HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — H1 FY2022 Earnings Presentation
61 slides from HICL Infrastructure's earnings presentation, Nov 24, 2021
Slide 1: Interim Results Presentation: Six months to 30 September 2021
HICL Infrastructure PLC Interim Results Presentation: Six months to 30 September 2021 24 November 2021 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 Highlights and Investment Proposition 4 Financial Performance 10 Portfolio Performance and Risk Management 17 Market, Investment Activity and Investment Outlook 24 Concluding Remarks 28 Appendices 30 hicl.com | 3
Slide 4: Highlights and Investment Proposition
Highlights and Investment Proposition hicl.com |
Slide 5: Performance Highlights
Performance Highlights Resilient performance for the six months to 30 September 2021 155.4p 9.8% 8.25p Annualised Shareholder Return2 NAV per share1 Dividend per share March 2021: 152.3p September 2020: 7.8% Reaffirmed dividend guidance1,4 for 2022 and 2023 8.9% since IPO 1.06% 6.6% 1.04x Ongoing ch
Slide 6: Results Overview
Results Overview Strong financial and operational performance Portfolio ▲ Pleasing performance from the portfolio in the year to date, delivering an annualised portfolio return of 7.3%, ahead of the expected return of 6.8% for the period ▲ The recycling of proceeds from an opportunistic disposal int
Slide 7: Long-term Income from Core Infrastructure
Long-term Income from Core Infrastructure Offering investors access to long-dated cash flows and inflation correlated returns 1 3 Core infrastructure investment characteristics Actively managed to deliver sustainable income 0.8 28.8yrs c. 5% Outperformance Enhance communities’ High correlation of po
Slide 8: HICL’s Vision
HICL’s Vision Trusted custodian of essential public infrastructure Strong Social Foundations Currently Health Education 59% of the portfolio 1 Assets that constitute the foundations of our societies Accommodation Fire, law & order HICL’s vision is to enrich lives through infrastructure: by developin
Slide 9: Sustainable Thinking
Sustainable Thinking HICL has a role in society that extends beyond its shareholders Stewardship Climate Action Data and Reporting ▪ HICL is a trusted steward of ▪ In July 2021, InfraRed became a ▪ Update of InfraRed’s annual ESG essential assets which lie at the signatory of the Net Zero Asset surv
Slide 10: Financial Performance
Financial Performance hicl.com |
Slide 11: NAV Progression
NAV Progression Six months to 30 September 2021 Value Enhancement 165.0 p Accretive Investment ▲2.6 ▲0.2 ▼(0.9) ▼(4.1) 160.0 p ▲0.4 155.0 p ▲4.9 150.0 p Value Preservation 145.0 p 140.0 p 157.6 155.4 160.2 159.5 155.4 152.3 135.0 p 130.0 p 125.0 p 120.0 p 31 March 2021 Performance Change in discount
Slide 12: Financial Performance
Financial Performance Six months to 30 September 2021 Income Statement For the six months to For the six months to Investment Basis 30 September 2021 30 September 2020 Total income £157.2m £121.9m Fund expenses & finance costs (£18.0m) (£17.8m) Tax £0.3m (£0.1m) Total return £139.5m £104.1m Earnin
Slide 13: Portfolio Outperformance
Portfolio Outperformance Directors’ Valuation1 of £3,121.7m as at 30 September 2021 £3,200m ▲59.8 ▼(9.2) ▲8.6 ▲0.7 3,121.7 ▲59.4 ▼(11.3) ▼(100.2) ▲102.0 3,011.9 £3,000m 2,959.8 £2,800m 3.6% 2.1% (0.3%) 0.3% Income Statement Revenue 3,121.6 £2,600m 2,959.8 3,061.8 3,112.4 3,121.0 2,938.1 3,060.0 2,95
Slide 14: Discount Rate Reduction
Discount Rate Reduction Discount rate reduced from 6.8% at 31 March 2021 to 6.6% at 30 September 2021 Appropriate Total Discount Rate3 Long-Term Risk Government Premium 30 31 30 Bond Yield2 September March September 2021 2021 2020 UK 1.4% + 5.2% = 6.6% 6.7% 7.0% Eurozone 0.5% + 5.9% = 6.4% 6.8% 7.0%
Slide 15: Sensitivities
Sensitivities Key macroeconomic sensitivities in the valuation Discount Rate +/- 0.5% (8.0) 8.8 Inflation -/+ 0.5% (p.a.) (7.5) 8.5 Tax Rate +/- 5% (p.a.) (5.2) 5.2 2 GDP -/+ 0.5% (p.a.) (5.1) 5.0 Interest Rate -/+ 0.5% (p.a.) (1.1) 1.1 3 FX Rates -/+ 5% (0.9) 0.9 -10p -8p -6p -4p -2p 0p 2p 4p 6p 8p
Slide 16: Cash Flow Profile Underpins Dividend Guidance
