HICL Infrastructure (LSE:HICL) — Annual Results

0:00 Good afternoon, and welcome to the HICL INFRASTRUCTURE investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to the management team from HICL INFRASTRUCTURE. Hal, good afternoon, sir. Good afternoon. Good afternoon, everyone. Thank you for dialing in to the annual results presentation for HICL INFRASTRUCTURE PLC. We've got a little presentation together this afternoon. Take about thirty minutes to go through. It'll So be led by Edward Hunt, who's HICL fund manager, with Helen Price, HICL CFO. And we've also got along Ross Goony Reid, who's a director in the fund management team here at INFRASTRUCTURE to take you through the results.

0:56 Should take about half an hour, but really keen to get to your questions. So please do, however however simple you may think it, there's probably another investor who's trying to think of the same question. So do get your questions in. We'd love to spend a good amount of time at the end going through them. That's all for me. I'll pass over now to Ed to get the presentation started. Thanks Hal and good afternoon. A very warm welcome to this set of annual results for HICL INFRASTRUCTURE PLC. I'm going to start out on slide four with a recap of HICL's proposition.

1:29 HICL is a core infrastructure investor. It offers direct investment in the critical infrastructure that we rely on in our daily lives. These are essential assets delivering resilient, inflation linked cash flows with exposure to powerful infrastructure megatrends. In the hands of our investors, that is reliable income and capital growth in a diversified and liquid vehicle. We actively manage the portfolio to deliver outperformance, working to realize the potential of each asset while enhancing the portfolio overall with timely divestments and highly selective acquisitions. Every asset plays a role in the delivery of HICL's investment proposition, and our model is to review that judiciously.

2:16 Finally, the pedigree and track record of the company and INFRASTRUCTURE PLC's manager. Over the eighteen years since IPO in 2006, HICL has returned 8.7% per annum on a NAV basis through all manner of market conditions, delivered by a specialist manager with over 160 people and twenty five plus years of infrastructure experience globally. These components are reflected throughout the set of results and I'll start, with those now on slide five. This is another resilient result for the company underpinned by active management and capital allocation discipline. On the left hand side of the slide, over £500,000,000 of divestments continuing HICL's long track record of asset rotation.

3:07 It now totals over a billion pound of disposals since, 2006, contributing over 10p to NAV outperformance. These divestments are important for three reasons. Firstly, with a combined 11% premium to carrying value, these divestments reinforce the company's NAV and illustrate that disconnect that we continue to see between private and public market valuations for these assets. Secondly, the transactions provide a valuable source of funding, and that's enabled us to repay our revolving credit facility, rotate into selective acquisitions, and buy back shares. Finally, perhaps most importantly, these transactions support strategic portfolio construction and enhance the quality of the company's earnings and cash flow.

3:57 And that takes us to the middle column on the slide. The board is guiding a return to sustainable dividend growth with guidance of 8.35p per share from f y twenty six. This reflects confidence in the cash flow generation from the underlying portfolio as well as the efforts over recent years to rotate assets, to diversify, in order to build out that long term earnings platform for the company, which is capable of supporting sustainable dividend growth. And it's this platform that underpins HICL's long term success in the right column here. The portfolio has a defensive core asset base. It's positioned in strategic infrastructure growth sectors from where it seeks to deliver both income and capital growth to its shareholders.

4:48 The current share price implies an expected return of 8.9% net of fees with a down payment of that... On that of six and a half percent via the dividend yield. Our job is to top that up further with outperformance through our active management approach and by bringing the share price back to the NAV. Slide six sets out the key metrics for these results. Top left, we have the 4% reduction in NAV over the year. That reflects the 80 basis points increase in discount rates that we took in September, partially offset by macroeconomic assumptions and accretive m and a. On the top right, we have the underlying return from the portfolio at 9%.

5:37 That's excluding adjustments to discount rates and macro assumptions, and that's well ahead of expectations, reflective of our active approach. The portfolio continues to perform well and is significantly insulated by design from broader macro volatility. Bottom left, accretive divestments in the year will enable us to fully repay the company's revolving credit facility that reduces interest costs and adds financial flexibility. And finally, bottom right, the dividend cash cover of 1.37 times or 1.05 times excluding profits on disposal. This has trended upwards. We expect it to continue to trend upward and the confidence in that underpins our guidance back to dividend growth from April next year.

