BBGI Global Infrastructure S.A. (BBGI) Earnings Call Transcript & Summary

Welcome to the BBGI 2022 annual results presentation. Thanks for all the people here who made the effort to coming in. It's good to see some people in-person here, especially after a couple of years where most of that has been virtual. I will start the presentation. And midway through, I will hand over to Duncan Ball, my co-CEO. And we start the presentation on Page 5, which is basically a reminder of the fundamentals of BBGI and our investment proposition. Our purpose is to deliver social infrastructure for healthier, safer, more connected societies, while creating sustainable value for all stakeholders. We have done a vision purpose and values exercise. It's important to hear that this is the core purpose. It is our red threat actually through all our actually results and also the presentation. The business is actually -- has got 4 actually strategic pillars: Low risk, globally diversified, strong ESG approach and internally managed. Starting with low risk. We focus solely on availability-based actually assets. That means our cash flow is secure, predictable and they are backed by public sector counterparties. That results in stable, predictable cash flows and delivering also high-quality contracted inflation linkage. Second pillar is globally diversified. We focus on AAA and AA rated countries. All our assets are in stable, well-developed operating environment. And although we have got a global portfolio, we're here to connect and to serve actually people. The third pillar is our strong ESG approach. ESG is fully integrated in our business model. And we focus on delivering a social impact. We are a socially beneficial company under SFDR, sustainable financial disclosure regulations. And we also have got a high degree of climate resilience within an extensive exercise last year. Executive compensation is linked to ESG, which currently also a lot of investors are looking at that and we feel we are at forefront of that in that respect. Internally managed, that's the last strategic pillar. We are the sole infrastructure equity company, which is internally managed. That means there's no external manager. Our interests are aligned with that of investors. We are interested in the same metric, that means NAV per share growth not NAV growth for the sake of growing. We've got a low comparative ongoing charge here, and we feel that's very important also on the quantitative side. If you go then to the financial highlights of the year. The net asset value per share has grown strongly, 6.6% at 149.9p. We delivered on our target dividend of 7.48p, which we actually have set up already 3 years ago. More important here is and I want to stress the point here, we increased our dividends now by 6% for the targets 2023 and for 2024. We previously had a target of 2%. But given that we got the strong contracted inflation linkage of 0.5%, that helped us to the cash flows filter through to our distributions, and we feel we have to pay back and want to pay back part of that, that our shareholders contribute, that benefit from that increased actually dividends. We still got a strong -- despite that, we've got a strong dividend cover. And even with the revised actually target dividends for 2023 and 2024, we expect the dividend cover to be around 0.3% or even above. The annualized total NAV was 9.1% and also the annual NAV return for the year 2022 was 11.8%. And I mentioned the ongoing charges of 87 basis points, which we feel is very competitive and compelling. The next page actually presents a robust operating model, and we're actually delivering sustainable value for all shareholders or stakeholders, that's our objective. And our business model is based on 3 different principles; value-driven active management, prudent financial management and selective acquisition strategy. We've got 56 high-quality PPP assets in our portfolio. They all performed strongly. We can really say hand on our heart, we don't have any problem child in our portfolio. And that has actually also shown that we have got no lockups or defaults in our portfolio. And we are the only company in our sector, we'll report on that metric, who is saying no distribution lockup, that means all our companies are able to distribute. And there's no covenant breaches or anything like that reported, which will lead to a lockup. And as said, we are the only company who have been repeating that continuously now, I think, for about 5 years even. The high-quality inflation linkage helped us to increase our NAV for GBP 76 million, and we'll talk about that a bit later as well in more detail. We also have got a high level of asset availability of 99.9% and that helps to keep the customer satisfaction up. We make the assets available to a very, very large extent and that helps us to have conversations with our customers here. And only if you've got a happy project and already have a happy client, that's the prerequisite actually of making distributions eventually in the end. We got a socially beneficial investment under Article 8, I mentioned that. Prudent financial management, net debt position was GBP 26.3 million, drawings outstanding were GBP 57.5 million, and I see there's a reasonably low amount of leverage in our book. At IPO, we promised a progressive dividend, and we delivered on that. We got a 3.1% increase of dividends since IPO. We got a GBP 230 million credit facility in place and GBP 70 million accordion tranche. We had occasionally the question, is there a lot of -- because we're not using a lot what sort of costs we're having on that. And the annual cost, if it was not drawn, is about GBP 1.5 million. So it's negligible in terms of the commitment fees we pay