HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — Investor Presentation (August 2019)
65 slides from HICL Infrastructure's investor presentation, August 2019
Slide 1: HICL Infrastructure PLC Introductory Presentation Summer 2019
HICL Infrastructure PLC Introductory Presentation - the Investment Manager, HICL Overview & Recent Performance Summer 2019 hicl.com | For Investment Professionals (as defined under FSMA 2000). Individuals without professional experience in matters relating to investments should not rely on this info
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: Contents
Contents Section Page Investment Manager 4 Infrastructure as an Asset Class 8 HICL Overview 14 Case Study: A Decade of Outperformance 24 Portfolio, Asset Management and Risk 27 Portfolio Valuation at 31 March 2019 35 Recent Performance: 2019 Annual Results 41 Appendices 49 HICL Infrastructure Compan
Slide 4: Investment Manager
Investment Manager hicl.com |
Slide 5: 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 management Independent manager owned by senior ma
Slide 6: 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 Transaction team responsible for sourcing, diligencing and acquiring new investment opport
Slide 7: 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 8: Infrastructure as an Asset Class
Infrastructure as an Asset Class hicl.com |
Slide 9: HICL's Target Market Segments
HICL’s Target Market Segments HICL segments the market using different but complementary revenue risk categories PPP Projects (71% of Portfolio1) ▲ Long-term contracts with strong public sector clients in developed economies ▲ Availability-based payment mechanisms produce revenues that are uncorrela
Slide 10: 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 11: Illustrative Investment Cashflow Profile – PPP Project
Illustrative Investment Cashflow Profile – PPP Project Example: Social infrastructure return derived from an ‘availability’ revenue stream Typical PPP Project Investment Cashflow Profile Bidding Construction Operation & Maintenance Phase Phase Phase Value (3) (2) (1) - 1 2 3 4 5 6 7 8 9 10 11 12 13
Slide 12: Illustrative Investment Cashflow Profile – Demand-based Asset
Illustrative Investment Cashflow Profile – Demand-based Asset Example: Toll road return derived from a demand-based asset revenue stream Typical Toll Road Investment Cashflow Profile Bidding Construction Ramp- Phase Phase Up Operation & Maintenance (Steady State) Illustrative Chart Value Typical tim
Slide 13: Illustrative Investment Cashflow Profile – Regulated Asset
Illustrative Investment Cashflow Profile – Regulated Asset Example: Utility company return derived from a regulated revenue stream Typical Regulated Asset Investment Cashflow 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 27
Slide 14: HICL Overview
HICL Overview Priority Schools North East, UK
Slide 15: Delivering Income from a Diversified Portfolio
Delivering Income from a Diversified Portfolio Investment Proposition and Business Model1 DELIVERING LONG-TERM, STABLE INCOME FROM A DIVERSIFIED PORTFOLIO OF INFRASTRUCTURE INVESTMENTS AT THE LOWER END OF THE RISK SPECTRUM Relatively low 45% VALUE single asset Ten largest assets as a PRESERVATION co
Slide 16: HICL's Characteristics
HICL’s Characteristics1 Objective ▲ To deliver 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, 12 successive years of dividend growt
Slide 17: 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 9.4% 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 FYE FYE FYE I
Slide 18: Portfolio Overview – Cash Flow Profile
Portfolio Overview – Cash Flow Profile1,2 ▲ 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 function
Slide 19: 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 20: Board of Directors
