GCP INFRASTRUCTURE INVESTMENTS LIMITED Analyst Presentation Year - - PowerPoint PPT Presentation

GCP INFRASTRUCTURE INVESTMENTS LIMITED

Analyst Presentation Year end results for the period to 30 September 2019 December 2019

Authorised and regulated by the Financial Conduct Authority

I N F R A I N F R A

IMPORTANT NOTICE

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This presentation (the "Presentation") has been prepared by Gravis Capital Management Limited (the "Investment Adviser") and is for information purposes

• nly.

This Presentation is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Any recipients of this presentation outside the UK should inform themselves of and observe any applicable legal or regulatory requirements in their jurisdiction, and are treated as having represented that they are able to receive this Presentation without contravention of any law or regulation in the jurisdiction in which they reside or conduct business. This Presentation is not intended to provide the basis for any credit or other evaluation of any securities of GCP Infrastructure Investments Limited (the "Company") (or any other current or future investment vehicle managed or advised by the Investment Adviser or any of its affiliates) and should not be considered as a recommendation, invitation or inducement that any investor should subscribe for, dispose of or purchase any such securities or enter into any other transaction with the Company or any other person. The merits and suitability of any investment action in relation to securities should be considered carefully and involve, among

• ther things, an assessment of the legal, tax, accounting, regulatory, financial,

credit and other related aspects of such securities. Any recipient of this document you will be taken to have warranted, represented and undertaken to the Investment Adviser and the Company that you have read, agree to and will comply with the terms of this notice; and you will conduct your

• wn analyses or other verification of the data set out in this document and will bear

the responsibility for all or any costs incurred in doing so. The Investment Adviser acts only for the Company and will not be responsible to any third party for providing the protections afforded to clients of the Investment Adviser and will not be advising a third party on investing in the Company. No undertaking, representation, warranty or other assurance, express or implied, is made or given by or on behalf of the Company or the Investment Adviser or any of their respective directors, officers, partners, employees, agents or advisers or any

• ther person as to the accuracy or completeness of the information or opinions

contained in this Presentation and no responsibility or liability is accepted by any of them for any such information or opinions or for any errors, omissions, misstatements, negligence or otherwise for any other communication written or

• therwise. In addition, neither the Company nor the Investment Adviser undertake

any obligation to update or to correct any inaccuracies which may become apparent in these slides. The information in this Presentation is subject to updating, completion, revision, further verification and amendment without notice. In considering the performance information contained herein, recipients should bear in mind that past performance is not necessarily indicative of future results, and there can be no assurance that return projections will be met. Certain of the past performance information presented herein may not be representative of all transactions of a given type. Any forward-looking statements have not been independently audited, examined or otherwise reviewed or verified and nothing in this Presentation should be construed as a profit forecast. Certain information contained herein (including forward-looking statements and economic and market information) has been obtained from published sources and/or prepared by third parties and in certain cases has not been updated to the date hereof. While such sources are believed to be reliable for the purpose used herein, none of the Investment Adviser or any of its directors, officers, employees, partners, members, shareholders or affiliates, or any other person assumes any responsibility for the accuracy or completeness of such information. This is a financial promotion and is not intended to be investment advice. The content of this Presentation which has been prepared by, is the sole responsibility of and has been approved as a financial promotion, solely for the purpose of section 21(2)(b) of the Financial Services and Markets Act 2000 (as amended), by Gravis, authorised and regulated by the Financial Conduct Authority. Gravis is registered in England and Wales No: 10471852 and its principal place of business is at 24 Savile Row, London W1S 2ES

AGENDA

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Strategic Update Financial Update Portfolio Update Q&A

Strategic Update Financial Update Portfolio Update Q&A

AGENDA

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I N F R A I N F R A

STRATEGIC UPDATE

Company objectives

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DIVIDEND INCOME To provide shareholders with regular, sustained, long-term dividends. DIVERSIFICATION To create a diversified portfolio of debt and similar assets secured against UK infrastructure projects. CAPITAL PRESERVATION To preserve the capital value of its investment assets over the long term.

