HICL Infrastructure plc Annual Results for the Year Ended 31st March 2022

25 May 2022

HICL Infrastructure PLC

 

ANNUAL RESULTS FOR THE YEAR ENDED 31 MARCH 2022

 

This announcement contains Inside Information.

 

The Board of HICL Infrastructure PLC (“HICL”, or the “Company”) announces Annual Results for the Company for the year ended 31 March 2022. The Annual Report and Accounts are available at the following link: https://www.hicl.com/AnnualReport2022

 

Highlights

For the year ended 31 March 2022

• 8% Total Shareholder Return¹for the year (2021: 5.5%) reflecting strong financial and operating performance, and 9.0% for the 16 years since IPO, which demonstrates the resilient and defensive nature of HICL's investment proposition in a range of market conditions.
• 8p / 7.1% increase in NAV per share to 163.1p (31 March 2021: 152.3p) driven by the portfolio's strong correlation to inflation, the sale of the Queen Alexandra Hospital (“QAH”) and the continued competitive pricing of infrastructure assets.
• 9% increase in the Directors' valuation²of the portfolio at 31 March 2022 to £3,311.0m (31 March 2021: £3,011.9m).
• Optimising HICL's portfolio composition to deliver shareholder value:
• Investments in the year of £110.4m with an additional investment agreed post year end in ADTIM SAS.
• Three divestments agreed in the year, generating proceeds of £126.3m.
• FY2022 dividend of 8.25p per share was cash covered at 1.05 times³. HICL's dividend remains the highest cash dividend within the listed core infrastructure peer group. 
• FY2023 dividend guidance re-confirmed at 8.25p per share⁴. The Board has announced guidance for the FY2024 dividend guidance of 8.25p per share⁴.
• HICL ended the year with a robust balance sheet, supported by a new £400m GBP multi-currency facility announced in April 2022 and the divestment proceeds from QAH. The Company has significant available cash resources to pursue investment opportunities as they arise .
• InfraRed continues to build a strong pipeline of attractive investments for HICL, underpinned by its differentiated capability to source new investments across traditional and modern economy infrastructure sectors. This pipeline includes both incremental acquisitions and greenfield opportunities.
• HICL has also published its Sustainability Report today, which can be found here: https://www.hicl.com/SustainabilityReport2022

 

1. Based on interim dividends paid plus change in NAV per share in the year, divided by opening NAV per share
2. The Directors' Valuation comprises thevaluation of the investment portfolio under the Investment Basis and the investments committed to by the Company at the reporting period end. The Directors' Valuation is an Alternative Performance Measure
3. On an Investment Basis and includes profits on disposal versus original acquisition cost of £4.8m (2021: £11.9m). Excluding this, dividend cash cover is 1.02x (2021: 0.83x)
4. This is a target only and not a profit forecast. There can be no assurance that this target will be met

Summary Financial Results

(on an Investment Basis)

 

for the year to	31 March 2022	31 March 2021
Income1,2	£405.8m	£188.7m
Profit before tax (“PBT”)3	£368.4m	£152.1m
Earnings per share (“EPS”)	19.0p	7.9p
Dividend per share	8.25p	8.25p
1.  Includes net foreign exchange gain of £5.5m (2021: £17.0m loss) 2.  Income was £371.8m on an IFRS Basis (2021: £154.8m) 3.  PBT was £368.7m on an IFRS Basis (2021: £151.9m)
Net Asset Values	31 March 2022	31 March 2021
Net Asset Value (“NAV”) per share	163.1p	152.3p
Q4 Dividend	2.07p	2.07p
NAV per share after deducting Q4 dividend	161.1p	150.3p

 

 

Ian Russell, Chairman of the Board, said:

“I am delighted to present these strong financial and operational results for the Company. HICL has clearly demonstrated the resilient and defensive nature of its investment proposition against an uncertain macroeconomic and geopolitical backdrop, delivering a Total Return for shareholders of 12.8% (2021: 5.5%).

 

“HICL's stable and consistent performance is supported by its considered portfolio composition, notably the contribution of the portfolio's deliberate inflation linkage in the period. The asset mix has been further improved by the year's investment activity, coupled with InfraRed's active approach to asset and portfolio management.

“With a robust balance sheet and well-developed pipeline curated by InfraRed, the Company continues to position itself for growth to capture the significant investment opportunity identified across HICL's core markets.”

 

Edward Hunt, Head of Core Income Funds at InfraRed Capital Partners, HICL's Investment Manager added:

“Core infrastructure continues to be a highly attractive asset class in the current market conditions. HICL's strong inflation correlation (0.8x), low beta, and predictable yield ensure that HICL remains a compelling holding for 'all seasons'. These features have combined to deliver a strong result for the Company.