on that one. But it's worth having the facility in case an opportunity, a value-accretive opportunity came up that we're keeping it. We're living in volatile foreign exchange actually world currently, and we have got a hedging strategy in place, which have worked well over the last 11 years. And as a reminder, we hedge actually in the way that we limit the NAV effect to 3%, if all currencies move against the pound by 10%. Interest rates have risen, as we all know, and the impact on our discount rates was about 0.3%, and Duncan will talk more about that discount rates later on in the presentation. Selective acquisition strategy, we focus on availability-style assets and the focus is that it's value accretive in case of strong inflation linkage yield or residual life. And last year, we had GBP 64 million of new investments, and that further diversified our portfolio. And the availability style, we have got a strong portfolio in place. But the key point currently is that we are disciplined in the current market environment that we only buy stuff, which is value accretive to the portfolio. If you turn to the next page, this slide presents our dividend track record and the projected cash flows from our portfolio. On the top, you see actually the dividend increased since IPO. We promised a progressive dividend, delivered on that 3.1%, but also have got now increased the dividends due to our inflation linkage by 6% to 7.93p and 8.40p per share. We also set a new target for 2025 of 8.57p. That's 2% increase currently. If inflation actually persists and will be higher for the longer term, we may revisit that target as well and actually potentially increase that one. So that's not cast in stone right now. But as a target, and no one knows where inflation will go, and if it's coming down, we may actually stay with 2%. If it's consistently stays up, we may increase that. On the bottom line, you see actually the contracted cash flows we're having coming from our portfolio, that actually gives us very good visibility and predictability of our cash flows over the long term. And as a reminder, we're getting returns from government and government-backed counterparties, long-term and contracted with returns and distributions. That slide presents our track record. NAV and dividends per share is on the top chart. And over the last 11 years, we had always, always even in semi-annual periods both the NAV and the dividends actually have grown. And now after 11 years, we're now at 217.9p actually per share with dividend and NAV growth. On the bottom chart, you see the total share return chart between the FTSE All-Share and actually our BBGI share, and we outperformed the index. On the right-hand side, you see a couple of return metrics and the total NAV return was 160.9% and annualized 9.1%. As mentioned, the 2022 NAV return was 11.8%. We have got a reliable progressive dividend yield at 4.8%. If you look at the current share price and actually look at -- and take also the dividend target 2023, we would currently trade at a 5.5% yield, which we believe is attractive and quite a bit higher than actually the one at the year-end. Total share return was 152% and annualized 8.8%. Moving on to next slide. That slide demonstrates 4 key strengths of the portfolio. At the top, you see two boring, but important charts, 100% availability-style. No exposure to other asset classes, higher-risk asset classes like toll roads, regulatory assets or similar. We've got a low-risk portfolio, 99.5% is operational. We've got a small road in Canada, which will become operational later this year. It's on track, on budget and no actually surprises expected on that. Geographical split, Canada is the largest sector where -- largest country at 35% followed by the U.K. with 32%. And then actually, we got between 10% and 12% Continental Europe, U.S. and actually Australia. Sector split, we got from schools to hospitals from social housing to clean energy and transport, roads and bridges, well diversified social impact portfolio and that has worked us well for us in 11 years. Next page, that gives a further split of the portfolio. Top 5 investments are 34% and the next 5 are 16%. You see a well-diversified portfolio. There's no single major concentration risk. Same is true for our counterpart exposure. That has become again more into focus O.ur subcontractors, we do a continuous and quite rigorous subcontractor monitoring, and we review that on a monthly basis, where we have a qualitative factors and quantitative factors to review to see if there are any issues on the horizon. And touch wood, there's nothing which actually leads us to believe where we have identified any red flag in that area. So it's a well diversified actually subcontractor group here with no major single asset exposure, which average life is still quite high. We started off with about 24.5 years at IPO time 11 years ago. And we still have over 20 years, which we believe is quite good, and we have managed to keep the weighted average life of the portfolio high over the time by making accretive investments also in the terms of relay transaction length without actually diluting our portfolio strategy, still staying realistic and only investing in availability-style investment. Then turning to active asset management. This is what which is our bread and butter business, but is very important. We are hands on in our approach here under our active asset management approach. We actually will deliver well-maintained infrastructure of the public sector parties, and we have got a co-robust governance framework for that. We're trying to meet our clients literally on a yearly basis twice. Our asset managers have got targets in their annual bonus targets that they meet