HICL Infrastructure H2 2025 Earnings Report

HICL Infrastructure EPS Results

• Actual EPS: GBX 2.30
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

HICL Infrastructure Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

HICL Infrastructure Announcement Details

• Quarter: H2 2025
• Date: 5/21/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 21, 2025
• Conference Call Time: 8:00AM ET

HICL is a UK-listed infrastructure investment company. We invest in infrastructure for local communities and to support the delivery of essential services, working in partnership with the public and private sectors.

HICL Infrastructure H2 2025 Earnings Call Transcript

Key Takeaways

• Resilient performance with dividend cash cover of 1.56x including disposal profits (1.07x ex-disposals) and dividend guidance confirmed at 8.35p for FY26 and increased to 8.5p for FY27.
• Disciplined capital allocation highlighted by completed divestments above NAV, expansion of the share buyback programme from £50m to £150m, and refinancing of the revolving credit facility to July 2027, with a further £200m of disposals targeted.
• Balanced portfolio construction sees growth assets now at 45% of NAV delivering 11% EBITDA growth, alongside defensive PPP “yielders”, supporting a self-funded £450m growth CapEx plan over the next five years.
• NAV modestly declined 3% to 153.1p due to higher discount rates, while shares trade on a ~25% discount to NAV, implying a prospective ~10% net return including a >7% dividend yield and a reduced ongoing charge rate of 0.95%.
• Financial strength with net debt of £102m (7.4% gearing) and total liquidity of £442m, underpinned by non-recourse, fixed-rate portfolio debt and no major refinancing requirements until 2027.

Presentation

[Operator]

Welcome to the HECO Infrastructure plc Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time by the Q and A tab situated in the right corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself.

[Operator]

However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to team at Hikil Infrastructure plc. Good afternoon.

[Mohammed Zaheer, Director - Listed IR at HICL Infrastructure]

Good afternoon, everyone, and thank you for joining us this afternoon for Hickle's Annual Results Presentation for the Year Ended 03/31/2025. With the presenters today will be Ed and Ross, as usual, but we're also delighted to be joined by Mark Tyner for his inaugural set of financial results as Hickle's CFO. Following the formal presentation, as usual, we will take questions and you can submit those through the platform online. With that, I'll hand over to Ed to kick us off.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

Thank you, Mo, and good afternoon. A very warm welcome to this set of annual results for Hikil Infrastructure plc. I'm going to start on Slide four of the presentation with a restatement of Hikil's core proposition. In periods of macro volatility such as the one that we're going through now, fundamentals can be lost in the noise and it's important that we refocus on the underlying quality of what Hikil investors actually own. Hikil's proposition is straightforward and differentiated.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

The company invests in high quality infrastructure, in private markets, offering that exposure to listed market investors in a liquid and diversified vehicle. These are core assets defined by their quality and risk profile. We actively manage them in order to realize the inherent value in each and every one of them, whilst also managing overall portfolio construction long term. And the company benefits from an expert management team spanning an international platform and twenty five plus years of specialist infrastructure experience. Taken together, the elements combine to deliver a defensive platform positioned for growth.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

And this is reflected in this set of annual results, which we start with on page five. This is another resilient result for the company, a solid operating performance, capital allocation discipline and strong prospects for growth. So starting on the left with capital allocation. In the year, we saw the completion of two previously announced divestments, both achieved above NAV. So the repayment of Hikil's revolving credit facility now refinanced out to July 2027.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

So the completion of the company's initial GBP 50,000,000 buyback now expanded to GBP 150,000,000 and further selective divestments GBP 200,000,000 plus targeted for this year where these enhanced long term portfolio construction and in support of HECO's investment and buyback commitments. To the middle column, a solid operating performance in the year. So stronger cash generation from the portfolio with dividend cash cover higher in the period at 1.56 times or 1.07 times excluding profits on disposal. This positive trajectory remains on track to reach 1.1 times by the end of this year and underpinning further growth in the dividend guidance issued today at 8.5p for FY 2027 and reaffirming the existing guidance of 8.35p for financial year ending thirty one March twenty twenty six. On the other side of the ledger, Hikil's growth assets now making 45% of the portfolio by value recorded 11% EBITDA growth in the year, outperforming budgeted performance and largely offsetting modest underperformance in HEICO's PPP portfolio, which we took at the half year.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

This growth is a key feature of the company's long term prospects, which we look at on the right hand side of this slide. The company has self funded growth CapEx of over GBP450 million over the next five years, driven by those strong infrastructure megatrends and compounding asset level returns. Vehicle investors, this growth complements the company's defensive positioning to deliver a strong total return proposition. On recent trading, Hikul offers marginal buyers a prospective 10% net return and that includes a share price yield of over 7% on today's trading. On slide six, we've set out some further key metrics for this set of results, a modest 3% decline in net asset value over the year to 153.1p, that's largely as a result of higher discount rates adopted in the period, which you can see at the bottom right of the slide.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

