TIDMHICL
RNS Number : 9601P
HICL Infrastructure PLC
23 February 2021
23 February 2021
HICL Infrastructure PLC
"HICL" or "the Company" and, together with its subsidiaries,
"the Group", the London-listed infrastructure investment company
managed by InfraRed Capital Partners Limited ("InfraRed" or "the
Investment Manager").
Interim Update Statement
The Board of HICL is issuing this Interim Update Statement,
which relates to the period from 1 October 2020 to 22 February
2021.
Ian Russell, Chairman of HICL Infrastructure PLC, said:
"HICL's well-diversified portfolio continues to demonstrate its
resilience against an uncertain backdrop, with the impact of the
pandemic restricted to the minority of assets exposed to user
demand. The Company remains robust, well-capitalised and
appropriately positioned to pursue its strategy in the current
market.
The priority of the Board remains the effective, long-term
stewardship of essential public infrastructure for our investors
and for the communities which the assets serve. While the Board is
encouraged by the prospect of a degree of recovery from the
pandemic over the course of 2021, the Directors' primary focus -
and that of the Investment Manager - remains the active management
of our assets, especially over the coming months.
The Company remains on track to deliver the target dividend for
the current year ending 31 March 2021 of 8.25p per share. Directors
are also pleased to reaffirm the 8.25p dividend target for the 2022
financial year."
Portfolio Performance
-- The Group has a portfolio of 117 investments located in the
UK, continental Europe and North America.
-- The impact on HICL's portfolio from movement restrictions as
a result of the pandemic has largely been mitigated by the
Company's diversification across market segments. 72% of HICL's
assets benefit from long-term, availability-based PPP contracts
which continue to perform as expected. Active asset management in
the period has focused on ensuring that the Company's PPP assets
remain available to support the delivery of essential services and
that key stakeholders, particularly in healthcare, are supported
while operational requirements for the facilities remain
heightened.
-- The Group's investments with returns sensitive to wider
economic performance represented 19% of portfolio value at 30
September 2020. The three largest investments of this type continue
to be affected by the pandemic although the specific impacts vary
across each asset.
-- In relation to High Speed 1 ("HS1"):
- Performance continued to be supported by contracted train path
access charges for domestic services (68% of annual track access
revenue in the year to 31 March 2020). Pre-bookings for domestic
train paths until May 2021 are in line with pre-Covid levels;
between May 2021 and December 2021 pre-bookings are below pre-Covid
levels but the impact on HS1's revenue is almost entirely mitigated
by the contractual underpin provided by the Department for
Transport. The ability to book 'spot' paths as required remains
available to HS1's domestic operator, London & South Eastern
Railway.
- In relation to international services, HS1 was insulated from
reduced train volumes through to mid-December 2020 due to
pre-bookings in place from Eurostar. Thereafter, Eurostar utilised
the more flexible 'spot' booking provisions available to it and, as
a result, international track access revenues reflect the very low
volume of trains currently being run. The recovery in international
train path bookings is expected to be dependent on quarantine
measures being lifted, which in turn will depend on the speed of
the pandemic recovery in both the UK and EU.
- In recent weeks, Eurostar has publicly indicated that the
prevailing travel restrictions pose a threat to its viability and
that government support is likely to be required. HS1 is working
collaboratively with Eurostar to support these efforts where
possible and continues to engage with key HS1 stakeholders.
- HS1 has a positive relationship with its lenders and expects
to continue to work collaboratively with them over the coming
months. HS1 benefits from sufficient liquidity within the group to
fund debt service through 2021 in a range of plausible downside
scenarios. Notwithstanding this, the Investment Manager continues
to work closely with the HS1 management team and co-shareholders in
planning for a range of possible outcomes linked to the timing and
extent of the recovery in international train services.
-- The A63 Motorway (France) has performed in line with forecast
assumptions at 30 September 2020 in the period to 31 December 2020,
despite increased restrictions on movement.
-- Traffic on Northwest Parkway (USA) has been slightly behind
forecast assumptions over the same period, primarily as a result of
tighter movement restrictions in response to the Covid-19 'second
wave' in late 2020.
-- The table below compares HICL's valuation assumptions with
the actual performance of these three assets for the quarter ended
31 December 2020 and also shows the most recently available data
for the month to 14 February 2021:
Values expressed Valuation Actual Delta Month to
as a percentage assumptions(1) 14 Feb 2021
of pre-Covid revenues:
-------------------------
(for the period 01 Oct - 31 (latest available)
Dec 20)
------------------------- --------------------------------- -------------------
A63 Motorway, France -7% -6% +1% -5%
Northwest Parkway,
USA(2) -35% -44% -9% -42%
High Speed 1, UK(3) -16% -12% +4% -35%(4)
------------------------- ---------------- ------- ------ -------------------
(1) Assumptions used in the Directors' valuation contained in
the Company's Interim Report to 30 September 2020
(2) Traffic volumes used as a proxy for revenue over these time
frames for Northwest Parkway .
