HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — H1 FY2016 Earnings Presentation
51 slides from HICL Infrastructure's earnings presentation, Nov 18, 2015
Slide 1: Interim Results Presentation – Six Months to 30 September 2015
HICL Infrastructure Company Limited Interim Results Presentation Six Months to 30 September 2015 18 November 2015 www.hicl.com
Slide 2: Agenda
Agenda Agenda Section Page Interim Results 3 Investment Activity 12 Portfolio and Asset Management 16 Risks, Market and Pipeline 20 Performance and Summary 24 Appendices 29 This presentation and subsequent discussion may contain certain forward looking statements with respect to the financial condit
Slide 3: Interim Results
Interim Results Salford Hospital, Nr. Manchester
Slide 4: Summary Highlights
Summary Highlights For the half year to 30 September 2015 • Annualised TSR for the period of 9.0% (NAV per share growth plus dividends) Performance • NAV per share of 139.1p at 30 September 2015, ahead of expectations • Portfolio performance sound; strong cashflow generation • Q1 interim dividend of
Slide 5: Summary Financials
Summary Financials Income Statement (half year ended) 30 September 2015 30 September 2014 Total Income £84.4m £142.3m Fund expenses & finance costs (£12.7m) (£10.3m) Profit before tax £71.7m £132.0m Earnings per share 5.6p 10.7p Ongoing Charges1 1.13% 1.12% Balance Sheet (as at) 30 September 2015 31
Slide 6: Summary Financials II
Summary Financials II Cash Flow (half year ended) 30 September 2015 30 September 2014 Opening net cash £33.5m £42.7m Net Operating Cashflow £58.9m £53.9m Investments (net of disposals) (£128.4m) (£61.3m) Equity Raised (net of costs) £90.5m £50.3m Forex movements £1.9m £1.8m Dividends Paid (£45.3m) (
Slide 7: Portfolio Overview - Cashflow Profile
Portfolio Overview - Cashflow Profile1 Long-term income phase Capital repayment phase £350m £2,100m The valuation of the portfolio at any time is a function of Annual Project distributions £300m the present value of the expected future cash flows2,3 £1,800m £250m £1,500m Portfolio value £200m £1,200
Slide 8: Analysis of Change in Directors' Valuation
Analysis of Change in Directors’ Valuation £1,900m 22.0 (6.2) (68.3) 68.6 £1,800m 132.7 £1,700m (8.9) £1,600m 1,872.1 1,787.7 1,787.7 1,732.2 £1,500m £1,400m 3.8% 1.2% (0.3%) £1,300m 31 March Divestments Investments Cash Rebased Return Change in Forex 30 2015 distributions Valuation discount movemen
Slide 9: Key Valuation Assumptions
Key Valuation Assumptions Movement 30 September 2015 31 March 2015 Discount Rate Weighted Average 7.7% 7.9% Inflation1 UK (RPI2 & RPIx2) 2.75% 2.75% Euro (CPI) 0.0% until 2017, thereafter 2.00% 0.0% until 2017, thereafter 2.00% Canada (CPI) 2.00% 2.00% Australia (CPI) 2.50% 2.50% Deposit Rates UK 1.
Slide 10: Discount Rate Analysis
Discount Rate Analysis Directors’ Valuation as at 30 September 2015 Appropriate long- Risk Total Total Total Valuation of assets increased in the period dated government Premium Discount bond yield Rate1 (‘Risk-Free’) 30 Sep 2015 31 Mar 2015 30 Sep 2014 Discount rates for projects range between 7.3%
Slide 11: Key Valuation Sensitivities
Key Valuation Sensitivities Sensitivity to key macroeconomic assumptions Weighted average discount rate of 7.7%, down from 7.9% as at 31 March 2015 and Discount rate +/- 0.5% 8.0% as at 30 September 2014 Changing the annual inflation assumption by +/- 1% p.a. changes the expected return2 from portfo
Slide 12: Investment Activity
Investment Activity Ealing Schools, London, England
Slide 13: Investments
Investments Summary investment activity in the six month period ▲ Two new investments and two incremental stakes during the period for £130.7m (as set out below) ▲ £2.0m loan advanced to a Health project to facilitate surveys to determine legacy construction defects ▲ Funded by a £91.2m oversubscrib
Slide 14: Royal Canadian Mounted Police 'E' Division HQ
Royal Canadian Mounted Police ‘E’ Division HQ Case Study of a recent acquisition Investment acquired in September 2015 Accommodation asset located in British Columbia, Canada 100% stake acquired for CAD$54m Project details: Financial Close in April 2010 Construction completed December 2012 Total con
Slide 15: Disposals
Disposals Summary divestment activity in the six month period ▲ Two disposals during the period, raising proceeds of £8.9m Disposals Amount Stage Project Sector Stake Sold Remaining Stake Date £7.3m Operational Fife Schools Education 50.0% Nil Apr-15 £1.6m Operational Ealing Care Homes Health 21.0%