Cash Flow Profile Underpins Dividend Guidance Sustainable long-term cash flows and a stable portfolio valuation in the medium term The valuation of the current 350 portfolio (RHS) at any time is a 3,500 function of the present value of the expected future cash flows1,2,3 300 3,000 Annual project dis
Slide 17: Portfolio Performance and Risk Management
Portfolio Performance and Risk Management hicl.com |
Slide 18: Portfolio Metrics
Portfolio Metrics Ten largest assets accounted for c. 45% of the portfolio1 30 September 20211,2 31 March 2021 10 Largest Investments1 Percentage of portfolio by value – 45% 46% Remaining Affinity Water 8% 10 largest assets Investments 55% A63 Motorway 7% Northwest Parkway 6% Weighted average 28.8 y
Slide 19: Portfolio Diversification
Portfolio Diversification HICL’s Portfolio, as at 30 September 20211 MARKET SEGMENT GEOGRAPHIC LOCATION Sep-21 Sep-21 Mar-21 Mar-21 Sep-21 Mar-21 Sep-21 Mar-21 ▲ UK 74% 74% ▲ PPP Projects 69% 71% ▲ Europe (exc UK) 18% 18% ▲ Demand-based Assets 20% 19% ▲ North America 8% 8% ▲ Regulated Assets 11% 10%
Slide 20: Portfolio Performance I
Portfolio Performance I PPP projects represent 69% 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 21: Portfolio Performance II
Portfolio Performance II Demand-based assets represent 20% 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 22: Portfolio Performance III
Portfolio Performance III Regulated assets represent 11% of the portfolio, by value Investment rationale ▲ Essential assets that are regulated due to monopoly market positions ▲ Complementary risk profile to PPP projects and demand-based assets ▲ Assets are subject to licence periods, where operatio
Slide 23: Risk and Risk Management
Risk and Risk Management1 Political and ▲ In the UK, the public sector has continued its assessment of readiness for the return of PPP assets at their concession regulatory risk expiry (“handback”); InfraRed is committed to proactive and constructive engagement with key stakeholders, including the I
Slide 24: Market, Investment Activity and Investment Outlook
Market, Investment Activity and Investment Outlook hicl.com |
Slide 25: HICL’s Core Infrastructure Focus
HICL’s Core Infrastructure Focus ▲ Core infrastructure is a distinct market segment at the lower end of the risk spectrum. By its nature it is generally visible / located in the heart of communities, underpins economic activity and comprises long-life, capital intensive assets ▲ Core infrastructure
Slide 26: Investment Activity
Investment Activity Market coverage filtered by focused acquisition strategy and investment discipline New deals reviewed in the EVALUATION 22 period Transactions subject to DUE DILIGENCE 10 detailed due diligence in the period Transactions completed for HICL TRANSACTIONS 4 and 9 live1 opportunities
Slide 27: Market and Outlook
Market and Outlook ▲ Healthy pipeline covering the breadth of HICL’s acquisition focus: ‒ Attractive pipeline of core infrastructure assets across UK, Europe and North America ‒ c. £115m across three transactions at exclusivity or preferred bidder stage ‒ Three strategic partnerships with industry p
Slide 28: Concluding Remarks
Concluding Remarks hicl.com |
Slide 29: Concluding Remarks
Concluding Remarks Delivering Real Value. ▲ Strong result for the Company underpinned by continued evidence of Covid-19 recovery as well as the portfolio’s diversification and inflation correlation ▲ The Company is on track to deliver a fully cash covered 8.25p1 dividend per share for the year to Ma
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) Currently over US$10bn of equity under management1 London based, with offices in Mexico
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: Appendix II: Company Information
Appendix II Company Information hicl.com |
Slide 34: 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 ▲ First infrastructure investment compa
Slide 35: HICL Infrastructure PLC Group Structure Diagram
HICL Infrastructure PLC Group Structure Diagram Equity Independent Directors1 HICL’s Shareholders dividends ▪ Governance (predominantly UK) Interest and ▪ Oversight principal ▪ Strategy Investment Manager HICL Infrastructure PLC ▪ HICL's AIFM AIF2 subject to the full scope of the AIFMD3 ▪ Fund Manag