(3) Estimate , based on latest available management information .
(4) Compares to an assumption of -32% for the period 01 Jan - 31
Mar 21 which was used in the Directors' valuation contained in the
Company's Interim Report to 30 September 2020.
-- HICL's regulated assets represented 9% of portfolio value at
30 September 2020 and are performing in line with expectations. In
relation to Affinity Water (7% of portfolio value at 30 September
2020), the UK's Competition and Markets Authority ("CMA") is
expected to release its final determination in respect of those
companies that made PR19 appeals by the statutory deadline in
mid-March. Affinity Water did not appeal to the CMA; however the
outcome of those appeals in respect of allowable cost of capital
will be relevant to the company for future asset management periods
(2025+). Ian Tyler was appointed as the new Chairman of Affinity
Water in January 2021. The Investment Manager and Board look
forward to working with him and are encouraged by his extensive
experience delivering business transformation across different
industry sectors.
-- The conclusion of the UK's transition out of the European
Union has not materially impacted the Group. The Board and the
Investment Manager will continue to monitor developments closely as
the withdrawal process and ongoing trade arrangements evolve
following the UK-EU trade deal. Significant adverse impacts are
considered unlikely.
Dividends and Financing
-- The second quarterly interim dividend for the financial year
ending 31 March 2021 of 2.06 pence per Ordinary Share (the "Q2
Dividend") was paid on 31 December 2020. The interest streaming
percentage for the Q2 Dividend was 59%.
-- On 17 February 2021, the Company announced a third quarterly
interim dividend for the financial year ending 31 March 2021 of
2.06 pence per Ordinary Share (the "Q3 Dividend"), in line with
target guidance. The interest streaming percentage for the Q3
Dividend is 84%.
-- The Company remains on track to deliver its target dividend
of 8.25 pence per Ordinary Share for the financial year ending 31
March 2021, with cash cover in line with guidance at 0.8 to 0.9
times.
-- The Board has taken the view that a continuation of the
current level of dividend is prudent in the current environment. In
line with HICL's dividend policy, the Company is targeting a
dividend of 8.25p per share for the year ending 31 March 2022,
which is expected to be fully cash-covered.
-- In November 2020, the Company agreed a new Letter of Credit
Facility ("LCF") to support existing and future commitments to
projects in construction. The facility is initially sized at GBP60m
with an uncommitted GBP225m accordion. The six-year maturity (to 31
December 2026) appropriately matches the long-dated tenor of the
Group's construction commitments. The use of the LCF in this manner
enables greater flexibility for shorter-term use of HICL's existing
GBP400m Revolving Credit Facility ("RCF") to support execution of
the Company's pipeline.
Issued Capital
-- As at 22 February 2021, the Company's issued share capital
consists of 1,936,813,501 ordinary shares of 0.01p each, all of
which carry voting rights.
-- Following the Company's July 2020 Annual General Meeting
("AGM") when shareholders granted the Board authority to issue up
to 10% of outstanding shares on a non-pre-emptive basis, and the
tap issue of 73,170,732 new shares later that month, the Company's
current tap capacity now stands at approximately 113m shares.
March 2021 Valuation
-- The next valuation of the Group's portfolio will be as at 31
March 2021 and will be published as part of the Company's Annual
Results in May 2021.
-- On 25 November 2020, the UK Government published its response
to the UKSA's proposed reform of the Retail Price Index ("RPI"),
with the result that the calculation of RPI is now expected to
align to the Consumer Price Index including owner occupiers'
housing costs ("CPIH") from 2030. This potential change has not
moved market expectations for RPI, with twenty-five-year RPI swap
rates currently above where they were at 30 September 2020.
-- Given the ongoing uncertainty regarding the longevity and
effects of the pandemic, the Investment Manager continues to
monitor valuation drivers that affect the Company's demand-based
assets, namely: discount rates; the trajectory of economic
recovery; and the longer-term traffic growth profile for the
assets.
-- Sustained demand from institutional investors for the
defensive attributes typical of core infrastructure has led to
higher asset prices being observed in the period. To the extent
this dynamic is sustained it is likely to result in downward
pressure on discount rates. The Investment Manager also notes the
expected negative impact of lower interest rate forecasts, negative
movements in foreign exchange (net of hedging), and lower historic
inflation.
