Interim Results Six Months Ended 30 September 2020

RNS Number : 3936G

HICL Infrastructure PLC

25 November 2020

 

HICL Infrastructure PLC 25 November 2020

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2020

This announcement contains Inside Information.

The Board of HICL Infrastructure PLC ("HICL", or the "Company") announces Interim Results for the six months ended 30 September 2020. The Interim Report is available at the following link: www.hicl.com/InterimReport2020  

Highlights

For the six months ended 30 September 2020

· Solid performance in the period with NAV growth of 1.7p to 154.0p per share (March 2020: 152.3p), and annualised total shareholder return¹ of 7.8%.

· The resilience of HICL's diversified portfolio underpinned this steady performance during a period of market uncertainty caused by the ongoing pandemic.

· Three acquisitions completed in the period were accretive to key portfolio metrics and further enhanced the investment proposition.

· The Directors' valuation² of the portfolio on an Investment Basis³ at 30 September 2020 is £3,073.2m (March 2020: £2,888.5m), and £2,982.3m (March 2020: £2,837.9m) on an IFRS Basis.

· The Company is on track to deliver aggregate target dividends of 8.25p per share for the current financial year ending 31 March 2021⁴.

· New target dividend guidance has been announced for the financial year ending 31 March 2022 of 8.25p per share⁴, which the Board views as prudent and sustainable in the current environment.

· Core infrastructure remains highly attractive to institutional investors seeking income, particularly during the current market turmoil, and this has benefited asset valuations.

· The Company's value preservation activities are focused on supporting our public sector clients through evolving patterns of use at facilities affected by Covid-19 and on actively supporting those demand-based assets whose revenues are affected by the curbs on free movement associated with governmental responses to the Covid-19 pandemic.

· InfraRed, on behalf of HICL, continues to actively pursue a healthy pipeline of investments within core infrastructure, across PPPs, regulated assets and opportunities in sectors that underpin the modern economy, such as communications and energy enabling infrastructure.

· Both the Board and the Investment Manager are confident that HICL is well placed to continue to deliver successfully for all stakeholders.

1.  NAV per share change plus dividends paid

2.  As supported by a third-party valuation expert engaged by the Board

3.  Pro forma summary financial information on the basis that the Company consolidates the results of the Corporate Subsidiaries

4.  This is a target only and not a profit forecast. There can be no assurance that this target will be met

 

Summary Financial Results

(on an Investment Basis)

for the six months to	30 September 2020	30 September 2019
Income6	£121.9m	£97.9m
Profit before tax ("PBT")7	£104.1m	£79.5m
Earnings per share ("EPS")	5.5p	4.4p
Target dividend per share for the year	8.25p	8.25p
6 Income was £105.5m on an IFRS Basis (2019: £80.6m) 7 PBT was £104.0m on an IFRS Basis (2019: £79.3m)
Net Asset Values	30 September 2020	31 March 2020
Net Asset Value ("NAV") per share	154.0p	152.3p
Interim Dividend	2.06p	2.07p
NAV per share after deducting interim dividend	151.9p	150.2p

Ian Russell, Chairman of the Board, said:

"HICL has delivered a solid performance in the period, with the increase in the Company's Net Asset Value demonstrating the resilience of the underlying portfolio during the current macro-uncertainty. This resilience is founded on our considered approach to building a balanced portfolio. Importantly, the Company's delivery of long-term, sustainable income to shareholders is inextricably linked to HICL's responsible stewardship of its portfolio of core infrastructure assets.

"The Board understands that shareholders value the transparency that the Directors provide on the Company's target dividends. The Directors are pleased to confirm the extension to HICL's dividend guidance for a further year, announcing a target dividend of 8.25p per share for the year to 31 March 2022.

"Whilst we all continue to adapt to unfamiliar and uncertain times, the Board is confident that HICL's strategy, portfolio and business model will continue to deliver successfully for all stakeholders."

Harry Seekings, Head of Infrastructure at InfraRed Capital Partners, HICL's Investment Manager added:

"Amid the disruption associated with Covid-19, predictable long-term yield from core infrastructure remains highly attractive to institutional investors. This has both positively impacted asset valuations and supported HICL's capital raising efforts in the period.