And that's partially offset by the solid 7.7% operating performance there on the top right and Mark will come onto all of these metrics in some more detail in a moment. Turning to Slide seven, which revisits Hikil's strategic portfolio construction. This is the second time that we've included this slide. It's commonly known as the yielders and growers slide. And as I mentioned at the outset, Hikul offers the key attributes of core infrastructure, a defensive platform positioned for growth.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

And that's really the story that you can see here on this slide. Over the years, we've worked hard to extend the portfolio's cash flows beyond the PPP portfolio, increasing asset life, bringing real growth into the portfolio and complementing the increasing maturity of the company's PPP assets. That's what you see here. The yielders, effectively the PPP portfolio, with an average life of thirteen years, yielding strongly at 10% per annum. Balanced with Hikil's growers, those longer life assets essential for the company's long term earnings, with an asset life of fifty one years and 6% forecast EBITDA growth on the back of having achieved 11% EBITDA growth this year.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

The design here over time is that as these growers deliver their CapEx and mature, they evolve into yielders. And in this way, the two component parts of the portfolio come together to deliver a long term earnings platform from which Hikil can continue to deliver capital growth and dividend growth for shareholders. Again, this cash flow chart is simplistic and that it assumes that all cash is paid out, whereas in reality what we'll see is dividend cash cover being reinvested into the portfolio and allowing us to further build out the right hand side of this slide without need for external capital. And just to reiterate that point, this platform is of a maturity and scale to be self funded and self sustaining. One final slide before I pass on to Mark.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

The return available now on Slide eight. The return available for buyers of Hikil is currently the highest in the company's history, which this slide sets out. Hikil increased its discount rates used to value the portfolio by 40 basis points in the year to 8.4% and this is the best guide for the expected gross return from the portfolio, if the company was trading at NAV. But the nature of the discount to net asset value means that the marginal buyer does better than that, effectively buying a pound's worth of assets for just shy of 75p. So this discount boosts the steady state return available from up to 11.1% gross or around 10% after fees.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

And that's for a thirty year plus set of cash flows, inflation correlated returns and of course, than 7% of that return coming through the cash dividend alone. It's also worth highlighting here that the new fee basis announced today and effective from January will reduce the OCR to a pro form a 0.95% further enhancing net returns. And finally, these returns exclude any share price rerating back to the NAV, which on these numbers would equate to a 36 share price return over and above the steady state returns that you see here on this slide. And with that, I'll pass over to Mark for more detail on the financial results.

[Mark Tiner, CFO at HICL Infrastructure]

Thank you, Ed, and good morning, everyone. I'm delighted to present to you the review of Hikil's financial performance today. On Slide 10, we show the NAV per share bridge for the year to 03/31/2025. Starting with opening NAV per share of 158.2p, the portfolio generated 12p of value accretion during the year. This was offset somewhat by a decrease of 6.3p relating to an increased discount rate due to the impact of macroeconomic assumptions used.

[Mark Tiner, CFO at HICL Infrastructure]

The company's share buyback program, which was renewed in March, targeting a further £100,000,000 of buybacks over the course of 2025 contributed NAV accretion in the year of 0.9p. Fund expenses of 2.6p per share includes management fee and represents an OCR for the year of 1.1%, a four bps reduction from last year. Small foreign exchange loss of 0.8p after hedging and the 8.25p dividend paid in the year completes the bridge to our year end NAV per share of 153.1p. On the right hand side of the page, net debt at the year end was £102,200,000 a £200,000,000 reduction from the previous year. This was a result of the sale proceeds of North West Parkway and the Hornsey 2 off tow being used to pay down the RCF in the early part of this year.

[Mark Tiner, CFO at HICL Infrastructure]

And this month, we successfully extended the RCF for a further year on the same terms to June 2027. Nickel's net debt principally comprises the £150,000,000 of private placement notes, offset by £58,000,000 of cash and led to a fund gearing percentage of 7.4%. Available liquidity at the end of the year, including undrawn RCF capacity, was £441,800,000 On Slide 11 and zooming into the valuation of the portfolio, we present here our usual bridge from last year's directors' valuation to this year's. During the year, company committed to invest a further £49,900,000 into Affinity Water following the beginning of AMP8. Cash distributions of £226,900,000 were received from the portfolio, giving a rebased valuation of £3,040,000,000 The portfolio returned £235,500,000 which included unwinding of the discount rate and portfolio performance.