them. Actually, if you have to meet them, have got a meaningful meeting. And the motto here is, you need to go have a coffee when there's no issue because you don't get the coffee when there's an issue. And that is the key. It's an easy one, but it's absolutely important that we follow that one rigorously. The key value accretive activity this year was looking at our treasury management. Our proportionate share of deposits in the underlying portfolio companies is GBP 400 million.and poising for the last 10 years, we had 0% interest rates. But now actually, the average interest rate in our portfolio, the weighted average interest rate short term, and if you just look at the data fall for this quarter is around 4%. And if you're just getting 2% more than our assumptions, it would mean actually we got GBP 8 million more on GBP 400 million deposits, GBP 8 million more of interest income, which is really value accretive. So what we are currently doing is we are in the advanced stages of having -- of concluding virtual putting agreements with a number of banks to optimize interest. And besides, actually, we have got every Board meeting, we're discussing treasury management, how to optimize and professionally do treasury management, but we're actually supporting that from the corporate, and that is the key activity we're doing. And we feel that is very value-accretive activity, 2% more GBP 8 million, 3% GBP 12 million, you can -- it's a lot of money power we're getting here. So it's worth spending the brain damage on that subject here. While we're doing that, we're also conscious about our bank concentration risk. Under all the banks we're having, we have got rating limits on our bank, but actually most of our banks are really above A level, the top banks between A and top 5 have a rating between A and AA. And none of the banks have been anywhere in the news, not if we vaguely mentioned here in the news there. So I don't want to go in more details. So we, on that side, feel quite well placed here. Inflation is the next topic here. If you go to the next page there, high-quality inflation linkage is the topic, obviously, and a lot of people compare sometimes numbers, KPIs, where some people say it's inflation linkage of X and sometimes inflation linkage of Y. And we want to bring in a little bit more clarity from our side. But first of all, if you look actually at the chart, the chart on the left-hand side shows 3 scenarios where we increased the inflation by 2% for 1, 3 and 5 years. And what does it do in terms of actually increasing the NAV percent and NAV pence per share. For example, if the inflation is 2% higher for 5 years than our forecast and the forecast for U.K., for example, is 5.8% for 2023 and 2.75% for 2024, thereafter, the NAV would increase by 6.1%. We already know that the 5.8% is probably much higher. But when we said actually the inflation rates in January, there was a debate whether inflation is behind us. That view has unfortunately changed. So we have a very conservative side here. So some of the upsides will probably be realized in reality, given that we've got conservative assumptions, but Duncan will give much more clarity on our assumptions and walk you through in more detail a bit later. The other point to mention here, our inflation linkage is contracted. We have a contract with the government or all government entities and we get annual mechanically increases in our availability fee, which is actually rising with U.K. RPI. And that's of the mechanical exercise is contracted. This is quite different to some other infrastructure asset groups like merchant infrastructure or demand-based assets where you've got a full demand or market risk. For example, in theory, you could raise actually on the toll road the tolls by 10% in line with inflation. But you may well get not actually 10% increase in revenues because you get diverted traffic eventually. So the revenues in theory are -- have got a good inflation linkage. But in practice, actually, that is not filtering through. On regulated assets, they have inflation linkage, but there's two points actually mentioned here. First point is you have to agree with the regulator in the end after regulatory period. And that actually a new game is started and the regulator currently is taking this job very much in the interest of the users, not of that investors, and they are becoming very tight in the way they interpret actually their role. The second point is the inflation linkage and regulatory assets are often CPIH. And in February, the difference between RPI and CPIH in the U.K. was, the difference, over 4%. So if someone says I've got inflation linkage of X, you always have to look about what is the inflation behind it, the inflation index and not just the linkage itself because it can be a totally different basis, RPI or CPIH, which is currently a huge difference of over 4%. If you turn to the next page. We made two acquisitions this year and I will talk about the A7, and Duncan will talk about the Women's College on the next page. The A7 is a motorway north of Hamburg and a 30-year availability project, no refinancing risk. The project provides the real benefit to communities and also to the users. It is 65 kilometers. It's a very, very busy motorway with 130,000 vehicles each day. That's probably the upper limit we see in Germany on a motorway for 6 lane in total. The clients AAA rated, remaining concession life is long. Again, when we talk about value accretive investment, that's the feature. There was a strong yield profile. Also the inflation linkage very much helped us to get to where we are because it was a very value-accretive acquisition for a number of factors. And with that, I would hand over to Duncan.