-- The Company remains cognisant of the ongoing impact of
restrictions of movement on HS1, in particular, noting the
increased risk posed to asset level liquidity by the continuation
of the very low level of international services, as well as the
greater risks associated with forecasting post-Covid traffic levels
for the asset.
Company and Governance
-- The Company's Interim Report for the six months ended 30
September 2020 was published on 25 November 2020, with copies
posted to shareholders who elected to receive a printed
version.
-- HICL became a Taskforce on Climate-related Financial
Disclosures ("TCFD") Supporter in October 2020 demonstrating the
Company's commitment to enhanced disclosure on this important
pillar of the Group's sustainability approach and its role as a key
value preservation activity for the long term.
-- The Company's climate change impact assessment on the
portfolio is ongoing and will conclude ahead of HICL's Annual
results in May 2021. This initiative will provide valuable
information for the effective management of HICL's investments well
into the future, as well as positioning HICL to report to
shareholders in line with the TCFD framework.
Market and Outlook
-- The HICL portfolio has shown significant resilience, although
the backdrop of Covid-19 continues to weigh on the performance of a
minority of the Company's investments. The successful stewardship
of our critical public assets during this period is the Group's
priority. While the successful development and delivery of
vaccination programmes in HICL's core markets is a cause for
optimism, undoubtedly challenges remain in the months ahead. The
Investment Manager's resources, expertise and active management
philosophy position the Company well to respond effectively.
-- The investment outlook for the core infrastructure market
remains positive. This is underpinned by heightened institutional
investor demand across geographies for the key attributes of core
infrastructure. This enduring demand, combined with limited supply,
has served to elevate asset pricing. In this environment InfraRed's
structured approach to evaluating asset quality, in combination
with pricing discipline, ensures the Company will pursue
acquisitions only where it is prudent to do so and where they would
enhance the investment proposition.
-- The Investment Manager continues to cultivate and maintain an
attractive pipeline of opportunities for the Company, across its
established geographies and sectors. This includes select
opportunities within those core infrastructure themes critical to
the operation of the modern economy such as communications (e.g.
fibre networks) and energy transition (e.g. smart meters, district
utilities). With over GBP350m available under its RCF, the Company
is in a strong position to make acquisitions where investment
opportunities are accretive to key portfolio metrics.
-Ends-
Enquiries
InfraRed Capital Partners Limited +44 (0) 20 7484 1800 /
info@hicl.com
Harry Seekings
Keith Pickard
Edward Hunt
Teneo +44 (0) 7342 031051 / HICL@teneo.com
George Hutchinson
Haya Herbert-Burns
Investec Bank plc +44(0) 20 7597 4952
David Yovichic
RBC Capital Markets +44 (0) 20 7653 4000
Matthew Coakes
Aztec Financial Services (UK) Limited +44(0) 203 818 0246
Chris Copperwaite
Sarah Felmingham
HICL Infrastructure PLC
HICL Infrastructure PLC ("HICL" or the "Company", and together
with its subsidiaries the "Group") is a long-term investor in
infrastructure assets which are predominantly operational and
yielding steady returns. It was the first infrastructure investment
company to be listed on the London Stock Exchange.
With a current portfolio of 117 infrastructure investments, HICL
is seeking further suitable opportunities, which are positioned at
the lower end of the risk spectrum within core infrastructure.
Further details can be found on the HICL website www.hicl.com
.
Investment Manager (InfraRed Capital Partners)
The Investment Manager to HICL is InfraRed Capital Partners
Limited ("InfraRed") which has successfully invested in over 200
infrastructure projects since 1997. InfraRed is a leading
international investment manager focused on infrastructure and real
estate. It operates worldwide from offices in London, Hong Kong,
New York, Seoul and Sydney. With over 190 professionals it manages
in excess of US$12bn of equity capital in multiple private and
listed funds, primarily for institutional investors across the
globe. InfraRed is authorised and regulated by the Financial
Conduct Authority.
The infrastructure investment team at InfraRed consists of over
90 investment professionals, all with an infrastructure investment
background and a broad range of relevant skills, including private
equity, structured finance, construction, renewable energy and
facilities management.
InfraRed implements best-in-class practices to underpin asset
management and investment decisions, promotes ethical behaviour and
has established community engagement initiatives to support good
causes in the wider community. InfraRed is a signatory of the
Principles of Responsible Investment.
Further details can be found on InfraRed's website www.ircp.com
.
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