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

Welcome to the BBGI Results Presentation for the Half Year 2023. My name is Frank Schramm, and next to me is Duncan Ball, and we are the Co-CEOs of BBGI. I will start the presentation. Halfway through, I will hand over to Duncan Ball. We start the presentation on Page 5. This slide presents the fundamentals of BBGI and our investment proposition. Our purpose is to deliver social infrastructure for healthier, safer, more connected societies while creating sustainable values for all stakeholders. Our strategic pillars are: low risk, globally diversified, a strong ESG approach and internally managed. Looking at the strategic poly-pillar, low risk. We are 100% availability based in our strategy. Our revenues are coming from secure public sector counterparties. And the result is that the cash flows are stable and predictable, coupled with high-quality inflation linkage. The global diversification pillar is based on our focused exposure on AAA or AA rated countries, which provide a stable, well-developed operating environment with the global portfolio. While we have a global portfolio, we serve and connect people. We have a strong ESG approach, ESG integrated in all parts of the business model. Our portfolio delivers a strong social impact. And we categorize as an Article 8, social beneficial luxury investment under the EU Sustainable Finance Disclosure Regulation. Additionally, the portfolio shows a high resistance to climate resilience and the compensation of our executive team is also directly linked to ESG performance. The fourth strategic pillar is we're internally managed. We are the sole in-house management team in the infrastructure investment company sector, and our interests are fully aligned with that of our investors. We focus on shareholder value by being incentivized by NAV per share growth, not actually by portfolio growth. The quantitative benefit of that is also that we've got the lowest ongoing challenge actually in the sector. Going on to the financial highlights on Page 7. This slide presents the financial highlights of the half year 2023. The NAV has gone down slightly by 1.4% to 147.8p per share. The NAV investment basis slightly to 1.2% down to GBP 1.56 billion. We're also pleased to reaffirm our dividend targets of 2023 and 2024 of 7.93p and 8.40p and also the sector leading actually increase of 6% on a year-over-year basis. Inflation linkage has been slightly up to 0.6% and it's strong and it's contracted, and therefore, what we say high quality. The dividend cover is 1.68x, which is exceptionally strong from our point of view. Having said that is -- our distribution profile is typically front ended for the first half year. That means we get more cash in from our portfolio companies in the second half. But we expect actually dividend cover to be 1.3x to 1.4x for the year-end. Annualized NAV return 8.8% and annualized ongoing charge 0.92%. There's an increase in annualized charge and that's mainly due to actually inflation and also increased staff cost. Moving on to the operational model. This slide presents our robust operating model, which is based on 3 actually operational pillars, starting with the value-driven asset management. Over the reporting period, our portfolio of availability-based projects performed very strongly. There's no defaults or lock-ups in our portfolio and cash receipts were ahead of expectations. What I mean with lock-ups or defaults, that means all our portfolio companies distribute -- make distributions, and therefore, actually contribute to our strong dividend cover. There's no covenant breaches in our portfolio. And we are the only one in the sector, which I believe, who reports actually that metric. We also delivered high actually availability to our public sector clients at 99.9%, and that also keeps our customer satisfaction up. We did the greenhouse gas emission data collection here, and that's the first step actually to measure our carbon footprint here and our carbon intensity and that's also first step actually to reaching net zero. Looking at the prudent financial management. We had modest net drawings on our revolving credit facility for GBP 25.8 million and net debt of GBP 7.9 million. On the dividend, we delivered a 3.4% increase annually on our dividends since IPO. Hedging strategy, we're mentioning here, given that we are -- as a reminder, have a global portfolio with 2/3 of the portfolio being outside of the U.K. We've got a strong hedging policy in place, which aims to reduce the NAV volatility to 3% if all currencies move actually against the pound by 10%. Discount rate increased from 6.9% to 7.2% and has an equity premium of 3.4%. In U.K., the discount rate was raised