Hello. It was a quicker, Frank. Thank you. So I'll just draw your attention to Women's College Hospital. So 20% of our portfolio is in health care, so that aligns with SDG 3, which is one of our core SDGs. And this is pretty typical of any of our health care investments. So it's a project that's located in downtown Toronto. It's an iconic building, delivering on women's health issues. It's an ambulatory care facility, meaning it's a lot of outpatients. So there's not -- there are some operating surgeries, but it's predominantly a medical building with suites. And so it's not a complex as, say, an acute care facility. It's 100% availability-based payment coming from the Ontario government. We're 100% owner. It's a good example of a project that's been able to show its resilience. It performed very well during COVID with no interruptions in payments. And in fact, it became a testing center for downtown Toronto during COVID and the repurpose of the lobby and did some things there. It's got strong ESG credentials. It was built through a LEED Gold standard at the time, which is the equivalent of best building in the U.K., so it's very high environmental standard. We've subsequently gone and we're in the process of swapping out a lot of the lights for LED lighting. We formed an ESG committee with the client, and we're looking at ways to try to deliver on net zero targets. The concession runs until 2043. I personally visited the asset about 3 weeks ago. Client's very happy, and it's typical of our health care investments. It's one we're very proud of. We can't do one of these presentations without touching on ESG. So it's certainly something that's important to us. ESG is fully integrated into our business model. As Frank mentioned, the Management Board has ESG targets in both the STIP and the LTIP. So what do they say, what gets measured gets managed. And so where there's a lot of focus from the tone at the top is very much focused on ESG, as well all of our staff have been trained in ESG and all our asset managers have ESG targets. Under SFDR, the new legislation, we're an Article 8 firm. So it means we're delivering socially beneficial investments along with a strong governance model. We have extensive ESG monitoring. We have all our portfolio companies report on ESG. We have a questionnaire that it started off at 23, it's now over 100. When our asset managers have to report on it, they moan and grown, but it gives us tremendous data and insight into the assets and allows us to improve the performance operations. And we're also tracking the carbon, the emissions at the asset levels and that will all be disclosed for each asset before June 30th as part of our SFDR obligations. The portfolio is very climate resilient. We've done extensive testing last year -- the year before last year. In 2022, we did deep dives on 20 more assets. So all our assets have been reviewed for climate resiliency. We've looked at different perils under three different climate scenarios over three different time horizons. And we're confident that we have a very resilient portfolio from a climate perspective. We published our net zero targets. Those are on our website. They've been approved. We're signatory to the Net Zero Asset Managers initiative. And as mentioned, we report at the BBGI corporate level. And we've -- we're certified as carbon neutral, and we have targets to reduce our corporate emissions. But at the individual asset level, we'll report all that information before June 30th, and you'll be able to get that on our website. ESG is an emerging topic. Everyone talks about it, but we've taken comfort in the external validation we've gotten in four areas. One is we're certified carbon neutral. We also have a UNPRI 5-star and 4-star ratings under the two relevant categories. We've been rated by Sustainalytics as negligible. Negligible sounds not positive, but it's actually sort of the best rating you can get in ESG. And ISS has just rated us, and they've given us the prime badge, and we have a B minus. Again, a B minus may not sound like a great grade, but we're in the first decile with that score. So they've looked at all our policies and procedures and quite an extensive review and given us the top rating in the sector. Turning on to the slide on valuation. So the NAV increased 6.7% to GBP 1.069 billion. On a total NAV return basis, including the dividends, that was up 11.8% during the reporting period. As Frank mentioned, we made two acquisitions in the year for GBP 64 million. What negatively impacted the portfolio valuation was we increased the discount rate to reflect the higher interest rate environment. So we increased weighted average discount rate by 30 basis points, and I'll talk about that in a minute. So that had a negative impact of approximately GBP 30 million -- GBP 28.5 million. But more than offsetting that was the positive impact of inflation and deposit rates. So the inflation effect was GBP 76 million. So net-net, we've been able to preserve the net asset -- grow the net asset value despite higher interest rates. And the short-term inflation contributed. So short-term inflation assumptions and actual inflation delivered, that increased the portfolio value GBP 76.2 million. The deposit rates also contributed, GBP 15.8 million against our forecasts and actual increases. So that was GBP 15.8 million or 1.6% increase in NAV. And we have a foreign exchange hedging policy but we benefited from the depreciation of the pound relative to the other currencies, and so that contributed. Turning the page, I'll take you through the discount rates. So as mentioned previously, we increased the discount rate by 30 basis points. So the headline discount rate went from 6.6% to 6.9%. I'd like to preface that by saying that the market for available-style transactions continues to be competitive. These assets have really demonstrated their value. We saw that during COVID when there were no impairments to our distributions. We got paid by our clients. And then more recently in a higher inflationary environment we've also benefited. So I think the resilience of this asset class has been proven out over the last couple of years. So we're seeing -- there's no evidence of material adjustments in valuations at the transaction level, but given the rise in interest rates, using a capital asset pricing model, we felt it was appropriate to make an adjustment, which we've done. And so when you look at the risk-free rates, the risk-free rates we're showing here are 3.8% at year-end, and the pickup over the risk-free rate to get to our overall discount rate was 3.1%. If you were to update those numbers for today, the weighted average risk-free rate across our portfolio, so that would be gilts in the U.K., Canada bond yields in Canada, U.S. treasuries, all the respective jurisdictions. If you did that, the risk-free rate across our portfolio is 3.5%, and the pickup over the risk-free rate is 3.4%. So that seems like a very reasonable number to us. We looked at what the discount rates are on a similar basis in the real estate sector and other sectors. We looked at regulated assets. Probably the -- one of the transactions we looked at as we -- the German Gas Network Agency published a guidance about what the allowable return is. And they were allowing a 3% pickup over the risk-free rate. We would argue that a regulated asset has more risk because you get the regulatory risk. So at 340 basis point pickup over the risk-free rate, we feel that's an appropriate amount. If there's no questions -- I'm sure there'll be questions on that later