“InfraRed's multi-fund, international investment management platform continues to curate an attractive pipeline of acquisition opportunities for HICL, across traditional and modern economy infrastructure sectors. We continue to see considerable opportunity to make high quality additions to the existing portfolio in support of the long-term delivery of HICL's investment proposition.

“The Board of HICL is undergoing a key transition, with both the Chairman and the Audit Chair retiring at the forthcoming AGM in July 2022. InfraRed thanks both Ian and Susie for their important contributions to the Boardroom and wishes them all the best for the future.”

 

Chairman's Statement

I am pleased to present these strong financial and operational results for the Company. Against an uncertain macroeconomic and geopolitical backdrop, HICL's performance over the past 12 months clearly demonstrates the resilient and defensive nature of its investment proposition, delivering a Total Shareholder Return for the year of 12.8%1.

HICL offers its shareholders liquid access to a portfolio of diversified, high quality private infrastructure assets, whose returns benefit from strong inflation linkage and low correlation to wider equity markets². These attributes have supported the long-term delivery of a 9.0% p.a. total shareholder return over the 16 years since IPO¹ in a range of market conditions. This stable and consistent performance is maintained by considered portfolio composition, coupled with InfraRed's active approach to asset management.

Over the year, these two elements have been demonstrated successfully. The strategic management of portfolio composition, via acquisitions and disposals, added substantial shareholder value. Additionally, InfraRed's active asset management approach achieved closer alignment with the Company's key public sector stakeholders, including clients and the Infrastructure Projects Authority, while also de-risking future equity cash flows for the Company. The Investment Manager's Report gives further details of InfraRed's activities in these areas.

 

Financial Performance

Financial performance in the year to 31 March 2022 has been strong, with Net Asset Value (“NAV”) growth of 10.8p per share to 163.1p.

The NAV growth in the year was principally driven by: the impact of the current high inflationary environment on both the actual and forecast financial performance of HICL's portfolio companies; the agreed sale of the Queen Alexandra Hospital PPP project (“QAH”) in March 2022; the robust recovery in the performance of the Company's demand assets; and continued upward pressure on the market pricing of infrastructure assets, recognised in HICL's Interim Results in November 2021. This positive performance was partially offset by asset-specific costs, including expected costs associated with defect remediation on selected healthcare projects.

 

Value Creation and Preservation

The optimisation of HICL's portfolio composition is a central tenet of the Company's strategy to deliver shareholder value. During the year, HICL announced, signed or completed a combined total of c.£237m of acquisitions and disposals. Additionally the Company signed its first fibre broadband investment following the year end.

The Company agreed investments in the year totalling £110m. The acquisitions exemplified the Investment Manager's differentiated approach, in particular by leveraging InfraRed's expertise and deep networks to source investments through less competitive situations – see the Investment Manager's Report for further details. Following the year end, this extended to the Company completing its first investment in Germany, a greenfield PPP in partnership with Vinci, and signing HICL's first fibre broadband investment, ADTIM, which holds two fibre-to-the-home concessions in South-Eastern France.

Generating additional shareholder value through selective disposals further differentiates HICL's approach to portfolio composition versus the listed core infrastructure peer group. Since IPO in 2006, c. 7.5p of outperformance has been delivered through the Company's disposal strategy. HICL agreed three divestments in the year, generating proceeds of £126m. Accretive disposals were achieved on the Health & Safety Executive Headquarters PPP project and Queen Alexandra Hospital. QAH is a flagship, acute public hospital which HICL, via the Investment Manager, had successfully stabilised following the liquidation of Carillion plc in 2018. Additionally, during the year, a small PPP project was handed back to the client – see the Investment Manager's Report and Section – 3.2 Valuation in the full Annual Report linked above for further details.

The easing of the challenges associated with Covid-19 has resulted in a return to a more normal operating environment for the Company. Within this context, we have seen a robust recovery in the performance of the Company's demand assets, which has contributed to this strong financial result.

A proactive approach is taken by the Investment Manager towards key value preservation activities across the portfolio. In the year, this included collaborative industry engagement, including with the public sector, on key issues such as PFI asset handback, the transition from LIBOR to SONIA and the pursuit of net zero greenhouse gas emissions.

 

Dividend Guidance

HICL continues to pay the highest dividend per share amongst its core infrastructure peer group. In the year, the cash flow generation from the portfolio was in line with expectations and the full year dividend declared for the year to 31 March 2022 of 8.25p per share was cash covered 1.05 times³.

The Board is pleased to re-confirm the dividend guidance of 8.25p per share for the year to 31 March 2023⁴. Cash cover for the 2023 dividend is anticipated to show a steady level of improvement against this year's result.