Slide 36: 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 37: 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 applies to making new investments and of climate change the manag
Slide 38: 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 Aku
Slide 39: 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 40: Key Performance Indicators (“KPIs”)
Key Performance Indicators (“KPIs”) KPI Measure1 30 September 2021 30 September 2020 Objective Commentary Aggregate interim An annual distribution of at Dividends dividends declared per 4.13p 4.12p least that achieved in the prior Achieved share in the period year Total NAV growth and A long-term IR
Slide 41: 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 2021 30 September 2020 Opening net cash £4.7m £28.7m Net cash flow £81.3m2 £65.1m Investments (net of disposals) £7.2m (£140.6m) Equity raised (net of costs) - £118.8m F
Slide 42: HICL’s Track Record
HICL’s Track Record1 Consistent delivery over 15 years Dividend increased by 35% over 15 years Total Return (NAV growth and dividends) of 8.9% 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 43: 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 44: Appendix III: The Investment Portfolio
Appendix III The Investment Portfolio hicl.com |
Slide 45: HICL’s Top 10 Assets I
HICL’s Top 10 Assets I Sector: Electricity, Gas & Water Affinity Water Location: UK % of portfolio: 8% (March 2021: 8%) Affinity Water Limited is the largest water-only HICL holding: 33.2% 1 supplier in the UK by revenue and population served covering an area of 4,515 square kilometres. Concession l
Slide 46: HICL’s Top 10 Assets II
HICL’s Top 10 Assets II Sector: Accommodation Royal School of Military Location: UK Engineering % of portfolio: 4% (March 2021: 4%) The PPP project covers 32 new and 21 existing HICL holding: 100% 6 buildings, and five training areas on behalf of the UK Ministry of Defence. Concession length: 30 yea
Slide 47: Portfolio Analysis
Portfolio Analysis HICL’s Portfolio, as at 30 September 20211 OWNERSHIP STAKE SECTOR Sep-21 Sep-21 Mar-21 Mar-20 Sep-21 Mar-21 Sep-21 Mar-21 ▲ 100% ownership 31% 31% ▲ Accommodation 10% 11% ▲ 50% - 100% ownership 28% 29% ▲ Education 15% 16% ▲ Less than 50% ownership 41% 40% ▲ Electricity, Gas & Wate
Slide 48: 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 HY FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE HY 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Slide 49: 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 50: 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 2021, 25% of the portfolio1 benefited fro
Slide 51: Appendix IV: Valuation Methodology and Cash Flow Sensitivities
Appendix IV Valuation Methodology and Cash Flow Sensitivities hicl.com |
Slide 52: 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 53: Key Valuation Assumptions
Key Valuation Assumptions Movement 30 September 2021 31 March 2021 Discount Rate Weighted Average 6.6% 6.8% UK (RPI2 & RPIx2) 2.75% to 2030, 2.0% thereafter 2.75% to 2030, 2.0% thereafter CPIH3 2.0% 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% t
Slide 54: Portfolio Cash Flow Sensitivity
Portfolio Cash Flow Sensitivity 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 53, the expected return from the portfolio2 (before Group expenses) would increase by 0.8%
Slide 55: Hedging Foreign Exchange Risk
Hedging Foreign Exchange Risk HICL hedges foreign exchange (“FX”) risk in relation to Hedging at 30 September 2021 assets it owns where cash flows are denominated in currencies other than British Pounds 800 700 Hedging provides confidence in the near-term yield and 600 helps mitigate the impact on N
Slide 56: Appendix V: The Infrastructure Asset Class
Appendix V The Infrastructure Asset Class hicl.com |
Slide 57: 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 58: 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 59: 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 60: 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 61: 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 — H1 FY2022 Earnings Presentation on 6ix