TIDMHICL
RNS Number : 3936G
HICL Infrastructure PLC
25 November 2020
HICL Infrastructure PLC 25 November 2020
INTERIM RESULTS FOR THE SIX MONTHSED 30 SEPTEMBER 2020
This announcement contains Inside Information.
The Board of HICL Infrastructure PLC ("HICL", or the "Company")
announces Interim Results for the six months ended 30 September
2020. The Interim Report is available at the following link:
www.hicl.com/InterimReport2020
Highlights
For the six months ended 30 September 2020
-- Solid performance in the period with NAV growth of 1.7p to
154.0p per share (March 2020: 152.3p), and annualised total
shareholder return(1) of 7.8%.
-- The resilience of HICL's diversified portfolio underpinned
this steady performance during a period of market uncertainty
caused by the ongoing pandemic.
-- Three acquisitions completed in the period were accretive to
key portfolio metrics and further enhanced the investment
proposition.
-- The Directors' valuation(2) of the portfolio on an Investment
Basis(3) at 30 September 2020 is GBP3,073.2m (March 2020:
GBP2,888.5m), and GBP2,982.3m (March 2020: GBP2,837.9m) on an IFRS
Basis.
-- The Company is on track to deliver aggregate target dividends
of 8.25p per share for the current financial year ending 31 March
2021(4) .
-- New target dividend guidance has been announced for the
financial year ending 31 March 2022 of 8.25p per share(4) , which
the Board views as prudent and sustainable in the current
environment.
-- Core infrastructure remains highly attractive to
institutional investors seeking income, particularly during the
current market turmoil, and this has benefited asset
valuations.
-- The Company's value preservation activities are focused on
supporting our public sector clients through evolving patterns of
use at facilities affected by Covid-19 and on actively supporting
those demand-based assets whose revenues are affected by the curbs
on free movement associated with governmental responses to the
Covid-19 pandemic.
-- InfraRed, on behalf of HICL, continues to actively pursue a
healthy pipeline of investments within core infrastructure, across
PPPs, regulated assets and opportunities in sectors that underpin
the modern economy, such as communications and energy enabling
infrastructure.
-- Both the Board and the Investment Manager are confident that
HICL is well placed to continue to deliver successfully for all
stakeholders.
1. NAV per share change plus dividends paid
2. As supported by a third-party valuation expert engaged by the Board
3. Pro forma summary financial information on the basis that the
Company consolidates the results of the Corporate Subsidiaries
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 six months to 30 September 2020 30 September
2019
Income(6) GBP121.9m GBP97.9m
Profit before tax ("PBT")(7) GBP104.1m GBP79.5m
Earnings per share ("EPS") 5.5p 4.4p
Target dividend per share for
the year 8.25p 8.25p
(6) Income was GBP105.5m on an IFRS Basis (2019: GBP80.6m)
(7) PBT was GBP104.0m on an IFRS Basis (2019: GBP79.3m)
Net Asset Values 30 September 2020 31 March 2020
Net Asset Value ("NAV") per share 154.0p 152.3p
Interim Dividend 2.06p 2.07p
NAV per share after deducting
interim dividend 151.9p 150.2p
Ian Russell, Chairman of the Board, said:
"HICL has delivered a solid performance in the period, with the
increase in the Company's Net Asset Value demonstrating the
resilience of the underlying portfolio during the current
macro-uncertainty. This resilience is founded on our considered
approach to building a balanced portfolio. Importantly, the
Company's delivery of long-term, sustainable income to shareholders
is inextricably linked to HICL's responsible stewardship of its
portfolio of core infrastructure assets.
"The Board understands that shareholders value the transparency
that the Directors provide on the Company's target dividends. The
Directors are pleased to confirm the extension to HICL's dividend
guidance for a further year, announcing a target dividend of 8.25p
per share for the year to 31 March 2022.
"Whilst we all continue to adapt to unfamiliar and uncertain
times, the Board is confident that HICL's strategy, portfolio and
business model will continue to deliver successfully for all
stakeholders."
Harry Seekings, Head of Infrastructure at InfraRed Capital
Partners, HICL's Investment Manager added:
"Amid the disruption associated with Covid-19, predictable
long-term yield from core infrastructure remains highly attractive
to institutional investors. This has both positively impacted asset
valuations and supported HICL's capital raising efforts in the
period.