on, but I'll flip to the assumptions. So we've detailed our assumptions on Slide 23. Those assumptions were set at year-end. I think when you look at those assumptions today in the light of current markets and current inflation levels, current deposit rates these are probably seem quite conservative -- they seem reasonable at the time, but in retrospect, they're probably quite conservative. So as Frank mentioned, there's probably some upside. If these levels of inflation and deposit rates persist, there's probably some upside in our numbers that we haven't captured. We'll leave that to you to review and consider. CPI in the U.K. remains at elevated levels. In Canada and the U.S., it's higher than our assumptions, and we're earning quite a bit on deposit. The following page shows the sensitivities. And I think I'll draw your attention to the sensitivity in the middle of the page, which is really what we think is the important one, which is what happens to the value of the portfolio, if you have further increases in interest rates and consequently, further increases in discount rates. But we don't think that's going to happen in isolation. It's usually going to be -- you're only going to have higher interest rates if you have higher inflation and you have higher inflation and higher interest rates, you're going to have higher deposit rates. So you can see midway through the page. We've shown a sensitivity of what happens if you have 100 basis points higher inflation, deposit rates and discount rates, the impact on the NAV is de minimis. Flipping the page to Slide 25. We have quite an extensive risk management program in place. We look at government bond yields, and we look -- what Frank mentioned earlier on, we're active in the treasury management. So we're trying to get as much for monies held on deposit as possible. But we're also spending more recently in the last couple of weeks with Silicon Valley Bank, and some of the bank billers in the U.S. were looking at concentration risk. Put our hand on our heart and say we're not concerned with the banks where we have our money on deposit. We have circa GBP 400 million. Our share of the money in the various projects equates to GBP 400 million. And so we're actively managing that trying to ensure we get the highest rates possible. but also making sure we do it in the context of having creditworthy banks as where we hold the money and make sure we're in compliance with all our project agreements. We've also looked at the changing tax regimes. In the U.K., we had BEPS 4 and similar legislation is coming in, in Canada and Australia. And the impact of that proposed legislation has been taken into the valuation. We don't know where it's going to end up, but there have been provisions taken in that. So we think we're well protected there. Another risk is obviously sustainability, and we've done extensive climate resiliency, modeling and testing. And then finally, cyber risk. We look at the -- we're pretty comfortable. We don't have a lot of cyber risk because we typically don't maintain the computer systems and everything else that's done by third parties or by the client. But we -- certainly, at the BBGI level and our MSA providers, we have extensive reviews to make sure they've got proper protocols and procedures in place. And it's something we're -- it's an emerging field we're continuing to monitor. The next slide talks about internal management. And those of you who are familiar with the story know it well. We think it's the right governance model. It aligns our interests as managers with those of the shareholders. We're incentivized to grow only when we can do so on accretive terms. So we're not asset gatherers. We don't have any acquisition fees. There's no NAV-based performance fees. We have the lowest ongoing charge in the sector. And I think it gives us the discipline to when there are opportunities, we go hard, but there's also going to be times when the market may not be there, may not be as attractive. And during those times, we're not incentivized to grow for growth's sake. So we think it's the right governance model. We often get asked about our pipeline. And I think our pipeline remains robust. It's not so attractive that all the other mega infra funds are piling into the space. We're very much a specialist investor in a niche sector where we -- if you are a developer of PPP projects, whether it's in Australia, Canada, the U.S. or Europe, if you want to sell that asset, we're on your list. So we're very confident we're seeing the full deal flow. We're seeing -- we're not dependent on any one market. So there are times when one market is more attractive or less attractive than others in terms of opportunity set. But it's an opportunity set that's large enough to keep us positive on the sector and optimistic about our growth opportunities, but not so large that it's bringing in all kinds of crazy capital from adjacent infrastructure players who are looking to deploy. So it's very much a market that we're comfortable with. As Frank said, it's a time where we're going through a bit of price discovery. There are some projects coming into market that we're gearing up for, but we're going to be disciplined in our pricing. We're only going to move forward if it can be value accretive. And when I say value accretive, we want inflation linkage, we want long concession life. We want good government counterparties. It has to align with our SDGs. So it's all the things that we've done and it's really all about portfolio construction. You may see us playing at the margins with some asset classes that are very similar to what we've done where we have government counterparties but may be different. Last year, we did the John Hart Generating Station. So people said, well, it's a power station, what's your confidence there, but it was availability-based payments. We've done the same thing. We have some primary help in our portfolio. So you may see us doing things where we've got government counterparties in the background. We continue to have a pipeline agreement with a North American developer, and that created the opportunities for us with John Hart. We don't know when those opportunities will come. But when they come, we're not obligated to act on them. We have an option. So we'll consider them. And if we can do it on value-accretive terms, we'll do so. So I think that concludes the presentation. Just in closing, we've got a low-risk resilient portfolio. I think it proved itself during COVID. It's proving itself again during these high inflationary times. It's all availability-based payments, where we've got a globally diversified portfolio with AA and AAA rated countries. We have demonstrated the strong performance. We've demonstrated a strong inflation linkage. We're delivering critical infrastructure with a strong social purpose. So we very much take a stakeholder model where we believe we're delivering value for the communities we serve. We're delivering sustainable, predictable returns for our investors. Our people feel good about their jobs because they see what they're doing for society. And we've got a climate resilient portfolio. and we remain optimistic. It's been challenging markets, no doubt with rising interest rates, but we're continuing to do what we do. And the portfolio is continuing to perform as it has performed. So we're optimistic for the future, and we think we can continue to do what we do and hopefully, continue to have positive results in the future. So thank you very much, and I'll open it up for any questions you may have now.