"We are pleased with the outperformance of the underlying portfolio and remain focused on working in close partnership with HICL's public sector clients to ensure asset availability and continued service delivery for communities in a challenging operating environment.

"InfraRed has developed an attractive pipeline of core infrastructure investment opportunities for HICL across markets and sectors.  We remain confident in delivering HICL's strategy and investment proposition for stakeholders over the long term."

 

Enquiries

InfraRed Capital Partners Limited  [phone] / [e-mail]

Harry Seekings

Keith Pickard

Edward Hunt

Kirsty MacCallum

Teneo  [phone] / [e-mail]

George Hutchinson

Haya Herbert-Burns

Matt Thomlinson

Investec Bank plc  [phone]

David Yovichic

RBC Capital Markets  [phone]

Darrell Uden

Matthew Coakes

Aztec Financial Services (UK) Limited  [phone]

Chris Copperwaite

Sarah Felmingham

Chairman's Statement

The Company's delivery of long-term, sustainable income to shareholders is inextricably linked to HICL's responsible stewardship of its portfolio of core infrastructure assets.

I am pleased to report a solid performance in the six months to 30 September 2020. The Company's Net Asset Value ("NAV") increased in the period, demonstrating the resilience of the underlying portfolio during the current macro-uncertainty. This resilience is built on our considered approach to portfolio diversification across sector, revenue model, counterparty and geography.

Operationally, HICL's PPPs and regulated investments have performed in line with expectations. The Company's demand-based assets with GDP-correlated returns, however, do continue to be impacted by reduced economic activity and government policies to manage the Covid-19 pandemic (see Section 2.2 - Valuation of the Portfolio in the full Interim Report linked above for the details at asset level).

Financial Performance

The Company has delivered a solid Total Shareholder Return¹ on an annualised basis of 7.8% (September 2019: 5.7%).

The Net Asset Value ("NAV") of 154.0p per share (March 2020: 152.3p) represents growth of 1.7p per share in the six-month period. This growth has been enabled not only by the robust performance of the underlying portfolio, but supported by sustained institutional demand for the asset class benefiting valuations.

These factors have more than offset the impact of Covid-19 on forecast macro-economic assumptions.  Interest rate assumptions across all of the Company's jurisdictions have further reduced in response to market expectations for 'lower for even longer' government bond yields.

(See Section 2.2 - Valuation of the Portfolio in the full Interim Report linked above for details on the factors influencing the Directors' Valuation and the discount rate.)

HICL's balance sheet remains robust and was bolstered with an accretive £120m capital raising in the period. The Company has a strong liquidity position with the £400m revolving credit facility ("RCF")². This was enhanced after the period end with the addition of an innovative £60m Letter of Credit facility, which enables greater flexibility in the Company's funding arrangements for in-construction investment opportunities.

Dividend guidance

The Directors believe that shareholders value the visibility the Board provides on the Company's target dividends. In these uncertain times, this communication and transparency is particularly important, and we are pleased to affirm that HICL remains on track to deliver the target dividend guidance for the financial year ending 31 March 2021 of 8.25p per share, as announced in May 2020.

The visibility of forecast cash generation from the Company's portfolio means that the Board can confirm it is extending HICL's dividend guidance for a further year.

The Board has taken the view that a continuation of the current level of dividend is both prudent and sustainable in the current environment. In line with HICL's dividend policy, the Company is targeting a dividend of 8.25p per share for the year ending 31 March 2022, which is expected to be cash-covered.

Capital Raising

The continued institutional demand for core infrastructure investment was resoundingly demonstrated in July 2020 when HICL raised £120m from investors by way of tap issuance. The offer was supported strongly by existing and new investors, and applications consequently were scaled back.

The level of demand demonstrates that core infrastructure's steady and predictable yield remains important to institutional investors in the current environment and represents an endorsement of the Company's strategy.