higher to 7.5%, 0.7% increase, and Duncan will go in more detail on the discount rate later in the presentation. We are very selective in acquisition strategy. What does it mean? We're currently focusing on capital allocation. Capital allocation is a key. And the first thing we do currently is we have got a revolving credit facility outstanding of around GBP 26 million and all excess cash will be directed towards repaying of our revolving credit facility. And we could, by the year-end, also have to credit facility fully repaid. If there's an opportunity, which arises, yes, we'll look at that, but it must clearly be value accretive here in terms of risk-return profile and other portfolio construction matters. Otherwise, we would be -- we are very disciplined, selective in looking at any growth opportunities. We've got a pipeline agreement with SNC-Lavalin in North America. But there -- to note here, that's an option. It's not a commitment that we have to buy anything which would be presented to -- by SNC-Lavalin to us. Moving on to the next page. This slide serves as a reminder to robust characteristics of our portfolio, offering crucial safeguards in a volatile environment. And what does it mean? We've got conservative financial structuring. All of our portfolio company debt is nonrecourse. And 55 of our 56 assets don't have any refinancing risk. That means everything is financed through with fixed term or hedged debt until the end, and long term until almost the end of the concession period. There's one asset in Australia, Northern Territory Secure Facilities, where we got a small refinancing risk. This is for a tranche of debt in 2025. And here also to notice it is not actually the base rate. The base rate is actually hedged. It's only the margin which is subject to change, so the lending margin which we pay to the banks. So there is marginal refinancing risk and that's also later on showing the sensitivities there. The second point, we've got significant cash reserves. In the portfolio companies, we've got about GBP 385 million of cash reserves, which represent about -- so I've to look at that again, 36% of the net asset value. And basically, we're earning interest on that. And we currently have active treasury management in place. And that means we're earning currently around 4.5% on this deposit on an average basis. That means looking at all currencies, its euro, Australian dollar, Canadian dollar, U.S. dollar, Norwegian kroner, everything there in the mix. And the interest -- if short-term interest rates go up, we earn more interest and that acts as a counterbalance to rising discount rates at least partly. We've got a conservative corporate borrowing, the modest cash drawings, which make up 2.4% of the NAV. As mentioned, that could be repaid by the year-end with excess cash. Our revolving credit facility currently has got a debt rate of 5.08%, which is well below our discount rate of 7.2%. And there's no outstanding commitments to acquire any assets. So we've got a strong actually liquidity positioning and very modest borrowing. The inflation linkage, again, is strong, is 0.6%, supported by progress -- and that supports all progressive dividends. And the inflation linkage is contracted and mechanical once a year. We actually increased our -- we increased our availability fees with our public sector clients and there's no cuffs and collars in that inflation linkage. We've got a global availability style portfolio. Revenues coming from government, government-backed entities and counterparties are truly typically highly rated. And we've got a global portfolio, and that means that 67% of the portfolio is outside of the U.K. that actually offers diversification benefits. Moving on to the next slide. That slide presents actually the dividend track record and the cumulative dividend growth. And the top chart shows our yearly increase of dividend, which is around 3.4% since IPO. At IPO, we promised a progressive dividend, and we think we delivered on this promise, especially with a 6% increases for 2023 and '24 and which we have reaffirmed this target. The lower chart illustrates the cumulative growth of CPI in comparison to the growth of our dividends. We have consistently delivered a progressive dividend that has outpaced U.K. CPI. So ensuring shareholders will receive a positive real return. So since IPO, our dividends have grown by 44%, surpassing the cumulative U.K. CPI of 40%. Moving on to Page 11. This slide presents our projected cash flows from our portfolio and 2 essential points to highlight here. Counterparties as I mentioned, government and government-backed, and this contracted nature of the cash flows increase the predictability. As we have got an availability-based