6:30 Turning to slide seven. We have been transparent in our efforts to position the company for long term success and construct a portfolio that will underpin the delivery of shareholder value for decades to come. Transaction activity in recent years has deliberately extended HICL's revenue streams, introducing assets positioned to capture real growth and to balance the increasing maturity of the Group's PPP concessions. This strategic evolution is now reflected in HICL's asset base, as set out in cash flow terms on this slide. We have mature, shorter life assets providing a strong yield, essentially HICL's PPP assets, complemented by assets with longer life, stronger inflation linkage, and greater growth potential, I e, those more recent investments beyond PPP.

7:27 To bring this to life, HICL's yielders deliver a forecast 10% annual cash yield against a weighted average life of fourteen years. That's balanced by HICL's growers, which are forecast to deliver a ten year annual growth rate of 7% from an average annual life of forty eight years. Naturally, as this second group matures, the growers of today become the yielders of tomorrow. And in this way, the complementary asset groups come together to build an earnings platform that is capable of supporting long term dividend and NAV growth for shareholders. This assumes no changes to the portfolio or underlying assumptions. In reality, the company will pay out a large element of these cash flows as a dividend and will also reinvest a portion.

8:20 This this reinvestment will allow us to grow out the back end of the chart

8:24 and lift that rolling valuation, which you can see in the dotted line, over time. Our forecasts project that reinvestment alone will lift the valuation in 2050 by £900,000,000 to 3,100,000,000 supporting the NAV and the dividend long term without requiring external capital. One final slide before I pass on to Helen, slide eight. The macro environment continues to be dominated or continues to dominate markets and media. This slide provides a perspective on HICL's total return proposition in the current market. This is a bottom up analysis of the return that HICL can provide its investors.

9:11 HICL increased its discount rate in the year by 80 basis points to 8%, and this is the best guide of the expected gross return from the portfolio if the company was trading at its net asset value. The current share price adds to that further for a marginal buyer. So the implied steady state return on a share bought today is 8.9% net of fees. So that far right column on the slide. That is a 4.8% premium to risk free rates and a 6.5% real return over and above assumed inflation across HICL's markets. And again, of that 8.9% implied return, 6.5% of that is delivered by the dividend alone.

10:01 As I mentioned, our role, our aim, is to improve on that proposition, both through active management to deliver outperformance, and secondly, by dragging that price back up to the NAV through sound capital allocation and a compelling forward looking strategy. Over now to Helen to step through the financial result. Great. Thank you very much, Ed, and good afternoon, everyone. So let's start with the NAV on Slide 10. Here, you can see the breakdown of the 6.7 p decrease in NAV per share to 158.2 p. Portfolio performance, which is the return on the investment portfolio, contributed 13.8 p. Within performance, can see value preservation, namely the unwind of the discount rate of 12.7 p and value enhancements of 1.1 p, which largely reflect the profits on disposal of Northwest Parkway, partially offset by the impact of actual inflation relative to our forecast assumptions for FY '24.

11:07 Changes to macroeconomic assumptions led to a reduction of eight p. In September 23, we increased the weighted average discount rate to 8%, a negative impact of 13.9 p. This is partially offset by positive adjustments to forecast inflation totaling 3.8 p and interest of 2.1 p. Finally, the company incurred expenses of 3.7 p and paid dividends of 8.25 p. Before I move on to our investment portfolio, here's a bit more detail on some of our important metrics. We ended the year with net debt of $3.00 $4,000,000 as we invested in Texas, Nevada transmission, Altitude, INFRASTRUCTURE and Hornsey two.