7.6p

Dividends per share paid for the twelve months to 30 September 2019

6.0%

Dividend yield to 30 September share price

49

Holdings

10.4%

Size of largest investment*

111.66p

NAV per share at 30 September 2019

126.60p

Share price at 30 September 2019

* Loan is secured against a cross-collateralised pool of 14 separate operational PFI assets, with no exposure to any individual project being in excess of 10% of the

• verall portfolio.

I N F R A I N F R A

STRATEGIC UPDATE

UK Infrastructure revenue support models – the current picture

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Public private partnership models PFI PF2 NPD (Scotland) MIM (Wales) Regulated Asset Base Subsidies Sectors Economic Social Low carbon RO Funding FiT Scale RHI ✓ ✓ ✓ ✓ ✓ ✓ ✓ Example assets Education, Leisure, Healthcare ✓ ✓ ✓ Energy bills (Levy control framework) Treasury Central government / local authorities / delegated User fee ✓ CfD >700 projects, capital value of £60bn 4 projects 3 schemes ongoing £160bn of capital value (RAB) 5 projects, c£0.5bn capital value 26,000 projects, 33 GW capacity 820,000 projects, 6 GW capacity 57 CfD contracts, 6 GW capacity Offshore wind 4.6 GW, ~20,000 installations (Non-dom) ✓ ✓ Wind, Solar Wind, Solar Biomass heat National Grid Schools Roads

Denotes support models that remain open / available

I N F R A I N F R A

STRATEGIC UPDATE

Historic revenue support levels

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5 10 15 20 25 30 35 40 45 50 2016-17 2011-12 2013-14 2012-13 2014-15 2015-16 2017-18 Electricity / gas distribution Electricity distribution 2019-20 2020-21 PFI - Education CfD FiT RO Domestic RHI PFI - Health / social care Thames Tideway PFI - Defence Non-domestic RHI PFI - Other PFI - Transport Gas distribution Water / wastewater 2018-19 RIIO-T1 (2013-21) RIIO-GD1 (2013-21) RIIO-ED1 (2015-23) Levy Control Framework Comprehensive Spending Review Treasury / Gvmt departments Pass-through to users (geographic) TPCR4 & RO (2007-13) GDPCR1 DPRC5 2014 Price Control 2009 Price Control 2019 Price Control

Project based Corporate £160bn £60bn £100bn

Sources:

• Consumer funded policies report (November 2016), RO annual reports, FiT annual reports, RHI annual reports,
• https://www.nao.org.uk/wp-content/uploads/2018/01/PFI-and-PF2.pdf, Current projects as at 31 March 2018
• Various Ofgem and Ofwat documents

Capital value

Energy bills Government budgets User charging

I N F R A I N F R A

STRATEGIC UPDATE

Company Context

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Strengths

• Diversified portfolio of infrastructure investments with

some inflation protection;

• Focus on debt investments (40% of which is senior),

reducing volatility in income;

• Limited construction risk and foreign currency exposure;
• Diversity of service providers responsible for operating

assets; Weaknesses

• Focus on UK and therefore exposed to changes in UK

policy;

• Current portfolio challenges related to biomass assets,

construction disputes; Opportunities

• There are sectors where government support remains for

new infrastructure, such as heating, transport, social housing, energy storage;

• Increasing activity in the secondary market for refinancing
• r asset sales;
• Exposure to shareholder interests in secondary market

transactions; Threats

• Increasing regulator involvement across all sectors;
• General election and nationalisation proposals from

Labour;

• Limited new revenue support models from UK government

which seek to attract private finance to infrastructure;

• Rising interest rates;

Strategic Update Financial Update Portfolio Update Q&A

AGENDA

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I N F R A I N F R A

FINANCIAL UPDATE

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Share price consistently traded at a premium to NAV

7.6p dividend paid for last seven years Share price at c. 13.4% premium to NAV at 30 September Market cap of £1.11bn at 30 September

20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000 140,000,000 100 105 110 115 120 125 130 135 140 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19

