TIDMHICL
RNS Number : 3832W
HICL Infrastructure Company Ld
01 August 2018
1 August 2018
HICL Infrastructure Company Limited
Interim Update Statement
The Board of HICL Infrastructure Company Limited ("HICL" or "the
Company" or, together with its subsidiaries, "the Group"), the
listed infrastructure investment company advised by InfraRed
Capital Partners Limited ("InfraRed" or "the Investment Adviser"),
is issuing this Interim Update Statement, which relates to the
period from 1 April 2018 to 31 July 2018.
Ian Russell, Chairman of HICL Infrastructure Company Limited,
said:
"I am pleased to report encouraging performance by the Company
in the period since 1 April 2018 and that the portfolio has
performed in line with expectations.
"Both the Board and the Investment Adviser are confident in the
Group's outlook and reassured by the robust, resilient nature of
the cashflows from a well-diversified portfolio. I am therefore
pleased to reiterate the Company's dividend guidance of 8.05p per
share for the current financial year and 8.25p per share for the
following year.
"The disposal of the Company's interest in the Highland Schools
PPP2, and the subsequent reinvestment of the proceeds into an
incremental stake in the A63 Motorway, has been a tangible example
of the Company's strategy to undertake value-accretive
transactions, to optimise the portfolio and to enhance key
performance metrics.
"The Investment Adviser has made solid progress resolving the
consequences of the Carillion liquidation for those PPP projects in
the portfolio that were affected. Commercial terms have been agreed
with long-term replacement facilities management subcontractors on
six projects and negotiations on a further three projects are
progressing in line with expectations. Overall indicative pricing
on the replacement subcontracts is in line with expectations built
into the March 2018 valuation."
Investment Activity
-- The Group has a portfolio of 118 investments located in the
UK, France, Ireland, the Netherlands, Canada, the USA and
Australia.
-- In April 2018, the Company announced it had entered into an
agreement to dispose of its 100% equity and subordinated debt
interest in the Highland Schools PPP2 Project for GBP56.2m. The
disposal completed in June 2018.
-- In the current financial year to date, the Investment Adviser
has sourced new investments and a preferred bidder opportunity in
HICL's three target infrastructure market segments with a total
value of approximately GBP110m.
-- As disclosed in the Company's 2018 Annual Report, in April 2018 HICL:
- acquired an 85% equity interest in the greenfield Paris-Sud
University PPP Project in Paris for a total commitment of EUR20.7m,
which includes a loan stock subscription obligation payable
following the substantial completion of construction of the
project;
- acquired a 75% equity and loan interest in the Belfast
Metropolitan College PPP Project for total consideration of GBP6.4m
through an existing joint venture company, Redwood Partnership
Ventures 2 Limited, in which the Company has a 75% shareholding;
and
- announced the completion of the acquisition of a 50% interest
in the Burbo Bank Extension OFTO, a regulated asset, through its
partnership with Diamond Transmission Corporation Limited for a
total consideration of GBP10.1m.
-- Since publication of the Annual Report in June 2018:
- the Company has announced the acquisition of an incremental
7.2% stake in the A63 Motorway, a demand-based asset in France, for
a total consideration of EUR62m, which completed in June 2018;
- HICL's partnership with Diamond Transmission Corporation
Limited has been selected by Ofgem as the preferred bidder to own
and operate the Race Bank OFTO, a regulated asset, with HICL's 50%
share of the consideration expected to be up to GBP30m when the
project reaches financial close in Q1 2019; and
- the Company has completed a transaction to sell a 15% stake in
the Oldham Library PPP project to the joint venture partner Kajima
for consideration of GBP0.9m.
Portfolio Performance
-- Since 1 April 2018, the portfolio has performed in line with
expectations with no material(1) issues affecting investment
performance:
- Cash generation from the portfolio is in line with
expectations, excluding those projects in distribution lock-up due
to the Carillion liquidation.
- The Company's performance continues to be underpinned by the
resilience of its investments in PPP Projects. During the period,
further value enhancement was delivered through the completion of
construction of an accommodation project in Northern Europe. This
was completed on time and on budget for the public sector client,
with the facility now available for use.
- Of the Company's demand-based investments, traffic on the A63
Motorway and Northwest Parkway has continued to perform ahead of
budget over the first quarter of the financial year (+2.2% and
+7.9% respectively).
