HICL Infrastructure PLC · LSE:HICL
HICL Infrastructure — FY2023 Earnings Presentation
43 slides from HICL Infrastructure's earnings presentation, May 24, 2023
Slide 1: HICL Infrastructure PLC Annual Results Presentation
HICL Infrastructure PLC Annual Results Presentation 24 May 2023
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: Highlights and Investment Proposition
Highlights and Investment Proposition hicl.com | 3
Slide 4: Results Overview
Results Overview A resilient set of results against a volatile macroeconomic backdrop ∆ 1.8p increase in NAV per share to 164.9p driven by strong inflation correlation more than offsetting higher discount rates ∆ Enhanced portfolio construction and significantly extended asset Increase in NAV per sh
Slide 5: Performance Highlights
Performance Highlights 164.9p 6.3% £630m / £174m NAV per share Total Shareholder Return1 Acquisitions2 / disposals3 made + 1.8p 2022: 12.8% 2022: £110m / £19m 31 March 2022: 163.1p 8.9% p.a. since IPO 1.31x / 1.03x Dividend cash cover 8.25p 1.09% Dividend per share Ongoing charges Including / exclud
Slide 6: Strategic transition of the portfolio beyond maturing PPPs
Strategic transition of the portfolio beyond maturing PPPs 500 4.5 Annual project distributions (£m) 450 4.0 400 3.5 Portfolio Value (£bn) 350 3.0 300 2.5 250 2.0 200 150 1.5 100 1.0 50 0.5 0 0.0 Distribution Forecast September 2015 2 Distribution Forecast March 2023 Portfolio Valuation September 20
Slide 7: Compelling Investment Proposition
Compelling Investment Proposition >100 assets InfraRed - specialist infrastructure investment manager Diversification Largest asset 7%1 $14bn+ 25+ Sustainability 20m+ people Equity under Years of investment access HICL’s infrastructure management experience Total return 8.9% p.a. since IPO Yield c.
Slide 8: HICL's Vision
HICL’s Vision 47% of portfolio Developing strong social foundations 38% of portfolio connecting communities 15% of portfolio supporting sustainable modern economies By value based on the Directors Valuation of £3,772.8m at 31 March 2023 hicl.com | 8
Slide 9: Financial Performance
Financial Performance hicl.com | 9
Slide 10: NAV Progression
NAV Progression Year ended 31 March 2023 190.0 p Value Enhancement Accretive Investment ▼(5.3) 180.0 p ▲1.3 ▼(1.9) ▲5.8 ▼(8.3) 170.0 p ▲10.2 160.0 p Value Preservation 150.0 p 173.8 173.8 173.2 164.9 163.1 164.9 140.0 p 130.0 p 120.0 p 31 March 2022 Performance 1 Change in discount rates Forex gain
Slide 11: Financial Performance
Financial Performance Income Statement Year ended 31 March 2023 Year ended 31 March 2022 Investment Basis1 £m £m Total income 254.2 405.8 Fund expenses (39.6) (33.3) Finance costs (16.1) (4.1) Tax (0.1) 0.3 Total return 198.5 368.7 Earnings per share 9.9p 19.0p Ongoing charges2 1.09% 1.06% Balance
Slide 12: Portfolio Performance
Portfolio Performance Directors’ Valuation1 of £3,772.8m as at 31 March 2023 £4,300m £4,100m £3,900m ▲547.6 ▼(113.1) ▲331.2 ▼(180.6) ▲39.5 ▼(12.1) 3,772.8 ▼(222.7) ▲72.0 £3,700m 3,522.8 £3,500m 3,311.0 £3,300m 10.2% (5.6)% 2.2% 1.2% 3,673.4 3,824.3 £3,100m 3,745.6 Income 3,673.4Statement Revenue 3,7
Slide 13: Weighted Average Discount Rate
Weighted Average Discount Rate Increase by 60 basis points to 7.2%1 results in an implied equity risk premium of 3.5% at 31 March 23 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar S
Slide 14: Sensitivities
Sensitivities Discount Rate +/- 0.5% (9.6) 10.7 HICL’s inflation correlation provides an offset to adverse Inflation -/+ 0.5% (8.8) 10.4 discount rate movements Tax Rate +/- 5% (5.3) 5.4 GDP -/+ 0.5% (4.3) 4.1 Cash Deposit Rate -/+ 1% (2.8) 2.8 The portfolio is relatively insensitive to other Debt I
Slide 15: The significant benefit of inflation correlation will manifest over time