portfolio, the revenues are paid as long as the asset is available. We're not subject to demand risk. We're not subject to regulatory risk. That means actually we get availability income. As long as the asset is available, we are getting paid. Second point is assuming a scenario where no additional investments were made, the projected cash flows are sufficient to sustain our progressive dividend policy for the next 15 years. Moving on to Page 12. That slide presents our track record. The top chart presents the total NAV and dividend per share growth over the last 11.5 years. The cumulative NAV and dividend per share add up to 219.6p and have always shown a positive growth. On the bottom slide, you see actually a total shareholder return of BBGI and FTSE All-Share since IPO and you see we've outperformed the index. The total NAV return since IPO was 163.8% or 8.8% on an annualized basis and dividend yield as of June, 5.7%. And as we're trading currently at almost the same price, then 30th of June is still at 5.7%, which we consider attractive in the current market, especially in light of the inflation linkage, which we're offering of 0.6%. Total shareholder return is 128.2% and the annualized shareholder return of 7.4%. Moving on to Page 13. This slide demonstrates 4 key strengths of the portfolio. On the top, you see 2 point facts. We're 100% availability-style investments and 99.4% of our portfolio is operational. We've got one [ road ] in Canada, which is very close to substantial completion. We expect the completion certificate very shortly. That means we should in hopefully, the next couple of weeks, be 100% operational. Geographical split, we got 35% in Canada, 33% in the U.K. U.S. and Australia stand at 10% and Continental Europe at 12%, so with a global portfolio in AAA and AA-rated countries. On the sector split, actually, we've got a globally -- so we've got a sector of diversified portfolio as a social impact portfolio, starting from health, blue light, correctional facilities, into social housing and also transport. Moving to next slide. This slide offers further insight into the construction of the portfolio. Concentration risk, top 5 assets constitute 32% of the portfolio, while the following 5 make up 16% of our portfolio of a strong diversification, eliminating significant single asset exposure. In the center, you will notice our diverse supply chain exposure, and we have not identified any supply chain risks. We've got a rigorous supply chain monitoring policy in place where we try to monitor on a monthly basis all subcontractors with very different quantitative and qualitative factors, and touch wood, to date we have not identified any material risk in our portfolio and supply chain. The weighted average life of the portfolio is 19.8 years. Moving on to Page 15. This slide presents our active asset management approach. And BBGI takes the hands on approach to active management. And we're looking both to preserve the value on the one hand, but also trying wherever possible to enhance the value and to identify opportunities. The focus on delivering very well-maintained infrastructure to our public sector and communities and stable and predictable returns to our shareholders. To achieve this, we have a global -- we have a good governance structure in place. And one of our key themes is that we've been trying to stay close to our public sector clients and trying to understand if there are any concerns. And if there are any concerns, address the issues early on. The motto is you need to get a coffee when there's no issue because you may not get the coffee when there's an issue in the end. And that is where we're trying to meet our clients at least 2 times a year and -- might be virtually, but also physically that we're getting there and trying to understand if there's anything in the background. On the value upside side -- or value upside generation, treasury management is still key. We concluded 2 treasury pooling agreements, virtual pooling agreements in -- 1 in U.K. and 1 in Canada. And that means we're not getting just interest on all the amounts deposited, but we're getting interest in everything which is coming in the door from the first day, which optimizes our interest income. And as a reminder, we got about GBP 385 million, which is our proportion of the cash deposits in the portfolio companies. And I said that acts as a little bit counter buffer towards rising interest rates. We also delivered value enhancements of GBP 7.6 million or we optimized actually life cycle. We have cost savings where we concluded new management service agreements with a lower price on projects in total, actually, that delivered the GBP 7.6 million. I'll stop here and I hand over to Duncan.

