REG - HICL Infrastructure - Net Asset Value

HICL InfrastructureAnnouncement

30/04/2024 07:00

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RNS Number : 4884M  HICL Infrastructure PLC  30 April 2024

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT FOR RELEASE,
PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO, THE UNITED
STATES, AUSTRALIA, CANADA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA.

This announcement has been determined to contain inside information for the
purposes of the market abuse regulation (EU) No.596/2014.

30 April 2024

 

HICL Infrastructure PLC

 

"HICL" or the "Company" and, together with its corporate subsidiaries(1), 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 performance(2)                                 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   6.50% to 31-Mar-24

                                            2.75% to 31-Mar-26   3.50% to 31-Mar-25

                                            3.25% to 31-Mar-30   3.25% to 31-Mar-30

                                            2.50% thereafter     2.50% thereafter
                         UK (CPI/CPIH)      2.25% to 31-Mar-25   5.75% to 31-Mar-24

                                            2.00% to 31-Mar-26   2.75% to 31-Mar-25

                                            2.50% thereafter     2.50% thereafter
                         Eurozone (CPI)     2.25% to 31-Mar-25   4.75% to 31-Mar-24

                                            2.00% thereafter     2.25% to 31-Mar-25

                                                                 2.00% thereafter
                         Canada (CPI)       2.25% to 31-Mar-25   3.00% to 31-Mar-24

                                            2.00% thereafter     2.25% to 31-Mar-25

                                                                 2.00% thereafter
                         US (CPI)           2.00% to 31-Mar-25   3.00% to 31-Mar-24

                                            2.00% thereafter     2.00% thereafter
                         New Zealand        2.75% to 31-Mar-25   5.00% to 31-Mar-24

                                            2.25% thereafter     2.75% to 31-Mar-25

                                                                 2.25% thereafter
 Deposit rates           UK                 4.50% to 31-Mar-25   5.00% to 31-Mar-24

                                            3.25% thereafter     4.50% to 31-Mar-25,

                                                                 3.50% thereafter
                         Eurozone           3.00% to 31-Mar-25   3.00% to 31-Mar-25,

                                            2.00% thereafter     2.25% thereafter
                         Canada             3.75% to 31-Mar-25   3.75% to 31-Mar-25

                                            3.00% thereafter     3.25% thereafter
                         US                 4.25% to 31-Mar-25   4.25% to 31-Mar-25

                                            3.25% thereafter     3.25% thereafter
                         New Zealand        4.25% to 31-Mar-25   4.50% to 31-Mar-24

                                            4.00% thereafter     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 (mailto: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
(http://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
(http://www.ircp.com/) .

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