[Mark Tiner, CFO at HICL Infrastructure]

Key items here included a strong contribution from Affinity Water and the growth portfolio generally, offset by the life cycle cost provision taken at the half year. On to the next block, we increased the weighted average discount rate by 40 bps over the course of the year in response to increasing government bond yields across our geographies, and this despite reductions in base rates across the board. This had the effect of reducing the portfolio value by GBP 126,200,000.0. Sterling strengthened during the year, resulting in an unrealized FX loss of GBP 38,300,000.0 or GBP 15,300,000.0 once the company's balance sheet hedging program is taken into account. The resulting final valuation is GBP 3,100,000,000.0 or GBP 3,200,000,000.0 including the aggregated equity commitments outstanding at the year end.

[Mark Tiner, CFO at HICL Infrastructure]

Moving on to Slide 12, we present here some key portfolio valuation sensitivities. We have just looked at the impact of a discount rate increase on valuation this year. A 40 bps increase has driven a 6p reduction in NAV, consistent with our sensitivity for a 50 bps change presented here. Due to the nature of the long term contracts in our portfolio, higher inflation has a positive correlation to NAV, reflecting the portfolio's 0.7 times inflation correlation. The other sensitivity I would like to comment on here is the slight positive correlation of interest rates, considering interest income on cash and interest payable on debt.

[Mark Tiner, CFO at HICL Infrastructure]

This reflects the large interest earning cash balances in the PPP portfolio especially, and the fact that practically all interest on the portfolio debt is fixed in nature. On Slide 13, we take a closer look at the portfolio debt profile. All portfolio debt is non recourse to the company. And as you can see from the donut on the left, only 2.4% of the overall balance is due for refinancing in the next two years. Indeed, only 14% of the debt is due to be refinanced at all, as the remainder is fixed term concession debt on the PPP portfolio.

[Mark Tiner, CFO at HICL Infrastructure]

We show this in the debt profile on the right. As a result of planned debt amortization in the PPP portfolio, gross portfolio gearing reduces from 66% today to under 50% in 02/1940. This effectively matches the average gearing of those assets, which do have refinancing requirements, which is 51% at the March 31. Moving to Slide 14. Here, are providing some new disclosure, which builds on the yielders and growers charts that Ed has presented.

[Mark Tiner, CFO at HICL Infrastructure]

That chart shows the long term cash profile of the portfolio split between growers and yielders. And here on Page 14, we take a deep dive into cash generation for the year just ended to show how the dividend was covered in the year. On the left, we have cash flows from the yielders, our PPP portfolio. Operational cash flows of £682,000,000 are sufficient to service debt, including scheduled amortization and cover life cycle costs together with cash released from reserves at portfolio company level put aside for that purpose. So in 2025, the portfolio of PPP assets contributed 177,000,000 of free cash to dividend cover.

[Mark Tiner, CFO at HICL Infrastructure]

On the right hand side, Growth Portfolio generated £253,000,000 of EBITDA in the year. After servicing debt, the grower spent £80,000,000 on capital expenditure. We will talk about this further on the next page, but this is predominantly growth CapEx in nature. Growth portfolio contributed GBP 49,000,000 to dividend cover. And so to the middle block, aggregate portfolio distributions of £226,000,000 covered fund level costs giving £178,000,000 of distributable cash flows.

[Mark Tiner, CFO at HICL Infrastructure]

This covers the year's dividend of £166,000,000 by 1.07 times. And this excludes the profits on disposals closed in the year, which increases the cover to 1.56 times. Finally, on this page, we show earnings cover of 1.13 times calculated as portfolio return of GBP 2 and 35,500,000.0 before the impact of macroeconomic assumptions, less costs and divided by the dividend. Following on the theme of growth CapEx on the next slide, our growth portfolio deploys substantial capital each year to increase its capital base and drive future earnings growth. In the next five years, our growth portfolio will invest over GBP $450,000,000 in capital expenditure, all self funded.

[Mark Tiner, CFO at HICL Infrastructure]

The great majority of this is growth CapEx. At Affinity, we forecast substantial RCV growth over the course of the five year regulatory period, increasing RCV by 30%. We expect this to directly drive an increase in revenue and EBITDA through the regulatory return permitted to the company. At forty South, TNT and Altitude, each company has plans for CapEx to increase its asset base and push the revenue perimeter wider. This comprises new towers and tower upgrades at 40 South, building extra transmission capacity at TNT and rolling out fiber to the home by altitude in France's regulated fiber market.

[Mark Tiner, CFO at HICL Infrastructure]

Ross will provide more detail on each of these assets shortly. Moving to Slide 16. The portfolio's CapEx deployment will drive future earnings, which drive increased NAV, a key component of Hikrol's total return strategy. The other component, of course, is the dividend, covered by distributions paying out of the portfolio as already shown. We are pleased to confirm the dividend guidance of 8.35p for FY 'twenty six and of 8.5p for FY 'twenty seven.