The significant benefit of inflation correlation will manifest over time 350 Annual project distributions (£m) 300 250 200 150 100 50 0 Expected cashflows at c.2% inflation¹ ² Impact of higher inflation¹ ² Expected cash NAV from inflation Expected return +£690m project cash flow +15.5p NAV per share
Slide 16: Portfolio is well positioned to benefit from future higher inflation
Portfolio is well positioned to benefit from future higher inflation ▲ Impact of a scenario where inflation is 3% above HICL’s forecast assumptions for the next one, three and five years NAV impact in p/share Annual cashflow impact 17.7 18.0 17.0 16.0 450,000 14.0 350,000 12.0 10.3 10.5 in £000's 10
Slide 17: Portfolio Performance
Portfolio Performance hicl.com | 17
Slide 18: Diversified portfolio
Diversified portfolio Affinity Water 7% Communications >100 Electricity A63 Motorway 6% Assets in the & Water Health portfolio 3 Northwest Parkway 6% 6% 23% 49% 15% Top 10 assets Fortysouth 6% Fire, Law & represent less Order Education 4% than half of Texas Nevada 12% portfolio value1 Transmission 6
Slide 19: Operational update – Affinity Water (7% of portfolio)
Operational update – Affinity Water (7% of portfolio) ∆ Water-only company serving 3.6m customers ∆ Operational performance over the year slightly behind expectations: − Extremely hot and dry weather in summer 2022 − Freeze / thaw conditions in December 2022 − High energy costs, partially mitigated
Slide 20: Operational update – key demand-based assets
Operational update – key demand-based assets A63 Motorway Northwest Parkway High Speed 1 (6% of portfolio) (6% of portfolio)2 (4% of portfolio) ∆ Light vehicle traffic 9.6% higher than in ∆ Traffic in FY23 increased by 5.8% vs FY22 ∆ Eurostar bookings ahead of forecast (79% of FY22, heavy vehicle tr
Slide 21: Operational update – new additions to HICL's top 10
Operational update – new additions to HICL’s top 10 Fortysouth Texas Nevada Transmission (6% of portfolio) (6% of portfolio) ∆ InfraRed working closely with One NZ1 to oversee the carve-out process ∆ Transaction completed post period end following relevant third-party of the passive tower infrastruc
Slide 22: Operational update – Public Private Partnerships (60% of portfolio)
Operational update – Public Private Partnerships (60% of portfolio) ∆ PPPs continued to perform well overall, benefitting from inflation linkage built into availability-based contracted revenues ∆ Largely contracted cost base, with fixed-rate long-term debt and no refinancing exposure across the ent
Slide 23: Sustainability highlights
Sustainability highlights HICL has a role in society that extends beyond its shareholders 2030 interim net zero targets set Excellence in governance Article 8 SFDR categorisation 50% of portfolio to be aligned or aligning Full compliance with level 2 disclosure Enhanced application of InfraRed to ne
Slide 24: Investment Activity and Market Outlook
Investment Activity and Market Outlook hicl.com | 24
Slide 25: HICL's Core Infrastructure Focus
HICL’s Core Infrastructure Focus HICL invests in Core Infrastructure assets with highly defensive qualities, attractive in volatile markets Cash Flow Quality Market Positioning Criticality Stable revenues Defensive positioning Essential assets Lower operational Stable, high barriers to Social licenc
Slide 26: Investment Activity
Investment Activity Market coverage filtered by focused acquisition strategy and investment discipline EVALUATION 84 New deals reviewed in the year DUE DILIGENCE 13 Transactions subject to detailed due diligence in the year 1 TRANSACTIONS 7 New transactions signed / completed and 5 live opportunitie
Slide 27: New Acquisition – Altitude Infra
New Acquisition – Altitude Infra Minority investment in a leading owner / operator in the French FTTH1 market ∆ Acquisition announced post period end and completed on 4 May 2023, Altitude Infra footprint representing c. 2% of Directors’ valuation at 31 March 2023 Global Internet Exchange ∆ Altitude