"We are pleased with the outperformance of the underlying
portfolio and remain focused on working in close partnership with
HICL's public sector clients to ensure asset availability and
continued service delivery for communities in a challenging
operating environment.
"InfraRed has developed an attractive pipeline of core
infrastructure investment opportunities for HICL across markets and
sectors. We remain confident in delivering HICL's strategy and
investment proposition for stakeholders over the long term."
Enquiries
InfraRed Capital Partners Limited +44 (0) 20 7484 1800 /
info@hicl.com
Harry Seekings
Keith Pickard
Edward Hunt
Kirsty MacCallum
Teneo +44 (0) 7342 031 051 / HICL@teneo.com
George Hutchinson
Haya Herbert-Burns
Matt Thomlinson
Investec Bank plc +44 (0) 20 7597 4952
David Yovichic
RBC Capital Markets +44 (0) 20 7653 4000
Darrell Uden
Matthew Coakes
Aztec Financial Services (UK) Limited +44 (0) 20 3818 0246
Chris Copperwaite
Sarah Felmingham
Chairman's Statement
The Company's delivery of long-term, sustainable income to
shareholders is inextricably linked to HICL's responsible
stewardship of its portfolio of core infrastructure assets.
I am pleased to report a solid performance in the six months to
30 September 2020. The Company's Net Asset Value ("NAV") increased
in the period, demonstrating the resilience of the underlying
portfolio during the current macro-uncertainty. This resilience is
built on our considered approach to portfolio diversification
across sector, revenue model, counterparty and geography.
Operationally, HICL's PPPs and regulated investments have
performed in line with expectations. The Company's demand-based
assets with GDP-correlated returns, however, do continue to be
impacted by reduced economic activity and government policies to
manage the Covid-19 pandemic (see Section 2.2 - Valuation of the
Portfolio in the full Interim Report linked above for the details
at asset level).
Financial Performance
The Company has delivered a solid Total Shareholder Return(1) on
an annualised basis of 7.8% (September 2019: 5.7%).
The Net Asset Value ("NAV") of 154.0p per share (March 2020:
152.3p) represents growth of 1.7p per share in the six-month
period. This growth has been enabled not only by the robust
performance of the underlying portfolio, but supported by sustained
institutional demand for the asset class benefiting valuations.
These factors have more than offset the impact of Covid-19 on
forecast macro-economic assumptions. Interest rate assumptions
across all of the Company's jurisdictions have further reduced in
response to market expectations for 'lower for even longer'
government bond yields.
(See Section 2.2 - Valuation of the Portfolio in the full
Interim Report linked above for details on the factors influencing
the Directors' Valuation and the discount rate.)
HICL's balance sheet remains robust and was bolstered with an
accretive GBP120m capital raising in the period. The Company has a
strong liquidity position with the GBP400m revolving credit
facility ("RCF")(2) . This was enhanced after the period end with
the addition of an innovative GBP60m Letter of Credit facility,
which enables greater flexibility in the Company's funding
arrangements for in-construction investment opportunities.
Dividend guidance
The Directors believe that shareholders value the visibility the
Board provides on the Company's target dividends. In these
uncertain times, this communication and transparency is
particularly important, and we are pleased to affirm that HICL
remains on track to deliver the target dividend guidance for the
financial year ending 31 March 2021 of 8.25p per share, as
announced in May 2020.
The visibility of forecast cash generation from the Company's
portfolio means that the Board can confirm it is extending HICL's
dividend guidance for a further year.
The Board has taken the view that a continuation of the current
level of dividend is both prudent and sustainable 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 cash-covered.
Capital Raising
The continued institutional demand for core infrastructure
investment was resoundingly demonstrated in July 2020 when HICL
raised GBP120m from investors by way of tap issuance. The offer was
supported strongly by existing and new investors, and applications
consequently were scaled back.
The level of demand demonstrates that core infrastructure's
steady and predictable yield remains important to institutional
investors in the current environment and represents an endorsement
of the Company's strategy.
