HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — FY2024 Earnings Presentation
51 slides from HICL Infrastructure's earnings presentation, May 22, 2024
Slide 1: HICL Infrastructure PLC Annual Results Presentation
HICL Infrastructure PLC Annual Results Presentation 22 May 2024
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: Annual Results Highlights & Investment Proposition
Annual Results Highlights & Investment Proposition hicl.com | 3
Slide 4: HICL at a glance
HICL at a glance 1. 2. 3. Core Active Established positioning management pedigree ▪ Essential infrastructure ▪ Hands-on approach ▪ Specialist management ▪ Inflation protection ▪ Active asset rotation ▪ 18-year track record ▪ Lower end of risk spectrum ▪ Driving outperformance ▪ Global capability Sou
Slide 5: Key themes in the year
Key themes in the year Effective capital Return to Positioned for allocation dividend growth long-term returns £509m1 / +11%2 8.35pps 8.9% Divestments / premium to NAV New FY26 dividend guidance3 Market implied net return4 ∆ Improved portfolio composition ∆ Yield improved by M&A activity ∆ Core infr
Slide 6: Solid underlying performance allows for increased dividend guidance
Solid underlying performance allows for increased dividend guidance 158.2p 9.0% NAV per share Annualised underlying portfolio return1 31 March 2023: 164.9p 31 March 2023: 10.2% Nil 1.37x2 / 1.05x RCF drawings Dividend cash cover including2 / excluding As at 22 May 24 profits on disposal 31 March 202
Slide 7: Balanced portfolio construction drives long-term total returns
Balanced portfolio construction drives long-term total returns Yield investments Growth investments Cash generative Shorter duration Earnings generative Longer duration 500 4.0 c.10% 14yrs £168m +7% 48yrs 10-yr cash yield Remaining life 2024 EBITDA1 10-yr CAGR Remaining life 3.5 Annual cash generati
Slide 8: Attractive long-term real returns from income and capital growth
Attractive long-term real returns from income and capital growth 11% 10% Net expenses3 Entry point 9% below NAV2 1.1% 2.0% 8% 7% Equity risk 6% premium 3.9% Implied Shareholder Implied 5% Long-term Return Shareholder implied 10.0% Net Return4 4% Real risk-free return 8.9% 3% 1.7% 8.0% Weighted avera
Slide 9: Financial Performance
Financial Performance hicl.com | 9
Slide 10: Active portfolio management balances macroeconomic factors
Active portfolio management balances macroeconomic factors 190 Net debt2 180 ▲1.1 ▼(8.0) £303.9m / £116.7m ▼(0.5) ▼(3.7) ▲12.7 Pre / post committed disposals 170 ▼(8.3) 160 Fund borrowing %3 12.1% / c. 7.0% 150 Pre / post committed disposals 170.7 170.7 164.9 164.9 166.5 140 158.2 158.2 OCR4 130 1.1
Slide 11: Disciplined focus on maximising shareholder value
Disciplined focus on maximising shareholder value £4,300m £4,100m ▲226.9 ▼(508.7) £3,900m 3,772.8 £3,700m ▼(244.3) ▲285.5 ▼(280.3) £3,500m ▲120.5 ▼(37.3) ▼(1.7) 3,333.4 £3,300m 3,246.7 £3,100m 3,498.6 Income Statement Revenue £2,900m 9.0% (8.8)% 3.8% (1.2)% 3,268.9 3,180.5 £2,700m Future commitments
Slide 12: Significant private / public dislocation in infrastructure valuations
Significant private / public dislocation in infrastructure valuations Private Infrastructure Market Remains Active 9 assets / £509m Total infrastructure deals1 800 120 Core infrastructure deals 700 100 600 500 80 of HICL disposals all at or above carrying value since 31 March 2023 400 60 300 40 200
Slide 13: An inherently defensive portfolio, with increased risk premium
An inherently defensive portfolio, with increased risk premium Risk premium = 3.9% Risk premium = 3.5% HICL’s inflation correlation mitigates 10% adverse discount rate movements 9% Weighted Average Discount Rate 8% 7% 6% Discount Rate +/- 0.5% (7.8) 8.6 5% 4% 3% Inflation -/+ 0.5% (6.8) 7.8 2% 1% 0%
Slide 14: Limited portfolio refinancing exposure
Limited portfolio refinancing exposure Portfolio Debt 2.5% HICL’s portfolio gearing¹ 68% 2.9% 1-2 years 87% 13% 2.6% 3-5 years 5-13 years 5.3% >13 years Average gearing of assets with refinancing risk² 50% Refinancing required Fixed until concession end Note: Percentage of debt maturing has been cal
Slide 15: Dividend cover has improved steadily allowing for dividend growth from FY2026
Dividend cover has improved steadily allowing for dividend growth from FY2026 Increased cash flow from c.£20m¹ 1.2x 1.10x cash dividend cover supports sustainable growth divestments 1.0x Cash dividend cover 0.8x Dividend growth 0.6x resumed from 20262 8.35pps 0.4x 0.2x 0.0x Potential uplift from 202
