HICL reduces Carillion provision – HICL Infrastructure has published its results for the year ended 31 March 2019. Its NAV rose by 5% to 157.5p and the total return on NAV (including dividends) was 10.8%. The dividend for this period was 8.05p, in line with previous guidance. HICL’s board has re-affirmed its 8.25p target for the next financial year ending 31 March 2020, and 8.45p per share for the financial year ending 31 March 2021. The company successfully completed its migration from Guernsey to the UK.
Carillion write-back
3p of the uplift in NAV came from a write-back of the provision that HICL made against the collapse of Carillion. The final bill came in at £33m, some £27m less tghan the estimated impact last year. HICL had looked to be the worst affected of the infrastructure companies by Carillion. It now looks as though they were a bit overcautious. Nevertheless, the cost to shareholders was still significant.
Value enhancements
Approximately GBP29m of value (1.6p) has been delivered through enhancement actions on PPP assets in the year to 31 March 2019. This included the strategic disposals of the Highland Schools PPP (UK) and the AquaSure Desalination PPP (Australia), with disposal proceeds in excess of their book value – HICL’s investment IRRs (average rates of return each year) were 14.3% and 9.4% respectively. The proceeds were re-deployed into the incremental stake in the A63 Motorway (France) and into partially paying down the company’s credit facility.
On nationalisation
“The political landscape in the UK continues to evolve. Particularly pertinent for HICL is the development of thinking on infrastructure financing: on the one hand, the Treasury is looking at new ways to fund essential investment in national infrastructure; and on the other hand, the Labour Party has raised the prospect of nationalisation of certain infrastructure. Addressing both themes, the Investment Adviser will provide input to HM Treasury and the Infrastructure and Projects Authority’s joint Infrastructure Finance Review Consultation and is engaged in constructive discussions with policy-makers who are interested in forming a balanced perspective of the private sector’s involvement in infrastructure delivery. HICL is thus represented in the UK national dialogue around the future of infrastructure investment.
Setting aside the practical barriers to nationalisation, such as the necessary compensation that would be payable to infrastructure owners including UK pensioners and savers, the narrative around nationalisation ignores the many benefits of private capital invested in the infrastructure that facilitates the delivery of public services. For example, since 1990, service indicators across the water sector in England and Wales have outperformed those in France, Ireland, Italy and Spain. The water sector in England and Wales is also the top performer for customer service and compares well for bill levels. It is also estimated that a greater increase in productivity rates in the private sector compared to the public sector is worth at least GBP3.2 billion in cost savings, which is reflected in customer bills. As these statistics illustrate, the true picture of private sector participation in the management of public infrastructure does not fit easily into a headline.
Research by the Global Infrastructure Investor Association has found that in the UK 8.7m individual pensions, of which 59% belong to serving or former public sector employees, across 118 UK pension funds are invested in UK infrastructure. This does not take into account individual UK savers who have invested in infrastructure funds, including c. 50% of HICL’s shareholders, through their private pensions, savings products and direct shareholdings. Future discussions on the merits and consequences of nationalisation must recognise and address the impact on end investors in infrastructure.
HICL is a long-term owner and custodian of public infrastructure and takes seriously its responsibilities to all stakeholders, including end users. The Board and InfraRed will continue to engage constructively with the UK government, policy-makers and politicians across the spectrum in relation to the private sector’s role in infrastructure investment.”
HICL reduces Carillion provision