Slide 28: Market and Outlook – secular growth drivers provide significant opportunity
Market and Outlook – secular growth drivers provide significant opportunity Sustainable Strong Social Foundations Connecting Communities Modern Economies 68% +182% $1.1tn Investment needed annually in grid Of the global population forecast Increase in Volume of data / information and storage investm
Slide 29: Concluding Remarks
Concluding Remarks hicl.com | 29
Slide 30: Results Overview
Results Overview A resilient set of results against a volatile macroeconomic backdrop ∆ 1.8p increase in NAV per share to 164.9p driven by strong inflation correlation more than offsetting higher discount rates ∆ Enhanced portfolio construction through strategic M&A; enabled Increase in NAV per shar
Slide 31: Appendix I: The Investment Manager
Appendix I The Investment Manager
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 11 infrastructure funds (including HICL and TRIG) ∆ Currently over US$14bn of equity under management1 ∆ London based, with offices in New York, Seoul a
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: Appendix II: Company Information
Appendix II Company Information
Slide 35: Board of Directors I
Board of Directors I Non-executive Directors with a broad range of relevant experience and qualifications Mike Bane Frank Nelson Rita Akushie Liz Barber Chair Senior Independent Director Audit Committee Chair Director Mike is a chartered accountant with over 35 years of audit Frank Nelson is a quali
Slide 36: Board of Directors II
Board of Directors II Non-executive Directors with a broad range of relevant experience and qualifications Frances Davies Martin Pugh Simon Holden Kenneth D. Reid Remuneration Committee Chair Director Risk Committee Chair Director Frances has more than 30 years of experience across Martin Pugh has o
Slide 37: Investment Manager
Investment Manager Senior InfraRed team, experienced in making and managing infrastructure investments HICL’s Investment Committee HICL’s Senior Leadership HICL’s Investment Committee is the principal executive decision making body for HICL within InfraRed and is comprised of: Edward Hunt Werner von
Slide 38: Appendix III: The Investment Portfolio
Appendix III The Investment Portfolio
Slide 39: HICL's Top Assets I
HICL’s Top 10 Assets I Sector: Electricity & Water Affinity Water (UK) % of portfolio: 7% (March 2022: 9%) Affinity Water Limited is the largest water-only supplier in the UK by revenue and population 1 served covering an area of 4,515 square kilometres. HICL holding: 33.2% Concession life remaining
Slide 40: HICL's Top Assets II
HICL’s Top 10 Assets II Sector: Transport High Speed 1 (UK) % of portfolio: 4% (March 2022: 5%) HS1 is the rail link between London St Pancras station and the Channel Tunnel. It is currently the 6 UK’s only high-speed rail line in operation. HICL holding: 21.8% Concession life remaining: 18 years St
Slide 41: Portfolio Diversification
Portfolio Diversification HICL’s Portfolio, as at 31 March 20231 REVENUE TYPE GEOGRAPHIC LOCATION ▲ Contracted Revenues 66% ▲ UK 64% ▲ Demand-based Revenues 19% ▲ Europe (exc UK) 17% ▲ Regulated Revenues 15% ▲ North America 13% ▲ New Zealand 6% INVESTMENT STATUS SECTOR ▲ Fully operational 97% ▲ Cons
Slide 42: Key Valuation Assumptions
Key Valuation Assumptions Movement 31 March 2023 31 March 2022 Discount Rate Weighted Average 7.2% 6.6% UK (RPI2 & RPIx2) 5.00% to March 2024, 6.00% to March 2023, 3.50% to March 2024, 2.75% to March 2030, 2.00% thereafter 2.75% to March 2030, 2.00% thereafter UK (CPI/CPIH)3 4.25% to March 2024, 5.2
Slide 43: Summary Cash Flow Statement
Summary Cash Flow Statement Figures presented on an Investment Basis1 31 March 2023 31 March 2022 £m £m Opening net (debt) / cash (46.2) 4.7 Net cash flow before capital movements 171.0 163.0 Investments (339.1) (87.5) Disposals 96.8 18.5 Debt arrangement fees paid (6.7) (0.2) Equity raised (net of