It's Iain Scouller from Stifel. I've got a couple. Just going back to the cash flow chart on Page 9. It seems to dip down a bit in 2025 and again in 2027. I was wondering if you could just give us a bit of color on that. And then the second one, just talking about the inflation linkage, yes, I realize the -- you've got the contracts in place that is contractual. But are you getting any pushback from clients whereby they're maybe wanting to reconfigure timing of payments or anything like that?

I think Frank is going to answer your first one because I see him writing. But I can answer your second one because it's easy. No, we haven't seen any pushback from clients. We're active asking all our asset managers, are there any of those conversations going on and they're not.

We've got Board meetings also with core shareholders, and one of the core shareholders is a private fund, was 100 PPP projects almost exclusively in the U.K. And we asked the same question, and I said, yes, we have the same question. And as you had, they are still concerned and they said,nothing, whether in any of their projects, any discussion. So yes, the increase will be 1st of April, and we're mechanically now 1st of April. And if anyone wants to have got a discussion, they would have raised it before. If there were, this government, it's not going to say, oh, yes, we understand that. We're saying, there's also no free lunch saying, okay, but can we extend, for example, then the concession life. So even if there was a discussion, you would actually potentially compromise, but you get something in return for that. But as said, we didn't even get into that phase because we were prepared for such a discussion. And to the same question, it's an obvious question, therefore a good question here, but nothing on that one.

Just on that, too, another question we often get along that is, well, are you impacted by energy prices. So typically, we get inflation that's mechanical, automatically adjusted CPI, RPI, whatever the index is on that particular transaction. It gets published and we adjust the payment, send the client the invoice and they pay it. And so we're not subject to credit risk. You think you've got inflation, but then the client can't pay it. I mean we've been paid by government. So there's no leakage there. And then the other aspect is, what about our supply chain, whatever we get, we pass on to our contractors. So our contractors can't come back and say, well, hey, something is higher than what we expect, and we're someone -- you're getting the same inflation linkage we are. And then on energy, it's typically the client that's paying it. So you can imagine in a hospital, we can't dictate whether they go out and get a new MRI machine. And we can't say, well, you can't plug in the MRI machine because you're going to raise our energy bill. So they've taken that risk. And so we have incentives on some of the projects where we want to deliver energy as efficiently as possible. So we might have switches that the lights go off at night when the room is not being used, but we're not typically subject to -- each project is different, but in the vast majority of them, we're not subject to energy prices. Those are flow-through back to the clients.