11:53 And as at the March 31, the RCF was a £187,000,000 drawn. Post year end, we've received the proceeds from

12:01 Northwest Parkway and Hornsey two and repaid the RCF. Gearing is now 7% on a like for like basis. Conservative balance sheet management is very important for the board and the manager, and we're pleased to have made such good progress in both deleveraging, but also managing interest rate risk in such a volatile year. Finally, on the income statement side, the ongoing charge ratio increased to 1.14%. As the disposals are now complete, the management fee will reduce and the OCR will decline back to previous levels of around 1%. So here on slide 11, you can see the investment portfolio, is the main driver of the company's performance.

12:47 Firstly, to reiterate, our investment process is unchanged. So if we start on the left of the page, after acquisitions and disposals as well as cash distributions, the net portfolio value is 3,200,000,000. This is the rebased valuation, and it's the basis for determining the underlying portfolio return. This return is 286,000,000 or 9% ahead of the 7.2% discount rate as at the 03/31/2023 because of the profits made on disposal. The 80 basis point increase in the discount rate reduced the valuation by 280,000,000. And as usual, I'll cover the approach to discount rates separately.

13:35 Changes to economic assumptions generated 121,000,000. Most of this reflects changes in inflation and interest rate assumptions, and our assumptions themselves are included in the appendix. Overall, the net valuation of the portfolio declined to 3,300,000,000 at March 31, and our commitments remain 65,000,000. Before I talk through our approach to discount rates, here's some more color on transaction data to set the scene. We've updated this slide, which was last presented back in November to show what we're seeing in the private m and a market to help position HICL's market leading approach to asset rotation. Over the last fifteen months, we've completed nine asset disposals at or above carrying value, generating a total of 509,000,000.

14:28 We've generated a multiple on invested capital of 1.8 times and an IRR of 11%. Very healthy returns for core infrastructure strategy. We've sold assets to multiple counterparties covering different sectors and geographies and totaling 13 and a half percent of the portfolio as at March 23. This gives us confidence in the quality of our portfolio and the robustness of our net asset value even in a difficult market. So this data that we last took you all through in November has been updated to show the dislocation between public and private markets for infrastructure. And there are two important takeaways from the charts on the left of the slide. Core infrastructure transactions are happening as private markets have capital to allocate, and our origination team say that transactions have picked up.

15:24 And processes for good assets remain very competitive. For example, we are taking part in some vehicle and in two instances did not make the second round because we were more than 10% off the price. This demand for infrastructure in the secondary market can be seen in the pricing discount for infrastructure only being 7% at 2023. And in contrast, the average discount for listed infrastructure at the 03/31/2024 was 18%. And if you then compare that to real estate where you can see the average NAV discount of 28% and a listed sector discount of 33. So turning now to discount rates and sensitivities on slide 13.

16:14 As a reminder, in September 23, we increased the discount rate to 8%. And in particular, we increased the UK rate by a 100 basis points and the rest of the portfolio between twenty and sixty basis points. Although we can point to our transaction activity, when setting the rate at the March 31, we also considered the following. Firstly, government bond yields. Over the last twelve months, the average twenty to thirty year UK bond yield has increased by 58 basis points. And rates in the rest of HICL's jurisdictions have increased by up to 67 basis points. And secondly, the equity risk premium. We want to make sure we maintain an adequate risk premium, which we think should be at least 3%.

17:04 And in addition, we need to reflect jurisdiction specific volatility. Overall, conditions remain largely unchanged over the second half of the year with no obvious evidence that discount rates should move either way. Specifically, we think that the premium we achieved on Northwest Parkway reflects a 100% disposal to a strategic buyer. So at the March 31, we maintained our discount rate at 8%. Within this, the average risk free rate is 4.1, and the implied risk premium is 3.9. On the right hand side, you can see the two key sensitivities around our valuation assumptions expressed in a NAV per share impact. As in prior periods, the inflation correlation provides a helpful offset against discount rate sensitivity.

17:56 And the remaining sensitivities for the investment portfolio can be found in the appendix on page 48.

18:03 So moving on to our slide on portfolio company gearing. Excluding holding company debt, the portfolio is 68% geared, and the board is comfortable with this because only 13% of the portfolio's debt needs to be refinanced at all. And of this 13%, only two and a half percent of the debt needs refinancing in the next two years, and it's namely our two regulated utilities, Texas Nevada Transmission and Affinity Water. But overall, the gearing of the assets that need a refinancing is also lower at 50. Lastly, on slide 15, after several years of holding the dividend to 8.25 p, the board has announced to return to dividend growth in f y twenty six.