[Mark Tiner, CFO at HICL Infrastructure]

We show on this slide the progression of the dividend cover since 2022 and projecting into the near term future. We expect dividend cover of 1.1 times in FY 2026, supported by increased cash generation in the portfolio. Looking further ahead, we provide new guidance on dividend cover in FY 2027. We expect dividend cover in this year and the years after it to be a minimum of 1.1 times. We are keen to maintain a balance between a progressive dividend well covered and the ability to redeploy surplus cash into the portfolio to generate future returns through growth CapEx, reinvestment or bolt on acquisitions where appropriate.

[Mark Tiner, CFO at HICL Infrastructure]

This is why we are targeting a minimum of 1.1 times dividend cover to give shareholders comfort that the dividend is suitably covered and within the portfolio to make the most efficient use of remaining capital. I'll now hand over to Ross to talk to you about portfolio performance in the year.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

Thanks, Mark. Good afternoon, everyone. So as usual, I'll start with a couple of slides which summarize our approach to portfolio construction before jumping into the asset level performance. So here on Slide 18, you can see HECL's core infrastructure framework. All of our assets are positioned at the lower end of the infrastructure risk spectrum and benefit from high quality cash flows, defensive market positioning and a strong social license.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

We're guided by this framework when we look at new investment opportunities and this includes those which might exceed the return hurdle set by share buybacks. This disciplined approach will ensure that any future acquisitions are appropriate for a core infrastructure portfolio. And turning to Page 19, you can see a snapshot of HECL's current portfolio, which is very well diversified across sectors, geographies and revenue types. These charts haven't moved too much over the year. The 10 largest assets now make up 51% of the total portfolio by value.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

And you might spot that the valuation of Affinity Water has grown slightly and Altitude In for now features in the top 10. So let's now look at the portfolio performance during the year. I'll run through the six large growth assets individually and then cover the PBPs as a whole. So starting with Affinity Water on Slide 20. This is Hikil's largest investment at just under 11% of the portfolio value.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

The growth in valuation over the year reflects the GBP 50,000,000 equity commitment, which will be injected by March 26 and also the outcome of the PR24 price review. As we flagged in March, Affinity's final determination contains several positive adjustments, including to the WACC, to the totex allowance and also to the incentive mechanism. This provides us with clear visibility over the business plan for the next five years, enabling us to unwind some of the discount rate premium associated with the uncertainty around PR24 and crucially allowing us to resume equity distributions from FY 2026. Since we acquired Affinity in 2017, we've been working extensively alongside our co shareholders to reposition the business. The difficult decision to reinvest free cash flows during the previous regulatory period has paid off.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

Affinity has been able to undertake a significant program of capital investment and at the same time reduce gearing by 5% over the year. At this same time, Affinity has been working closely with Infrared and Infrared has been building out a new management team led by CEO, Keith Haslett. Keith's team has overseen a market improvements in operational performance. This is clearly reflected in the final determination outcome, but also in this year's financial results. EBITDA was 5% above our valuation assumption and Affinity is now a top quartile performer for several of the most important customer measures for a water only company, including leakage reduction.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

In March 25, Affinity capitalized on the final determination by issuing a GBP $350,000,000 15 year fixed rate bond. This exemplifies the company's sophisticated approach to treasury management. The margin achieved was smaller than Affinity's existing spreads and there is now no refinancing requirement until 02/1933, which is well into the next regulatory period. Alongside the equity commitment from shareholders, this bond will support a sizable Ampate investment program, 30% growth in regulatory capital value, all in the context of a modest bill increase and a reduction in gearing to 70% by 02/1930. The strength of Affinity's relative positioning in the sector has clearly been recognized by Ofwat, but also by the ratings agencies.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

The company has formally accepted its final determination and without the distraction of a CMA appeal process is free to focus on delivering its business plan for the next five years. On Slide 21, we have some detail on Hikil's two large demand based assets. So starting with the A63, where traffic remained broadly in line with our valuation assumption as you can see on the chart. Although toll revenue was slightly behind our forecast due to lower than expected inflation, this is not materially impacted at valuation of the investment, which was stable during the year. The road is strategically positioned on a key European transport corridor and the year on year growth for both light and heavy vehicles compares favorably to our long term blended assumption of 1.4%.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

Moving to London St. Pancras High Speed, this was formerly known as High Speed one. It is a bit more of a mouthful, but does avoid any confusion with HS2. International train path bookings continue to grow with revenue from this segment increasing by 8% year on year. As you can see from the chart, this is actually slightly behind where we expected to be.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

