HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — FY2016 Earnings Presentation
60 slides from HICL Infrastructure's earnings presentation, May 18, 2016
Slide 1: HICL Infrastructure Company Limited
HICL Infrastructure Company Limited Annual Results Presentation: Year to 31 March 2016 18 May 2016 hicl.com |
Slide 2: Contents
Contents Section Slide No. Annual Results 3 Investment Activity 13 Portfolio and Asset Management 16 Market Conditions and Outlook 23 Performance and Summary 26 Appendices 32 This presentation and subsequent discussion may contain certain forward looking statements with respect to the financial cond
Slide 3: Annual Results
Annual Results . Birmingham New Hospitals, UK
Slide 4: Key Financial Achievements
Key Financial Achievements Financial Year Ended 31 March 2016 Net Asset Value1 Dividend – FYE March 16 Total Shareholder Return2 142.2p / share 7.45p / share 9.6% p.a. (2015: 136.7p / share) (2015: 7.30p / share) (NAV/share + dividends reinvested basis) Investments Dividend Targets3 Ongoing Charges
Slide 5: Summary of Key Achievements
Summary of Key Achievements Financial Year Ended 31 March 2016 Performance ▲ Solid portfolio performance in line with projections ▲ Cashflows in line with expectations, despite low inflation Financials ▲ Total return of 12.95p per share for the year to 31 March 2016 – equates to a 9.6% TSR1 ▲ NAV/sh
Slide 6: Summary Financials
Summary Financials Income Statement (year ended) 31 March 2016 31 March 2015 Total Income £182.9m £253.6m Fund expenses & finance costs (£25.5m) (£22.6m) Profit before tax £157.4m £231.0m Earnings per share 11.9p 18.6p Ongoing Charges (as defined by the AIC) 1.12% 1.14% Balance Sheet (as at) 31 Marc
Slide 7: Summary Financials II
Summary Financials II Cash Flow (year ended) 31 March 2016 31 March 2015 Opening net cash £33.5m £42.7m Net Operating Cashflow 1 £107.3m £162.6m Investments (net of disposals) (£165.7m) (£153.8m) Equity Raised (net of costs) £176.8m £75.1m Forex movements and debt issue costs (£6.2m) £9.4m Dividends
Slide 8: Portfolio Overview - Cashflow Profile
Portfolio Overview - Cashflow Profile1 Long-term income phase Capital repayment phase £400m £2,400m Annual Project distributions The valuation of the portfolio (RHS) at any time is a £350m function of the present value of the expected future £2,100m Portfolio value cash flows1,2 £300m £1,800m £250m
Slide 9: Analysis of Change in Directors’ Valuation
Analysis of Change in Directors’ Valuation £2,100m 2,030.3 £2,000m 242.1 (129.1) 60.2 (18.7) 14.5 £1,900m 138.0 1,836.3 £1,800m 1,732.2 (8.9) 1,932.9 £1,700m 1,738.9 £1,600m 1,709.7 7.9% 3.5% (1.1%) 0.8% £1,500m 31 Mar 2015 Divestments Investments Cash Rebased Return Change in Change in Change in FX
Slide 10: Discount Rate Analysis
Discount Rate Analysis Weighted average discount rate Market valuation of assets increased in Appropriate Total the year long-dated Risk discount Total Total government premium rate1 30 Sep 2015 31 Mar 2015 ▲ Discount rates for projects range between 7.0% bond yield 31 Mar 2016 and 10.1% (2015: 7.4%
Slide 11: Key Valuation Assumptions
Key Valuation Assumptions Movement 31 March 2016 31 March 2015 Discount Rate Weighted Average 7.5% 7.9% UK (RPI2 & RPIx2) 2.75% 2.75% Eurozone (CPI) 1.0% until 2018, thereafter 2.00% 0.0% until 2017, thereafter 2.00% Inflation1 (p.a.) Canada (CPI) 2.00% 2.00% (exc. EU) Australia (CPI) 2.50% 2.50% UK
Slide 12: Key Valuation Sensitivities
Key Valuation Sensitivities Sensitivity to key macroeconomic assumptions ▲ Weighted average discount rate of 7.5%, down from 7.7% at 30 September 2015 and 7.9% at 31 Discount rate +/- 0.5% March 2015 ▲ If the UK inflation assumption was 3.75% p.a. (i.e. up 1.0%), the expected return2 from the portfo
Slide 13: Investment Activity
Investment Activity hicl.com |
Slide 14: Summary Investment Activity
Summary Investment Activity Investment activity during the year Investment Activity (FYE March 16) Stake Overall Amount Type Stage Project Sector Date Acquired Stake Follow-on Operational Salford & Wigan BSF Schools (Phase 1) Education 40.0% 80.0% £16.0m1 Apr-15 Follow-on Operational Salford & Wigan
Slide 15: Southmead Hospital
Southmead Hospital Bristol, UK Initial investment in July 2015; Follow-on investment in January 2016 ▲ Acquired a 62.5% stake for £113.1m in two transactions ▲ Presently the largest investment in the portfolio ▲ DBFM Agreement with the North Bristol NHS Trust ▲ Project Financial Close in February 20