- High Speed 1 is performing in line with expectations. Train
paths are running slightly behind budget, while operating costs
performed ahead of plan. With oversight from the Investment
Adviser, High Speed 1 is preparing the business plan submission to
its regulator, the Office of Rail & Road, for the third Control
Period, which will run from 1 April 2020 to 31 March 2025.
- Affinity Water, one of the Group's regulated asset
investments, is performing in line with expectations, except in
relation to wholesale operations where operating expenditure has
been higher than expected due to pressure on the water supply
network as a consequence of recent exceptional weather in the
southeast of England. In July 2018, Ofwat confirmed revised
guidance for the 2019 price review ("PR19") in relation to the
sharing of financial outperformance by water companies - see
Valuation section below. The Affinity Water management team is in
the process of finalising its PR19 business plan, which is due to
be submitted in early September 2018.
-- The Investment Adviser has been making good progress in
resolving the consequences of the liquidation of Carillion for
those PPP projects in the portfolio that were affected:
- Ten facilities management subcontracts with Carillion entities have been terminated.
- In May 2018, the Birmingham and Solihull LIFT facilities
management subcontract was successfully transitioned to a
replacement service provider, Integral, which was already
performing services on a group of facilities within the
project.
- Nine projects are operating well on interim arrangements with
HICL's chosen replacement operators, as identified in the Company's
contingency planning, while long-term facilities management
subcontracts are commercially negotiated.
- Commercial terms have been agreed on six of the nine projects
and the process of securing the relevant consents to finalise
subcontracts is under way. Negotiations on the three remaining
projects are progressing in line with expectations.
- Overall indicative pricing on the replacement subcontracts is
in line with the expectations built into the value reduction taken
at March 2018.
- Of the five projects in the portfolio where Carillion had
previously performed construction, three are out of distribution
lock-up and the remaining two are expected to be out of lock-up by
30 September 2018.
Dividends and Financing
-- The Company announced a final quarterly interim dividend for
the financial year ended 31 March 2018 of 1.97 pence per Ordinary
Share (the "Q4 Dividend") on 16 May 2018. The shares went
ex-dividend on 24 May 2018 and the Q4 Dividend was paid on 29 June
2018.
-- The Scrip Share Reference Price in respect of the Q4 Dividend
was less than the prevailing NAV per Ordinary Share. In such
circumstances, the Board determined that it was not in the best
interests of shareholders as a whole to offer a scrip dividend
alternative. Accordingly, all shareholders entitled to receive the
dividends on the record date received cash.
-- The Company announced a first quarterly interim dividend for
the financial year ending 31 March 2019 of 2.01 pence per Ordinary
Share on 18 July 2018, in line with guidance.
-- The Board will keep the Scrip Dividend Alternative under
review each quarter, and shareholders who have previously completed
a Scrip Dividend Mandate to receive Scrip Shares are advised that
their Scrip Dividend Mandate remains in place for future
periods.
-- The Board re-affirms the dividend guidance of a target 8.05
pence per Ordinary Share for the financial year to 31 March 2019
and a target 8.25 pence per Ordinary Share for the financial year
to 31 March 2020. The dividend for the financial year to 31 March
2019 is expected to be cash covered, albeit at a reduced level due
to distribution lock-ups at a number of projects affected by the
Carillion liquidation.
-- Based on all the announced acquisition and disposal activity,
and scheduled commitments to existing investments, the Investment
Adviser estimates that the Group will have drawings on its
Revolving Credit Facility ("RCF") of approximately GBP150m at 30
September 2018. The Board continues to be comfortable with this
level of drawing.
Issued Capital
-- As at 31 July 2018, the Company's issued share capital
consists of 1,789,556,677 ordinary shares of 0.01p each, all of
which carry voting rights.
Company and Governance
-- The Company's Annual Report for the year ended 31 March 2018
was published on 11 June 2018, and copies were posted to
shareholders who elected to receive a printed copy.
-- The Company held its Annual General Meeting ("AGM") on 17
July 2018. All resolutions were passed with a substantial
majority.
-- Following the renewal of shareholder approval at the 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, and the update to
the EU Prospectus Regulation, the Company's current tap capacity is
approximately 179.0m shares (limited by the AGM authority).
-- Mr. Michael (Mike) Bane was appointed to the Board, effective
from 1 July 2018. He was proposed for election at the July 2018 AGM
and was duly elected by shareholders.