Thank you. This slide talks a little bit about inflation and the high-quality inflation linkage we have in the portfolio. I want to give you a bit more insight in terms of how we capitalize on the inflation that we have within our portfolio. On the left-hand side of the graph, you can see the -- there's a chart that shows what happens to the NAV and price per share. If inflation is 2% higher for 1 year, 3 years and 5 years, we would materially benefit. So for example, if inflation was higher across all jurisdictions for 2 years, or 5 years for our forecast, just to give you some context there, our current assumption for U.K. is 6.3% for 2023, 3.9% for 2024. And if we exceeded that by 2%, the NAV would increase by 4.6%. We have high-quality inflation linkage of 0.6%. And it's notable that this is contracted inflation linkage. So when we say high quality, it's justified on the basis of these contractual relationships. So you might have an economic infrastructure asset where you have the benefit of inflation by being able to pass on price increases to consumers or users. But in reality, you may find there's elasticity of demand, and in an inflationary environment your usage of the asset may decrease. We don't have that. We have a very mechanical approach where the CPI or the relevant inflation factor gets printed in the jurisdiction we're in. We apply that to the contract and it just gets marked up, sent to the government and the government pays it. So it's very much high quality. And there's been no pushback from our clients in terms of -- it's contractual. So there can't be any pushback, but it's just worth mentioning that. And this is obviously different than merchant infrastructure where it's subject to market and demand factors. And so we highlight this -- just this high-quality linkage that we enjoy. And it's also worth mentioning that when we publish our statistics, these are statistics that are used for comparable -- for printing the inflation. And its -- CPIH is often used for utilities and regulated assets, where CPI, which is quite a bit higher in the U.K. in July as an example, RPI was 9%, where CPI was 6.4%. So we're benefiting from the higher inflation factor. If you flip the page, we talk a little bit about our role as a responsible investor. In June, we published our annual ESG report. This was a comprehensive report and provides detailed information on the progress we made during the year on a variety of ESG topics. And perhaps the biggest undertaking we took in the last year and was completed during this reporting period was the portfolio emissions. So we completed a comprehensive data collection exercise to assess the portfolio of greenhouse gas emissions and our carbon footprint and our carbon intensity. This is a significant step towards understanding and reducing our portfolio's environmental impact. The idea is that you first have to measure. And then once you have the data, you can start implementing our development plans and then implement those plans as you make way towards progressing on net zero targets. And in June, we also published our first principal adverse impact statement, which is a requirement under the SFDR, the legislation, and that's available on our website. And it discloses 12 environmental and 8 social metrics where we report on that. If you flip the page, I'll talk a little bit about valuation. The NAV decreased 1.2%. The portfolio continued to deliver a strong performance. So there was GBP 45 million of portfolio return during the period. The change in the market discount rates had a negative impact of GBP 26.8 million, and that was from a reduction in the discount rate, which I'll talk about in a second. It's important to mention that there is a lot more transactional data in this period. So when we report our discount rate, we're confident that it represents what's going on in the marketplace because we saw transactional activity in all the markets where we're active, say for Norway, there was -- but we also look at it from the basis of a capital asset pricing model as well just to make sure we're correct. The change in macroeconomic assumption resulted in a GBP 13.8 million increase, and that was largely increases in deposit rates. We've -- We're earning a lot more in deposit rates than we anticipated, and we expect that, that will continue. And we suffered a foreign exchange loss of GBP 12.6 million as sterling appreciated against all the currencies. It's worth mentioning since IPO, the net impact of foreign exchange movement has been about $1 million over the period since 2011. So our hedging policy works and at times where FX is going to be a headwind in times and it's going to be a tailwind. But in this particular period, it worked against us. Flipping the page, this gives some insight in terms of the portfolio valuation. So the weighted average portfolio discount rate increased 30 basis points from 6.9% to 7.2%. It's worth mentioning that the U.K.-based discount rate -- So the standard rate we use for most projects in the U.K. is 7.5%. So that has increased more than the portfolio average. We complement our market-based approach with the capital asset pricing model, where we look at government risk-free rates and then an equity premium is added to that to come up with the discount rate. The weighted average discount rate -- or so the weighted average risk-free rate remained stable at 3.8% compared to December. So while risk-free rates have increased by 50 basis points in the U.K., they've reduced in all other jurisdictions during the reporting period, except for Norway. So it's important to mention that because of the global nature of our portfolio, less than 1/3 is in the U.K. So yes, risk-free rates have gone up in the U.K., but in other jurisdictions, that hasn't been the case. So the risk -- the discount rate -- the overall discount rate -- portfolio discount rate of 7.2% represents a risk premium of 340 basis points. And we believe that's an appropriate amount. It seems consistent with the ranges we're seeing. Our expectation is a reasonable pickup over the risk-free rate should be 250 to 350 basis points. And it's supported by a recent German network -- German regulator, a German network agency, which calculated the risk premium for regulated