Eurostar placed fewer spot bids than we've seen historically including during the summer. On the other hand, retail income did benefit from the Olympics ending the year 7% above budget and all in all this meant that EBITDA and distributions for the year were in line with our valuation assumption. Over the coming years, we expect Eurostar to continue to manage their yield and prioritize the maintenance of their fleet. As a result, we've slightly reduced our short term growth forecast, although encouragingly, the level of spot bookings over the last month appears to have picked up considerably. More strategically, securing a second international operator is a key priority to unlocking the full growth potential of this investment.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

A lot of progress has been made in the second half of the year. LSPH launched a targeted growth incentive scheme and the rail regulator published its final determination for the company as well as a long awaited study into depot capacity. The management team continues to work closely with potential operators, some of which have now joined forces. Our valuation assumes a probability weighted uplift in train parts for a second operator. You can see from the sensitivity how a change to this assumption would impact NAV noting that if there was to be no second operator, the impact would likely be mitigated by a reduction in the discount rate premium of the asset and additional Eurostar parts.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

On the domestic side, bookings remain below the contractual underpin, but they have increased by 12% compared with FY 2024. We've retained our forecast of return to pre COVID levels by 2028, but there are signs that we might outperform that with the December 25 timetable showing further growth to just under 90% of pre COVID levels. Turning to Slide '22, we cover three assets which are investing extensively to grow the size of their networks and will continue to benefit from the global megatrends of digitalization and decarbonization. Starting with Forty South, which continues to perform well operationally and financially, although 90% of the revenue is derived from a long term anchor tenancy contract, EBITDA grew by over 10% during the year, reflecting the growth embedded within Hikkel's valuation assumptions. Securing new co locations is a key source of this growth.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

During the year, outperformed Heckel's valuation by signing 77 new agreements, most of which were with the New Zealand emergency services network. Although the MNO market is slightly is expected to be slightly softer in the coming years, you can see from the sensitivity that our long term growth assumption for the tenancy ratio is pretty modest. The company also continues to progress tower upgrades and new tower deployments with the management team focused on improving procurement efficiencies and reducing capital costs. Forty South now has over 1,600 towers and is on track to deliver the five year program contractually agreed with 1NZ. Moving to TNT, both Cross Texas Transmission and One Nevada Transmission continue to perform very well operationally as demonstrated by the availability over the period, which you can see on the page.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

Although the valuation has reduced during the year, this is due to increases in The U. S. Reference discount rate as Mark mentioned earlier. CTT continues to focus on growing its transmission capacity. It invested over GBP 15,000,000 during the year alone and CapEx next year is expected to be three times more than we thought back in March 24.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

Our valuation currently assumes that this is an acceleration of CapEx, but we will commission a study to assess whether this is in fact incremental and if it is that will have a positive impact on the valuation. CTT also submitted its regulatory rate case earlier in the year, the decision expected in the summer. This is a much more simple process than in The UK with the really key output being the allowed return on equity. And we will provide a further update on both of these valuation drivers in due course. And finally on this slide, Altitude Infra, which moves into the top 10 for the first time at just under 3% of the total portfolio by value.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

So as a reminder, this asset benefits from France's attractive rural market framework for fiber networks, which was underpinned by national deployment targets. The company earns inflation linked wholesale revenues from all of the major internet service providers under a regulated tariff structure. Since acquisition, the management team has been prioritizing the rollout of fiber across the 27 underlying concessions. By March 25, this rollout was 96% complete and the focus has now shifted to moving customers onto the network. The take up of fiber currently stands at 56% on a blended basis in line with our valuation assumption.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

As you can see on the slide, our forecast assumes a long term fiber penetration rate of 89%. This is deliberately consistent with the current penetration rate for broadband as a whole noting that the copper network is being gradually decommissioned over the coming years. More broadly, the management team continues to actively explore new growth opportunities either through the expansion of existing networks or actually by building out and running new networks capitalizing on Altitude's in house construction management and operations expertise. And finally from me with the PPPs on Slide 23, which represent 57 of the portfolio by value. These assets benefit from availability based contracted revenues, which tend to be linked to inflation and fixed rates long term debt structures.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

From an operational perspective, the vast majority of HECL's PPPs performed well during the year with aggregate availability above 99. Despite the highly contracted nature of the revenues, Infrared does take an active approach to the management of the PPP portfolio, that's both at the asset level and also through its leadership role within the public sector and the association of investors in PPPs. On the left hand side of this slide, you can see some of the key focus areas for the year. These include working with clients to ensure a high level of service delivery, managing assets through their construction phases and overseeing the delivery of works to improve facility condition. Following a review that we mentioned at the half year, Infrared identified and recognized an increase in forecast cost risk associated with life cycle on the 36 UK PPPs, which do bear this risk.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