Slide 16: Portfolio and Asset Management
Portfolio and Asset Management hicl.com |
Slide 17: The Portfolio, Performance and Asset Management
The Portfolio, Performance and Asset Management 104 investments1 at 31 March 2016, valued at Ten largest Investments £2,030.3m2 ▲ 10 largest assets represent 39% of portfolio by value Southmead Pinderfields & Hospital Home Pontefract Weighted average concession life of 21.5 years Office Hospitals (2
Slide 18: The Portfolio, Performance and Asset Management II
The Portfolio, Performance and Asset Management II ▲ Three projects reached construction completion in the year: − Allenby & Connaught MoD Accommodation in the UK − Zaanstad Penitentiary in Holland − University of Bourgogne in France ▲ Five projects under construction as at 31 March 2016 − RD901 roa
Slide 19: Portfolio Characteristics
Portfolio Characteristics As at 31 March 2016 Geographic Location Investment Status 1% 3% 3% 10% Construction 84% 5% UK Fully operational EU Australia 95% Demand risk Canada Availability-based 99% revenue Ownership Analysis Sector 8% 27% 14% 38% Health 40% 100% Education 50% to 100% Accommodation le
Slide 20: Risks and Uncertainties
Risks and Uncertainties Project Company revenues and costs ▲ Deductions for unavailability or poor performance – borne almost exclusively by subcontractors ▲ Adequacy of lifecycle budgets – budget reassessment, condition surveys and reprofiling Strict interpretation of contractual terms ▲ Some examp
Slide 21: Value Enhancement – Example I
Value Enhancement – Example I Refinancing successes HICL – Group level RCF ▲ HICL utilises a Group-level Revolving Credit Facility to ▲ Reduced margin (-50bps) make acquisitions, which is paid down with periodic ▲ Increased size (£200m) equity capital raises, for cash efficiency purposes ▲ Increased
Slide 22: Value Enhancement – Example II
Value Enhancement – Example II Bulk-buying - leverage scale through insurance portfolio ▲ Contractual requirement of PPP projects to insure the assets - important part of risk transfer 70 180 ▲ Low PPP claims history driving lower insurance premiums ▲ One of the largest infrastructure insurance port
Slide 23: Market Conditions and Outlook
Market Conditions and Outlook hicl.com |
Slide 24: Market Developments
Market Developments Demand Supply ▲ Continued strong appetite for infrastructure investments UK globally ▲ Secondary market generally muted ▲ Not limited to market segments where the Group is active ▲ No substantive pick-up in primary procurement activity ▲ Applies equally to primary and secondary m
Slide 25: Sourcing and Pipeline
Sourcing and Pipeline Origination ▲ Acquisition Strategy − source assets that add value to the existing portfolio, assessed using accretion tests − continue to build a portfolio positioned at the lower end of the risk spectrum ▲ Target market segments1 − Secondary PPP − Primary PPP: focused on key r
Slide 26: Performance and Summary
Performance and Summary hicl.com |
Slide 27: Company’s Performance
Company’s Performance Key Performance Indicators (“KPIs”) KPI Measure 31 March 2016 31 March 2015 Objective Commentary An annual distribution of at Aggregate interim dividends Dividends 7.45p 7.30p least that achieved in the Achieved declared per share in the year prior year NAV growth and dividends
Slide 28: Company’s Performance II
Company’s Performance II Key Quality Indicators (“KQIs”) KQI Measure 31 March 2016 31 March 2015 Objective Commentary Ten largest investments1 39% 40% Investment Maintain a diversified portfolio of Achieved Concentration Risk investments Single largest investment1 6% 6% Appropriate Projects with con
Slide 29: Analysis of Change in NAV per Share
Analysis of Change in NAV per Share 150.0 p Project outperformance 0.2 145.0 p Expected EPS (5.58) 8.1 140.0 p (1.87) 4.6 (1.0) 135.0 p (1.87) 1.0 130.0 p 125.0 p 142.2 140.3 136.7 134.8 120.0 p 115.0 p 110.0 p 1. The sum of the movements (red and bronze bars) may not equate to the overall change (p
Slide 30: Summary at HICL’s 10 year anniversary
Summary at HICL’s 10 year anniversary A brief look back at what the Company set out to do, and what it’s delivered so far… Targeted Delivered ▲ From 15 to 100+ investments ▲ Value accretive ▲ Further diversification: Complementary Acquisitions Territories (2 to 6) Asset concentration − 2016: 10
Slide 31: Concluding Remarks