Capital raised (£) Price (pence / share)

Capital raised (rhs) Last price (lhs) NAV per share (lhs)

I N F R A I N F R A

FINANCIAL UPDATE

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Highlights for FYE September 2019

Total Income

£75.0m

£87.5m (2018)

Profit and comprehensive income

£59.1m

£73.4m (2018)

Net asset value £985.5m (2018) Earnings per share

6.74p

8.64p (2018)

Borrowings £144.7m (2017)

£980.1m £165m

Shareholder total return (12 months)

8.0%

Capital invested in period

£140.6m

123.9% since IPO

I N F R A I N F R A

FINANCIAL UPDATE

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Results Summary

Balance Sheet: as at 30 September 19 (£ 000) Comprehensive Income: 12 months to 30 September 19

** Calculated in accordance with the AIC methodology

NAV per ordinary share = 111.66 pence (30 September 2018: 112.49p)

[£ 000] Period end 30 September 2019 Period end 30 September 2018 Income Net income / gains on financial assets at fair value through profit and loss 63,662 86,625 Other income 11,300 861 Total income 74,962 87,486 Expenses Investment advisory fees (8,789) (8,420) Operating expenses (2,662) (2,528) Total expenses (11,451) (10,948) Total operating profit before finance costs 63,511 76,538 Finance costs Finance expenses (4,399) (3,120) Total profit and comprehensive income for the period 59,112 73,418 Basic and diluted earnings per share (pence) [pence] 6.74 8.64

Ongoing charges ratio = 1.1% ** Dividends for the period = 7.6 pence per share

[£ 000] 30 September 2019 30 September 2018 Assets Cash and cash equivalents 2,477 2,335 Other receivables and prepayments 135 265 Financial assets at fair value through profit and loss 1,144,650 1,130,392 Total assets 1,147,262 1,132,992 Liabilities Other payables and accrued income (3,078) (2,743) Interest bearing loans and borrowings (164,088) (144,724) Total liabilities (167,166) (147,467) Net assets 980,096 985,525 Equity Share capital 8,777 8,760 Share premium 943,789 941,706 Capital redemption reserve 101 101 Retained earnings 27,429 34,958 Total equity 980,096 985,525

I N F R A I N F R A

FINANCIAL UPDATE

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Income Breakdown

75,279 74,962 59,112 14,451 11,300 Unrealised gains Total income Unrealised losses Income (£ 000)

• 26,067

Interest capitalised and paid Principal indexation Other income

• 11,450

Operating costs

• 4,399

Finance expenses Profit and comprehensive income

• 66,640

Dividends

• 7,529

Net contribution to earnings 7,791

• 11,617
• 2,249

Downward movements in valuation

• 17,159

Upward movements in valuation Other unrealised movements (timing of debt service payments) Net unrealised movement

Downward movements in valuation from:

• Revised forecasts (electricity prices, project

performance, inflation): (£7.8m);

• AD impairments: (£6.2m);
• Ofgem audits: (£1.7m);
• Rental income arrears: (£0.4m);

Upward movements in valuation from:

• Refinancing and disposal assumptions:

£4.9m;

• Revised forecasts and discount rates: £2.2m;
• Principal indexation: £0.7m;

I N F R A I N F R A

FINANCIAL UPDATE

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Investment breakdown

Repayment Investment

• Primarily new

investment in onshore wind, AD;

• Follow-on investments

in PFI and social housing;

• Material prepayment

from AD, solar and

• ffshore wind;

84,608 25,875 56,029 28,721 86,041 Unscheduled repayments Cash flow (£ 000) New investments Scheduled repayments Further advances Net position 15,485 11,970 67,746 1,291 35,594 7,751

• 57,032
• 6,730
• 15,529
• 11,461
• 15,485
• 1,291

Onshore wind Cash flow (£ 000) Anaerobic digestion Biomass Hydro 23 Offshore wind

• 3,237

Commercial solar

• 1,804

Rooftop solar PFI Social housing

• 2,193

778

I N F R A I N F R A

FINANCIAL UPDATE

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Financing breakdown

Credit Facility Summary Size Margin Expiry Balance Period End Fixed tranche £50m 190 bps March 2021 £50m Revolving tranche £100m 190 bps March 2021 £115m £165m

• Net new investments

financed through credit facility drawdown and cash resources.