We are comfortable that the adjustments we made back in September remain appropriate and we will consider to monitor continue to monitor life cycle risk as assets approach handbag. On the right hand side of this page, we've added some new disclosure, which sets out the sensitivities for just the PPP assets. These demonstrate the importance really of portfolio construction. With shorter finite life concessions, PPPs provide a defensive base of the portfolio complemented by the growth assets, which have slightly different sensitivities offering higher returns and stronger inflation linkage. So on that note, I'll hand back over to Ed, who will talk you through what we're seeing in the market and how that impacts the business model going forward.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

Thanks, Ross. So I'm now on slide 25 with some views on the core infrastructure market. The chart on the left shows the total number of infrastructure transactions in private markets as well as the number of core deals I. E. Hikul's focus on the right hand axis.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

Clearly, transactions have decreased over the last three years impacted by macro volatility. However, at an average of 50 core deals a quarter over the last year, these numbers are indicative of a healthy liquid and well functioning market and really speak to the through cycle appeal of high quality infrastructure for a broad range of investor types. Against this backdrop, Hikil has rotated over £500,000,000 worth of assets leveraging infrared's relationships networks to achieve the strong economics across the top left of the slide consistently and at scale. Looking forward, we've set out some interesting leading indicators on the right hand side of the slide. The pies here show the proportion of private market fundraising in the core infrastructure segment versus other infrastructure strategies.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

Whilst allocation to core infrastructure was subdued in previous years by strategies promising higher risk and return. The prospect of rate cuts across developed markets sees far higher allocation to core strategies in 2024, making up 42% of capital raised. This provides a highly relevant leading indicator of the weight of institutional capital that we can expect to be chasing core infrastructure transactions, adding buy side pressure to deals and supporting valuations. Large institutional transactions such as the BBGI take private add further weight to this indicator. As Heckel continues to progress its own divestment activity this year with our ambition set across the right side of the slide.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

We see these supportive dynamics firsthand and we remain on plan with our divestment target. This model of portfolio rotation and reinvestment is key, which we turn to now on slide 26. As I said before, Hikil is of a size and maturity where its business model is self funded and self sustaining. This is achieved through three key actions. Firstly, driving surplus free cash over and above the dividend through operational excellence and active management.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

Investors can see this through the strong performance of the growth assets in the year and the increase in portfolio cash generation. Secondly, rotating assets strategically to improve long term portfolio construction and drive additional cash from disposal profits. We've delivered over GBP 1,000,000,000 of accretive disposals since IPO through all manner of market conditions with GBP 200,000,000 targeted for this year. And thirdly, reinvesting accretively either through share buybacks or other investment opportunities where the risk reward is attractive and progresses Hikil's strategy. Here Hikil has expanded the buyback program from $50,000,000 to $150,000,000 and we continue to evaluate investment opportunities highly selectively with a focus on the existing portfolio.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

It's worth highlighting as well that variable market conditions such as the ones we're seeing at the moment do present compelling opportunities to make high quality additions to the portfolio. And equally, the environment for private investment in infrastructure remains positive with increasing levels of political support as governments go about driving growth and responding to those powerful megatrends continuing to increase infrastructure demand. Finally then some key messages on slide 27 before we jump on to the Q and A. This result represents a solid operational and financial performance. Underlying cash flow generation has increased.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

The Board has guided further dividend growth and Hikrol's growth assets have outperformed. From here, the company has guided a disciplined capital allocation approach. The buyback has been upgraded. A judicious approach to new investments remains against a largely undrawn RCF and a target for selective disposals of CHF200 million, which we continue to use to enhance long term portfolio construction. And strategically, the portfolio is set up for success, a strong long term earnings platform, significant investment CapEx, compounding returns at asset level, a portfolio generating higher levels of free cash and supporting effective capital allocation.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

That concludes the presentation. I'm very happy now to get into some Q and A for those of you that have submitted it. So thank you.

[Mohammed Zaheer, Director - Listed IR at HICL Infrastructure]

Thanks Ed and thank you to everyone who submitted questions. We'll start with a couple on the topic of risk and Ross this might be good for you. First question is given the current elevated geopolitical and regulatory risks especially in The UK infrastructure policy and water sector regulation, what contingencies does Hikil have in place to mitigate any adverse regulatory changes?