Concluding Remarks Delivering Real Value Long-term income ▲ Key Objective is to offer shareholders long-term, stable income ▲ Consistently delivered real value for shareholders over 10 years since IPO ▲ New dividend guidance reflects confidence in the portfolio A clear strategy ▲ Preserve the value
Slide 32: Appendix I: Valuation Methodology and Sensitivities
Appendix I Valuation Methodology and Sensitivities hicl.com |
Slide 33: 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 ▲ Approved by Directors ▲ Independent opinion for Directors from third-party valuation expert Non traded - DCF methodology on in
Slide 34: Portfolio Valuation - Sensitivities
Portfolio Valuation - Sensitivities Sensitivities - 0.5% change Base Case + 0.5% change 7.5% Discount Rate Directors’ valuation, and change + £101.5m £2,030.3m - £93.7m Implied change in NAV1 per Ordinary Share + 7.3 pence - 6.7 pence 2.75% Inflation Rates2 Directors’ valuation, and change - £65.3m
Slide 35: Appendix I.A: Value in the Eye of the Beholder
Appendix I.A Value in the Eye of the Beholder (extracts from HICL’s Capital Markets Seminar – February 2016) hicl.com |
Slide 36: IRRs / discount rates in isolation only tell half the story (1)
IRRs / discount rates in isolation only tell half the story (1) Headlines discount rates can distract from underlying cash flows ▲ Investors spend significant time focusing on discount rates – common questions being: − What are the IRRs being used by HICL to bid for new investments? − What discount
Slide 37: IRRs / discount rates in isolation only tell half the story (2)
IRRs / discount rates in isolation only tell half the story (2) As drivers of investment valuation, cash flow assumptions and discount rate are equally important ‘Optimisation’ of cash flows can appear to materially increase the value of an investment Cashflow optimisation £ 1.50m Refinance £ 1.35m
Slide 38: Only the discount rate measures risk in a valuation
Only the discount rate measures risk in a valuation Discount rates should reflect the value / risk inherent in cash flows Valuation B logically has less probability than Valuation A of delivering an 8% return ▲ Comparing in each scenario the sensitivity of returns to the same out-turn cash flows: Va
Slide 39: Comparing sectors – toll roads vs availability projects
Comparing sectors – toll roads vs availability projects Cash flows that look different can justifiably be valued using the same discount rate Equity cash flow profiles can differ significantly between sectors: 500 Availability infrastructure vs. demand infrastructure 400 Equity Cashflow 300 200 100
Slide 40: Appendix II: The Investment Adviser
Appendix II The Investment Adviser hicl.com |
Slide 41: Overview of InfraRed Capital Partners Limited
Overview of InfraRed Capital Partners Limited InfraRed is the Investment Adviser and Operator ▲ InfraRed is the investment adviser to HICL and is authorised and regulated by the Financial Conduct Authority ▲ Strong, 15+ year track record in raising and managing 15 value-add infrastructure and real e
Slide 42: InfraRed – Infrastructure Team Skills and Experience
InfraRed – Infrastructure Team Skills and Experience Depth and breadth of skills, proven track record and proactive value management ▲ Experienced infrastructure professionals with proven track record in target markets of UK, Europe, North America, Australia and New Zealand ▲ Well established and re
Slide 43: Appendix III: The Company and Group
Appendix III The Company and Group hicl.com |
Slide 44: HICL’s Characteristics
HICL’s Characteristics As at the Financial Year Ended 31 March 2016 Mandate ▲ To generate long-term, stable income from infrastructure assets ▲ Focused on infrastructure projects at the lower end of the risk spectrum, which generate inflation- linked returns History ▲ Tenth anniversary and ninth suc
Slide 45: Group Structure Diagram
Group Structure Diagram Third party Investors Management administration Independent Directors1 HICL Infrastructure Administrator Company (Guernsey) InfraRed Guernsey company (Investment Adviser) Administrator Luxco1 Independent Directors1 (Luxembourg) (Sarl/SOPARFI) Luxco2 (Limited partner, Independ
Slide 46: Governance
Governance Independent board of non-executive Directors ▲ Approves and monitors adherence to strategy ▲ Fulfils Company’s AIFM responsibilities under the European Commission’s Alternative Investment Fund Managers Directive ▲ Determines risk appetite through Risk Committee ▲ Additional committees in
