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30 Apr 2024 07:00
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30 April 2024
HICL Infrastructure PLC
"HICL" or the "Company" and, together with its corporate subsidiaries1, the "Group", the London-listed infrastructure investment company managed by InfraRed Capital Partners Limited ("InfraRed" or the "Investment Manager").
Net Asset Value
The Company's Annual Results are scheduled for release on 22 May 2024.
The Board expects to announce a decrease in the Company's unaudited Net Asset Value ("NAV") per share of approximately 1.2 pence to 158.2 pence as at 31 March 2024 (30 September 2023: 159.4 pence). This statement explains the Company's approach to determining the NAV as at 31 March 2024.
The expected NAV decrease is mainly driven by the following macroeconomic factors:
· Actual inflation for the year to March 2024 being lower than the assumptions used in the portfolio valuation as at 30 September 2023;
· A reduction in UK inflation assumptions for FY2025 and FY2026, aligning with market consensus;
· A reduction in deposit rate assumptions for all jurisdictions except the USA, aligning with market consensus; and
· Adverse foreign exchange movements as sterling strengthened in the period, net of hedging.
Operational performance of the portfolio was broadly in line with expectations. During the second half of its financial year, the Company disposed of its remaining interest in the Northwest Parkway toll road project in the USA. The proceeds received represented a premium to the Company's September 2023 valuation of 30% / 2.1 pence. The acquisition of a 3.1% incremental interest in the A63 Motorway concession generated 0.7 pence as it was revalued to HICL's existing holding. These two items partially offset the reduction caused by the macroeconomic factors outlined above.
Breakdown of the movement in Net Asset Value per share
Net Asset Value per share as at 30 September 2023 (unaudited) | 159.4p | |
Portfolio return | ||
Actual inflation | (2.0) | |
Other portfolio performance2 | 8.8 | |
| 6.8 | |
| ||
Discount rate | - | |
| ||
Macroeconomic assumptions | ||
Forecast inflation | (1.3) | |
Interest rates | (0.5) | |
| (1.8) | |
| ||
Fund and interest costs | (1.8) | |
Foreign exchange (net of hedging) | (0.3) | |
Dividends paid | (4.1) | |
Net Asset Value per share as at 31 March 2024 (unaudited) | 158.2p |
Inflation
The portfolio's cashflows and valuation are positively correlated to inflation. Over the past six months, inflation in all regions has declined faster than the Company's forecast, particularly in the UK where RPI reduced to 4.0% for the year ended 31 March 2024 (2023: 13.9%) against the Company's forecast of 6.5%.
Other jurisdictions also saw accelerated inflation reductions. French CPI was 2.3% (2023: 5.7%), while in the USA CPI was 3.0% (2023: 5.0%). The impact of the decrease in actual inflation versus forecast assumptions resulted in a valuation downside of £(24.3)m in the six-month period.
In the short to medium term, market consensus is that UK inflation is expected to decline further; and adjustments have now been made to the Company's short-term UK inflation assumptions for FY2025 and FY2026 to reflect the steeper decline in inflation than originally expected. No changes have been made to UK inflation assumptions post-2026, nor to inflation assumptions in other jurisdictions.
Discount rates
Long-term government bond yields have reduced in all relevant jurisdictions since the Company's 30 September 2023 valuation. While discount rates used to value investments do not follow bond yields exactly, the Investment Manager considers the level of risk premium implied by movements in bond yields, as well as evidence of asset pricing observed in core infrastructure transactions across HICL's key geographies. This includes the ten divestments made by HICL over the course of the year.
Although there is increasing market confidence that interest rates may have peaked in the UK, the Investment Manager believes that the increase in discount rates, recognised in the 30 September 2023 valuation, remains appropriate for the 31 March 2024 valuation and continues to be in line with external transaction data points. This assessment is underpinned by the material level of transaction activity completed by the Company over the last twelve months.
The weighted average discount rate remains at 8.0%, the weighted average risk-free rate for the portfolio is 4.1% (30 September 2023: 4.7%) and the weighted average risk premium is 3.9% (30 September 2023: 3.3%).
InfraRed will continue to closely monitor market activity and will provide a further update, as appropriate, as part of HICL's Annual Results on 22 May 2024.
Foreign Exchange
The Company is exposed to movements in the Canadian dollar, the Euro, the New Zealand dollar and the US dollar; but with 61% of the Company's exposure to foreign currency hedged as at 31 March 2024, there was only a small valuation loss over the period.
