HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — FY2018 Earnings Presentation
63 slides from HICL Infrastructure's earnings presentation, May 23, 2018
Slide 1: HICL Infrastructure Company Limited Annual Results Presentation
HICL Infrastructure Company Limited Annual Results Presentation: Year to 31 March 2018 23 May 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 contains information provided solely as an update on the financial condition, results of operations and business of
Slide 3: Agenda
Agenda Section Page Annual Results 4 Portfolio Performance, Asset Management and Risk 17 Investment Activity 24 HICL’s Portfolio 28 Performance and Summary 31 Appendices 37 hicl.com | 3
Slide 4: Annual Results
is Olitstandl 6; Out a annual Lee ve
Slide 5: Investment Proposition and Business Model
Investment Proposition and Business Model Delivering Real Value. DELIVERING LONG-TERM, STABLE INCOME FROM A DIVERSIFIED PORTFOLIO OF INFRASTRUCTURE INVESTMENTS AT THE LOWER END OF THE RISK SPECTRUM Low asset 45% VALUE Ten largest assets as a PRESERVATION concentration risk proportion of the portfoli
Slide 6: Highlights I
Highlights I For the year to 31 March 2018 149.6p £2,836.5m 5.7% NAV per share Directors’ Valuation1 Total shareholder return Up 0.6p from NAV per share of 149.0p Value of the Company's investment Based on interim dividends paid plus at 31 March 2017 portfolio (£2,380.0m at 31 March 2017) uplift in
Slide 7: Highlights II
Highlights II Performance ▲ Resilient performance overall ▲ Total shareholder return (“TSR”)1 of 5.7% for the year to 31 March 2018 (2017: 10.3%) ▲ Solid cash flow, with dividend cover of 1.10x (2017: 1.22x) ▲ The impact of the Carillion liquidation affected TSR; c. £50m of value enhancements across
Slide 8: Summary Financials I
Summary Financials I Figures presented on an Investment Basis1 Income Statement 31 March 2018 31 March 2017 Total income £161.7m £207.6m Fund expenses & finance costs (£39.6m) (£30.5m) Profit before tax £122.1m £177.1m Earnings per share2 6.9p 12.4p Ongoing charges3 1.08% 1.06% Balance Sheet (as at)
Slide 9: Summary Financials II
Summary Financials II Figures presented on an Investment Basis1 Cash Flow 31 March 2018 31 March 2017 Opening net cash £82.2m £52.7m Net operating cash flow £142.9m £122.8m Investments2 (£480.3m) (£339.5m) Equity raised (net of costs) £265.8m £369.7m Forex movements and debt issue costs £4.1m (£22.9
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 £400m £3000m The valuation of the Current Portfolio (RHS) £350m at any time is
Slide 11: Analysis of Change in Directors' Valuation
Analysis of Change in Directors’ Valuation £3,000m 488.4 (179.1) 210.3 (59.3) 13.5 (20.4) 2,836.5 3.2 £2,800m 2,689.3 £2,600m £2,400m 2,380.0 £2,200m 2,794.6 £2,000m 2,647.3 2,347.5 £1,800m Future Commitments £1,600m 7.9% (2.2%) 0.1% 0.5% (0.8%) £1,400m 1 2 3 4 31 Mar 2017 Investments Cash Rebased R
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 government Premium 31 March 31 March between 4.1% and 9.8% bond yield1 2018 September 2017 2017 ▲ Weighted-average discount rate of 7.4%, UK 1.7% + 5.7% =
Slide 13: Key Valuation Assumptions
Key Valuation Assumptions Movement 31 March 2018 31 March 2017 Discount Weighted Average 7.4% 7.4% Rate UK (RPI2 & RPIx2/CPIH3) 2.75% / 2.0% 2.75% Eurozone (CPI) 1.0% to 2019, 2.0% thereafter 1.0% to 2019, 2.0% thereafter Inflation1 Canada (CPI) 2.0% 2.0% (p.a.) Australia (CPI) 2.5% 2.5% USA (CPI) 2
Slide 14: Key Valuation Sensitivities
Key Valuation Sensitivities Sensitivity to key macroeconomic assumptions Discount Rate +/- 0.5% ▲ NAV per share of 149.6p (7.7) 8.5 ▲ The discount rate, FX rate and GDP sensitivities Inflation -/+ 0.5% (7.0) 8.2 are based on analysis of the whole portfolio ▲ Remaining sensitivities are based on the
Slide 15: 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 page 13, the expected return from the portfolio3 (before Group expenses) would increase by
Slide 16: Portfolio Cash Flow Sensitivity II
Portfolio Cash Flow 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 6.0p (as at 31 March 2018) If the largest PPP project in the Grou
Slide 17: Portfolio Performance, Asset Management and Risk
Portfolio Performance, Asset Management and Risk hicl.com |