Board of Directors Non-executive Directors with a broad range of relevant experience and qualifications Ian Russell, CBE - Chairman Ian, HICL’s Chairman, is resident in the UK and is a qualified accountant. He was Finance Director at Scottish Power plc then later CEO. Ian is chair of Scottish Future
Slide 21: HICL Group Structure Diagram
HICL Group Structure Diagram Equity dividends Independent Directors1 HICL’s Shareholders interest (predominantly UK) ▪ Governance ▪ Oversight ▪ Strategy HICL Infrastructure Investment Manager PLC EEA AIF2 subject to the full scope of the AIFMD3 ▪ HICL UK's AIFM (UK Investment Trust ▪ Management Comp
Slide 22: Acquisition Strategy
Acquisition Strategy Investment Policy unchanged since IPO in 20061 ▲ Origination activity across all core market segments ▲ Market dynamics continue (principally competition for assets) - pricing discipline remains fundamentally important ▲ Will consider opportunities to enhance shareholder value t
Slide 23: 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 24: Case Study: A Decade of Outperformance
Case Study: A Decade of Outperformance hicl.com |
Slide 25: A Decade of Outperformance I
A Decade of Outperformance I Significant NAV growth – IPO to 31 March 2016 NAV growth to 31 March 2016 of 44.2p per share higher than expected at IPO NAV growth comprised of 30.0p due to Portfolio Outperformance and 14.2p due to economic factors and discount rates Economic factors largely driven by
Slide 26: A Decade of Outperformance II
A Decade of Outperformance II Total return1 of 9.5% p.a. vs. IPO target of 7-8% p.a. (IPO to 31 March 2016) Portfolio Outperformance1 30.0p per share of NAV outperformance Other Lifecycle savings Distribution Delivered by the Investment Manager’s efficiency team Wide range of small incremental initi
Slide 27: Portfolio, Asset Management and Risk
Portfolio, Asset Management and Risk hicl.com |
Slide 28: Portfolio Metrics
Portfolio Metrics Ten largest assets accounted for c. 45% of HICL Guernsey's portfolio1 31 March 20191 31 March 2018 10 Largest Investments1 High Speed 1 7% Number of 118 116 investments Affinity Water 7% Percentage of A63 Motorway 6% portfolio by value – 45% 45% 10 largest assets Northwest Parkway
Slide 29: Portfolio Characteristics I
Portfolio Characteristics I HICL’s Portfolio, as at 31 March 20191 MARKET SEGMENT GEOGRAPHIC LOCATION Mar-19 Mar-19 Mar-18 Mar-18 Mar-19 Mar-18 Mar-19 Mar-18 ▲ PPP Projects 71% 74% ▲ UK 77% 80% ▲ Demand-based Assets 21% 18% ▲ Europe (exc UK) 15% 10% ▲ Regulated Assets 8% 8% ▲ Australia - 3% ▲ North
Slide 30: Portfolio Characteristics II
Portfolio Characteristics II HICL’s Portfolio, as at 31 March 20191 OWNERSHIP STAKE SECTOR Mar-19 Mar-19 Mar-18 Mar-18 Mar-19 Mar-18 Mar-19 Mar-18 ▲ 100% ownership 25% 27% ▲ Accommodation 11% 10% ▲ 50% - 100% ownership 32% 28% ▲ Education 15% 18% ▲ Less than 50% ownership 43% 45% ▲ Electricity, Gas
Slide 31: Case Study: Carillion
Case Study: Carillion Resolution substantially complete with minimal impact on stakeholders “A potentially highly disruptive situation [has] been dealt with in an exceptionally skilful and 44 1,600+ 99.5% Weekly professional manner, with the seamless transition to a new contractor going largely unno
Slide 32: Sustainable, Responsible Investment
Sustainable, Responsible Investment (“RI”) Good environmental, social and governance are essential to long-term investment performance 1 Case Studies A+ 96% 86% 60% Allenby and Connaught PRI ranking, for the HICL’s portfolio of HICL’s portfolio % of portfolio companies • The project company organise
Slide 33: Risk and Risk Management I
Risk and Risk Management I Political Risk ▲ Public sector counterparties and the role of independent regulators mean that political and regulatory risks are inherent in HICL’s business model ▲ The final outcome of the process of the UK leaving the EU (“Brexit”) remains unknown, and continues to crea