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 Stable revenues Less operational complexity Market Positioning Defensive positioning High barriers to entry Criticality Essential assets Socia
Slide 18: Highly diversified portfolio
Highly diversified portfolio Communications Accommodation Contracted Revenues Affinity Water, 8.3% Demand-based Revenues Education Regulated Revenues A63 Motorway, 9% 7.9% 9% Transport 10% Fortysouth, 6.5% Electricity 58% 27% & Water of HICL’s portfolio Texas Nevada Transmission, 5.6% 18% is compris
Slide 19: Operational update – Affinity Water
Operational update – Affinity Water (8.3% of portfolio) ∆ Water-only company (non-sewage) in South East England ∆ PR241 draft determination expected in June 2024 − Plan is fully funded − Plan includes significant capital investment with modest bill increases over the five-year period ∆ Operational p
Slide 20: Operational update – demand-based assets
Operational update – demand-based assets A63 Motorway High Speed 1 (7.9% of portfolio) (4.6% of portfolio) ∆ Light vehicle traffic continued to grow over the year ∆ Shareholder distributions resumed in Jun-23 ∆ HGV traffic broadly flat when compared with FY23 ∆ Eurostar at 89% of pre-Covid; forecast
Slide 21: Operational update – modern economy assets
Operational update – modern economy assets Fortysouth Texas Nevada Transmission (6.5% of portfolio) (5.6% of portfolio) ∆ Business carve-out completed & operating as stand-alone ∆ Operational performance in line with expectations, with both entity networks achieving >99.99% average availability ∆ Re
Slide 22: Investment Activity and Market Outlook
Investment Activity and Market Outlook hicl.com | 22
Slide 23: Active rotation has captured value and positioned HICL for long-term growth
Active rotation has captured value and positioned HICL for long-term growth Disposals £509m Acquisitions £227m PSPB North-East Northwest Parkway Romford Hospital Hornsea II OFTO1 Altitude Infra UK US UK UK FR +0.7p Bradford Schools I Bradford Schools II Sheffield Student Accommodation A63 Motorway2
Slide 24: Case study – Northwest Parkway disposal
Case study – Northwest Parkway disposal ∆ 33% stake in NWP acquired for $166m in Dec 2016 ∆ Active management approach – equal largest shareholder at acquisition ∆ Resilient operational performance: − 6.4% traffic CAGR between FY17 and FY20 − Resumed distributions 18 months after onset of Covid-19 −
Slide 25: Continued execution of capital allocation strategy
Continued execution of capital allocation strategy 1. Balance sheet 2. Shareholder 3. Strategic management distributions progress ∆ £150m PP to diversify capital sources1 ∆ £50m buyback programme launched ∆ Substantial and accretive portfolio rotation ∆ Disposal proceeds to fully repay RCF ∆ Dividen
Slide 26: Concluding Remarks
Concluding Remarks hicl.com | 26
Slide 27: Resilient performance despite continued external challenges
Resilient performance despite continued external challenges Significant milestones reached in capital allocation strategy Return to dividend growth, share buyback programme initiated Public / private market dislocation captured to generate value HICL well positioned to capitalise on attractive oppor
Slide 28: Appendix I
Appendix I Company Information
Slide 29: HICL's Vision
HICL’s Vision 45% of portfolio Developing strong social foundations 37% of portfolio connecting communities 18% of portfolio supporting sustainable modern economies By value based on the Directors’ Valuation of £3,333.4m at 31 March 2024 hicl.com | 29
Slide 30: Board of Directors I
Board of Directors I Non-executive Directors with a broad range of relevant experience and qualifications Mike Bane Kenneth Reid Rita Akushie Liz Barber Chair Senior Independent Director Audit Committee Chair Director Mike Bane (British) has been a Guernsey resident Kenneth, a Singapore resident, ha
Slide 31: 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 32: 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 Chris Gill
Slide 33: Appendix II
Appendix II The Investment Manager
Slide 34: InfraRed Capital Partners - Established infrastructure manager with international reach
InfraRed Capital Partners - Established infrastructure manager with international reach London New York Seoul Sydney KEY - InfraRed Office x 4 6 - Selected Capital Gain Assets Infrastructure Fund III Sixth iteration 2 ($1.0bn) North Infrastructure Fund II American of InfraRed's (£300m) Environmental
Slide 35: InfraRed Capital Partners - Mid-market specialist driving financial performance