Slide 18: Portfolio Performance and Asset Management I
Portfolio Performance and Asset Management I Carillion: progress on working through the implications of the liquidation ▲ Carillion was the facilities manager and / or the construction contractor on 15 HICL PPP projects ▲ The overriding priority of the Board and InfraRed has been to ensure continuit
Slide 19: Portfolio Performance and Asset Management II
Portfolio Performance and Asset Management II Portfolio performance overall benefited from diversification PPP Projects ▲ PPP projects continue to perform well overall ▲ InfraRed’s Asset and Portfolio Management teams have delivered a number of significant value enhancements, generating approx. £50m
Slide 20: Risk and Risk Management I
Risk and Risk Management I Political Risk ▲ Due to the contractual relationship that infrastructure assets have with public sector counterparties and regulators, political and regulatory risks are inherent in HICL’s business model ▲ During the year, there has been political commentary raising the po
Slide 21: 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 22: 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 the Investment Adviser and Operations Counterparty Exposures1 ▲ Contingency plans are in place to address scenarios In House where materi
Slide 23: 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 31 March 2018, 41% of HICL’s portfolio1 benefited from
Slide 24: Investment Activity
Investment Activity hicl.com |
Slide 25: Summary Investment Activity
Summary Investment Activity Investment activity during the year Acquisitions 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 35.0% 21.8%2 Sept-1
Slide 26: Portfolio Optimisation
Portfolio Optimisation ▲ HICL sought and received offers for the Highland Schools PPP in March 2018 that represented significantly greater value than could be achieved by retaining the investment ▲ The disposal was accretive in terms of: - total return; - inflation correlation; and - weighted averag
Slide 27: HICL's Portfolio
r HIC L’s Portfolio Central: Middiesex Hospital, UK
Slide 28: Portfolio Metrics
Portfolio Metrics Ten largest assets account for c.45% of the portfolio1 31 March 2018 31 March 2017 10 Largest Investments1 Affinity Water 8% Number of investments 116 114 HS1 7% Percentage of portfolio Northwest Parkway 5% by value – 45% 40% 10 largest assets Home Office 4% Inflation correlation2
Slide 29: Portfolio Characteristics I
Portfolio Characteristics I At 31 March 2018 MARKET SEGMENT GEOGRAPHIC LOCATION March 2018 March 2018 March 2017 March 2017 Mar 2018 Mar 2017 Mar 2018 Mar 2017 ▲ PPP Projects 74% 88% ▲ UK 80% 77% ▲ Demand-based Assets 18% 12% ▲ EU 10% 11% ▲ Regulated Assets 8% 0% ▲ Australia 3% 4% ▲ North America 7%
Slide 30: Portfolio Characteristics II
Portfolio Characteristics II At 31 March 2018 OWNERSHIP STAKE SECTOR March 2018 March 2018 March 2017 March 2017 Mar 2018 Mar 2017 Mar 2018 Mar 2017 ▲ 100% ownership 27% 33% ▲ Accommodation 10% 12% ▲ 50% - 100% ownership 28% 32% ▲ Education 18% 20% ▲ Less than 50% ownership 45% 35% ▲ Health 28% 35%
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 165.0 p 160.0 p (3.4) 1.9 (5.9) 155.0 p 8.5 150.0 p (1.9) (0.7) 0.8 1.3 145.0 p 140.0 p 135.0 p 149.0 149.6 147.1 130.0 p 125.0 p 120.0 p 31 March Dividend paid 31 March Accretive tap Forex loss Change in Performance Impact of Three 31 March 2017 NAV per in June 2
Slide 33: Company's Key Performance Indicators
Company’s Key Performance Indicators (“KPIs”) KPI Measure1 31 March 2018 31 March 2017 Objective Commentary Aggregate interim dividends An annual distribution of at least Dividends declared per share in the 7.85p 7.65p Achieved that achieved in the prior year period NAV growth and dividends A long-t
Slide 34: Company's Key Quality Indicators
Company’s Key Quality Indicators (“KQIs”) KQI Measure1 31 March 2018 31 March 2017 Objective Commentary Percentage of portfolio value represented by the ten largest 45% 40% Maintain a diversified portfolio of Investment investments investments (thereby mitigating Within acceptable Concentration conc
Slide 35: Market & Outlook
