25 July 2016
HICL Infrastructure Company Limited
Quarterly Update Statement
The Board of HICL Infrastructure Company Limited, the listed infrastructure investment company advised by InfraRed Capital Partners Limited, is issuing this Quarterly Update Statement, which relates to the period from 1 April 2016 to 24 July 2016.
Ian Russell, Chairman of HICL Infrastructure Company Limited, said:
"The HICL Group has continued to perform well in the period, making three new investments and an incremental investment, and has a good pipeline of opportunities. Operational performance remains robust with no material new challenges in the portfolio and with cash generation in line with expectations.
All four investments in the period fit the Company's risk appetite and offer value accretion to the existing portfolio. We remain focused on sourcing attractive, new investments without compromising our clear investment parameters. The Investment Adviser's team continues to prioritise off-market and limited auction situations, which offer the best opportunities for finding value accretive investments. In light of the outcome of the UK Referendum vote, the Investment Adviser is proceeding cautiously when evaluating potential new investments.
The Board re-affirms the target dividend guidance of 7.65p per share for the current financial year and 7.85p for the financial year ending 31 March 2018. In the current economic environment, the Company and its investment proposition remain attractive to investors seeking cash-covered yield in a well-understood asset class."
Investment Activity and Portfolio Performance
Since 1 April 2016, the HICL Group has invested £28.7m in the acquisition of four PPP investments as follows: the M1-A1 Link Road (Lofthouse to Bramham) Project (new); the Hinchingbrooke Hospital Project (new and incremental); and the Irish Primary Care Homes Project (new).
The Group continues to explore demand risk opportunities, but only where the investment meets the Company's Acquisition Strategy and contributes to the portfolio's position at the low end of the risk spectrum. In line with this, the Group participated in bids for two student accommodation projects in Australia. One bid did not proceed and the outcome of the second is pending. Consistent with the Group's approach to this market segment, these are on-campus, concession-based projects procured by the universities and with no residual value risk.
In addition, the Group continues to position itself for the UK's Offshore Transmission Owners ('OFTO') programme (regulated assets with availability payments).
There are no new material issues affecting investment performance overall, and operational performance in the period has been robust. Zaanstad Penitentiary is now operational following practical construction completion in March 2016.
While it will take time before the macro-economic effects of the UK Referendum result are ultimately known, the Company's projects continue to perform in line with projections. Foreign exchange hedging has meant that the recent falls in Sterling have been broadly neutral to the net asset value of the Company.
Cash generation for the year to 31 March 2017 is expected to be in line with the Board's projections, more than covering the aggregate target dividend for the year.
Dividends and Financing
The Company announced a fourth quarterly interim dividend for the financial year ended 31 March 2016 of 1.87 pence per ordinary share (the "Q4 Dividend") on 12 May 2016. The shares went ex-dividend on 26 May 2016 and the Q4 Dividend was paid on 30 June 2016. The take-up of the scrip dividend was approximately 9.9%, resulting in an additional 1.6m ordinary shares being issued on 30 June 2016.
The Company announced a first quarterly interim dividend for the financial year ending 31 March 2017 of 1.91 pence per ordinary share (the "Q1 Dividend") on 20 July 2016.
The Board remains confident that the target aggregate dividend per share of 7.65p for the financial year to 31 March 2017 will be achieved and re-affirms the guidance of a target 7.85p per share for the financial year to 31 March 2018.
Following the recent investment activity and payments on foreign exchange forward contracts that hedge the balance sheet, the Company has a net funding requirement of approximately £9m, which has been covered by drawings from the corporate Revolving Credit Facility. As previously, the Board is keeping its funding options under review and will provide an update on its equity capital raising plans in due course, commensurate with further developments surrounding the investment pipeline.
Company and Governance
As at the date of this announcement, the Company's issued share capital consists of 1,390,010,145 ordinary shares of 0.01p each, all of which carry voting rights.
Following a renewal of shareholder approval at the July AGM of the Board's authority to issue up to 10% of outstanding shares on a non pre-emptive basis during the next 12 months, the Company's current tap capacity is now approximately 21.9m shares (limited currently by the FCA Prospectus Rules), increasing to approximately 81.9m shares at the end of this month.
All six of the Company's Directors, including Simon Holden who joined the Board on 1 July, were re-elected at the Company's AGM held on 19 July 2016.
Outlook
The next valuation of the HICL Group's portfolio will be as at 30 September 2016, and will be published as part of the Company's interim results in November. The key variables currently expected to impact this valuation are further downward pressure on discount rates (reflecting the continued competitive dynamics in all markets and segments of the infrastructure asset class), offset by low historic inflation. In preparing this fair market valuation, consideration will be given to each of the assumptions in the light of expected economic conditions.
The Company's NAV as at 30 September 2016 will reflect changes in the value of the HICL Group's portfolio (based on changes to assumptions and new investments made in the period) and any accretive tap issues that may occur in the period.
The Investment Adviser's infrastructure team continues to remain active across the key market segments identified in the Company's Acquisition Strategy. It is pursuing further PPP investments (both operational and greenfield) and is evaluating demand risk (toll roads and student accommodation) and regulated (gas and electricity transmission and distribution) opportunities. It remains confident of sourcing new investments that contribute to the portfolio's position at the low end of the risk spectrum and meeting the Company's Acquisition Strategy.
In terms of geography, the Group remains focused on the UK, select European markets, North America and Australia. Following the recent UK Referendum result and consequent turbulence in currency markets, the Investment Adviser is proceeding cautiously when evaluating potential investment opportunities.
The Company maintains consistent investment quality standards and remains vigilant in current market conditions. Acquisitions will not be pursued if, in the Investment Adviser's view, underlying projects contain inadequately structured contractual arrangements or necessitate making overly-optimistic assumptions with regard to key revenue and cost variables. The Board remains optimistic that despite market conditions, pricing pressure and competition, the Company will continue to find opportunities to make further value accretive investments.
Ends
Enquiries
InfraRed Capital Partners Limited +44 (0) 20 7484 1800
Tony Roper
Keith Pickard
Harry Seekings
Tulchan Communications +44 (0) 20 7353 4200
David Lloyd-Seed
Latika Shah
Canaccord Genuity Limited +44 (0) 20 7523 8000
David Yovichic
HICL Infrastructure Company Limited
HICL Infrastructure Company Limited ("HICL" or the "Company", and together with its subsidiaries the "HICL Group") is a long term investor in infrastructure projects which are predominantly in their operating phase and yielding steady returns. It was the first infrastructure investment company to be listed on the London Stock Exchange. With a current portfolio of 106 social and transportation infrastructure investments (and one conditional investment) with predominantly availability-based income streams, it is seeking further suitable investment opportunities which fit its stated Investment Strategy.
Further details of the Company can be found on its website www.hicl.com.
This Quarterly Update Statement provides an explanation of material events and transactions that have taken place during the period from 1 April 2016 to 24 July 2016 and their impact on the financial position of the HICL Group. These indications reflect the Investment Adviser's and the Board's current views. They are subject to a number of 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 owned by the HICL Group.
Investment Adviser
The Investment Adviser to HICL is InfraRed Capital Partners Limited ("InfraRed") which has successfully invested in over 160 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, Paris, Seoul and Sydney. With over 120 professionals it manages in excess of USD 9bn 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 60 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.
Further details of the Investment Adviser can be found on its website www.ircp.com.
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