Slide 47: Board of Directors
Board of Directors1 Non-executive Directors with a broad range of relevant experience and qualifications Ian Russell (CBE), Chairman Frank Nelson, SID Sarah Evans, Director Susie Farnon, Director Ian, HICL’s Chairman, is Frank, a UK resident, is a Sarah, a Guernsey resident, is a Sally-Ann (known as
Slide 48: HICL Group Strategy
HICL Group Strategy Delivering Real Value Manage existing portfolio: ▲ Active management − Manage the operational and financial performance of the portfolio to deliver the expected return ▲ Value enhancement − Engage with public sector clients to generate cost savings and improve the overall client
Slide 49: Investment and Capital Raising
Investment and Capital Raising ▲ Acquisitions driven by demand for HICL shares and availability of further investments which fit the Investment Strategy ▲ Acquisitions are initially debt-funded (using £200m committed revolving credit facility at Group level), to avoid cash drag and to give sharehold
Slide 50: Appendix IV: The Investment Portfolio
Appendix IV The Investment Portfolio hicl.com |
Slide 51: Current Portfolio
Current Portfolio Portfolio of 104 investments as at 31 March 2016 Fire, Law Education Health Accommodation Transport & Order Barking & Dagenham Addiewell Prison Barnet Hospital Birmingham Hospitals Allenby & Connaught Boldon School Bradford Schools 1 A249 Road Schools MOD Accommodation Birmingham &
Slide 52: Current Portfolio – Key Attributes
Current Portfolio – Key Attributes Evolution of the Group’s portfolio – last 6 years to 31 March 20161 Geographically spread portfolio Good sector spread 100% 100% 90% 95% 80% 70% 90% 60% 50% 85% 40% 30% 80% 20% 10% 75% 0% FYE 2010 FYE 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2010 FYE 2
Slide 53: Portfolio Overview - Contractor Counterparty Exposure
Portfolio Overview - Contractor Counterparty Exposure Diversified spread of quality supply chain providers ▲ Counterparties continue to perform Spread of supply chain providers1 ▲ Diversity of contractors ensures no over-reliance on any single entity Carillion 20% ▲ Quarterly reviews by Investment A
Slide 54: Historic Performance
Historic Performance HICL has grown its dividend for last 10 years Total Return (NAV growth and dividends) of 9.7% p.a. since IPO 8.0p 200p 7.0p 6.0p 150p 5.0p 4.0p 100p 3.0p 2.0p 50p 1.0p 0.0p 0p IPO FYE MarFYE MarFYE Mar FYE MarFYE MarFYE MarFYE Mar FYE MarFYE MarFYE Mar IPO FYE FYE FYE FYE FYE FY
Slide 55: Appendix V: The Infrastructure Asset Class
Appendix V The Infrastructure Asset Class hicl.com |
Slide 56: What Defines Infrastructure
What Defines Infrastructure Low Revenue risk High Risk class Availability Regulatory Demand based Market Investment risks ► Operating costs Regulatory risk Volume risk (high) Competitive risks are incremental ► Delivery (e.g. service Volume risk (low) Known pricing risk performance) Exampl
Slide 57: Typical Infrastructure Project Structure
Typical Infrastructure Project Structure Client Project agreement HICL Project Construction Shareholder Financing Company Bonds/Loans Partner agreement agreement (“SPV”) Operational Partner Construction Operating MSA contract sub-contract sub-contract Maintenance Project Company Construction and FM
Slide 58: Illustrative Investment Cashflow Profile over a Project’s Life
Illustrative Investment Cashflow Profile over a Project’s Life Example: Social infrastructure return derived from an ‘availability’ revenue stream Typical Social Infrastructure Investment Cash Flow Profile Bidding Construction Operation & Maintenance Phase Phase Phase Value Typical timing for Illust
Slide 59: Illustrative Investment Cashflow Profile over a Project’s Life
Illustrative Investment Cashflow Profile over a Project’s Life Example: Toll road return derived from a ‘demand’ revenue stream Typical Toll Road Investment Cash Flow Profile Bidding Construction Ramp- Phase Phase Up Operation & Maintenance (Steady State) Illustrative Chart Value Typical timing for
Slide 60: Valuation – Methodology
Valuation – Methodology Determining the net asset value of the portfolio and the Group (illustrative example) £100m Concession Contract Revenue + Deposit Interest Key Variables/Assumptions £80m Forecast £60m Long-term Inflation Rate Project £40m Deposit Interest Rate Inflows £20m • Whole-of-life con
HICL Infrastructure Company — FY2016 Earnings Presentation on 6ix