25,875 6,964 18,911 Funded out of cash resources Net investment in period Credit facility drawn

I N F R A I N F R A

FINANCIAL UPDATE

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Dividend coverage

59,112 66,641 Total profit Dividends

• 11.3%

Earnings (as per SOCI) Adjusted earnings Cash

• Includes ‘pull-to-par’ effect (c. £1.5m

pa);

• Includes upward / downward

revaluations;

81,975 77,425 66,641 15,850 Adjusted net earnings Loan interest accrued 11,300 Dividend Other income Expenses and Finance costs +16.2%

• Removes pull to par and impact of

revaluations;

• Based on interest accruals;
• This is a key metric reviewed by the

Board when determining dividends;

37,936 152,698 66,641 Repayments received Operating and financing costs 52,736 Total cash inflows Loan interest (cash) 114,762 Operating cash flow 14,800 Dividends +129.1%

• 43.1%
• Considers cash inflows which are

available to fund dividends;

• Component of interest accruals is

rolled-up (c. £22.5m), which represents an efficient way of re-deploying principal;

I N F R A I N F R A

FINANCE UPDATE

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Capitalised interest - forecast

60,000 20,000 10,000 30,000 40,000 50,000 70,000 80,000 90,000 100,000 2028 2020 2021 2022 2023 2024 2025 2026 2027 2029 2030 FYE Value (£ 000) Interest accrued Interest paid Interest capitalised

• Assumes no re-investment;
• Average of c. £8m of interest capitalised per annum;
• A number of loans are forecast to come out of lock-up (and therefore start paying) next year;

Strategic Update Financial Update Portfolio Update Q&A

AGENDA

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I N F R A I N F R A

PORTFOLIO UPDATE

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Investment Portfolio at a glance

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Infrastructure loans in the portfolio

14 years

Weighted average life of loans in the portfolio

8.1%

Average annualised yield

12%

Construction exposure

(as % of total assets)

64%

Renewable energy project exposure (as % of total

asset valuation)

44%

Loans with some partial inflation protection

(as % of total asset valuation)

I N F R A I N F R A

PORTFOLIO UPDATE

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Portfolio Risk Summary

Renewables SH PFI / PPP

Wind (onshore) Solar Biomass AD Wind (offshore) Hydro Supported Living Healthcare Leisure Education Waste Market risks Credit risks Operational risks Legal / regulatory Asset Characteristics Overall score

High Medium Low Likelihood Impact

Sector exposure (by value at 30 September)

12% 11% 21% 10% 7% 2% 14% 22%

Periodic change

I N F R A I N F R A

PORTFOLIO UPDATE

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Capital structure position

I N F R A I N F R A

PORTFOLIO UPDATE

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Sensitivity analysis

Electricity Prices

(10%) (5%) Base case 5% 10% NAV impact (pence per share) Electricity prices (2.95) (1.59) 1.64 3.13 2018 (2.45) (1.20) 1.13 2.23

PFI Termination

Portfolio exposure (% of total assets) Impact if exercised Provision type No termination right 1.4% No impact Termination right based on market test 14.4% No impact expected– assets held at fair value Termination right based on IRR 5.7% Estimated impact of (£34m) / (3.9p per share)

Inflation

Strategic Update Financial Update Portfolio Update Q&A

AGENDA

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I N F R A I N F R A

CONTACT INFORMATION

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Philip Kent philip.kent@graviscapital.com 020 3405 8512 Rollo Wright rollo.wright@graviscapital.com 020 3405 8503 Gravis Capital Management Limited 24 Savile Row London W1S 2ES www.graviscapital.com

I N F R A I N F R A

INVESTMENT IDEAS FOR THE LONG RUN