Slide 16: Portfolio and Asset Management
Portfolio and Asset Management Dutch High Speed Rail, The Netherlands
Slide 17: The Portfolio, Performance and Asset Management
The Portfolio, Performance and Asset Management Portfolio overview 102 investments at 30 September 2015 valued at £1,872.1m1 Ten largest Investments – 10 largest assets represent 40% of portfolio by value – Five projects in construction at the end of the period, Pinderfields & representing approxima
Slide 18: Portfolio Characteristics
Portfolio Characteristics As at 30 September 2015 Geographic location Investment Status 3% 3% 1% 5% 89% 99% UK EU Canada Australia Construction Fully operational Ownership Analysis Sector 7% 25% 40% 12% 41% 18% 35% 22% 100% 50% to 100% less than 50% Health Education Accommodation Transport Fire, Law
Slide 19: The Portfolio, Performance and Asset Management
The Portfolio, Performance and Asset Management Overall portfolio performance in line with Company forecasts Active asset and portfolio management As previously reported, a small number of projects are suffering from operational issues: – One health investment Suffers from water ingress and a defect
Slide 20: Risks, Market and Pipeline
Risks, Market and Pipeline Oldham Library, Nr. Manchester, England
Slide 21: Risks & Uncertainties
Risks & Uncertainties Project-specific issues • Deductions for unavailability or poor • Borne almost exclusively by performance arising from construction subcontractors defects / operational issues Systemic operational • Strict contractual approach adopted by • Currently no contractual situations is
Slide 22: Market Update
Market Update • Continued strong demand for infrastructure investments globally Demand • New and increased allocations being made by investors • Reduced primary procurement impacting secondary deal flow Supply - UK • Plans for new infrastructure investment signalled at Conservative Party’s Annual Co
Slide 23: Sourcing, Pipeline & Acquisition Strategy
Sourcing, Pipeline & Acquisition Strategy • Using network of industry relationships Sourcing • Competing in auction processes to see market pricing • Increasing stakes in existing investments - good source of supply for the Group • Disciplined approach to avoid over-paying and diluting returns from
Slide 24: Performance and Summary
Performance and Summary A92, Nr. Dundee, Scotland
Slide 25: Historic Performance
Historic Performance HICL has grown its dividend for last 9 years Total Return (NAV growth and dividends) of 9.6% since IPO 8.0p 200p 7.0p Pence per Share 6.0p 160p Pence per Share 5.0p 120p 4.0p 3.0p 80p 2.0p 40p 1.0p 0.0p 0p IPO FYE FYE FYE FYE FYE FYE FYE FYE FYE @ 18 IPO FYE FYE FYE FYE FYE FYE
Slide 26: Analysis of Change in NAV per Share
Analysis of Change in NAV per Share Project outperformance Expected NAV growth (gross)1 145.0 p Reduction in discount rates 0.2 & forex movements 140.0 p 1.86 4.1 1.86 135.0 p 1.87 1.2 0.6 130.0 p 125.0 p 139.1 136.7 137.2 134.8 120.0 p 115.0 p 110.0 p 31 Mar 2015 Dividend paid in 31 Mar 2015 Accret
Slide 27: Concluding Remarks
Concluding Remarks Strong performance: Total Shareholder Return (NAV + dividends) of 6.1p per share in period - 9.0% annualised Over-subscribed tap issuance in July - share price performance has remained robust Acquisition facility increased to £200m at a reduced margin of 1.7% Current net funding r
Slide 28: Company's Key Performance Indicators
Company’s Key Performance Indicators (“KPIs”) KPI 30 September 2015 30 September 2014 Target To provide a predictable and sustainable dividend Dividends declared in the half year 3.73p per share 3.62p per share On target for aggregate dividend of 7.45p per share Total return in half year NAV growth
Slide 29: Appendix I: Valuation Methodology and Sensitivities
Appendix I Valuation Methodology and Sensitivities www.hicl.com
Slide 30: 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 31: Portfolio Valuation - Sensitivities
Portfolio Valuation - Sensitivities Sensitivities - 0.5% change Base Case + 0.5% change 7.7% Discount Rate1 Directors’ valuation, and change + £92.5m £ 1,872.1m - £85.5m Implied change in NAV5 per Ordinary Share + 7.0 pence - 6.4 pence 2.75% Inflation Rates2,3 Directors’ valuation, and change - £57.
