HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — FY2015 Earnings Presentation
55 slides from HICL Infrastructure's earnings presentation, May 21, 2015
Slide 1: Annual Results Presentation
HICL Infrastructure Company Limited Annual Results Presentation Year to 31 March 2015 21 May 2015 www.hicl.com
Slide 2: Agenda
Agenda Agenda Section Page Annual Results 4 Investment Activity 13 Portfolio and Asset Management 19 Market Conditions and Outlook 24 Performance and Summary 27 Appendices 31 This presentation and subsequent discussion may contain certain forward looking statements with respect to the financial cond
Slide 3: Annual Results
Annual Results Highlands Schools, Scotland
Slide 4: Summary Highlights
Summary Highlights For the year to 31 March 2015 • Strong set of results, with total return of 15.4% (NAV growth plus dividends) Performance • NAV per share of 136.7p • Portfolio performance good, cashflows ahead of plan • Move to quarterly dividends welcomed by shareholders Dividends – ahead of • F
Slide 5: Summary Financials
Summary Financials Income Statement (year ended) 31 March 2015 31 March 2014 Total Income £253.6m £175.7m Fund expenses & finance costs (£22.6m) (£21.9m) Profit before tax £231.0m £153.8m Earnings per share 18.6p 13.1p Ongoing Charges1 1.14% 1.15% Balance Sheet (as at) 31 March 2015 31 March 2014 In
Slide 6: Summary Financials II
Summary Financials II Cash Flow (year ended) 31 March 2015 31 March 2014 Opening net cash £42.7m £146.0m Net Operating Cashflow1 £162.6m £94.9m Investments (net of disposals) (£153.8m) (£243.1m) Equity Raised (net of costs) £75.1m £107.7m Forex movements £9.4m £4.3m Dividends Paid (£102.5m) (£67.1m)
Slide 7: Portfolio Overview - Cashflow Profile
Portfolio Overview - Cashflow Profile1 Long-term income phase Capital repayment phase £400m £2,000m £350m The valuation of the portfolio at any time is a function of £1,750m Annual Project distributions the present value of the expected future cash flows2,3 £300m £1,500m Portfolio value 2039 has a r
Slide 8: Key Valuation Assumptions
Key Valuation Assumptions Movement 31 March 2015 31 March 2014 Discount Rate Weighted Average 7.9% 8.2% Inflation1 UK (RPI2 & RPIx2) 2.75% 2.75% Euro (CPI) 0.0% until 2017, thereafter 2.00% 2.00% Canada (CPI) 2.00% 2.00% Australia (CPI) (exc. EU) 2.50% n/a Deposit Rates UK 1.0% to 31 Mar 2019, and 3
Slide 9: Analysis of Change in Directors' Valuation
Analysis of Change in Directors’ Valuation £1,800m £1,750m 56.1 (10.7) (17.7) £1,700m 72.2 £1,650m £1,600m (124.0) 142.6 £1,550m 1,732.2 £1,500m 221.4 £1,450m (108.3) £1,400m 1,500.6 1,489.7 9.6% 4.8% 3.8% (0.7)% (1.2)% £1,350m £1,300m 31 March Divestments Investments Cash Rebased Return Revaluation
Slide 10: Additional inflation sensitivity
Additional inflation sensitivity Zero inflation for five years – impact on gross forecast cashflows £300m Zero inflation environment results in lower senior debt £250m costs on specific projects with index linked senior funding, therefore improving short term cash flows Annual Project distributions
Slide 11: Key Valuation Sensitivities
Key Valuation Sensitivities Sensitivity to key macroeconomic assumptions Weighted average discount rate of 7.9%, Discount rate +/- 0.5% down from 8.0% at 30 September 2014 and 8.2% at 31 March 2014 If the annual inflation assumption were 3.75% Inflation -/+ 0.5% p.a. (i.e. up 1.0%), the expected ret
Slide 12: Investment Activity
Investment Activity Blackpool Primary Care, Blackpool, England
Slide 13: Summary Investment Activity
Summary Investment Activity Investment activity during the period Investment activity during the period ▲ Nine new investments and 10 incremental stakes during the period for £221.4m (as set out below) ▲ £75.7m oversubscribed tap issues in June and December at the prevailing market price were accret
Slide 14: Summary Investment Activity (continued)
Summary Investment Activity Investment activity during the period (continued) Investment Activity (H2 2014-15) Amount Type Stage Project Sector Stake Acquired Overall Stake Date £61.5m Follow-on Operational Pinderfields and Pontefract Hospitals Health 50.0% 100.0% Oct-14 £25.2m Follow-on Operational
Slide 15: Zaanstad Penitentiary
