HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — FY2020 Earnings Presentation
70 slides from HICL Infrastructure's earnings presentation, May 20, 2020
Slide 1: Annual Results Presentation: Year to 31 March 2020
HICL Infrastructure PLC Annual Results Presentation: Year to 31 March 2020 20 May 2020 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 Investment Proposition 4 Annual Results 6 Valuation Overview and Sensitivities 9 Portfolio Performance and Asset Management 15 Investment Activity and Risk Management 23 Market, Outlook and Concluding Remarks 28 Appendices 31 HICL’s entire investment business was transferred from
Slide 4: A portfolio positioned at the lower end of the risk spectrum
A portfolio positioned at the lower end of the risk spectrum 1 3 Core infrastructure investment characteristics Actively managed to deliver sustainable income 0.8 27.8 yrs Outperformance Enhance communities’ Correlation of portfolio Weighted avg returns to inflation1 asset life experience of infrast
Slide 5: HICL's Track Record
HICL’s Track Record1 Consistent delivery over 14 years Dividend increased by 35% over 13 years Total Return (NAV growth and dividends) of 9.0% 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 I
Slide 6: Annual Results
Annual Results hicl.com |
Slide 7: Overview
Overview Managing the operational and financial impacts from Covid-19 is a key priority Performance ▲ NAV per share decline of 5.2p to 152.3p; solid performance from the underlying portfolio offset by external factors: the exceptional impact of Covid-19 on the demand-based assets and macro-economic
Slide 8: Performance Highlights
Performance Highlights Solid performance for the year to 31 March 2020 152.3p 1.9% 8.25p for 2021 NAV per share1 Total Shareholder Return2 Dividend Guidance1,3 revised Down 5.2p from 157.5p 10.8% for the year to 8.25p per share declared in line with at 31 March 2019 31 March 2019 previous guidance f
Slide 9: Valuation Overview and Sensitivities
Valuation Overview and Sensitivities hicl.com |
Slide 10: Portfolio Overview – Cash Flow Profile
Portfolio Overview – Cash Flow Profile1,2,3 Forecast steady long-term cash flows and a stable portfolio valuation in the medium term ▲ Portfolio cash flows underpin forward dividend guidance ▲ Hollow bars represent reductions in forecast cashflows, mainly from the demand-based assets as a result of
Slide 11: Analysis of Change in Directors' Valuation
Analysis of Change in Directors’ Valuation Directors’ Valuation1 of £2,888.5m as at 31 March 2020 £3,200m 39.5 (56.4) 2,998.9 (189.5) £3,000m 233.9 (39.9) (72.0) 2,888.5 2,792.5 12.2 (58.4) 20.1 £2,800m £2,600m £2,400m 2,909.6 2,998.9 2,982.1 2,909.6 2,792.6 2,837.6 2,837.6 2,791.5 2,791.5 2,811.5 2
Slide 12: Discount Rate Analysis
Discount Rate Analysis Overall weighted average discount rate unchanged from 31 March 2019 ▲ Discount rates for investments range between 6.2%1 and 9.3% Appropriate Total Discount Rate3 Long-Term Risk ▲ Eurozone and North American discount rates Government Premium 31 30 31 have increased by 0.1% and
Slide 13: Key Valuation Assumptions
Key Valuation Assumptions Movement 31 March 2020 31 March 2019 Discount Weighted Average 7.2% 7.2% Rate UK (RPI2 & RPIx2/CPIH3) 2.75% / 2.0% 2.75% / 2.0% Inflation1 Eurozone (CPI) 2.0% 2.0% (p.a.) Canada (CPI) 2.0% 2.0% USA (CPI) 2.0% 2.0% UK 0.5% to March 2023, 1.5% thereafter 1.0% to March 2022, 2
Slide 14: Key Valuation Sensitivities
Key Valuation Sensitivities Sensitivity to key macroeconomic assumptions ▲ The FX rate, Lifecycle and GDP sensitivities are based on the relevant affected assets, and the Discount Rate +/- 0.5% (7.5) 8.2 discount rate sensitivities are based on analysis of the whole portfolio Inflation -/+ 0.5% (p.a
Slide 15: Portfolio Performance and Asset Management
Portfolio Performance and Asset Management hicl.com |
Slide 16: Portfolio Metrics
Portfolio Metrics Ten largest assets accounted for c. 44% of the portfolio1 31 March 20201,2 31 March 2019 10 Largest Investments1 Affinity Water 6% Number of 117 118 Remaining HS1 6% investments Investments 56% A63 6% Percentage of portfolio by value – 44% 45% 10 largest assets Northwest Parkway 5%
Slide 17: Portfolio Performance I
Portfolio Performance I PPP projects represent 72% 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 18: 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 19: Demand-based Assets Impacted by Covid-19
Demand-based Assets Impacted by Covid-19 Four demand-based assets impacted by lockdowns1; well-positioned for economic recovery ▲ HICL has demand-based assets correlated to GDP (18% of portfolio), accounted predominantly by three assets: High Speed 1 (UK), Northwest Parkway (USA) and A63 Motorway (F
Slide 20: Portfolio Performance III
Portfolio Performance III Regulated assets represent 8% of the portfolio, by value Investment rationale ▲ Essential assets that are regulated due to monopoly market positions ▲ Regulated assets have a complementary risk profile to PPP projects and demand-based assets ▲ Assets are subject to licence
Slide 21: Portfolio Diversification I
