 51: Appendix III: The Investment Portfolio
Appendix III The Investment Portfolio hicl.com |
Slide 52: Portfolio I
Portfolio I Portfolio of 117 assets Education 14% of Directors’ Valuation1 Bangor & Nendrum Schools Derby Schools Manchester School Salford & Wigan BSF Phase 1 Barking & Dagenham Schools Ealing Schools Newham BSF Schools Salford & Wigan BSF Phase 2 Belfast Metropolitan College East Ayrshire Schools
Slide 53: Portfolio II
Portfolio II Portfolio of 117 assets Health 28% of Directors’ Valuation1 Barnet Hospital Doncaster Mental Health Hospital Oxford John Radcliffe Hospital Staffordshire LIFT Birmingham Hospitals Ealing Care Homes Oxford Nuffield Hospital Stoke Mandeville Hospital Birmingham & Solihull LIFT Glasgow Hos
Slide 54: Portfolio Analysis
Portfolio Analysis HICL’s Portfolio, as at 30 September 20201 OWNERSHIP STAKE SECTOR Sep-20 Sep-20 Mar-20 Mar-20 Sep-20 Mar-20 Sep-20 Mar-20 ▲ 100% ownership 31% 26% ▲ Accommodation 13% 11% ▲ 50% - 100% ownership 32% 34% ▲ Education 14% 14% ▲ Less than 50% ownership 37% 40% ▲ Electricity, Gas & Wate
Slide 55: 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 FYE HY FYE FYE FYE FYE FYE FYE FYE FYE FYE HY 2012 2013 2014 2015 2016 2017 2018 2019 2020 2020 2012 20
Slide 56: Facilities Management and Operations Counterparty Exposure
Facilities Management and Operations Counterparty Exposure ▲ Exposure is reviewed quarterly and reported to the 10 Largest Facilities Management Risk Committee by InfraRed and Operations Counterparty Exposures1 ▲ Contingency plans are in place to address scenarios where material issues lead to a fai
Slide 57: 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 2020, 30% of the portfolio1 benefited fro
Slide 58: Appendix IV: Valuation Methodology and Cash Flow Sensitivities
Appendix IV Valuation Methodology and Cash Flow Sensitivities hicl.com |
Slide 59: 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 ▲ Audited annually by the Company’s auditor ▲ Final valuat
Slide 60: Key Valuation Assumptions
Key Valuation Assumptions Movement 30 September 2020 31 March 2020 Discount Weighted Average 7.0% 7.2% Rate 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 0.25% to March 2023, 1.0% thereafter 0.5% to March 20
Slide 61: Portfolio Cash Flow Sensitivity I
Portfolio Cash Flow Sensitivity I Inflation-correlated returns for long-term investors1 If outturn inflation was 1.0% p.a. higher in all future periods than the rates in the valuation assumptions set out on page 60, the expected return from the portfolio2 (before Group expenses) would increase by 0.
Slide 62: Portfolio Cash Flow Sensitivity II
Portfolio Cash Flow Sensitivity II Impact of changes in Gross Domestic Product on portfolio cash flows1 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 7.0% to 6.8% In relation to the assumed Covid-19 re
Slide 63: Hedging Foreign Exchange Risk
Hedging Foreign Exchange Risk HICL hedges foreign exchange (“FX”) risk in relation to Hedging at 30 September 2020 assets it owns where cash flows are denominated in currencies other than British Pounds 700 600 Hedging provides confidence in the near term yield and 500 helps mitigate the impact on N
Slide 64: Appendix V: The Infrastructure Asset Class
Appendix V The Infrastructure Asset Class hicl.com |
Slide 65: Typical PPP project structure
Typical PPP project structure Client Project agreement HICL Infrastructure PLC Construction Shareholder Project Financing Bonds/Loans Partner agreement Company agreement Operational Partner Construction Operating MSA contract sub-contract sub-contract Maintenance Project Company Construction and FM
Slide 66: 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 67: 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 68: 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 69: 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