Funding position
At 31 March 2024 the Group had net debt of £303.9m (30 September 2023: £496.8m), comprising cash of c. £33.3m, drawings on the Revolving Credit Facility ("RCF") of c. £187.2m and the private placement of £150.0m. As at 31 March 2024, the sales of Northwest Parkway and Hornsea II OFTO had signed but not yet completed. Northwest Parkway completed on 18 April 2024 and the Hornsea II OFTO is expected to complete in May 2024. Following these, the pro forma drawings on the RCF are expected to be nil and gearing is expected to be 7%.
Macroeconomic assumptions used in the valuation
Assumption | Jurisdiction | 31 March 2024 | 30 September 2023 |
Discount rate (WADR) | 8.0% | 8.0% | |
Inflation | UK (RPI and RPIx) | 3.00% to 31-Mar-25 2.75% to 31-Mar-26 3.25% to 31-Mar-30 2.50% thereafter | 6.50% to 31-Mar-24 3.50% to 31-Mar-25 3.25% to 31-Mar-30 2.50% thereafter |
UK (CPI/CPIH) | 2.25% to 31-Mar-25 2.00% to 31-Mar-26 2.50% thereafter | 5.75% to 31-Mar-24 2.75% to 31-Mar-25 2.50% thereafter | |
Eurozone (CPI) | 2.25% to 31-Mar-25 2.00% thereafter | 4.75% to 31-Mar-24 2.25% to 31-Mar-25 2.00% thereafter | |
Canada (CPI) | 2.25% to 31-Mar-25 2.00% thereafter | 3.00% to 31-Mar-24 2.25% to 31-Mar-25 2.00% thereafter | |
US (CPI) | 2.00% to 31-Mar-25 2.00% thereafter | 3.00% to 31-Mar-24 2.00% thereafter | |
New Zealand | 2.75% to 31-Mar-25 2.25% thereafter | 5.00% to 31-Mar-24 2.75% to 31-Mar-25 2.25% thereafter | |
Deposit rates | UK | 4.50% to 31-Mar-25 3.25% thereafter | 5.00% to 31-Mar-24 4.50% to 31-Mar-25, 3.50% thereafter |
Eurozone | 3.00% to 31-Mar-25 2.00% thereafter | 3.00% to 31-Mar-25, 2.25% thereafter | |
Canada | 3.75% to 31-Mar-25 3.00% thereafter | 3.75% to 31-Mar-25 3.25% thereafter | |
US | 4.25% to 31-Mar-25 3.25% thereafter | 4.25% to 31-Mar-25 3.25% thereafter | |
New Zealand | 4.25% to 31-Mar-25 4.00% thereafter | 4.50% to 31-Mar-24 4.25% thereafter | |
Foreign exchange rates | USD | 1.26 | 1.22 |
EUR | 1.17 | 1.15 | |
CAD | 1.71 | 1.66 | |
NZD | 2.11 | 2.03 |
1. The Corporate subsidiaries are Infrastructure Investments Limited Partnership and HICL Infrastructure 2 s.a.r.l., as disclosed in HICL's Annual Report and Accounts 2023
2. Performance comprises the unwinding of the discount rate (value preservation), the Investment Manager's value enhancement initiatives and accretive transaction activity
-ends-
Enquiries
InfraRed Capital Partners Limited +44 (0) 20 7484 1800 / info@hicl.com
Edward Hunt
Helen Price
Mohammed Zaheer
Brunswick Group Advisory Ltd +44 (0) 20 7404 5959 / HICL@brunswickgroup.com
Sofie Brewis
Investec Bank plc +44 (0) 20 7597 4952
David Yovichic
RBC Capital Markets +44 (0) 20 7653 4000
Matthew Coakes
Elizabeth Evans
Aztec Financial Services (UK) Limited +44 (0) 203 818 0246
Chris Copperwaite
Sarah Felmingham
HICL Infrastructure PLC
HICL Infrastructure PLC ("HICL") 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 over 100 infrastructure investments, HICL is seeking further suitable opportunities in core infrastructure, which are inherently positioned at the lower end of the risk spectrum.
Further details can be found on the HICL website www.hicl.com.
This statement aims to give an indication of material events and transactions that have taken place in the period from 1 October 2023 to 31 March 2024 and their impact on the financial position of HICL. These indications reflect the Board's current view. They are subject to several risks and uncertainties and could change. Factors which could cause or contribute to such differences include, but are not limited to, general economic and market conditions and specific factors affecting the financial prospects or performance of individual investments within the portfolio of HICL.
Investment Manager (InfraRed Capital Partners)
The Investment Manager to HICL is InfraRed Capital Partners Limited ("InfraRed") which has successfully invested in infrastructure projects since 1997. InfraRed is a leading international investment manager, operating worldwide from offices in London, New York, Seoul, Madrid and Sydney and managing 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 100 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.