Business model in action

HICL's business model supports delivery of the investment proposition and is centred around three pillars: Value Preservation; Value Enhancement; and Accretive Investment. These elements are inter-dependent, enabling both the long-term provision of essential infrastructure for society and a long-term stable income stream for shareholders.

Value preservation and enhancement

As we continue to adapt to the ongoing impacts of the Covid-19 pandemic, at both a macro and a personal level, our approach to the responsible management of essential public infrastructure has been demonstrated in the Company's value preservation activities.

During the period, the focus of the Company's value preservation activities has been  supporting our public sector clients through evolving patterns of use at facilities affected by Covid-19, ensuring the availability of critical public assets and continued service to local communities (asset-level examples across both healthcare and education facilities can be found in Section 2.6 - Operating & Financial Review of the full Interim Report linked above). InfraRed has also been focused on monitoring and actively supporting management teams on those demand-based assets whose revenues are affected by the curbs on free movement associated with the pandemic in HICL's core geographies.

HICL became a Taskforce on Climate-related Financial Disclosures ("TCFD") Supporter during the period, demonstrating the Company's commitment to the TCFD reporting recommendations and to taking action against climate change as a key value preservation activity for the long-term. Our commitment to the TCFD reporting recommendations is aligned to InfraRed's overall approach to sustainability, as part of our shared drive to enhance value for stakeholders and deliver long-term outperformance.

Additional asset-level examples of value preservation and enhancement activities in the period are detailed in Section 2.6 - Operating & Financial Review of the full Interim Report linked above.

Accretive investment

HICL's strategy is to make acquisitions when investment opportunities meet our core infrastructure criteria, improve key portfolio metrics, and deliver a sustainable return for shareholders. The targeted acquisition activity in the period demonstrates the ability of InfraRed to identify and secure sound, accretive investment opportunities for HICL.

HICL's Investment Manager has made three accretive investments on behalf of HICL in the period: in the transmission assets of the Walney Extension Offshore Wind Farm; an additional stake in the Royal School of Military Engineering PPP project; and the remaining 50% interest in the M17/M18 Gort to Tuam Road PPP (Ireland).

Taking on full ownership of the latter two investments exemplifies HICL's strategy of increasing its stakes in high-quality core infrastructure assets that deliver both essential services and long-term returns.

Outlook

We remain cautious on the macro-environment. This is reflected in the prudent approach to long-term interest rate assumptions within the Directors' Valuation, and the oversight InfraRed and the Board provide on the financial health of HICL's supply chain and other counterparties.

In the medium term, market conditions remain favourable for infrastructure investors. It is possible to foresee the potential for a further easing of political and regulatory weight on the infrastructure sector. There may be a need for economic stimulus which could precipitate further pro-infrastructure government policy and we await post-Covid-19 plans from governments in HICL's core markets. For example, we will review with interest the detail of the UK Government's "New Deal" infrastructure plan, following the publication of the National Infrastructure Strategy. With the preliminary findings of the Competition and Markets Authority ("CMA") regarding the appeal process on the UK water sector's Price Review for Asset Management Period 7, the CMA has indicated a need to strike a greater balance between  improving the long-term resilience of the water network with allowing shareholders an appropriate risk / reward profile (see Section 2.1 - Investment Manager's Report of the full Interim Report linked above for further details). We look forward to seeing the outcome of this process in the coming months.

The Company's acquisition strategy is underpinned by a consistent application of the core infrastructure framework to evaluate investment opportunities. Irrespective of sector, HICL seeks out investments that support the delivery of essential services for communities and deliver high-quality cash flows from a protected market position. InfraRed therefore continues to pursue pipeline opportunities for HICL in its existing sectors which include: European greenfield PPPs; selected regulated asset opportunities; and further incremental investments in assets where HICL currently owns less than 100%. Within sectors that support the modern economy there are also attractive opportunities in the pipeline, for example within essential communications infrastructure such as fibre networks, and those that support the transition to a low carbon economy, for example electricity metering (see Section 2.1 - Investment Manager's Report of the full Interim Report linked above for further details).