Slide 32: Appendix II: The Investment Adviser
Appendix II The Investment Adviser www.hicl.com
Slide 33: Overview of InfraRed Capital Partners Ltd
Overview of InfraRed Capital Partners Ltd 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 advising/managing 15 value-add infrastructure and real
Slide 34: InfraRed – Infrastructure Team Skills and Experience
InfraRed – Infrastructure Team Skills and Experience Experienced infrastructure professionals with proven track record in target markets of UK, Europe, North America and Australia Well established and respected team – Infrastructure team of approximately 50 professionals Detailed, ‘tried and tested’
Slide 35: Appendix III: The Company
Appendix III The Company www.hicl.com
Slide 36: Group Structure Diagram
Group Structure Diagram Third party Investors Management administration Independent Directors1 HICL Infrastructure Administrator Company (Guernsey) Guernsey company InfraRed (Investment Adviser) Administrator Luxco1 (Sarl/SOPARFI) Independent Directors1 (Luxembourg) Luxco2 (Limited partner, Independ
Slide 37: Governance
Governance Independent Board of non-executive Directors – Currently seven members; mixture of skills and background – Five formal meetings a year – four two day quarterly reviews (inc. committees), and an annual strategy meeting in September – Approves and monitors adherence to strategy – Acts as th
Slide 38: HICL Board
HICL Board The Board comprises seven independent, non-executive Directors Graham Picken, Chairman John Hallam, Director Sarah Evans, Director Susie Farnon, Director Graham, a UK resident, is an John, a Guernsey resident, is Sarah, a Guernsey resident, is a Sally-Ann (known as Susie), experienced ban
Slide 39: HICL Group Strategy
HICL Group Strategy 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 experience, facilitate desir
Slide 40: Typical Bid Processes
Typical Bid Processes Auction process Agree Shortlisted Receive IM* Confidentiality Indicative Bid 1 of 3 to 5 1 of many Agreement normally SPA signed/ Data room and BAFO* Preferred Firm Bid investment SPA* 1 of 2 to 3 Bidder made Negotiated Acquisition SPA negotiated, Agree Informal Financial data
Slide 41: 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 42: Appendix IV: The Investment Portfolio
Appendix IV The Investment Portfolio www.hicl.com
Slide 43: Current Portfolio
Current Portfolio Portfolio of 102 investments as at 30 September 2015 Education Fire, Law & Order Health Accommodation Transport Barking & Dagenham Allenby & Connaught Boldon School Bradford Schools 1 Addiewell Prison Barnet Hospital Birmingham Hospitals A249 Road Schools MOD Accommodation Birmingh
Slide 44: Current Portfolio – Key Attributes
Current Portfolio – Key Attributes Evolution of the Group’s portfolio – last 6.5 years to 30 September 20151 UK-focused 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 HY 2016 FYE 2010 FYE 2011 FY
Slide 45: Portfolio Overview - Contractor Counterparty Exposure
Portfolio Overview - Contractor Counterparty Exposure Diversified spread of quality supply chain providers Counterparties continue to perform Carillion 21% Balance Diversity of contractors ensures no over-reliance on any 24% single entity Quarterly reviews by Investment Adviser Vinci 3% SUEZ Environ
Slide 46: Appendix V: The Infrastructure Asset Class
Appendix V The Infrastructure Asset Class www.hicl.com
Slide 47: 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 perform.) Volume risk (low) Known pricing risk Examples Hosp
Slide 48: Typical Infrastructure Project Structure
Typical Infrastructure Project Structure Client Project agreement HICL Infrastructure Company Limited Project Construction Shareholder Financing Company Bonds/Loans Partner agreement agreement (“SPV”) Operational Partner Construction Operating MSA contract sub-contract sub-contract Maintenance Proje
Slide 49: Investment Cashflow Profile over a Project's Life (Social Infrastructure)
Investment Cashflow Profile over a Project's Life (Social Infrastructure) Example: social infrastructure availability revenue stream Typical Social Infrastructure Investment Cashflow Profile Bidding Construction Operation & Maintenance Phase Phase Phase Value Illustrative Chart Typical timing for in
Slide 50: Investment Cashflow Profile over a Project's Life (Demand Infrastructure)
Investment Cashflow Profile over a Project's Life (Demand Infrastructure) Example: toll road with ‘demand’ revenue stream Typical Toll Road Investment Cashflow Profile Bidding Construction Ramp- Phase Phase Up Operation & Maintenance (Steady State) Illustrative Chart Value Typical timing for investm
Slide 51: Valuation - Methodology
Valuation - Methodology Determining the net asset value of the portfolio and the Group (illustrative example) Key Variables/Assumptions £100m Concession Contract Revenue + Deposit Interest Long-term Inflation Rate £80m Forecast £60m Deposit Interest Rate Project £40m • Whole-of-life concession reven
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