Zaanstad Penitentiary Investment acquired in March 2015 75% stake for €11.5m, including future subscription obligations Financial Close - 27 September 2013 Scheduled Availability Date is March 2016 Concession length of construction phase and 25-year operations DBFMO Agreement with the State of the N
Slide 16: Disposals
Disposals Two disposals since 31 March 2014 February 2015 Sale of 56% interest in Colchester Garrison for net consideration of £108.3m Profit of £50.6m over the Directors’ valuation of £57.7m as at 31 March 2014 Part of original portfolio at IPO (plus incremental acquisition in 2012) April 2015 Sale
Slide 17: Summary Investment Activity: post-period end
Summary Investment Activity Investment activity post-period end ▲ Two incremental stakes since the period end for an additional £16.0m Investment Activity (post period-end until 20 May 2015) Amount Type Stage Project Sector Stake Acquired Overall Stake Date Follow-on Operational Salford & Wigan BSF
Slide 18: Portfolio and Asset Management
Portfolio and Asset Management Birmingham Hospital, Birmingham, England
Slide 19: The Portfolio, Performance and Asset Management
The Portfolio, Performance and Asset Management Ten largest Investments 101 investments at 31 March 2015 valued at £1,732.2m1 – 10 largest assets represent 40% of portfolio by value Pinderfields & Pontefract Hospitals Home Office Queen Alexandra Average concession life of 21.4 years (22.0 years at 3
Slide 20: The Portfolio, Performance and Asset Management Continued
The Portfolio, Performance and Asset Management Continued One project reached construction completion in the year (Royal School of Military Engineering) while 4 new projects currently under construction were acquired, resulting in net increase of 3 to give 7 in total (31 March 2014: 4) – Allenby and
Slide 21: Portfolio Characteristics
Portfolio Characteristics As at 31 March 2015 Geographic location Investment Status 4% 1% 5% 6% 89% 95% UK EU Australia Canada Construction Fully operational Ownership Analysis Sector 28% 41% 13% 7% 39% 19% 23% 31% Health Education Accommodation Transport Law & Order 100% 50% to 100% less than 50% A
Slide 22: Risk and Uncertainties
Risk and Uncertainties Supply and demand of investments – Discussed in Pipeline and Outlook Project Company revenues – Deductions for unavailability or poor performance – Borne almost exclusively by subcontractors Interpretation of contractual terms – Aware of examples of stringent interpretation le
Slide 23: Market Conditions and Outlook
Market Conditions and Outlook Failsworth School, Manchester, England
Slide 24: Market Update
Market Update Continued strong demand for infrastructure investments globally Investments in social and transportation infrastructure projects becoming increasingly attractive UK – Reduced supply of suitable UK investments, together with increased interest, driving rising valuations – UK pipeline li
Slide 25: Sourcing and Pipeline
Sourcing and Pipeline Harder to source opportunities ‘off-market’ as vendors increasingly undertaking formal auction processes Disciplined approach to avoid over-paying and diluting returns from existing portfolio Participated in 12 auctions – won two securing four investments Careful management of
Slide 26: Performance and Summary
Performance and Summary Kicking Horse Canyon, Canada
Slide 27: Company's Key Performance Indicators (KPIs)
Company’s Key Performance Indicators (“KPIs”) KPI 31 March 2015 31 March 2014 Target 7.10p dividend per share 2014 achieved Dividends declared in year 7.3p per share 7.1p per share 7.25p dividend per share 2015 exceeded Total return in year 15.4% 11.9% 7% p.a. IRR as per latest guidance1 (NAV per sh
Slide 28: Analysis of Change in NAV per Share
Analysis of Change in NAV per Share 145.0 p Project outperformance Sale of Colchester Garrison 1.8 140.0 p Expected NAV growth 5.43 4.1 135.0 p 1.87 Other movements 8.0 Reduction in discount rates 130.0 p 0.2 125.0 p 4.5 3.60 136.7 134.8 0.4 120.0 p 126.7 123.1 115.0 p 110.0 p 31 Mar 2014 Dividend p
Slide 29: Governance and Succession
Governance and Succession Board: − Seven independent directors − Mixture of skills and backgrounds − Five formal meetings a year − Four quarterly two day meetings (includes committees and dinner) − Strategy meeting in September focusing on the way forward for the Company and its portfolio Succession
Slide 30: Summary