Whilst we all continue to adapt to unfamiliar and uncertain times, the Board is resolutely confident in that HICL's strategy, portfolio and business model will continue to deliver successfully for all stakeholders.

Ian Russell,
Chairman

24 November 2020

1.  On a Net Asset Value ("NAV") plus dividends paid basis

2.  As at the balance sheet date £13m cash drawn and £81m for letters of credit

Investment Manager's Report

Investment Manager's summary of the period

· Solid performance in the six-month period, with an increase in Net Asset Value ("NAV") of +1.7p per share. Expectations of further macro-economic headwinds were more than offset by the strong underlying performance of the portfolio, accretive acquisitions and the increased relative attractiveness of the asset class, favouring valuations.

· Operationally, the Company's PPP and regulated investments remained steady. The subset of assets with returns correlated to GDP continued to be impacted by Covid-19 to varying degrees though asset-level liquidity remains sound.

· Institutional demand for the stable, predictable returns and income derived from core infrastructure investment remains strong and supported the Company's successful equity issuance of £120m in July 2020.

· InfraRed continues to execute the Company's acquisition strategy with three investments in the period. These were accretive to key portfolio metrics and further enhance the value proposition for shareholders.

· While we remain cautious on the macro-environment, we are optimistic about the prospects for the Company to continue to implement its strategy to the benefit of shareholders and wider stakeholders.

Operational highlights

The underlying performance of the portfolio has been solid in the year, delivering an annualised portfolio return of 7.5% (3.7% for the period), slightly ahead of the Company's expected return of 7.2% as at 31 March 2020.

PPP projects

Public-private partnerships ("PPPs") represented 72% of the portfolio by value, as at 30 September 2020. These are long-term contracts between the public and private sectors to facilitate the delivery of essential public infrastructure.

Accretive acquisition is a key tenet of the Company's business model and an important driver of outperformance over the long term. Two PPP acquisitions were announced in the period:

§ In June 2020, HICL acquired an incremental 74% risk capital in the project company that supports the Royal School of Military Engineering in the UK. The asset has been operational since 2015 and delivers availability-based revenues. The acquisition takes HICL's interest to 100%.

§ In August 2020, the Company acquired the remaining 50% risk capital in the project company responsible for the M17/ M18 Gort to Tuam Road PPP in the Republic of Ireland. The asset is operational and benefits from availability-based revenues.

These incremental acquisitions represent a proprietary source of deal flow for the Company, acquired via bilateral, off-market arrangements, and on assets with which InfraRed is highly familiar. This attractive risk / reward dynamic is accretive to HICL's key portfolio metrics.

Demand-based assets

Investments where asset revenues are linked to demand accounted for 19% of the portfolio by value, as at 30 September 2020.

The Company's demand-based assets with GDP-correlated returns (18% of portfolio value as at 30 September 2020) continue to be impacted by reduced traffic, resulting from the continuation of widespread government pandemic management policies and associated reduced economic activity across markets. The traffic recovery on these assets has been reforecast as at 30 September 2020 with the benefit of over six months of experience of asset performance through the Covid-19 pandemic.

The Company's two toll road investments performed above or in line with InfraRed's revenue forecasts for the financial year, albeit we are seeing a divergence in their respective recovery trajectories.

The A63 Motorway in France (6% of portfolio value as at 30 September 2020) has recovered significantly ahead of our forecast assumptions at 31 March 2020, underpinned by strong usage from heavy goods vehicles utilising the strategic, transnational trading corridor of which the A63 is a component part.

The Northwest Parkway ("NWP") in Colorado, USA (5% of portfolio value as at 30 September 2020) is subject to continued restrictions due to state- and local-level Covid-19 movement policies, as well as greater exposure to commuter traffic and airport activity. It is expected to take a more protracted path to recovery than forecast at the time of the 31 March 2020 valuation.