Portfolio Diversification I HICL’s Portfolio, as at 31 March 20201 MARKET SEGMENT GEOGRAPHIC LOCATION Mar-20 Mar-20 Mar-19 Mar-19 Mar-20 Mar-19 Mar-20 Mar-19 ▲ PPP Projects 72% 71% ▲ UK 76% 77% ▲ Demand-based Assets 20% 21% ▲ Europe (exc UK) 17% 15% ▲ Regulated Assets 8% 8% ▲ North America 7% 8% INV
Slide 22: Portfolio Diversification II
Portfolio Diversification II HICL’s Portfolio, as at 31 March 20201 OWNERSHIP STAKE SECTOR Mar-20 Mar-20 Mar-19 Mar-19 Mar-20 Mar-19 Mar-20 Mar-19 ▲ 100% ownership 26% 25% ▲ Accommodation 11% 11% ▲ 50% - 100% ownership 34% 32% ▲ Education 14% 15% ▲ Less than 50% ownership 40% 43% ▲ Electricity, Gas
Slide 23: Investment Activity and Risk Management
Investment Activity and Risk Management hicl.com |
Slide 24: Sustainable Thinking
Sustainable Thinking A long-term approach to investing in, and managing, core infrastructure Policy and procedures Action Reporting ▪ Updated sustainability policies ▪ Embedded in InfraRed’s ▪ InfraRed is a signatory of the investment process Principles of Responsible Investment A+ for fifth consecu
Slide 25: Investment Activity
Investment Activity Market coverage filtered by focused acquisition strategy and investment discipline EVALUATION 44 New deals reviewed in the year DUE DILIGENCE 23 Transactions subject to detailed due diligence INVESTMENT 3 Investments completed for HICL 11 live opportunities1 Acquisition Activity
Slide 26: Risk and Risk Management I
Risk and Risk Management1 I Covid-19 and ▲ Business continuity plans implemented by HICL’s service providers and by the Investment Manager across economic the portfolio. The well-being of HICL’s service providers’ staff, portfolio company management teams and subcontractor staff who work within HICL
Slide 27: Risk and Risk Management II
Risk and Risk Management1 II Counterparty ▲ Counterparty risk primarily manifests itself as either counterparty failure or underperformance of contractors risk and ▲ InfraRed actively monitors the financial health of the portfolio’s counterparties, including clients / customers, construction lenders
Slide 28: Market, Outlook and Concluding Remarks
Market, Outlook and Concluding Remarks hicl.com |
Slide 29: Market and Outlook
Market and Outlook Market ▲ Long-term cash yields from core infrastructure assets continue to attract institutional investors in the current low interest rate environment ▲ Oxford Economics estimates that c. US$1.3tn must be invested in infrastructure in developed markets every year to 20401 to supp
Slide 30: Concluding Remarks
Concluding Remarks Delivering Real Value. ▲ Solid underlying portfolio performance offset by external factors: exceptional impact of Covid-19 and changes in forecast macro-economic assumptions ▲ HICL has further strengthened its balance sheet with successful capital raising and refinancing of its RC
Slide 31: Appendix I: The Investment Manager
Appendix I The Investment Manager hicl.com |
Slide 32: 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 management1 Independent manager owned by senior m
Slide 33: 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 34: 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 35: Appendix II: Company Information
Appendix II Company Information hicl.com |
Slide 36: 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 ▲ IPO in 2006, 13 successive years of d
Slide 37: Infrastructure Market Map
Infrastructure Market Map Schematic showing HICL’s Investment Policy1 Scope Examples: hospitals, schools, government Examples: gas and electricity transmission accommodation and availability transport and distribution; water utilities; (e.g. road/rail) district heating Chart Key - Inner wheel denote
Slide 38: HICL Infrastructure PLC Group Structure Diagram
HICL Infrastructure PLC Group Structure Diagram Equity Independent Directors1 HICL’s Shareholders dividends ▪ Governance (predominantly UK) interest ▪ Oversight ▪ Strategy Investment Manager HICL Infrastructure PLC ▪ HICL's AIFM EEA AIF2 subject to the full scope of the AIFMD3 ▪ Fund Management (UK
Slide 39: 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 40: 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 41: 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 has
Slide 42: 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 has more than 30 years of Sally-Ann (known as Susie), a Guernsey Si
Slide 43: Key Performance Indicators ("KPIs")
Key Performance Indicators (“KPIs”) KPI Measure1 31 March 2020 31 March 2019 Objective Commentary Aggregate interim An annual distribution of at Dividends dividends declared per 8.25p 8.05p least that achieved in the Achieved share in the period prior year Total NAV growth and A long-term IRR target
Slide 44: Key Quality Indicators ("KQIs")
Key Quality Indicators (“KQIs”)1 KQI Measure1 31 March 2020 31 March 2019 Objective Commentary Percentage of portfolio value represented by the ten largest 44% 45% Maintain a diversified portfolio of Investment investments investments (thereby mitigating Within acceptable Concentration concentration
Slide 45: Analysis of Change in NAV per Share