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

Yes, it's a

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

very good and timely question. So let's start with water and clearly Affinity water is our largest investment just under 11% of the portfolio. And I mentioned earlier on that we've released a portion of the discount rate premium that we previously held to factor in some of the potential uncertainties around PR24. Clearly, we've released a portion of that, but it's important to say we're still holding an element of discount rate premium for other regulatory uncertainties. And this obviously includes the CUNLIFE review that's currently ongoing into water regulation in The UK.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

What I would say is that both infrared and the Affinity team directly have been pretty engaged with the CUNLIFE review process We fed in directly and from what we've seen so far, it looks to be a pretty considered and thoughtful process and we await the results of that in the summer. But just to reassure you, we do have some contingency there. More broadly in terms of The UK policy sphere, I think from our perspective, the most important thing we can continue to do is build good relationships and maintain good relationships with our public sector clients, which we believe we have. We're also very much part of the dialogue around potential new funding models for infrastructure investments, including the ways in which private sector capital could invest in social infrastructure to remedy some of the things we're seeing in The UK on the infrastructure need.

[Mohammed Zaheer, Director - Listed IR at HICL Infrastructure]

Thanks, Ross. And another one for you. The portfolio seems quite concentrated. Does this not add some risk? What is the top 10 as a percentage of the portfolio?

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

Yes, it's a

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

good question. So the top 10 represent 51% of the portfolio by value. We're pretty comfortable with that. That means over nearly half of the portfolio is diversified across a large number of other investments. Another key measure we look at in terms of concentration risk is the single large asset or the largest two or three assets.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

Affinity Water is the largest at just under 11%. We think that that's very manageable and in any case well inside the limit set by the investment policy. But more broadly, if you look at the split of revenue types, the split of clients, the split of geographies across the top 10 assets, It's this diversification that really gives us comfort around the portfolio and the risk mitigations that we have inherent within that.

[Mohammed Zaheer, Director - Listed IR at HICL Infrastructure]

Thanks, Ross. And Mark, one for you on dividend cover. So dividend cover of 1.1 seems tight. Would it be worth considering building a higher cover to ensure its safety in the event of any downturns or company specific developments?

[Mark Tiner, CFO at HICL Infrastructure]

Yes, thank you. It's a good question. The 1.1 times is obviously what we are forecasting for FY 2026. And then beyond that, we're taking the approach of seeking to meet a minimum dividend cover from FY twenty twenty seven onwards set at 1.1 times. We think that actually that's not too tight.

[Mark Tiner, CFO at HICL Infrastructure]

We think that 1.1 times gives suitable dividend cover. Remember that's after payment of costs as well. So, you know, we're purely looking at, you know, the actual cash outflow for the dividend itself. And by setting a minimum, we don't rule out having a higher dividend cover reported in future periods than 1.1 times. But like was alluded to in the presentation, we are balancing our commitment to growing the dividend to also reinvesting in the portfolio and where appropriate using surplus cash that arises from dividend cover to reinvest in our portfolio, as long as the returns that we see there, the risk adjusted returns are compelling.

[Mohammed Zaheer, Director - Listed IR at HICL Infrastructure]

Thank you, Mark. A few questions, Ed, for you at a more strategic and market level. The presentation suggests Hickle is in root health. So why is Hickle on such a wide discount? Worse, why are the annual dividend increases well below inflation?

[Mohammed Zaheer, Director - Listed IR at HICL Infrastructure]

The purpose of investing in a company like Hikil is dividend growth, the value of Hikil's dividend is reducing in real times each year in real terms each year. This is clearly the real reason why the shares are so lowly rated.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

So firstly looking at the discount, I think we continue to be frustrated by the extent of the discount in which Hikko shares are trading versus the valuation. And note that that's a feature across the sector at the moment. Hikil has been among the most proactive in continuing to prove the valuations within its existing portfolio through asset divestments over GBP £500,000,000 worth of divestments at an average premium of 11% above NAV, which is clearly some margin away from where the shares are trading. So, we are very comfortable that the valuation of the assets remains appropriate and that the share price discount is more an issue with flows than it is fundamentals. We are seeing a period of macro volatility, which has caused some of the capital to seize up or indeed to move into other asset classes and we're waiting for some stabilization in that approach.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

But equally, we're continuing to control what we can, which is through excellent operational performance by making sensible capital allocation decisions, selling assets at a premium, buying back our shares at a discount and continuing to market the shares with new disclosure to new investors in order to continue to drive buy side support for the company. So that's certainly on our radar. In terms of position of inflation, the dividends, our inflation correlation is relates to the returns and that's been a really strong feature of the company over this high inflationary period where we've seen rates much higher, but offset by the impact of inflation on the cash flows and that's why the NAV has been quite so robust over recent years despite the fact that we've now increased discount rates by 180 basis points since the onset of the higher inflation environment. In terms of the dividend specifically, as I mentioned on the yielders and growers chart, we've made some deliberate decisions around portfolio design to extend portfolio cash flows into high growth assets with longer life actually with higher inflation correlation over the long term. And some of those have been at lower yields.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

So we've taken the opportunity to right size the dividend in order to make sure that the portfolio can support a growing dividend and a stable and growing net asset value over the next decades rather than over distributing in the short term. So some insight on the decision and the strategy of the portfolio there.