18:54 We are pleased to have delivered what we said we would, repositioning the portfolio and focusing on long term earnings growth to deliver a sustainable dividend. Here you can see that dividend cover has increased over the last few years and is forecast to hit 1.1 times by 2026. Why is this? While the portfolio is starting to see the benefit of its inflation correlation, and in addition, our demand assets are performing well, including the a 63, which is leading to more distributions, and we have sold lower yielding assets to repay a relatively expensive RCF. In particular, we're really pleased to see the recovery in the dividend cover. We think 1.1 times is an important threshold for the fund.

19:42 Lastly, this has all been done while our largest asset has not been distributing. To indicate how we could move on from here, the potential uplift from assets resuming distributions is naught point 1p. We hope to be able to update investors on this in due course. I'll now hand you over to Ross, who'll take you through the portfolio performance. Thanks, Helen. Good afternoon, everyone. So before I do jump into portfolio performance, it is worth just revisiting the company's market positioning, which you can see here on slide 17. HICL is a core infrastructure investor. All of our assets are positioned at the lower end of the infrastructure risk spectrum and benefit from three key characteristics. Firstly, high cash flow quality through contracts, entrenched demand, or regulated revenues.

20:31 Secondly, a defensive market positioning, and that means high barriers to entry and low competition. And criticality, these are essential assets that provide the backbone to society. This framework guides our approach to new acquisitions and also describes the existing portfolio, which is summarized over the page on slide 18.

20:53 Now you might be familiar with the charts on this slide, which really draw out quite how diversified HICL's portfolio is across sectors, geographies, and revenue types. Our active approach to portfolio construction is a central part of the company's business model. The acquisitions and disposals made during the year were deliberately chosen to improve key metrics and diversify risk. On the right hand chart, you can see that PPPs make up 58% of the portfolio, and another 4% comes from HICL's off tow investments. These generally performed in line with expectations, thanks to their availability based revenues and generally fixed costs. The five largest assets make up around a third of the total portfolio value. For the first time, we have included some additional sensitivities on each of the following slides, alongside the usual update on performance, which I'll now jump into starting with Affinity Water on slide 19.

21:50 So this is HICL's largest investment at just over 8% of the portfolio by value. It's always worth highlighting that Affinity is a water only company with no responsibility for sewerage services. The company submitted its p r 24 business plan in late September, and we're expecting to receive the draft determination in early June. This should give us a good indication of what we are expecting from the business, but we do take comfort from the fact that the management team was able to submit a plan that balanced significant investment, the lowest bill increases in the sector and the resumption of equity distributions at a reasonable level. From an operational perspective, performance in the year has been solid. Affinity continues to be ahead of target on leakage reduction.

22:36 And although some ODI penalties were incurred, these were broadly in line with expectations. The company's day to day operations are underpinned by a resilient capital structure with credit ratings two notches above Ofwat's requirements, very limited holdco debt, and no refinancing requirements until the next regulatory period. The uncertainty around the draft and final determinations is reflected in HICL's valuation of Affinity, which has remained stable over the year. More broadly, the company's robust business plan and improving operational track record should mean that it is well positioned as we reach the conclusion of the PR24 process. On Slide 20, we provide some detail on HICL's demand based assets.

23:21 This segment of the portfolio has reduced from 19% to 14% following the disposal of North West Parkway, which I'll pick up on later in the presentation. Starting here with the A 63, this now represents nearly 8% of the portfolio, following the incremental acquisition we announced just before Christmas. You can see from the slide that traffic continues to grow steadily and has generally outperformed our valuation assumption. The slight dip you see in the chart in the summer months reflects to an accident, which prevented toll collections, but we are expecting full revenue and cost recovery through insurance. The valuation has benefited from inflation linked tolls as well as cost savings achieved by the management team.