Business model in action
HICL's business model supports delivery of the investment
proposition and is centred around three pillars: Value
Preservation; Value Enhancement; and Accretive Investment. These
elements are inter-dependent, enabling both the long-term provision
of essential infrastructure for society and a long-term stable
income stream for shareholders.
Value preservation and enhancement
As we continue to adapt to the ongoing impacts of the Covid-19
pandemic, at both a macro and a personal level, our approach to the
responsible management of essential public infrastructure has been
demonstrated in the Company's value preservation activities.
During the period, the focus of the Company's value preservation
activities has been supporting our public sector clients through
evolving patterns of use at facilities affected by Covid-19,
ensuring the availability of critical public assets and continued
service to local communities (asset-level examples across both
healthcare and education facilities can be found in Section 2.6 -
Operating & Financial Review of the full Interim Report linked
above). InfraRed has also been focused on monitoring and actively
supporting management teams on those demand-based assets whose
revenues are affected by the curbs on free movement associated with
the pandemic in HICL's core geographies.
HICL became a Taskforce on Climate-related Financial Disclosures
("TCFD") Supporter during the period, demonstrating the Company's
commitment to the TCFD reporting recommendations and to taking
action against climate change as a key value preservation activity
for the long-term. Our commitment to the TCFD reporting
recommendations is aligned to InfraRed's overall approach to
sustainability, as part of our shared drive to enhance value for
stakeholders and deliver long-term outperformance.
Additional asset-level examples of value preservation and
enhancement activities in the period are detailed in Section 2.6 -
Operating & Financial Review of the full Interim Report linked
above.
Accretive investment
HICL's strategy is to make acquisitions when investment
opportunities meet our core infrastructure criteria, improve key
portfolio metrics, and deliver a sustainable return for
shareholders. The targeted acquisition activity in the period
demonstrates the ability of InfraRed to identify and secure sound,
accretive investment opportunities for HICL.
HICL's Investment Manager has made three accretive investments
on behalf of HICL in the period: in the transmission assets of the
Walney Extension Offshore Wind Farm; an additional stake in the
Royal School of Military Engineering PPP project; and the remaining
50% interest in the M17/M18 Gort to Tuam Road PPP (Ireland).
Taking on full ownership of the latter two investments
exemplifies HICL's strategy of increasing its stakes in
high-quality core infrastructure assets that deliver both essential
services and long-term returns.
Outlook
We remain cautious on the macro-environment. This is reflected
in the prudent approach to long-term interest rate assumptions
within the Directors' Valuation, and the oversight InfraRed and the
Board provide on the financial health of HICL's supply chain and
other counterparties.
In the medium term, market conditions remain favourable for
infrastructure investors. It is possible to foresee the potential
for a further easing of political and regulatory weight on the
infrastructure sector. There may be a need for economic stimulus
which could precipitate further pro-infrastructure government
policy and we await post-Covid-19 plans from governments in HICL's
core markets. For example, we will review with interest the detail
of the UK Government's "New Deal" infrastructure plan, following
the publication of the National Infrastructure Strategy. With the
preliminary findings of the Competition and Markets Authority
("CMA") regarding the appeal process on the UK water sector's Price
Review for Asset Management Period 7, the CMA has indicated a need
to strike a greater balance between improving the long-term
resilience of the water network with allowing shareholders an
appropriate risk / reward profile (see Section 2.1 - Investment
Manager's Report of the full Interim Report linked above for
further details). We look forward to seeing the outcome of this
process in the coming months.
The Company's acquisition strategy is underpinned by a
consistent application of the core infrastructure framework to
evaluate investment opportunities. Irrespective of sector, HICL
seeks out investments that support the delivery of essential
services for communities and deliver high-quality cash flows from a
protected market position. InfraRed therefore continues to pursue
pipeline opportunities for HICL in its existing sectors which
include: European greenfield PPPs; selected regulated asset
opportunities; and further incremental investments in assets where
HICL currently owns less than 100%. Within sectors that support the
modern economy there are also attractive opportunities in the
pipeline, for example within essential communications
infrastructure such as fibre networks, and those that support the
transition to a low carbon economy, for example electricity
metering (see Section 2.1 - Investment Manager's Report of the full
Interim Report linked above for further details).
Whilst we all continue to adapt to unfamiliar and uncertain
times, the Board is resolutely confident in that HICL's strategy,
portfolio and business model will continue to deliver successfully
for all stakeholders.