natural gas in that country at about 300 basis points. And we would argue that regulated assets are riskier than the type of assets we invest in. So if you use that as a proxy for risk-free rate, we're comfortable with the premium of the risk-free rate within our portfolio. And just as a reminder, we come up with the internal valuation. It's reviewed by an independent valuation firm. And then it's signed off on our orders and both the independent firms and our auditors are of the view that we're in the -- within the range, or the conservative end of the range. So we're comfortable there. If you flip the page, I recognize, it's probably hard to see on the screen, but these are the macroeconomic assumptions we use. Long-term rates are unchanged. We've made some very modest adjustments in short-term inflation rates. The deposit rates are where we've probably made the biggest change. Short-term deposit rates have increased broadly in all the markets where we're active. And so, that's been reflected in our assumptions. And corporate income tax rates remained unchanged. If you flip the page to the next slide, this slide shows our key sensitivities. The key point we make is that if you -- it's easy to look at just the headline discount rate and what a change in discount rate does to the portfolio value. But we think the more appropriate is to look at what happens when there's a change in discount rates, along with the change in deposit rates and along with inflation rates. And you can see that when that happens, that's about midway down on the slide. 100 basis point combined change in deposit inflation and discount rates only has a 1.6% impact on the NAV. If we flip the page, we can talk to the risk management that we undertake. So economic and market, we've already covered this in the previous slides. The point I want to make here is that we've been negatively impacted by the increase in discount rates and the adverse foreign exchange. But we've been -- but that's been partially offset by the inflation flowing through and our changes in deposit rates, reflecting the higher interest rates we're earning at the very significant amounts of cash we have in the projects. We haven't experienced any material performance issues within the portfolio. So we're very comfortable with the operation of the portfolio. Taxation, we went through a couple of years ago in the U.K. with base erosion profit shifting. That legislation is currently been passed in the U.K., in the EU and the U.S. That similar type of legislation is being considered in Canada and Australia. We're tracking the situation in Canada, where it's called IFO, excessive interest finance limitation deductions. And we're monitoring that, but there's draft legislation. So we can't really say much more than that at this point in time. Sustainability is a risk that we talk about frequently. We did extensive climate review. We've had detailed climate modeling done on all of the portfolios, 8 different perils under 3 different time horizons and 3 different climate warming scenarios. And we're confident that there's no stranded risk issues with our portfolio. And none of them are going to be materially impacted by climate change. And then, cyber, this is a risk for all companies. But we take comfort in the fact that we've got strong processes in place. And in most instances, the IT and the infrastructure are the clients' responsibility and our point to interface in that regard are modest. If you turn this page -- I'll just talk in a moment about internal management. Just to reiterate, BBGI is the only infrastructure investment company which is internally managed, means there's no external manager. We think this is a key USP differentiator for us in the sector. It means that we have the lowest ongoing charge. Our ongoing charge is 92 basis points. There's no NAV-based fees. There's no external manager. We're not incentivized to grow the portfolio just for growth's sake. There's further alignment of interest, and particularly now when capital allocation is so important, we're not motivated to go out and acquire more assets. We're going to be looking at acquisitions on the basis of what did they do to the portfolio construction, what did they do to the NAV per share. And it also means we're not distracted by any other mandates. We're waking up every morning thinking about this portfolio and how we can manage it properly and optimize it. Pipeline. With the current macroeconomic environment, our strategy is to focus on directing surplus capital towards the repayment of any outstanding drawings on our credit facility. We will continue to look at the market for opportunities. But we'll be -- as has always been the case, we'll be very disciplined. When we do come across an opportunity, we have a very structured process for considering potential new investments, and it will have to be evaluated against the whole criteria of considerations. We have a pipeline agreement, as Frank mentioned, with SNC-Lavalin. This gives us an opportunity for further investments. But again, we're not expecting anything to come out of that in the short term. But I'll remind everyone that, that's an option, not an obligation. So if something was presented to us, we don't have to act on it. And we're continuing to scour the market, looking for opportunities and monitoring it closely. But we'll be very focused on maintaining our discipline and being sensitive in our approach to capital allocation. So I'd just like to conclude. In these challenging times, we remain very confident in our low-risk resilient portfolio. We're delivering critical social infrastructure, so health, schools, Blue light, justice facilities, affordable housing, transportation, all with a strong social purpose. It's all availability-based. We're getting paid by government counterparties. It's climate resilient. We've done the testing. We're confident that the assets will perform in different climate scenarios. And again, through this set of results, we've shown the good inflation linkage that is inherent in the portfolio. We have low correlation to other asset classes. We'll remain disciplined in our portfolio allocation. And with that, I'll conclude. And we can open it up for any questions that may be in the room or online.