24:06 Although the levy on long distance transport infrastructure has now been enacted by the French government, this is currently being challenged in court. And even if it is eventually imposed with no compensation, we don't expect a material financial impact for the a 63. Moving to high speed one, the domestic services continue to be booked at levels below the contractual revenue underpin. Although it is encouraging to see that there will be a 10% uplift in services from June onwards. Although bookings are not expected to return to pre COVID levels until 2028, this is a key first step and indicates strong underlying demand. On the international side, Eurostar bookings were slightly ahead of our expectations for the year, with distributions resuming around six months earlier than than expected.

24:56 You can see from the chart that bookings were slightly softer in the second half of the financial year, but have since rebounded. In the short term, Eurostar has already committed to 94% of the pre COVID service between now and the end of twenty twenty four, and we do expect a further boost from additional spot path bookings during the Olympic Games. Looking a bit further forward, we think the asset is strategically well placed. The management team and Eurostar have been working together collaboratively to prepare for new border requirements, and discussions continue to progress with three potential new operators for international services. These are being led by new CEO, Robert Sinclair. He joined HS1 in March. Robert brings a wealth of experience, most recently as CEO of London City Airport and is well positioned to steer the company through the next phase of its journey.

25:51 On Slide 21, we cover the third and fourth largest assets in the portfolio. Now both of these fit firmly into the growth bucket Ed was describing earlier. They have indefinite lives, earnings which are forecast to increase over time and they stand to benefit from the megatrends of digitalization and decarbonization. Starting with 40, where the carve out of the operations from 1NZ is now complete. This company started operating as a fully standalone entity on the 04/01/2024, in line with our original acquisition assumption. And despite now being fully independent, the revenues at Forty South are underpinned by an availability based, inflation linked anchor tenancy contract with 1NZ.

26:37 During this year, the management team has been focused on further enhancing revenue visibility and earnings growth by securing additional colocation opportunities. Given the complexity of some of the negotiations, the level of colocation achieved was slightly behind our expectation, but we do expect this to be caught up quickly as evidenced by the arrangements reached with Spark and Cordia shortly after the year end. The management team has also successfully accelerated Forty South's tower upgrades program to help meet New Zealand's five g rollout, is on track to deliver nearly 300 new towers over the next four years, and is exploring potential CapEx savings as it takes control of the tower deployment program going forward. Moving on to TNT, both Cross Texas Transmission and One Nevada Transmission continued to perform very well operationally, as demonstrated by the availability over the year, which you can see on the slide.

27:34 INFRASTRUCTURE's local asset managers continued to work closely with co owner and operator LS Power, both from an operational and a financial perspective. And this led to the execution of an improved hedging contract during the year, which partially mitigated the impact of higher actual and forecast US interest rates. The company's next refinancing event is expected to occur later this year, but the tax and regulatory mechanism enables a full pass through of the asset level debt costs. During the year, the management team has also identified several opportunities to connect new power generation sources to the grid. All other things equal, this would result in incremental CapEx, which would positively impact the valuation, but would be more capital intensive.

28:20 And this dynamic highlights why we like to constantly manage the composition of HICL's portfolio, and the next slide, 23, shows exactly how we've done that over the past year.

28:31 Now I won't dwell too long here, but hopefully, this does bring to life the portfolio rotation that Ed was talking about at the start of the presentation. You can see that the transaction activity has been heavily and quite deliberately weighted towards disposals, comprising nine assets worth over £500,000,000 This supported the acquisition of two high quality modern economy assets in Altitude INFRASTRUCTURE Hornsby two OFTO as well as the incremental acquisition in the A63, which generated 0.7p of NAV accretion. INFRASTRUCTURE's long track record of selling assets for HICL is set out in the appendix on page 42, and we frequently review the entire portfolio to identify strategic disposal opportunities.

29:17 Our ability to adapt this framework was demonstrated during the year with two very different transactions, the PPP portfolio sale to John Lang, which I covered in November, and more recently, the sale of North West Parkway, which is set out on Slide 24. So HICL acquired NWP in late twenty sixteen as part of a deliberate strategy to diversify the portfolio away from solely UK PPPs. By taking an equal shareholding alongside two like minded partners, we were able to bring INFRASED's toll road experience to bear from day one. Traffic growth was faster than expected in the first three years of ownership, thanks to active management and prudent acquisition assumptions. The asset also had some key characteristics, which made it particularly attractive for a core infrastructure investor.