Ian Russell,
Chairman
24 November 2020
1. On a Net Asset Value ("NAV") plus dividends paid basis
2. As at the balance sheet date GBP13m cash drawn and GBP81m for
letters of credit
Investment Manager's Report
Investment Manager's summary of the period
-- Solid performance in the six-month period, with an increase
in Net Asset Value ("NAV") of +1.7p per share. Expectations of
further macro-economic headwinds were more than offset by the
strong underlying performance of the portfolio, accretive
acquisitions and the increased relative attractiveness of the asset
class, favouring valuations.
-- Operationally, the Company's PPP and regulated investments
remained steady. The subset of assets with returns correlated to
GDP continued to be impacted by Covid-19 to varying degrees though
asset-level liquidity remains sound.
-- Institutional demand for the stable, predictable returns and
income derived from core infrastructure investment remains strong
and supported the Company's successful equity issuance of GBP120m
in July 2020.
-- InfraRed continues to execute the Company's acquisition
strategy with three investments in the period. These were accretive
to key portfolio metrics and further enhance the value proposition
for shareholders.
-- While we remain cautious on the macro-environment, we are
optimistic about the prospects for the Company to continue to
implement its strategy to the benefit of shareholders and wider
stakeholders.
Operational highlights
The underlying performance of the portfolio has been solid in
the year, delivering an annualised portfolio return of 7.5% (3.7%
for the period), slightly ahead of the Company's expected return of
7.2% as at 31 March 2020.
PPP projects
Public-private partnerships ("PPPs") represented 72% of the
portfolio by value, as at 30 September 2020. These are long-term
contracts between the public and private sectors to facilitate the
delivery of essential public infrastructure.
Accretive acquisition is a key tenet of the Company's business
model and an important driver of outperformance over the long term.
Two PPP acquisitions were announced in the period:
-- In June 2020, HICL acquired an incremental 74% risk capital
in the project company that supports the Royal School of Military
Engineering in the UK. The asset has been operational since 2015
and delivers availability-based revenues. The acquisition takes
HICL's interest to 100%.
-- In August 2020, the Company acquired the remaining 50% risk
capital in the project company responsible for the M17/ M18 Gort to
Tuam Road PPP in the Republic of Ireland. The asset is operational
and benefits from availability-based revenues.
These incremental acquisitions represent a proprietary source of
deal flow for the Company, acquired via bilateral, off-market
arrangements, and on assets with which InfraRed is highly familiar.
This attractive risk / reward dynamic is accretive to HICL's key
portfolio metrics.
Demand-based assets
Investments where asset revenues are linked to demand accounted
for 19% of the portfolio by value, as at 30 September 2020.
The Company's demand-based assets with GDP-correlated returns
(18% of portfolio value as at 30 September 2020) continue to be
impacted by reduced traffic, resulting from the continuation of
widespread government pandemic management policies and associated
reduced economic activity across markets. The traffic recovery on
these assets has been reforecast as at 30 September 2020 with the
benefit of over six months of experience of asset performance
through the Covid-19 pandemic.
The Company's two toll road investments performed above or in
line with InfraRed's revenue forecasts for the financial year,
albeit we are seeing a divergence in their respective recovery
trajectories.
The A63 Motorway in France (6% of portfolio value as at 30
September 2020) has recovered significantly ahead of our forecast
assumptions at 31 March 2020, underpinned by strong usage from
heavy goods vehicles utilising the strategic, transnational trading
corridor of which the A63 is a component part.
The Northwest Parkway ("NWP") in Colorado, USA (5% of portfolio
value as at 30 September 2020) is subject to continued restrictions
due to state- and local-level Covid-19 movement policies, as well
as greater exposure to commuter traffic and airport activity. It is
expected to take a more protracted path to recovery than forecast
at the time of the 31 March 2020 valuation.