[Mohammed Zaheer, Director - Listed IR at HICL Infrastructure]

Thanks, Ed. And we've got another question here relating to valuation and the chair noting the disappointment of share price performance and what initiatives are being used and were being implemented to close the valuation gap. But I think you've addressed all of those. So I will move on to the final question we have. I've held shares for many years and whilst pleased by the solid income yield, it would be nice if the share price reflected the quality of the earnings.

[Mohammed Zaheer, Director - Listed IR at HICL Infrastructure]

Share buybacks are one answer, but by buying your shares on a continuing basis, you are effectively gradually winding the company up to a point where it loses the benefits of scale. Would there be logic in joining up with other funds with similar rationales and by increasing size and security, increase the overall risk profile and the perception of the business amongst investors?

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

Yes, I mean, this is a

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

really good question. So yes, certainly your point on the efficacy of buybacks is well put. For us, we look at the economic merits of buybacks in terms of buying back our own shares at higher implied returns and retiring the dividend obligation associated with those shares cheaply. And there's merit in doing an element of that, but our response to the current discount can't only be about buybacks and I share your view on it being ultimately self defeating. And certainly, there's a range of views within our shareholder base around buybacks and we continue to plot really a line of best fit around making sure that we're realizing the benefit of buybacks, but not just satisfying marginal sellers through buybacks, but also continuing to drive a forward looking proactive strategy to attract new buyers to the company.

[Edward Hunt, Head of Core Infrastructure Funds at HICL Infrastructure]

And ultimately, the share price situation can only be improved by attracting fresh capital to the sector, fresh capital to Hikil in order to drive the share price higher. In terms of the opportunities around scale, it is important that these companies remain of sufficient scale in order to attract institutional buyers in particular to the portfolio. And Hikil is already one of the most liquid and largest of the infrastructure investment companies. Undoubtedly, there'll opportunities to increase the size and scale of the vehicle and it's really about making sure that we're looking at options for that, which genuinely take the company forward and that's something that we continue to explore both in public markets and in private markets and ultimately something that we'll continue to plug away at in terms of how we make the company more attractive to a broader range of investors.

[Mohammed Zaheer, Director - Listed IR at HICL Infrastructure]

And so I did say and that was the last question. We've had one just coming now, which I think is really important and would be good for you to touch on Ross if possible. Do you disclose the impact of disposals on portfolio returns, I. E. That you are not selling your best assets?

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

Yes, mean that's a really crucial question especially given the focus has been on disposals obviously having made over $05,000,000,000 pounds of disposals in the last two years and with the Board's announcement of a further 200,000,000 pounds of disposals going forward. Let me just say first and foremost, when we make disposals, the priority really is around improving the composition of the portfolio, so quite the opposite. We look for assets within the portfolio that aren't meeting certain key requirements and that screen poorly against certain key metrics those include return, yield, inflation correlation and asset life. And generally what we've seen is that assets which have lower than average returns, low inflation correlation and short asset lives which often tend to be kind of mature PPPs. We can improve the overall composition of the portfolio by disposing of those assets often at a slight premium to net asset value and rotating those proceeds accretively and that's exactly what you saw for example in the GBP 200,000,000 portfolio sale to John Lang.

[Ross Gurney-Read, Director - Fund Management at HICL Infrastructure]

From time to time we do get offers for assets that we do think are high quality in the portfolio and we'd only really ever consider those on a highly opportunistic basis. We did dispose of the Northwest Parkway last year, which did screen well against a number of those metrics. But ultimately that was purely an economic decision with the buyer offering a 30% plus premium to net asset value. And obviously shareholders have recognized over 2p of NAV accretion as a result of that disposal. So that's really how we go about it and that's the process that we're currently following for the disposal program that we set out for this year.

[Mohammed Zaheer, Director - Listed IR at HICL Infrastructure]

Thanks, Ross. And that concludes the presentation today. Thank you very much for taking the time to join us this afternoon. And thank you to shareholders for your ongoing support.

[Operator]

That's great. Thanks for updates investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. On behalf of the management team of Heckel Infrastructure plc, I'd like to thank you for attending today's presentation, and good afternoon to you all.

Participants

Executives

• Mohammed Zaheer, Director - Listed IR
• Edward Hunt, Head of Core Infrastructure Funds
• Mark Tiner, CFO
• Ross Gurney-Read, Director - Fund Management