30:07 Firstly, demand was underpinned by the road's proximity to Denver Airport, and toll increases were based on a triple lock mechanism enabling increases at least in line with inflation. Once we'd successfully navigated COVID nineteen and seen distributions resume, we took the opportunity to lock in the value generated initially through a smaller partial disposal, but subsequently through the recent sale to Mansi. By deciding to participate in a full disposal process alongside the co shareholders, INFRASTRUCTURE PLC was not left in the asset as a minority, but instead could benefit from the premium that a large strategic buyer would pay for full control. And on the bottom right of the page, you can see exactly what this means for HICL, a 13% holding period return and over 2p of immediate NAV uplift.

30:58 Equally important though was the ability to capitalize on previous growth to recycle an asset with lower yield, and this underpins the dividend guidance we've issued today. On that note, I'll hand back over to Ed to explain how we approach capital allocation and touch on the outlook going forward. Thanks, Ross. So I'm now on slide 25. Appropriate and effective capital allocation remains front of mind for the board and for INFRASTRUCTURE. It's been central to the decisions that we've made to accelerate strategic disposal activity, completely repay the company's revolving credit facility, launch a £50,000,000 buyback, increase the dividend from next April, and execute highly selective acquisitions where compelling risk adjusted returns are available.

31:47 It is recognized that the bar for new investments remains high as informed by the relative proposition offered by additional share buybacks. We are seeing pockets of opportunity in the market and where these offer a compelling risk adjusted return, require only modest RCF drawings and are expected to materially enhance the portfolio long term, we will explore these selectively on a case by case basis. Equally, we continue to explore selective divestments where there is a compelling strategic rationale. All investment and divestment decisions continue to go by the HICL board. Longer term, the outlook for infrastructure investment remains very supportive.

32:36 Underlying infrastructure investment needs continue to be pushed at pace by those three powerful megatrends of decarbonisation, digitalisation and demographic change. The state of infrastructure decay across HICL's markets is pronounced and matched frankly by the fragility of government balance sheets. And there's also increasing competition between jurisdictions globally in order to attract much needed investment. These conditions provide a foundation for greater use of private capital to support infrastructure development, and we expect this environment to be strongly supportive of the company's strategy going forward, including with respect to the existing portfolio.

33:25 Finally then on slide 27 with some concluding remarks. It's been a productive year for the company that has met a number of significant capital allocation milestones completely repaying floating rate debt, resuming dividend growth from FY twenty six, and launching a share buyback program. This has been enabled through over £500,000,000 of selective divestments, which has enabled us to capture value through asset rotation and improve the quality of the company's cash flow and earnings. And from here, HICL is set up for success. The portfolio is performing well, notwithstanding macro volatility. The balance sheet has been enhanced providing a more robust platform and greater flexibility.

34:14 And in successfully evolving HICL's portfolio over recent years, the company benefits from an enhanced cash and earnings profile from where it can deliver long term sustainable income and capital growth to shareholders.

34:31 That concludes the formal presentation. And, now we're happy to go through some q and a. Edwin, Helen, Ross, Hal, thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by the Q and A tab situated on the top right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. As you can see, we have received a number of questions throughout today's presentation. And Hal, can I please ask you to read out the questions and give responses where appropriate to do so and I'll pick up from you at the end? Thanks, Sally. Got a couple of great questions here coming through, but do keep them coming. We'd love to get to them all today.

35:19 So the first question here from Stuart, and this is one for Ross on Affinity. Is the dividend target for FY 2026 dependent on Finiti restarting distributions in that year?