The performance of High Speed 1 ("HS1") in the UK (5% of
portfolio value as at 30 September 2020) remained steady over the
period, underpinned by contracted track access revenues. Income
from retail units and car parking (together c.16% of pre-Covid-19
revenues) continued at significantly reduced levels, impacted by
lower passenger numbers, albeit marginally above forecast. Eurostar
services (32% of track access revenue to 31 March 2020) recovered
steadily over the summer before being impacted significantly by the
UK quarantine policy on arrivals from France: international train
paths remain at depressed levels. Domestic services (68% of track
access revenue to 31 March 2020) continue to run on a full
timetable, with bookings in place to May 2021.
Further details on the actual performance to date and the
valuation approach for the A63, NWP and HS1 are set out in the full
Interim Report linked above (Section 2.2 - Valuation of the
Portfolio).
We continue to closely monitor the financial resilience of both
NWP and HS1 and support the respective management teams in their
engagement with lenders and collaboration around potential
technical default provisions in the debt structures. Both assets
continue to have sufficient liquidity to service debt under a range
of plausible downside scenarios through 2021 and, in the case of
NWP, through to 2023.
Regulated assets
Regulated assets, comprising both the Offshore Transmission
assets ("OFTOs") and HICL's investment in Affinity Water, accounted
for 9% of the portfolio by value, as at 30 September 2020.
The completion in the period of the acquisition of an interest
in the transmission assets associated with the Walney Extension
Offshore Wind Farm ("Walney OFTO") was accretive and brought
further diversification to HICL's regulated assets. As with HICL's
other three investments in this sector, the Walney OFTO is a clear
example of the way in which the broader energy transition theme
actively shapes the core infrastructure investment landscape. The
asset is fully operational and benefits from long-term
availability-based revenue.
During the period, the UK's Competition and Markets Authority
("CMA") delivered its interim findings in relation to those water
companies that appealed Ofwat's PR19 Final Determination. The CMA's
provisional assessment of the appropriate methodology to determine
the weighted-average cost of capital ("WACC") applicable to these
companies has a read-across to the wider sector, including Affinity
Water (7% of portfolio value at 30 September 2020), from AMP8
onwards (2025+). Should the CMA carry this through to its Final
Determination, expected now in February 2021, it is expected that
this would result in an uplift in the valuation of HICL's
investment in Affinity Water. Approximately 20% of this potential
upside has been recognised in the valuation at 30 September
2020.
Financial Highlights
Net Asset Value ("NAV") per share has increased by 1.7p to
154.0p at 30 September 2020 (March 2020: 152.3p). We continue to be
mindful of the far-reaching impacts of Covid-19 across HICL's core
markets and the challenging economic landscape going forward. This
is reflected in further value reductions from lower GDP and
interest rate assumptions across the portfolio. However, these were
more than offset by the strong underlying return of HICL's
diversified portfolio, accretive investments and stronger asset
valuations driven by the increased relative attractiveness to
investors of the core infrastructure sector.
Cash flow receipts on an Investment Basis were GBP82.6m (2019:
GBP95.2m). After finance and operating costs, net operating cash
flows on an Investment Basis were GBP65.1m (2019: GBP76.5m), which
covered the interim dividends paid in the period 0.83 times (2019:
1.05 times), in line with guidance given in the Company's 2020
Annual Report. A reconciliation between the IFRS Basis and
Investment Basis can be found in the full Interim Report linked
above (Section 2.6 - Operating & Financial Review).
HICL uses the Association of Investment Companies ("AIC")
methodology to assess the ongoing charges percentage, which for the
period was 1.08% (2019: 1.09%).
Funding and Capital
HICL's financial position remains robust and was enhanced in the
period. As at 30 September 2020, HICL has a solid balance sheet
with only GBP13m of drawings on its Revolving Credit Facility
("RCF").
Strong support for the Company's shares enabled HICL to
successfully raise equity capital by way of tap issuance in July
2020. Significant appetite from new and existing institutional
investors led to a material scale-back of orders. This reflects the
continued institutional demand for the attributes of core
infrastructure and an endorsement for InfraRed's disciplined
approach to making further investments on behalf of the Company.
The capital raised was used to pay down the drawings on the RCF
arising from the three acquisitions in the period.
After the end of the period, InfraRed structured a discrete,
longer-dated Letter of Credit Facility ("LCF") to better support
the Company's existing deferred commitment to the Blankenburg
Connection PPP which is in construction (c.2% of portfolio value).