The performance of High Speed 1 ("HS1") in the UK (5% of portfolio value as at 30 September 2020) remained steady over the period, underpinned by contracted track access revenues. Income from retail units and car parking (together c.16% of pre-Covid-19 revenues) continued at significantly reduced levels, impacted by lower passenger numbers, albeit marginally above forecast. Eurostar services (32% of track access revenue to 31 March 2020) recovered steadily over the summer before being impacted significantly by the UK quarantine policy on arrivals from France: international train paths remain at depressed levels. Domestic services (68% of track access revenue to 31 March 2020) continue to run on a full timetable, with bookings in place to May 2021.

Further details on the actual performance to date and the valuation approach for the A63, NWP and HS1 are set out in the full Interim Report linked above (Section 2.2 - Valuation of the Portfolio).

We continue to closely monitor the financial resilience of both NWP and HS1 and support the respective management teams in their engagement with lenders and collaboration around potential technical default provisions in the debt structures. Both assets continue to have sufficient liquidity to service debt under a range of plausible downside scenarios through 2021 and, in the case of NWP, through to 2023.

Regulated assets

Regulated assets, comprising both the Offshore Transmission assets ("OFTOs") and HICL's investment in Affinity Water, accounted for 9% of the portfolio by value, as at 30 September 2020.

The completion in the period of the acquisition of an interest in the transmission assets associated with the Walney Extension Offshore Wind Farm ("Walney OFTO") was accretive and brought further diversification to HICL's regulated assets. As with HICL's other three investments in this sector, the Walney OFTO is a clear example of the way in which the broader energy transition theme actively shapes the core infrastructure investment landscape. The asset is fully operational and benefits from long-term availability-based revenue.

During the period, the UK's Competition and Markets Authority ("CMA") delivered its interim findings in relation to those water companies that appealed Ofwat's PR19 Final Determination. The CMA's provisional assessment of the appropriate methodology to determine the weighted-average cost of capital ("WACC") applicable to these companies has a read-across to the wider sector, including Affinity Water (7% of portfolio value at 30 September 2020), from AMP8 onwards (2025+). Should the CMA carry this through to its Final Determination, expected now in February 2021, it is expected that this would result in an uplift in the valuation of HICL's investment in Affinity Water. Approximately 20% of this potential upside has been recognised in the valuation at 30 September 2020.

Financial Highlights

Net Asset Value ("NAV") per share has increased by 1.7p to 154.0p at 30 September 2020 (March 2020: 152.3p). We continue to be mindful of the far-reaching impacts of Covid-19 across HICL's core markets and the challenging economic landscape going forward. This is reflected in further value reductions from lower GDP and interest rate assumptions across the portfolio. However, these were more than offset by the strong underlying return of HICL's diversified portfolio, accretive investments and stronger asset valuations driven by the increased relative attractiveness to investors of the core infrastructure sector.

Cash flow receipts on an Investment Basis were £82.6m (2019: £95.2m). After finance and operating costs, net operating cash flows on an Investment Basis were £65.1m (2019: £76.5m), which covered the interim dividends paid in the period 0.83 times (2019: 1.05 times), in line with guidance given in the Company's 2020 Annual Report. A reconciliation between the IFRS Basis and Investment Basis can be found in the full Interim Report linked above (Section 2.6 - Operating & Financial Review).

HICL uses the Association of Investment Companies ("AIC") methodology to assess the ongoing charges percentage, which for the period was 1.08% (2019: 1.09%).

Funding and Capital

HICL's financial position remains robust and was enhanced in the period. As at 30 September 2020, HICL has a solid balance sheet with only £13m of drawings on its Revolving Credit Facility ("RCF").

Strong support for the Company's shares enabled HICL to successfully raise equity capital by way of tap issuance in July 2020. Significant appetite from new and existing institutional investors led to a material scale-back of orders. This reflects the continued institutional demand for the attributes of core infrastructure and an endorsement for InfraRed's disciplined approach to making further investments on behalf of the Company. The capital raised was used to pay down the drawings on the RCF arising from the three acquisitions in the period.

After the end of the period, InfraRed structured a discrete, longer-dated Letter of Credit Facility ("LCF") to better support the Company's existing deferred commitment to the Blankenburg Connection PPP which is in construction (c.2% of portfolio value). The facility is initially sized at £60m with the maturity more appropriately matched to the tenor of the commitments, effectively restoring the capacity of HICL's RCF for shorter-term deployment.