35:31 Presumably, Finiti's distributions are dependent on a reasonable final determination in the next price review. So two part of that for us. Yes. Very good question, Stuart. The short answer is no. The guidance that the board has issued for FY '26, is not dependent, on what happens in the draft or final determination for Affinity. And you're quite right to say that the distributions that we do expect from that business will be dependent on what we get. I think it's key to reiterate that we do expect, from a HICL perspective, distributions to resume from Affinity in f y twenty six, and that's really underpinned by the business plan that the management team submitted, which has significant investment whilst at the same time, very modest bill increases, especially compared to other peers in the sector.

36:19 But, no, the the 8.35p guidance is not dependent on that resumption as Helen described in the presentation. Thanks, Ross. Another question on affinity, perhaps one for for Ed. So this comes through from Matthew P. Considering HICL's income portfolio, why does the Board not just sell Affinity considering it is not adding anything to the income stream currently? Yeah, good question, Matthew. Thank you. As I described a little bit on Slide seven, we are looking to pull together assets that have different attributes over the long term. So you're right to point out that we haven't received a distribution from Affinity over the last five years. We've been reinvesting free cash in that business into the CapEx program and deleveraging.

37:11 But Affinity, we have been taking a capital return out of the business, and the valuation has been increasing over time and provides a very long term earnings profile for for the company. It's also right to say that we we do need assets to to pull their weight across a number of metrics. And to the extent that assets are are underperforming across key portfolio metrics of yield, inflation, asset life, and return, then they pop up when we review candidates for disposal. We look at every asset, when we do that exercise, and we work through it annually at least with the board. And to the extent that assets are underperforming, in one or more of those metrics, then they will be considered for disposal.

37:59 There aren't any sacred cows in the portfolio in terms of assets that we absolutely have to own, and we'll review where we've got to with Affinity following the conclusion of the price review. Thanks. Probably another one for you, Ed. One that you did cover a little bit in the slide, but perhaps if you go a little bit more detail for Oliver who's asked, how do you look at capital allocation balancing between debt, new opportunities, and share buybacks? Yes. So I I gave a little bit of color about how we're thinking about capital allocation. I think the approach that we've taken is to demonstrate that we have a number of tools at our disposal to to effectively allocate capital. And that includes reducing floating rate debt, which has become increasingly expensive over recent years, and that's a prudent risk position to prioritize that.

38:53 And then also looking at the value of share buybacks alongside the potential for incremental investments. When we look at new investments, we do absolutely look at the hurdle rate that is presented by share buybacks, and currently that is around 10%. But return isn't the only item that we look at when evaluating the merits of bringing a new asset into the portfolio. So we'll also look at the yield contribution that an asset might make as well as asset life and relative risk adjusted return. So we are constantly making making that assessment. It certainly our view that there are opportunities in the market where we... Infrared has an angle. We might already be a co shareholder in an asset where we can get outsized returns from making new investments, and those stack up well versus other uses of capital. But we've also highlighted that any new investments would only be very modest in size and that we will continue to evaluate the merit of further buybacks.

39:59 At the moment, we've announced 50,000,000 of buybacks,

40:02 so we're certainly pulling that lever. But as I've said, it's not the only lever available to us, and it's about maintaining the appropriate balance across across the piece. Thanks, Ed. And and hopefully, Steve and C, that's answered your question as well on how we benchmark acquisition prospects. Question from from Richard s, wide ranging one. What is your view on the potential impact of portfolio from a change in UK government?

40:31 Perhaps maybe Ross to start off and add to chip in there. Yeah. Very happy to start with that one, Rich. And, yeah, there are a few angles that we could probably approach this from. So I think the first thing to say is we're pretty encouraged that we see at the moment bipartisan support for the public sector, private sector collaboration in future infrastructure projects. That's potentially a little bit of a different situation than we saw five years ago, for example. So from when we look at our PPP assets, we don't see any particular desire across any government, or any particular risk that those might want to, effectively change in any material way or or in the extreme case, the contracts to be terminated. We don't see that, as a as a likely outcome. The rail sector is clearly one that's been in the press quite recently.

41:18 A potential labor government has announced that it wants to, effectively take train operating companies back into public hands, as they roll off their current, concession arrangements.