As previously highlighted, in determining the Company's dividend trajectory the Board is focused on rebuilding dividend cash cover and is pleased with the steady progress made over the last two reporting cycles. In addition, attention is given to the long-term earnings profile of the Company. This latter consideration recognises both the desired balance between HICL's pay-out ratio and the level of reinvestment into the Company's long-term growth; and market conditions, including the higher taxation environment and the lower returns available in the market from high quality core infrastructure assets.

Having taken these factors into consideration, the Board is pleased to announce dividend guidance of 8.25p per share for the year to 31 March 2024⁴.

 

Continued Sustainability Leadership

Given the Company's position as trusted custodian of essential public infrastructure, the Board believes that HICL is especially well positioned to deliver the 'social' dimension of the ESG framework. HICL is invested in, and manages, assets which 20+ million people globally interact with and rely on. This drives the Company's sustainability strategy, including to meet the increasing standard for disclosure best practice.

HICL has also published its 2022 Sustainability Report, the second annual iteration in its enhanced format, which can be found on the Company's website. HICL continues to report in compliance with the Task Force on Climate-related Financial Disclosures (“TCFD”) (see Section 3.7 – Task Force on Climate-related Financial Disclosures in the full Annual Report linked above) and the EU's Sustainable Finance Disclosures Regulation (“SFDR”). The Sustainability Report details the Company's progress in the year, including with respect to enhanced asset-level data collection, especially for emissions, as well as the key milestones ahead in the Company's sustainability ambitions.

Looking forward, the Company is working to comply with the step-up in disclosure required under SFDR from 1 January 2023 and the announcement of the UK's Sustainable Disclosure Requirements regime (“SDR”) which is expected to align with SFDR.

Given the continued drive across HICL's markets toward net zero, the Board welcomes InfraRed's decision in July 2021 to join the Net Zero Asset Managers Initiative, reflecting InfraRed's commitment to achieve net zero emissions across the HICL portfolio by 2050, as well as setting interim targets for 2030.

For an in-depth review of the Company and Investment Manager's sustainability performance and ambitions, please see HICL's Sustainability Report available on the Company's website, under Reports & Publications.

 

Investment Manager

Over the last two years, and overseen by the Board, InfraRed has implemented a succession plan for the team managing HICL. This well-coordinated process has seen leadership of the team transition to Edward Hunt (Head of Core Income Funds), supported by Helen Price (CFO, Core Income Funds), with Harry Seekings and Keith Pickard stepping away from their day-to-day involvement with HICL. Earlier this month, InfraRed announced that Harry would be relinquishing his executive role at InfraRed and consequently leaving the HICL Investment Committee. Harry will continue his contribution to InfraRed as a Senior Adviser and remains available to both the InfraRed team and the Board for support and advice as needed. On behalf of the Board and our shareholders, I would like to thank Harry and Keith for the very considerable contributions which they have made to the development of the Company.

 

Board Succession

In line with the UK Corporate Governance Code, after nine years on the Board, Susie Farnon and I will step down in July 2022. Susie was appointed to the Board in 2013 and has served as Chair of the Audit Committee for five years. I would like to thank Susie for her excellent leadership of the Audit Committee and her valued contribution to the Company.

As previously announced, Mike Bane will succeed me as Company Chair, Rita Akushie will replace Susie as Chair of the Audit Committee and Frances Davies will replace Mike as Chair of the Remuneration Committee. All appointments are effective from 20 July 2022, subject to the Directors' re-election at the 2022 AGM.

The Board acknowledges the importance of diversity of ideas and experience to deliver enhanced decision-making. To support this, HICL seeks to comply with external guidance and policy on board diversity. HICL's Board composition has been compliant with the recommendations of the Hampton-Alexander and Parker Reviews since 2020. The Board further notes the FCA's April 2022 Policy Statement on diversity and inclusion on company boards and the Nomination Committee will address this in due course. HICL's succession plan generally seeks to ensure a continuity of appropriate skills and experience amongst the Directors as a whole.

 

Outlook

The outlook for infrastructure investment remains positive. The key defensive attributes of core infrastructure, including the strong yield, inflation-linked returns and low beta, underpin the continuing attractiveness of the asset class, and of HICL itself, to investors against the broader market backdrop. Demand for infrastructure investment is expected to continue to support valuations for high quality assets.

The Company continues to position itself for growth, to capture the significant opportunity identified across HICL's core markets in both traditional and modern economy infrastructure sectors. InfraRed's differentiated capability to source new investments via less competitive situations, as demonstrated in the year, remains crucial in the current market conditions. Continuation of partnerships with key industry relationships will support this pursuit.

With a well-developed and visible pipeline of core infrastructure opportunities and substantial headroom within the Company's credit facilities, the Board is confident that HICL is well placed to continue to deliver on its strategy and grow into the future.