The facility is initially sized at GBP60m with the maturity more
appropriately matched to the tenor of the commitments, effectively
restoring the capacity of HICL's RCF for shorter-term
deployment.
Dividend Guidance
The Investment Manager continues to closely monitor actual and
forecast cash generation from the portfolio over this Covid-19
affected period. The current forecast cash position and the
progress towards recovery of the GDP-correlated demand assets have
been carefully considered. Our advice to the Board, to maintain the
target dividend for the year to 31 March 2022 at the same level as
the current financial year, was given in light of the prevailing
uncertainties in macro-economic conditions and the protracted
recoveries forecast on NWP and HS1, balanced with the stable and
predictable cash flows being generated by HICL's diversified
portfolio. Based on current forecasts, we expect the dividend for
the financial year ending 31 March 2022 to be fully cash
covered.
Sustainability
HICL and InfraRed have continued to actively progress our
collective sustainability agenda, working through the portfolio and
ensuring that the sustainability strategy is yielding results
across environmental, social and governance dimensions. More detail
can be found in the full Interim Report linked above (Section 2.6 -
Operating & Financial Review). As an example of HICL's
commitment to sustainability in the context of its investment
returns, the Company continued its work on the Task Force on
Climate-related Financial Disclosures ("TCFD"), in particular the
roll-out of a climate impact assessment across HICL's portfolio
that will be completed in line with HICL's 2021 year-end reporting.
This initiative will support a step-change in the ability of the
Company to embrace the full remit of the TCFD reporting framework
as well as providing valuable information for the effective
management of investments into the future. We expect this
initiative to benefit all stakeholders and we look forward to
collaborating with our public sector clients on the specific
initiatives that will follow this important diagnostic
exercise.
InfraRed has been, since 2011, a signatory of the Principles for
Responsible Investment ("PRI") and is represented on the
Infrastructure Advisory Committee of PRI. In the period, the
infrastructure business line achieved an A+ rating for its 2020
assessment, for the sixth successive year.
Key Risks
Each quarter the Board's Risk Committee reviews the risk
appetite of the Company. This includes an assessment of emerging
risks, supported by comprehensive portfolio stress testing and
associated mitigation strategies provided by InfraRed. Risks are
reviewed and steps are taken to reduce the impact on stakeholders,
including the Company's shareholders.
The key risks and the strategies employed by InfraRed to manage
and mitigate those risks have not changed materially from those set
out in detail in Section 3.7 of HICL's 2020 Annual Report, which is
available on the Company's website.
Political and regulatory risk
Politics and regulation are key underlying risks that are
inherent in infrastructure investment. As a trusted steward of
essential public assets, HICL seeks to contribute to the discussion
on infrastructure ownership not only through its participation and
submissions to various industry participants (for example, Global
Infrastructure Investor Association and the Department for
Business, Energy and Industrial Strategy, in the period) but also
through its considered management of critical infrastructure to the
benefit of all stakeholders.
We are cognisant of the increased risk of higher corporation tax
rates with public finances under intense pressure across all the
geographies represented in HICL's portfolio. We also note that on
25 November 2020, the UK Government is due to publish its response
to the UKSA's proposed reform of RPI to potentially align it to
CPIH. This could result in a material reduction in the level of RPI
from 2025 or 2030. See Section 2.2 - Valuation of the Portfolio of
the full Interim Report linked above for the portfolio's
sensitivity to changes in corporation tax and inflation rates.
Covid-19 and changes in GDP Forecasts
The temporary and sporadic imposition of lockdown conditions
across HICL's core markets in response to Covid-19, for example
those adopted post-period-end in France and the UK, is likely to
disrupt short-term demand for HICL's GDP-correlated demand-based
assets (18% at 30 September 2020), though this interim volatility
is expected to be immaterial in the context of the assets'
valuation. The ongoing impact of the pandemic on economic activity
does, however, have the potential to further impact long-term
traffic forecasts for this subset of the portfolio. Further
deterioration in macro-economic conditions, including GDP, would
decrease net asset value. See Section 2.2 - Valuation of the
Portfolio of the full Interim Report linked above for the
portfolio's sensitivity to GDP.