41:29 There was a clear indication in that that rolling stock, would not, be part of the the nationalization program. So we don't anticipate any impact there for our investment in cross London trains, nor do we anticipate any impact in our high speed one assets, which is very different from a train operating company and would not expect it to be in scope for for such a nationalization. Ed, I'm not sure there's anything you want to to add on that. Yeah. Well, look. I'd I'd I'd echo the comments that you've made. I'd also add that, you know, generally, there's a very constructive dialogue that the shadow cabinet is having with industry, particularly around the need for further private capital investment in infrastructure development in The UK.

42:16 And so we see that as a positive for both future opportunities, but also important role that we play in the governance around existing assets. Pulling back slightly, I'd also make the point that political and regulatory risk is an inherent part of infrastructure investment and we acknowledge that. So the way that we construct the portfolio is to make sure that we have strong diversification around the the types of risks that we take, includes that jurisdictional spread of the assets. So we have around two thirds of our assets in The UK, the others in other jurisdictions. But even within The UK, there are different sectors, different clients, and different revenue types, which gives us greater level of protection, against changes in the political environment.

43:07 Thanks. Question from Stephen. HICL has been trading on a discount to NAV even with the disposals that we've mentioned today. How liquid are the markets for both disposals and acquisitions? Anyone for you to add?

43:22 Yeah. Well, I think, you know, as it relates to the state of private markets infrastructure, you know, Helen provided some some some really interesting data on that. I mean, we're seeing that, you know, roughly this last quarter, we saw in our markets, in our sectors, close to 60 transactions taking place. So clearly, a very liquid, and healthy marketplace acknowledging that there are, pockets which are, you know, where there's some opportunity, but there is still a very robust level of demand for high quality assets. So, you know, we continue to find that, yes, there are fewer transactions being done than there were, say, two years ago. I would say that when we're, looking at, making divestments, the number of bidders that we might be able to attract to a process is slightly below what it was, say, two or three years ago.

44:17 But that said, we're still able to get strong bids for assets that we are putting up for the... For divestment that that market continues to to be, you know, very supportive of of of the sector. Thanks, Ed. So I think we've got time for just one final question from Stephen R. It's a forward looking one. What infrastructure areas are you looking to invest in going forward?

44:42 Yeah. So I I flagged in the presentation that at the moment, we're taking a cautious but opportunistic footing in relation to new investments in the short term. So that is to really focus on our relationships, our existing shareholdings and co shareholdings in assets, and looking for areas where there might be some proprietary angle or somewhere where we can be opportunistic and leverage our position in assets. So that will be across the existing portfolio, for example, and across INFRASTRUCTURE's broader network in our different markets. And that's fairly agnostic to sector. I think over the medium term, we're continuing to see quite exciting areas of infrastructure development in some of the more modern economy sectors.

45:29 So for example, those megatrends of digitization, decarbonization, and demographic change are throwing up a lot of investment need and also the rapid maturation of those sectors. So for example, we've seen in the in the digital space certain fiber markets maturing very quickly, and we've been able to make selective investment in those, similarly with mobile towers. In decarbonization, we've been focusing on electrification, in particular transmission, and these remain areas of focus. I think going forward we'll continue to see sectors maturing quite quickly. We've highlighted in the appendix of this presentation some interesting areas for future exploration, which include district heating, Seeing a lot of new opportunities arising in The UK and other markets around the huge task of district...

46:24 Districtification of heating and utilities more generally. And similarly, we've also highlighted a data center angle where we're starting to see assets moving from their development phase to their yielding phase, and hence more appropriate for core infrastructure investment. So these are some flavors of areas that we're alive to, but at the moment, it's more opportunistic and a little bit more sector agnostic.

46:49 Perfect. Thanks, Ed. Thanks, Ross. Unfortunately, no questions for Helen this time, but I'll be here in six months. Thanks, everyone, for dialing in today. Really enjoyed going through some of those questions and some really hard hitting ones. So thanks for that. We, of course, are still here. If you do submit any questions afterwards, we can get back to you offline. Other than that, that concludes today present... Today's presentation. Thank you. Edward, Helen, Ross, Howe, thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of HICL INFRASTRUCTURE PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.