It's Iain Scouller from Stifel. I've got 3, if I may. Firstly, just on new investments. I mean, what are your thoughts there? I mean, given you can't issue equity at the moment, how comfortable would you and the Board be to leverage up? And obviously, the leverage facilities are fairly short-dated as a way of financing new investments. The second one is on taxation. You mentioned even in Canada, I think you got a GBP 10 million provision against that. Do you think based on the draft legislation there may be scope for some release of the provision at some stage? And then the third one is on dividend cash cover. I mean, that continues to be good. I think it was 1.68x, or 1.59 if you adjust for the impact of the scrip, right? And that was down from just over 2. I think it was 2.02x over the first half last year. So why has that come down as much as it has?

Why don't I take first 2 questions, and then third to Frank. So your question was capital allocation, and we consider buying assets and increasing the RCF. I think in this environment, our focus would be on, any excess cash in the foreseeable future will be directed towards making sure the RCF remains either undrawn or at low levels so that any new opportunities we have a very strict allocation policy for looking at new capital. So today, we're trading at a modest discount of about 5%. If we were trading at a more significant -- we would wait the opportunity against share buybacks and other things. But we don't have a specific policy on share buybacks. We're looking at it in the hole, in the round, wanting to make sure we have flexibility. And so, we've been very fortunate we haven't had significant drawings on our RCF. So that's put us in a good place. We don't have any commitments to buy. So that puts us in a good place. And then, we'll see how the markets develop and what opportunities present themselves. But we're very sensitive to the fact that our -- we have a large RCF, it's undrawn, and it has -- there's some period before it has to be renewed. But there's no immediate concern about that and we like being in that position. So I don't think you'd see us do something that would fundamentally change that. Your second question was about the tax -- the proposed tax legislation in Canada. We took a provision last year, you're correct. We don't know how it's going to play out. There was draft legislation issued the 4th of August. And there's a solicitation period where they're asking industry for feedback and that closes the 5th of September. They will then take that on board. And then, they'll -- the expectation is they'll come back with a definitive legislation perhaps later this year or early next year. There's a significant interest in the concept of public benefit infrastructure and how that's impacted. So there's -- BBGI has written to the tax authority and communicated with them, but there's a whole industry group. So it's premature to comment on the outcome of that because it is in a consultative stage. But you're right, we have provisioned for some things. But there may be more to come, but there might not be. But it's just premature to -- and I'll let you answer the third question, Frank.