Analysis of Change in NAV per Share1 Year to 31 March 2020 170.0 p 1.6 (2.2) 165.0 p (4.0) 160.0 p (6.2) (2.0) 0.8 (3.3) 9.2 0.6 0.3 155.0 p 150.0 p 145.0 p 162.5 140.0 p 153.9 157.5 158.5 155.5 155.5 155.5 156.1 156.4 153.9 152.3 152.3 135.0 p 130.0 p 125.0 p 120.0 p 31 March Dividend 31 March Chan
Slide 46: Summary Financials I
Summary Financials I Figures presented on an Investment Basis1 For the year ended For the year ended Income Statement 31 March 2020 31 March 2019 Total income £86.7m £324.1m Fund expenses & finance costs (£36.7m) (£38.4m) Profit before tax £50.0m £285.7m Earnings per share2 2.7p 15.9p Ongoing charge
Slide 47: Summary Financials II
Summary Financials II Figures presented on an Investment Basis1 For the year ended For the year ended Cash Flow 31 March 2020 31 March 2019 Opening net debt (£84.3m) (£115.2m) Net operating cash flow £169.1m £178.9m Investments (net of disposals) (£16.0m) (£6.7m) Equity raised (net of costs) £115.2m
Slide 48: 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 49: Demand-based Assets Impacted by Covid-19 I
Demand-based Assets Impacted by Covid-19 I A63 Motorway (France) revenue modelling ▲ The A63 Motorway in southwest France performs an important strategic link as part of the TEN-T trans-European network of roads, airports, railways and water infrastructure, establishing intermodal, long-distance and
Slide 50: Demand-based Assets Impacted by Covid-19 II
Demand-based Assets Impacted by Covid-19 II High Speed 1 (UK) revenue modelling ▲ High Speed 1 (“HS1”) has strong strategic positioning as the UK’s only high speed rail link and the only rail connection between London and Europe ▲ Travel for business and leisure segments alike has largely ceased due
Slide 51: Demand-based Assets Impacted by Covid-19 III
Demand-based Assets Impacted by Covid-19 III Northwest Parkway (USA) revenue modelling ▲ The Northwest Parkway forms part of the orbital road around Denver, Colorado providing access to providing access to residential and employment centres within the north-western metropolitan area and the Denver I
Slide 52: Acquisition Strategy
Acquisition Strategy Investment Policy unchanged since IPO in 2006 PPP Regulated Demand-based Corporate Social infrastructure, Water utilities, Toll roads, student Rolling stock leasing or availability-based electricity transmission accommodation metering business with transportation and distributio
Slide 53: Appendix III: The Investment Portfolio
Appendix III The Investment Portfolio hicl.com |
Slide 54: Portfolio I
Portfolio I Portfolio of 117 assets Education 14% of Directors’ Valuation1 Bangor & Nendrum Schools Ealing Schools Manchester School Rhondda Schools Barking & Dagenham Schools East Ayrshire Schools Newham BSF Schools Salford & Wigan BSF Phase 1 Belfast Metropolitan College Ecole Centrale Supelec (Fr
Slide 55: Portfolio II
Portfolio II Portfolio of 117 assets Health 30% of Directors’ Valuation1 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 LIFT Glasg
Slide 56: 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 FYE FYE 2012 2013 2014 2015 2016 2017 2018 2019 2020 2012 2013 2014 201
Slide 57: 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 ▲ Contingency plans are in place to address scenarios 15% where material issues
Slide 58: 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 2020, 30% of the portfolio1 benefited from th
Slide 59: Appendix IV: Valuation Methodology and Cash Flow Sensitivities
Appendix IV Valuation Methodology and Cash Flow Sensitivities hicl.com |
Slide 60: 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 by the Company’s auditor ▲ Final valuation appro
Slide 61: Portfolio Cash Flow Sensitivity I
Portfolio Cash Flow Sensitivity I 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 13, the expected return from the portfolio2 (before Group expenses) would increase by 0.
Slide 62: Portfolio Cash Flow Sensitivity II
Portfolio Cash Flow Sensitivity II Impact of changes in Gross Domestic Product on portfolio cash flows1 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% In relation to the assumed Covid-19 re
Slide 63: Portfolio Cash Flow Sensitivity III
Portfolio Cash Flow Sensitivity III Impact of Global Financial Crisis (“GFC”) type event on portfolio cash flows1,2 In the event that there is a GFC similar to that experienced in 2008, where there is a short term contraction in the economy followed by HICL’s assumed growth rates thereafter, we esti
Slide 64: Hedging Foreign Exchange Risk
Hedging Foreign Exchange Risk HICL hedges foreign exchange (“FX”) risk in relation to Hedging at 31 March 2020 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 helps mitigate the impact on NAV p
Slide 65: Appendix V: The Infrastructure Asset Class
Appendix V The Infrastructure Asset Class hicl.com |
Slide 66: 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 67: 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 68: 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 69: 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 70: 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