Slide 34: Risk and Risk Management II
Risk and Risk Management II Construction Quality ▲ InfraRed’s Asset Management team prioritises safety with portfolio company management teams and Fire Safety across the portfolio ▲ Construction quality of the PPP projects, e.g. fire-stopping and cladding systems, a key area of focus ▲ InfraRed proa
Slide 35: Portfolio Valuation at 31 March 2019
Portfolio Valuation at 31 March 2019 hicl.com |
Slide 36: 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 37: Key Valuation Assumptions
Key Valuation Assumptions Movement 31 March 2019 31 March 2018 Discount Rate Weighted Average 7.2% 7.4% UK (RPI2 & RPIx2/CPIH3) 2.75% / 2.0% 2.75% / 2.0% Inflation1 Eurozone (CPI) 2.0% 1.0% to 2019, 2.0% thereafter (p.a.) Canada (CPI) 2.0% 2.0% USA (CPI) 2.0% 2.0% Increase in UK UK/Eurozone 1.0% to
Slide 38: Discount Rate Analysis
Discount Rate Analysis 0.2% reduction in weighted average discount rates from 31 March 2018 ▲ Discount rates for investments range between 6.4%1 and 9.6% Total Discount Rate3 Appropriate ▲ Implied risk premium over long dated Long-Term Risk Government Premium 31 30 31 government bonds unchanged over
Slide 39: Key Valuation Sensitivities
Key Valuation Sensitivities Sensitivity to key macroeconomic assumptions ▲ The discount rate, FX rate and GDP sensitivities Discount Rate +/- 0.5% (8.4) 9.2 are based on analysis of the whole portfolio ▲ Remaining sensitivities are based on the largest Inflation -/+ 0.5% (7.9) 8.7 35 investments by
Slide 40: Analysis of Change in Directors' Valuation
Analysis of Change in Directors’ Valuation Annual return1 of 8.8% from the underlying portfolio 2 167.3 (147.5) 2,998.9 £3,000m 60.3 2.0 5.6 (178.7) 227.1 26.6 2,836.5 £2,800m 2,677.6 £2,600m £2,400m Value Preservation 2,794.6 Accretive Investment 2,904.0 2,856.3 2,588.0 Value Enhancement 2,902.0 2,
Slide 41: Recent Performance: 2019 Annual Results
Recent Performance: 2019 Annual Results hicl.com |
Slide 42: Highlights I
Highlights I For the year to 31 March 20191 10.8% £2,998.9m 157.5p Total Shareholder Return Directors’ Valuation2 NAV per share 5.7% for the year to 31 March 2018 Up from £2,836.5m at 31 March 2018 Up 7.9p from 149.6p at 31 March 2018 based on interim dividends paid plus uplift in NAV per share in t
Slide 43: Highlights II
Highlights II Portfolio outperformance1 underpinning strong NAV growth Strategic ▲ Total shareholder return ahead of expectations at 10.8% 2 progress ▲ Value enhancements underpinned good financial performance: − Six investments and two strategic disposals – all value accretive − Construction comple
Slide 44: Highlights III
Highlights III Figures1 presented on an Investment Basis2 £286m 7.2% £179m Operating cash flow Profit before tax Weighted average discount rate £143m for the year to 31 £122m for the year to 31 7.4% at 31 March 2018 March 2018 March 2018 15.9p 1.08% £90m Earnings per share Ongoing charges ratio3 Bor
Slide 45: Investment Activity
Investment Activity £167m of acquisitions and £148m of disposals Acquisitions Net Stake Overall Type Stage Project Segment Sector Date Amount Acquired Stake Paris-Sud University €21m New Construction PPP Education 85% 85% Apr-18 (France) Belfast Metropolitan £6m New Operational PPP Education 75% 75%
Slide 46: Analysis of Change in NAV per Share
Analysis of Change in NAV per Share1 1.5p outperformance in the financial year to 31 March 20192 170.0 p 165.0 p 1.5 (6.0) Value Enhancement Accretive Investment 1.5 160.0 p 155.0 p 8.9 3.4 0.5 0.1 150.0 p (2.0) - 145.0 p Value Preservation 140.0 p 162.0 157.5 151.6 157.5 135.0 p 149.6 151.0 151.5 1
Slide 47: Market & Outlook