Your question was the dividend cover of first half year was higher than it is last year -- than it is now. First of all, I think the dividend cover first half year versus last year was exceptionally strong, and still actually quite high today with 1.68. Last year we had in January a one-off income from a refinancing come in. That was an additional cash from refinancing of McGill University Hospital in Canada, and that actually -- one-off actually increased the cash cover in addition. But I think we disclosed that at the time. We don't have that one-off this time. But we also -- as last year, we said we would expect the dividend cover will be 1.4, 1.5. This year we're saying, -- and due to the one-off element as well, this year we're saying that's between 1.3 and 1.4. So we think the dividend cover is still actually very healthy. And as always, actually towards the first half of the year that we get more cash in. This is just actually a structural point. Does that answer the question, Iain?

Matthew Hose from Jefferies. Your valuation sensitivity due to deposit rates was quite a bit higher at the year-end than it is now. Was that just the fact that there was a lot of cash washing around the SPVs at the year-end?

So the inflation cover? Sorry.

The deposit rate sensitivity to the valuation.

I think it's a function of -- there is a lot of cash and that cash can vary depending on major maintenance reserve accounts and debt reserve accounts. Most projects have a 6-month debt service reserve account, and that's pretty static. And then the major maintenance reserve accounts can vary depending on whether you undertake a life -- if you start spending that money to do a life cycle intervention, then that decreases. So that's part of it. And then I think it's probably also a function that we've earned more on deposits. So we have adjusted the deposit rates. So as that increases, it becomes less sensitive.

Nigel Hawkins, Hardman Investment Research. Two questions, if I may. First, a specific one. I'm intrigued by your dividend policy, 6% increase forecast is very interesting compared with -- and I think our hedging saying is HICL, sector leader, which seems to have a 5-year flat dividend profile in nominal terms. I wonder if you've got any views on the comparisons, you'll be increases against sector leader whose dividend is as flat as a pancake. And secondly, on acquisitions, since the start of the COVID, there's no doubt your acquisition strategy has eased off, should we say. And I wonder whether this is because you're being overcautious, which perhaps is understandable or whether simply there are the quality of deals out there that you might have had pre-2019?

Nigel, thanks for pointing out actually your comparison towards HICL, but it's not appropriate for us to comment on how others are performing in the market here. We can say -- I think the one point we can say is our peer companies have on the headline numbers a higher inflation linkage than we have. But I think these headline numbers are -- you have to take with a pinch of salt. As Duncan presented in his part of the presentation, ours inflation linkage is mechanical, RPI in U.K. and CPI in the other countries, and you get it, and there's no capsule color. There's no [ lag ] in there and there's no still elasticity of demand. So our [ payer ] companies have got elasticity of demand and they got regulated assets where this may -- that's the speculation here, may not be as contractual as ours. What you see is what you get is in our case. And that has led to a significant increase in cash flows in our assumptions, but also in the cash flows now. That has contributed to our ability to raise the discount rates actually -- to raise actually dividends by 6% for 2 years. And for 2025, you currently got a 2% increase here. But we may revise that looking at the cash position and looking at the inflation rates actually next year, we may rise actually here, the dividend also higher than 2%, but no decision has been taken. Does that answer the first question?

Nigel, your second question was about just our acquisition strategy. And I think what we've tried to do is remain disciplined. And I think the market has changed materially since COVID and interest rates have backed up. When we reported last -- this time last year, we said there wasn't a lot of transactional evidence because we hadn't seen transactions -- a lot of transactions. We were starting to see rising interest rates this time last year, and then the mini budget in the U.K. certainly caused risk-free rates to blow out substantially. But in the first half year of 2023, we've started to see more market transactions. So we've seen -- observed transactions in all the markets we're in and we've reflected that in our discount rate. And so, I think where we're at is there's still a strong demand for the type of assets that we invest in and that's supported by these market observed transactions. But you'll see that we have increased our discount rate in all regions. We've gone up 30 basis points. We've gone up to [ 7.5% ] for our U.K. investments, which is the most significant. So it's a question of we're looking for opportunities that may appear on the horizon. But we're -- it's probably premature to figure out where the market is. So we're going to be very disciplined in approaching that. But the key message is there's still demand for the assets that we'd like to invest in. There's still a bit -- But -- and so there's no shortage of transactions. It's probably trying to understand where the pricing is and whether the pricing has levelled off or whether there'll be stability in that or whether it could drift higher. So we're going to be disciplined in our approach.

So the propositions are actually crossing our desk. But you're being perhaps a little bit more picky now with the interest rates much higher, and frankly, political uncertainties going forward --

Yes.

Actually say with 2017 [indiscernible]?

We're an enviable position that we can still look at opportunities. A lot of participants can't raise capital or they've got significant drawings on their credit facilities. So they are closed for business. So they're -- it may create some interesting opportunities; but it's probably a bit premature for -- to say that, that's the case right now.

Just a quick question. Just briefly touching on what you just said. Could you maybe speak to why we're seeing a lot more transactional evidence this half versus last half?