The cash flow chart on Page #9, Iain, you had a question why in '25 there's a slight dip in there? The cash flows are not year-on-year, they're absolute same. We've got a number of projects where we have got also where we -- generally, in a project, we do life cycle interventions. For example, if you got a road where you're saying, okay, now in this year, you do a major life cycle intervention. And that intervention actually is, let's say, GBP 5 million. And this GBP 5 million would reduce all the distributions for that year. You may spread it a bit over the year or over the next year, but that's typically just in that year you would have higher cost, but it's planned higher cost, it's not something unexpected, just it is. The same as it is. Actually, we've got spikes in there in 2033 and 2041, where you got spikes, a large project typically would come to an end, concession end, and you get actually -- the debt is typically not running up to the end. Maybe it's half a year or 1 year shorter debt than the concession life. And therefore, you get in that year the full equity, the fully unitary charge minus the operating cost as distributions, that means you got higher distribution this year.

I'll do Nigel and Matt. We haven't forgotten you.

Nigel King. Two questions, if I may. I was very impressed with your dividend growth profile and certainly compared with sector leader HICL. As far as I can see, it's going to have a flat nominal dividend for up to 5 years. I wonder what tricks you've got in your box that seem to elude HICL? And secondly, with regard to another competitor, INPP, you know that they've done a lot of investments recently in gas and energy transmission. And I wonder whether in time those areas will feature a bit more prominently in your portfolio, I couldn't help hearing Duncan mentioning he's been studying and scrutinizing German gas regulation cost of capital data. I just wonder whether, in time, not majorly, but in time also BBGI may be looking at the tremendous opportunities on regulated energy and gas investment in U.K., but particularly in Germany.

May I answer the second one first? The disclosure on the gas was because we were looking at inflation linkage and also about what is -- what would be actually a good -- is there any data out there to back up what is the risk-free premium. And that was the reason why we found that actually source there. There's no intention to buy any gas or electricity in Germany. The regulators are as hostile as it is in the U.K. So we're staying out of that business. We also did a strategic review last year and the prices paid currently in electricity distributions are so phenomenally high. Its regulated asset base up to 2 because people think there's a lot of actual investment and it's a bit of a -- there's a lot of speculation in that way, you get actually a return, which is in the low single digits, where you make -- where you hope, and hope is never a good strategy, I think, where you hope that you get returns later on. So we're staying realistic. As Duncan said, we have no intention to actually go be wild. We may do things around the edges, but it will be availability style in its core. I forgot your first question, Nigel.

I'll answer your first question.

Dividend projections compared with HICL.

So I think where we take comfort in our dividend is it's fully covered and it's covered by a wide margin. And I think a lot of that comes from the fact that we're not in -- we don't have any projects in lockup or default. So we earn the money and we can distribute it. And then -- so I think that's the first one because, again, I don't want to comment too much on HICL or INPP. But I think if you read their results, they have some assets that are not distributing right now that are in lockup. So that might be the attribution there. But I think the -- so it's the fact that we don't have assets in lockup, in default is one critical aspect. But I think the other thing is, and we really have tried to highlight this, there's theoretical inflation linkage and then there's actual inflation linkage. And Frank and I were joking around. It's like the Jerry Maguire movie, show me the money. Until you actually see it flow through, you don't know whether it's theoretical. So I'll give you an example. In Spain -- sorry, in Portugal, there's a publicly traded company that has toll roads and they have the ability to increase at CPI. Well, two things have happened. The government has said, we know you have the right, but we really don't want you to increase your tolls at CPI. So there's that engaged process, so you don't get the linkage that you thought you had. And then you also have elasticity demand. If it's costing more to insure your car, and it's costing more for petrol and gas, you may want to drive on the free alternative instead of taking the toll road. So that toll road may have 100% inflation linkage theoretically, but because of elasticity demand, it might be something much less than that. So we have an example. We have Canada line where it's an urban mass transit system in Vancouver, Canada. And I get the ridership numbers. And we're paid an availability payment. So we're not at risk for ridership. But the ridership there is, we're still not back to pre-COVID levels because people don't -- people are working from home more. They don't want to take the subway. They would rather -- a lot of them have gone out and bought bicycles or cars during COVID to be able to travel the work if they had to. And so people behavior patterns changed. So if that was a fair base asset where we didn't have availability, it would have a 100% correlation to inflation. But looking at the data, it would be -- we would have suffered on that asset. But it's not. It's an availability base. So we're sort of agnostic. It's doing very well for us. But that's just an example where something that can have a theoretical linkage, in actuality the inflation that flows through is much less. So our dividend is -- we've been able to grow the dividend because, one, we're not in lockup; and two, we've been able to get the real benefits of inflation.