Market & Outlook Market ▲ Strong competition for high quality assets from unlisted investors ▲ Reasonable deal flow during the year across the Group's target market segments ▲ PPP secondary market activity is concentrated on Continental Europe and North America; UK and Australian markets have seen l
Slide 48: Concluding Remarks
Concluding Remarks Delivering Real Value. ▲ Strong NAV performance, delivered by adhering to a clear strategy: ▪ Value preservation implemented proactively and successfully to mitigate the impact of the Carillion liquidation ▪ Value enhancement initiatives at asset and portfolio level delivered upsi
Slide 49: Appendix I: Company Information
Appendix I Company Information hicl.com |
Slide 50: Key Performance Indicators
Key Performance Indicators (“KPIs”)1 KPI Measure1 31 March 2019 31 March 2018 Objective Commentary Aggregate interim dividends An annual distribution of at least Dividends declared per share in the 8.05p 7.85p Achieved that achieved in the prior year period NAV growth and dividends A long-term IRR t
Slide 51: Key Quality Indicators
Key Quality Indicators (“KQIs”)1 KQI Measure1 31 March 2019 31 March 2018 Objective Commentary Percentage of portfolio value represented by the ten largest 45% 45% Maintain a diversified portfolio of Investment investments investments (thereby mitigating Within acceptable Concentration concentration
Slide 52: Summary Financials of HICL Guernsey I
Summary Financials of HICL Guernsey I Figures presented on an Investment Basis1 Income Statement 31 March 2019 31 March 2018 Total income £324.1m £161.7m Fund expenses & finance costs (£38.4m) (£39.6m) Profit before tax £285.7m £122.1m Earnings per share2 15.9p 6.9p Ongoing charges3 1.08% 1.08% Bala
Slide 53: Summary Financials of HICL Guernsey II
Summary Financials of HICL Guernsey II Figures presented on an Investment Basis1 Cash Flow 31 March 2019 31 March 2018 Opening net cash (£115.2m) £82.2m Net operating cash flow £178.9m £142.9m Investments (net of disposals) (£6.7m) (£480.3m) Equity raised (net of costs) (£0.2m) £265.8m Forex movemen
Slide 54: Infrastructure Market Map
Infrastructure Market Map Schematic showing HICL’s target markets and 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:
Slide 55: Appendix II: Valuation
Appendix II Valuation hicl.com |
Slide 56: 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
Slide 57: 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 58, the expected return from the portfolio3 (before Group expenses) would increase by
Slide 58: Portfolio Cash Flow Sensitivity II
Portfolio Cash flow Sensitivity II Gross Domestic Product1,2 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 7.2% to 7.0% Sensitivity based on forecast gross portfolio cash flows as at 31 March 2019 £400
Slide 59: Hedging Foreign Exchange Risk
Hedging Foreign Exchange Risk HICL hedges foreign exchange (“FX”) risk in relation to Hedging at 31 March 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 on N
Slide 60: Appendix III: Portfolio Management
Appendix III Portfolio Management hicl.com |
Slide 61: Current Portfolio I
Current Portfolio I Portfolio of 118 assets1 Education 15% of Directors’ Valuation2 Bangor & Nendrum Schools Ealing Schools Kent Schools Renfrewshire Schools Barking & Dagenham Schools East Ayrshire Schools Manchester School Rhondda Schools Belfast Metropolitan College Ecole Centrale Supelec (France
Slide 62: Current Portfolio II
Current Portfolio II Portfolio of 118 assets1 Health 28% 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 L
Slide 63: 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 FYE FYE FYE FYE FYE FYE FYE 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2
Slide 64: 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 where material issues
Slide 65: 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 2019, 38% of the portfolio1 benefited from th
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