Brexit
Uncertainty around the conclusion of the UK's Brexit
negotiations remains a risk for the Company. While there is a range
of possible outcomes, a disorderly exit could reasonably lead to a
worsening macro-economic environment. We are mindful of the risks
that revised international trading terms pose to inflation and note
that the correlation of portfolio returns to inflation remains at
0.8x. HICL's foreign exchange policy is designed to dampen the
volatility that may arise from foreign exchange movements, an
important consideration in the context of Brexit.
At a practical level, InfraRed's asset managers continue to work
with portfolio company management teams on Brexit resilience. A
minor subset of portfolio assets, such as HS1, has direct exposure
to a disorderly Brexit and these have continuity plans in
place.
Counterparty Risk
HICL's strong performance to date has been built on its many
successful partnerships with customers and clients, lenders,
co-shareholders and across the Company's supply chain. Regular and
proactive engagement with these counterparties is more fundamental
than ever in the current period of market stress and disruption.
Additionally, InfraRed's in-house credit team actively monitors and
reports on the financial strength of HICL's counterparty
relationships.
In the course of carrying out necessary works at projects
constructed by the now-liquidated Carillion, a further requirement
for defect remediation was identified at one healthcare asset in
the portfolio. HICL is committed to carrying out these important
fire safety improvements at the facility and will make a further
investment in the company to support this. The remediation costs
are reflected in the Directors' Valuation.
As is to be expected within a large portfolio of real assets, a
subset of assets continues to undergo the investigation and
remediation of identified construction defects, including taking
action to ensure that subcontractors progress necessary works in a
timely and responsible manner. Where equity cash flows are being
impacted by these remedial activities, there is uncertainty around
the timing of the assumed recommencement of distributions. Care has
been taken to reflect this uncertainty in both cash flow forecasts
and the Directors' Valuation.
Market and Outlook
Looking to the future, we remain focused on working in close
partnership with our public sector clients to ensure availability
and continued service delivery from essential infrastructure assets
that are being managed in a challenging operating environment. It
is likely in the current climate that asset operation will continue
to face challenges over the next six months. Accordingly, an active
asset management strategy, focused on asset-level readiness and
continuity, remains fundamental. Further focus will be applied to a
number of the Company's demand-based assets as they face a more
protracted path to recovery and require even greater collaboration
from all asset stakeholders.
Despite these challenges, the predictable long-term yields from
core infrastructure remain highly attractive to institutional
investors. Activity in the sector has resumed with a number of
transactions having completed during the period and with valuations
at historically high levels. Looking forward, the sector continues
to benefit from strong fundamentals. These are derived not only
from the anticipated infrastructure spending associated with
governmental responses to the pandemic but also as a result of the
powerful macro-trends that continue to shape the requirements of
the infrastructure of tomorrow.
In this context, InfraRed continues to execute its acquisition
strategy for HICL with care, maintaining pricing discipline as a
priority. InfraRed has cultivated a high-quality pipeline of core
infrastructure assets for HICL and is progressing a number of
transactions on behalf of the Company into the second half of the
financial year. We are seeing continued pipeline across segments
within HICL's existing portfolio as well as in those sectors that
support the modern economy, in particular across communications
(e.g. fibre) and the energy transition to a low carbon economy
(e.g. meters, distribution).
This opportunity set, combined with enduring institutional
demand for the stable, predictable cash flows available from core
infrastructure investment, continues to provide a supportive
platform for a nimble, well-capitalised company, such as HICL, to
pursue its strategy.
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with International Accounting Standard 34 Interim
Financial Reporting ("IAS 34") as adopted by the European Union;
and
-- the interim management report, comprising the Chairman's
Statement, Investment Manager's Report and Financial Results,
includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
On behalf of the Board
Ian Russell
Chairman
24 November 2020
Publication of documentation
The above information is an extract of information from HICL's
Interim Report. The Interim Report has been submitted to the
National Storage Mechanism and will shortly be available for
inspection at: www.morningstar.co.uk/uk/NSM . It can also be
obtained from the Company Secretary or from the Investor Relations
section of the Company's website, at www.HICL.com . A direct link
to the PDF of the Interim Report is also included here :
www.hicl.com/InterimReport2020
Click on, or paste the following link into your web browser, to
view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/3936G_1-2020-11-24.pdf
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END
IR EAEFLADFEFAA
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