Dividend Guidance

The Investment Manager continues to closely monitor actual and forecast cash generation from the portfolio over this Covid-19 affected period. The current forecast cash position and the progress towards recovery of the GDP-correlated demand assets have been carefully considered. Our advice to the Board, to maintain the target dividend for the year to 31 March 2022 at the same level as the current financial year, was given in light of the prevailing uncertainties in macro-economic conditions and the protracted recoveries forecast on NWP and HS1, balanced with the stable and predictable cash flows being generated by HICL's diversified portfolio. Based on current forecasts, we expect the dividend for the financial year ending 31 March 2022 to be fully cash covered.

Sustainability

HICL and InfraRed have continued to actively progress our collective sustainability agenda, working through the portfolio and ensuring that the sustainability strategy is yielding results across environmental, social and governance dimensions. More detail can be found in the full Interim Report linked above (Section 2.6 - Operating & Financial Review). As an example of HICL's commitment to sustainability in the context of its investment returns, the Company continued its work on the Task Force on Climate-related Financial Disclosures ("TCFD"), in particular the roll-out of a climate impact assessment across HICL's portfolio that will be completed in line with HICL's 2021 year-end reporting. This initiative will support a step-change in the ability of the Company to embrace the full remit of the TCFD reporting framework as well as providing valuable information for the effective management of investments into the future. We expect this initiative to benefit all stakeholders and we look forward to collaborating with our public sector clients on the specific initiatives that will follow this important diagnostic exercise.

InfraRed has been, since 2011, a signatory of the Principles for Responsible Investment ("PRI") and is represented on the Infrastructure Advisory Committee of PRI. In the period, the infrastructure business line achieved an A+ rating for its 2020 assessment, for the sixth successive year.

Key Risks

Each quarter the Board's Risk Committee reviews the risk appetite of the Company. This includes an assessment of emerging risks, supported by comprehensive portfolio stress testing and associated mitigation strategies provided by InfraRed. Risks are reviewed and steps are taken to reduce the impact on stakeholders, including the Company's shareholders.

The key risks and the strategies employed by InfraRed to manage and mitigate those risks have not changed materially from those set out in detail in Section 3.7 of HICL's 2020 Annual Report, which is available on the Company's website.

Political and regulatory risk

Politics and regulation are key underlying risks that are inherent in infrastructure investment. As a trusted steward of essential public assets, HICL seeks to contribute to the discussion on infrastructure ownership not only through its participation and submissions to various industry participants (for example, Global Infrastructure Investor Association and the Department for Business, Energy and Industrial Strategy, in the period) but also through its considered management of critical infrastructure to the benefit of all stakeholders.

We are cognisant of the increased risk of higher corporation tax rates with public finances under intense pressure across all the geographies represented in HICL's portfolio. We also note that on 25 November 2020, the UK Government is due to publish its response to the UKSA's proposed reform of RPI to potentially align it to CPIH. This could result in a material reduction in the level of RPI from 2025 or 2030. See Section 2.2 - Valuation of the Portfolio of the full Interim Report linked above for the portfolio's sensitivity to changes in corporation tax and inflation rates.

Covid-19 and changes in GDP Forecasts

The temporary and sporadic imposition of lockdown conditions across HICL's core markets in response to Covid-19, for example those adopted post-period-end in France and the UK, is likely to disrupt short-term demand for HICL's GDP-correlated demand-based assets (18% at 30 September 2020), though this interim volatility is expected to be immaterial in the context of the assets' valuation. The ongoing impact of the pandemic on economic activity does, however, have the potential to further impact long-term traffic forecasts for this subset of the portfolio. Further deterioration in macro-economic conditions, including GDP, would decrease net asset value. See Section 2.2 - Valuation of the Portfolio of the full Interim Report linked above for the portfolio's sensitivity to GDP.