Market & Outlook Market ▲ Deal flow in UK PPP markets remains muted: − small number of high-profile secondary market transactions − primary market pipeline remains quiet ▲ Other geographies and market segments (demand-based and regulated assets) continue to generate opportunities and see healthy dem
Slide 36: Concluding Remarks
Concluding Remarks Delivering Real Value. ▲ HICL offers a differentiated investment proposition combining: − Low asset concentration risk; − Strong correlation between portfolio returns and inflation1; and − Good cash flow longevity ▲ Well-diversified portfolio: − solid, predictable cash flows (cash
Slide 37: Appendix I: The Investment Adviser
Appendix I The Investment Adviser hicl.com |
Slide 38: 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 39: InfraRed – Infrastructure Team Skills and Experience
InfraRed – Infrastructure Team Skills and Experience ▲ Proven track record in target markets of Europe, North America, Latin America, Australia and New Zealand ▲ Focused teams including: − Origination and Transaction team responsible for sourcing, diligencing and acquiring new investment opportuniti
Slide 40: Appendix II: The Company and Group
Appendix II The Company and Group hicl.com |
Slide 41: HICL's Characteristics
HICL’s Characteristics Objective ▲ To generate long-term, stable income from a diversified portfolio of infrastructure investments ▲ Focused on investments at the lower end of the risk spectrum, which generate inflation- correlated returns History ▲ IPO in 2006, 11 successive years of dividend growt
Slide 42: 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 43: 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 ▲ Pricing discipline remains fundamentally important GE
Slide 44: Historic Performance and Cumulative Total Return
Historic Performance HICL has grown its dividend for each of the last 11 years Total Return (NAV growth and dividends) of 9.3% 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 FYE IPO FYE FYE FYE FYE FYE FYE F
Slide 45: 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 46: 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 47: Board of Directors I
Board of Directors1 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 qualif
Slide 48: 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 49: 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 50: Appendix III: The Investment Portfolio
Appendix III The Investment Portfolio hicl.com |
Slide 51: Current Portfolio I
Current Portfolio I Portfolio of 116 assets at 31 March 2018 Education 18% of Directors’ Valuation1 Fire, Law & Order 7% Bangor & Nendrum Gloucestershire Northern European Tyne & Wear Fire Ealing Schools Kent Schools Rhondda Schools Addiewell Prison Schools Fire & Rescue Project Stations Barking & E
Slide 52: Current Portfolio II
Current Portfolio II Portfolio of 116 assets at 31 March 2018 Health 28% 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 Social
Slide 53: 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 2017FYE 2018 FYE 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017 FYE
Slide 54: Appendix IV: Valuation Methodology
Appendix IV Valuation Methodology hicl.com |
Slide 55: 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 56: Portfolio Cash Flow Sensitivity III
Portfolio Cash flow Sensitivity III Gross Domestic Product1,2 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 7.4% to 7.6% Sensitivity based on forecast gross portfolio cash flows as at 31 March 2018 £400
Slide 57: Hedging Foreign Exchange Risk
Hedging Foreign Exchange Risk HICL hedges foreign exchange (“FX”) risk in relation to Hedging at 31 March 2018 assets it owns where cash flows are denominated in 600 currencies other than British Pounds 500 Hedging provides confidence in the near term yield and 400 helps mitigate the impact on NAV p
Slide 58: Appendix V: The Infrastructure Asset Class
Appendix V The Infrastructure Asset Class hicl.com |
Slide 59: 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 60: 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 61: 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 62: 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 63: 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
HICL Infrastructure Company — FY2018 Earnings Presentation on 6ix