InfraRed Capital Partners - Mid-market specialist driving financial performance Longevity Track record1 Complementary strategies 1.9x / 18.2% 25 years Realised net capital gain MOIC/IRR $13bn Investing in infrastructure Equity under management / 1.7x / 15.9% 11 infrastructure funds Total net capital
Slide 36: InfraRed Capital Partners - Strong platform driving two complementary strategies
InfraRed Capital Partners - Strong platform driving two complementary strategies Greenfield / Value-Add Brownfield, capital gains income-generating (unlisted) (listed / unlisted) International Complete Strategy reputation Strategy LP solutions Exit driven Buy & hold combined with local across risk-r
Slide 37: Appendix III
Appendix III The Investment Portfolio
Slide 38: HICL's Top 10 Assets I
HICL’s Top 10 Assets I Sector: Electricity & Water Affinity Water (UK) % of portfolio: 8.3% (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 39: HICL's Top 10 Assets II
HICL’s Top 10 Assets II Sector: Health Southmead Hospital (UK) % of portfolio: 3.9% (March 2023: 3.6%) HICL holding: 62.5% 6 Southmead Hospital PFI project is an 996-bed acute hospital concession on a single site at Southmead in North Bristol. Concession life remaining: 22 years Status: Operational
Slide 40: Portfolio Diversification
Portfolio Diversification HICL’s Portfolio, as at 31 March 20241 REVENUE TYPE GEOGRAPHIC LOCATION ▲ Contracted Revenues 65% ▲ UK 64% ▲ Demand-based Revenues 14% ▲ Europe (exc UK) 22% ▲ Regulated Revenues 21% ▲ North America 7% ▲ Australia / New Zealand 7% INVESTMENT STATUS SECTOR ▲ Fully operational
Slide 41: Track record of highly selective divestments
Track record of highly selective divestments Disposal track record: 26 >£1bn 10.1p 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 geographic
Slide 42: Investment Activity
Investment Activity Market coverage filtered by focused acquisition strategy and investment discipline Investment Activity Type Project Sector Description Stake Date2 Transactions completed in the year New Texas Nevada Transmission Electricity & Water Two electricity transmission systems in the USA
Slide 43: Market outlook remains positive
Market outlook remains positive InfraRed’s approach to sourcing new opportunities guided by HICL’s vision: Strong Social Foundations Connecting Communities Sustainable Modern Economies Transport Fibre Towers Data centres Water OFTOs Transmission District heating ∆ Ninefold increase in data creation
Slide 44: Sustainability highlights
Sustainability highlights HICL has a role in society that extends beyond its shareholders Environment Communities ▲ Detailed net zero transition plan for HICL’s ▲ InfraRed Portfolio Impact initiatives rolled portfolio – asset specific transition plans out across several HICL assets ▲ InfraRed contri
Slide 45: Appendix IV
Appendix IV Valuation assumptions and metrics
Slide 46: Key Valuation Assumptions
Key Valuation Assumptions 31 March 2024 31 March 2023 Discount Rate Weighted Average 8.0% 7.2% UK (RPI2 & RPIx2) 3.00% to March 2025, 5.00% to March 2024, 2.75% to March 2026, 3.25% to March 2030, 2.5% thereafter 2.75% to March 2030, 2.00% thereafter UK (CPI/CPIH)3 2.25% to March 2025, 2.00% to Marc
Slide 47: Weighted average discount rate of 8.0%
Weighted average discount rate of 8.0% 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 Mar 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 1
Slide 48: Balanced portfolio construction
Balanced portfolio construction Discount Rate +/- 0.5% (7.8) 8.6 HICL’s inflation correlation provides an offset to adverse Inflation -/+ 0.5% (6.8) 7.8 discount rate movements Tax Rate +/- 5% (4.2) 4.2 GDP -/+ 0.5% (2.7) 1.9 Cash Deposit Rate -/+ 1% (2.2) 2.2 The portfolio is relatively insensitive
Slide 49: Appendix V
Appendix V Summary financial statements
Slide 50: Summary Income Statement and Balance Sheet
Summary Income Statement and Balance Sheet Income Statement Year ended 31 March 2024 Year ended 31 March 2023 Investment Basis1 £m £m Total income 105.4 254.2 Fund expenses (38.6) (39.6) Finance costs (36.2) (16.1) Tax (0.1) (0.1) Total return 30.5 198.4 Earnings per share 1.5p 9.9p Ongoing charges2
Slide 51: Summary Cash Flow Statement
Summary Cash Flow Statement Figures presented on an Investment Basis 31 March 2024 31 March 2023 £m £m Opening net (debt) (147.6) (46.2) Net cash flow before capital movements 175.6 171.0 Investments (435.1) (339.1) Disposals 269.4 96.8 Debt arrangement fees paid (2.5) (6.7) Foreign exchange on cash