Brexit

Uncertainty around the conclusion of the UK's Brexit negotiations remains a risk for the Company. While there is a range of possible outcomes, a disorderly exit could reasonably lead to a worsening macro-economic environment. We are mindful of the risks that revised international trading terms pose to inflation and note that the correlation of portfolio returns to inflation remains at 0.8x. HICL's foreign exchange policy is designed to dampen the volatility that may arise from foreign exchange movements, an important consideration in the context of Brexit.

At a practical level, InfraRed's asset managers continue to work with portfolio company management teams on Brexit resilience. A minor subset of portfolio assets, such as HS1, has direct exposure to a disorderly Brexit and these have continuity plans in place.

Counterparty Risk

HICL's strong performance to date has been built on its many successful partnerships with customers and clients, lenders, co-shareholders and across the Company's supply chain. Regular and proactive engagement with these counterparties is more fundamental than ever in the current period of market stress and disruption. Additionally, InfraRed's in-house credit team actively monitors and reports on the financial strength of HICL's counterparty relationships.

In the course of carrying out necessary works at projects constructed by the now-liquidated Carillion, a further requirement for defect remediation was identified at one healthcare asset in the portfolio. HICL is committed to carrying out these important fire safety improvements at the facility and will make a further investment in the company to support this. The remediation costs are reflected in the Directors' Valuation.

As is to be expected within a large portfolio of real assets, a subset of assets continues to undergo the investigation and remediation of identified construction defects, including taking action to ensure that subcontractors progress necessary works in a timely and responsible manner. Where equity cash flows are being impacted by these remedial activities, there is uncertainty around the timing of the assumed recommencement of distributions. Care has been taken to reflect this uncertainty in both cash flow forecasts and the Directors' Valuation.

Market and Outlook

Looking to the future, we remain focused on working in close partnership with our public sector clients to ensure availability and continued service delivery from essential infrastructure assets that are being managed in a challenging operating environment. It is likely in the current climate that asset operation will continue to face challenges over the next six months. Accordingly, an active asset management strategy, focused on asset-level readiness and continuity, remains fundamental. Further focus will be applied to a number of the Company's demand-based assets as they face a more protracted path to recovery and require even greater collaboration from all asset stakeholders.

Despite these challenges, the predictable long-term yields from core infrastructure remain highly attractive to institutional investors. Activity in the sector has resumed with a number of transactions having completed during the period and with valuations at historically high levels. Looking forward, the sector continues to benefit from strong fundamentals. These are derived not only from the anticipated infrastructure spending associated with governmental responses to the pandemic but also as a result of the powerful macro-trends that continue to shape the requirements of the infrastructure of tomorrow.

In this context, InfraRed continues to execute its acquisition strategy for HICL with care, maintaining pricing discipline as a priority. InfraRed has cultivated a high-quality pipeline of core infrastructure assets for HICL and is progressing a number of transactions on behalf of the Company into the second half of the financial year. We are seeing continued pipeline across segments within HICL's existing portfolio as well as in those sectors that support the modern economy, in particular across communications (e.g. fibre) and the energy transition to a low carbon economy (e.g. meters, distribution).

This opportunity set, combined with enduring institutional demand for the stable, predictable cash flows available from core infrastructure investment, continues to provide a supportive platform for a nimble, well-capitalised company, such as HICL, to pursue its strategy.

Directors' Responsibility Statement

We confirm that to the best of our knowledge:

§ the condensed set of financial statements has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting ("IAS 34") as adopted by the European Union; and

§ the interim management report, comprising the Chairman's Statement, Investment Manager's Report and Financial Results, includes a fair review of the information required by:

a)  DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)  DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

On behalf of the Board

Ian Russell

Chairman

24 November 2020

Publication of documentation

The above information is an extract of information from HICL's Interim Report. The Interim Report has been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.morningstar.co.uk/uk/NSM. It can also be obtained from the Company Secretary or from the Investor Relations section of the Company's website, at www.HICL.com. A direct link to the PDF of the Interim Report is also included here: www.hicl.com/InterimReport2020  

Click on, or paste the following link into your web browser, to view the associated PDF document.

http://www.rns-pdf.londonstockexchange.com/rns/3936G_1-2020-11-24.pdf

 

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