Summary Strong performance: − Total return of 19.0p per share for the year to 31 March 2015 from: − a portfolio of mainly operational, quality infrastructure investments; − a disposal generating a gain, which has been re-invested in a timely fashion; − a reduction in the weighted average discount ra
Slide 31: Appendix I: Valuation Methodology and Sensitivities
Appendix I Valuation Methodology and Sensitivities www.hicl.com
Slide 32: 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 33: Discount Rate Analysis
Discount Rate Analysis Directors’ Valuation as at 31 March 2015 Appropriate long- Risk Total Total Total Market valuation of assets increased in the period dated government Premium Discount bond yield Rate1 (‘Risk-Free’) 31 Mar 2015 30 Sep 2014 31 Mar 2014 Discount rates for projects range between 7
Slide 34: Portfolio Valuation - Sensitivities
Portfolio Valuation - Sensitivities Sensitivities - 0.5% change Base Case + 0.5% change 7.9% Discount Rate1 Directors’ valuation, and change + £85.8m £ 1,732.2m - £79.4m Implied change in NAV5 per Ordinary Share + 6.8 pence - 6.3 pence 2.75% Inflation Rates2,3 Directors’ valuation, and change - £52.
Slide 35: Appendix II: The Investment Adviser
Appendix II The Investment Adviser www.hicl.com
Slide 36: 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 37: 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 – Recent additions to portfolio management and asset management – Infrastructure tea
Slide 38: Appendix III: The Company
Appendix III The Company www.hicl.com
Slide 39: 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 40: Governance
Governance Independent board of non-executive Directors – Currently seven members – Approves and monitors adherence to strategy – Acts as the AIFM under the European Commission’s Alternative Investment Fund Managers Directive – Determines risk appetite through Risk Committee – Monitors compliance wi
Slide 41: 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 42: 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 43: 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 44: 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 £150m committed revolving credit facility at Group level), to avoid cash drag and to give sharehold
Slide 45: Appendix III: The Investment Portfolio
Appendix III The Investment Portfolio www.hicl.com
Slide 46: Current Portfolio
Current Portfolio Portfolio of 100 investments as at 20 May 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 Birmingham & S
Slide 47: Current Portfolio – Key Attributes
Current Portfolio – Key Attributes Evolution of the Group’s portfolio – last 6 years to 31 March 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 FYE 2010 FYE 2011 FYE 2012 FYE 201
Slide 48: Portfolio Overview - Contractor Counterparty Exposure
Portfolio Overview - Contractor Counterparty Exposure Diversified spread of quality supply chain providers Counterparties continue to perform Carillion 17% Diversity of contractors ensures no over-reliance on any single entity Quarterly reviews by Investment Adviser Vinci Engie (Cofely) 3% 17% KBR 4
Slide 49: Historic Performance
Historic Performance HICL has grown its dividend for last 9 years Total Return (NAV growth and dividends) of 9.7% since IPO 8.0p 180p 7.0p 160p Pence per Share 6.0p 140p Pence per Share 120p 5.0p 100p 4.0p 80p 3.0p 60p 2.0p 40p 1.0p 20p 0.0p 0p IPO FYE FYE FYE FYE FYE FYE FYE FYE FYE IPO FYE FYE FYE
Slide 50: Appendix IV: The Infrastructure Asset Class
Appendix IV The Infrastructure Asset Class www.hicl.com
Slide 51: 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 performance) + Volume risk (low) + Known pricing risk Examples H
Slide 52: 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 53: Investment Cash Flow Profile over a Project's Life I
Investment Cash Flow Profile over a Project's Life I Example : social infrastructure availability revenue stream Typical Social Infrastructure Investment Cash Flow Profile Bidding Constructio Operation & Maintenance Phase Phase n Phase Value Illustrative Chart Typical timing for investment by the Gr
Slide 54: Investment Cash Flow Profile over a Project's Life II
Investment Cash Flow Profile over a Project's Life II Example : toll road with ‘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 investment by the Group (
Slide 55: 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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