-- As in previous years, and aligned to corporate governance
best practice, the Directors offered themselves for re-election at
the AGM on 17 July 2018 and were duly re-elected.
-- An updated Key Information Document, based on the costs
disclosed in the 2018 Annual Report, was published on the Company's
website on 27 July 2018.
September 2018 Valuation
-- The next valuation of the HICL Group's portfolio will be as
at 30 September 2018 and will be published as part of the Company's
Interim Results in November. Recent market activity is a key
consideration for the valuation; high-profile acquisitions made by
managers of unlisted funds will be considered as part of the
September 2018 valuation with regard to any read-across to the
carrying value of investments within the portfolio. The Investment
Adviser is analysing market pricing to evaluate whether the risk
premia implied in the discount rates used in the 31 March 2018
valuation reflect competitive dynamics in the infrastructure asset
class.
-- Elsewhere in the portfolio, the following non-material(1)
valuation movements are in aggregate expected to be value neutral
for the September 2018 valuation:
- As noted in the Company's Annual Report, in April 2018 Ofwat
published a consultation document that introduced proposed new
measures for PR19 around the sharing of gains from financial
outperformance. Both Affinity Water and the Investment Adviser
responded to the consultation. Ofwat made minor amendments to the
final guidelines that were published on 3 July 2018. The overall
impact is not expected to be material in terms of HICL's NAV.
- UK inflation remains above the Investment Adviser's long-term
inflation assumption of 2.75%. If this is maintained to the
financial year-end this will offer some upside, which would be
reflected in the September 2018 valuation.
- Construction of an accommodation project in Northern Europe
was completed in the period. This will be reflected in the
September 2018 valuation through a lower discount rate being used
to value the project. The upside, whilst not material in terms of
HICL's NAV, demonstrates the ongoing value enhancements provided by
the PPP portion of HICL's portfolio.
- The Company's demand-based investments in the A63 Motorway, in
France, and the Northwest Parkway, in the USA, continue to
outperform against the 31 March 2018 valuation assumptions.
Market and Outlook
-- The Investment Adviser continues to seek appropriate
opportunities across the key market segments identified in the
Company's Acquisition Strategy. These are: PPP projects; regulated
assets; demand-based; and an opportunistic approach to assessing
corporate assets (e.g. rolling stock) with contracted revenues and
with long-term counterparty arrangements.
-- The Group's portfolio currently has historically low exposure
to construction risk on greenfield PPP projects. The Investment
Adviser is reviewing a number of opportunities in this area across
HICL's target geographies (UK, Europe, North America and
Australia/NZ).
-- Following the recent incremental investment in the A63
Motorway, at present the Group has limited appetite to make further
acquisitions of demand-based assets with GDP-correlated
returns.
-- The Company continues to bid for OFTOs in the UK alongside
its consortium partner, Diamond Transmission Corporation Limited (a
subsidiary of Mitsubishi Corporation).
-- Recent secondary market transactions across HICL's target
market segments have seen unlisted capital competing selectively
for certain high-profile assets, with the pricing achieved higher
than might have been expected. Pricing discipline therefore remains
important in the current market. The Board and the Investment
Adviser will seek to take advantage of favourable market conditions
to optimise the HICL portfolio by strategically disposing of assets
to generate additional value and facilitate opportunities to make
selective acquisitions that enhance portfolio diversification and
the Company's accretion metrics. The flexibility intrinsic in the
Company's RCF will be used to smooth the timing of these
transactions.
-ends-
(1) Defined as 1% of NAV or greater.
Enquiries
InfraRed Capital Partners Limited +44 (0) 20 7484 1800
Harry Seekings
Keith Pickard
Tulchan Communications +44 (0) 20 7353 4200
David Allchurch
Toby Bates
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 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 118 infrastructure investments, HICL
is seeking further suitable opportunities, which are positioned at
the lower end of the risk spectrum, in three target markets
segments: PPP projects; regulated assets; and demand-based
assets.
Further details can be found on the HICL website
www.hicl.com.
Investment Adviser (InfraRed Capital Partners)
The Investment Adviser to HICL is InfraRed Capital Partners
Limited ("InfraRed") which has successfully invested in over 200
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, Seoul and Sydney. With over 130 professionals it manages
in excess of US$10bn 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 over
70 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.
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END
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