Yes. And it's even more complicated, Nigel, on the regulated asset center. I don't want to go in too much detail, but we have recently had a discussion with an expert on that one and saying, yes, officially saying CPIH, first of all, CPIH is lower, but there's additional element, or if you go to a gas under gas regulated assets, after 5 years, the regulator looks at how is actually labor index. And if the labor index is lower, then CPIH, which is the case currently, then you've even got a clawback. We will get reduced cash flows actually in next regulatory period. So the mechanism we have on our PPPs are straightforward, contractual each year, RPI, 3 seconds. The inflation mechanisms on other asset classes, you will probably take 5 minutes to go into detail and explain that. And that also tells you it's complex actually, and the headline numbers are not comparable, which you see actually from the different companies because ours are real, maybe a bit lower, but it's real.

I think it's fair to say that HICL does actually have higher inflation linkage than yourselves, but has a flat dividend compared with your substantial increase in dividends over the next couple of years.

We don't want to comment on our competitor, but everyone should draw their own conclusion on that one.

You do much on the primary bidding side and just in the wider market, are projects coming to market and debt costs are constrained?

Sorry, I didn't hear you. On the primary -- could you repeat that again?

Yes. You do much in the primary bidding side and in the wider market, our products coming to market and our debt cost is a constraint?

Yes. So we try to do primary. Primary has worked out well for -- when I say primary, it means working with a contractor, taking it through construction. You typically get a re-rating. You invest at a higher discount rate. And when the project becomes operational, it re-rates to a lower discount rate, and you get that uplift, the value creation. So we like doing that. We're -- different markets have different pipelines of opportunities. In a lot of the markets, there's been an adjustment of the model. Some are doing alliance models where some of the contractors are working with government, but maybe not putting in equity. So there's been a bit of a shift in some of those dynamics. So there may not be quite as many opportunities for us to bid. We also don't -- bidding can be very expensive because if you bid and then you're not successful, you've got all those costs. So we've -- in more recent years, we have Highway 104, which was a successful project, and it will come to conclusion in July. It's on time, on budget. We are routinely in discussions with contractors to support them when they want equity. We're aware of people that have developed assets and we'll be selling them in the near future. So we're on standby there. And then we're on everyone's speed dial if they want equity. But we currently aren't working on any primary bids right now, but that could change very quickly.

Just building on that last question, really. You mentioned secondary pipeline in the outlook or that pipeline slide. Who are you seeing as the sellers? You mentioned developers perhaps being one of them. And then the second part is, if you're able to give any color on particularly attractive geographies or subsectors in that pipeline?

So probably a lot of -- we can't give you a lot of transparency beyond what's happening because we typically sign an NDA. But in terms of the two assets we bought last year, the A7, we bought from Hochtief. It's a German construction company. We've bought a number of assets from them over the years. We bought 4 assets in Germany. We bought an interest in Stanton Hospital in Canada from them. We bought an interest in Champlain. So -- we don't have a formal pipeline agreement. But if they're ever selling an asset, Frank gets the call and I get the call and we're usually top of the list. The other asset we bought last year was from SNC, they're a North American engineering company. They routinely develop assets and then sell them. But we see there's something coming to market shortly. It's a fund, an infrastructure fund that has held these assets. They have a certain vintage year and then they've got to recycle the capital. So it's a planned disposition. There are others that will -- that are a bit more opportunistic where you might have a construction company that's got a challenging project over here or a need for cash over there and they decide to sell an asset. Usually, we see constructors take assets through. And once they're stabilized and through the construction phase, there's usually an uplift in value because they've been derisked and that's when they bring them to market. We bought three assets not last year, but the year before from Balfour Beatty, there's an example. And Balfour Beatty came out with their results recently and they had a lot of disclosure about some of their pipeline, and we read that with interest, thinking that those could be investment opportunities for us a couple of years down the road when they come out the other end. So we're actively tracking the construction companies and what they're doing. And I would say PFI is maybe not as popular as it was in the U.K., but there's other -- they're coming up with different names for it. In Wales, they're calling it the mutual investment model. And there's slight variations to it, but it's effectively bringing private capital into finance government infrastructure. And I think that's the -- the theme is with the robust agendas most countries have for net zero and climate change, there's a lot of money that has to go into infrastructure and government balance sheets are stressed, and they just don't have the money to do it themselves. So there's going to be some form of private sector involvement. So we're well positioned to take advantage of that.