HICL Infrastructure PLC (HICL) Earnings Call Transcript & Summary

Good afternoon, and welcome to the HICL Infrastructure Plc and Results Investor Presentation. [Operator Instructions] I'd now like to hand you over to Hal Cullity. Good afternoon.

Thank you, Paul, and good afternoon to everyone. Thanks for dialing in to the HICL annual results presentation for 2023. As Paul said, I'm Hal Cullity. I'm here with the Investor Relations team at HICL. We've got presenting today, Edward Hunt, Fund Manager and Head of Core Income Funds, at InfraRed; Helen Price, CFO of HICL and InfraRed; and Ross Gurney-Read, who is a Director in the fund management team and looking after HICL and InfraRed. And like we said, really happy to answer questions at the end. The presentation will go for about 30 minutes and that should leave us plenty of time to answer your questions. So please do submit them through the box on the right. With that done, I'll hand over now to Ed to get us started.

Thank you very much, Hal. Good afternoon, everyone. Great to be speaking with you on the investor meets company platform for the second time. We are planning to go through the investor presentation that we released to the market this morning. This should take around 30 years -- 30 minutes. We'll have plenty of time for Q&A from those in the room afterwards. I'm going to lead us out with the key highlights from the sort of results as well as spending a little bit of time on the strategy and how we see that evolving for the company. And I'll pass over to Helen then, who will step through the detail of the financial result. I'll spend a little bit more time this time around on inflation and how that's impacting the cash flows in the portfolio. Ross will then come on and talk through the portfolio, how that's performing and provide updates on our largest assets. And then I'll come back and talk about investment activity of the market and how we're seeing the outlook for the company. So with that as a plan, we'll turn to the key messages for this set of results on Slide 4. This is another resilient financial and operating results for HICL. In the year, we've grown net asset value by 1.8p to 164.9p per share. And that, coupled with the 8.25p dividend has delivered a 6.3% total shareholder return against what has been a volatile macro backdrop. This result really underscores the compelling and defensive nature of high-quality core infrastructure and also the benefits of expertly diversifying the portfolio. So in particular, this set of results has been driven by the portfolio's strong inflation correlation, and that's provided an effective offset against higher discount rates applied to asset valuations in the year. A continued focus on the composition of the portfolio has been a priority, that's been shown by the 4 acquisitions and 2 disposals that we've made in or after the year. These improved diversification, they demonstrate our active approach to recycling capital and are indicative of the vast investment opportunity that we see in core infrastructure, in particular, of the modern economy. This activity also materially enhances the portfolio of asset life and the long-term earnings generation that we can expect from this portfolio. This is a real strategic priority for us, and it means that we're able to ensure that HICL remains well positioned for the long term as our PPP concessions mature and increasingly start to return capital to investors. So we're making substantial progress on this, and well I'm going to step through exactly where we are in that in a moment. Within that context, the Board has reaffirmed the dividend for the financial year ending 31 March 2024 at 8.25p and also issued new guidance for the financial year 2025 at that same level. And this recognizes the balance that we seek between delivering a compelling and strong yield today, but also continuing to invest for the long-term strength of the company in order to deliver that compelling investment proposition for decades to come. In support of this proactive management of the balance sheet is key, so in or after the year, HICL has extended its revolving credit facility out to July 2026. So put another 3 years on that. More recently, we've issued a GBP 150 million private placement, which effectively converts short-term borrowings into long-term borrowings and then fixes the interest rate and also we raised GBP 160 million via an accretive share issuance. So what we're seeing there is a robust capital position for the company, also spread across a diversified mix of funding sources, and that's important. Looking forward, HICL's defensive business model and resilient portfolio standard in good stead for the inevitable volatility that we're going to see in markets. And in that way, HICL continues to serve as a valuable diversifier in investor portfolios. By raising the eyes slightly, we do continue to see substantial opportunity in the market ahead of us, the megatrends that continue to drive infrastructure, spending are powerful and HICL has every opportunity to enhance its own portfolio and successfully deliver on that strategy for long-term value creation. Slide 5. We've just got a snapshot of the financial results. I won't go through all of this again, just noting that 6.3% shareholder return, that's driven by NAV growth in the period plus the strong dividend and that NAV growth is being delivered against an increase in the weighted average discount rate of 60 basis points, which was adopted earlier in the year. We've got dividend cover of 1.31x or 1.03x if we take out profits on disposals. That's a modest increase on the underlying cover from March. It's consistent with the position that we had at our interim results. And this solid position and trajectory, which we do expect to continue to trend upwards, gives the Board confidence to extend the dividend guidance at 8.25p. And we're going to [ spend ] a little bit more time on that in just a moment. I'd also draw you to the top right tile, which shows GBP 630 million of acquisitions, that's in or after the year. And this was part funded by GBP 174 million of disposals. So that illustrates our active approach to portfolio enhancement, but also to asset recycling. This activity also contributes significantly to the strategic task ahead of the company, and we've set out a bit more detail on that on the next slide, Slide 6. So this is an important slide. Our strategy is to build an enduring investment proposition for shareholders. Key to this is to extend asset life and increase long-term earnings generation from the portfolio, such that HICL remains well positioned for the long term as some of that PPP concessions mature and -- increasingly redeem capital. So HICL has 29 projects or 11% of the portfolio, which is expiring in the next 10 years. Managing this transition requires a long-term mindset and a proactive approach. And we've made significant progress on this journey. So the best way to demonstrate this is by looking at the portfolio today, versus late 2015, when HICL was made up of 100% concessions -- PPP concessions. And that's presented in the slide here. So the gray bars effectively across the bottom of the 2015 portfolio and then the purple bars are the incremental that we've managed to add to the portfolio over the subsequent years. Our investment activity since 2015, which has included PPPs, but has also embrace the breadth of what we call core infrastructure, and I'll come back to how we define that, has allowed us to extend asset life by over 50% to 32 years and also increase HICL's long-term asset base in the future by GBP 2.4 billion. So that number is by taking the expected rolling valuation of the current portfolio out in 2050. We've also grown inflation correlation by 1/3 to a peer-leading 0.8x, and we'll come on to what we mean by that. And that increase in inflation correlation has also helped this transition by uplifting these longer-term cash flows with the higher expected inflation that we've seen. Helen is going to talk through the inflation correlation a little bit later in the presentation. Most important here, though, is the long-term earnings figure. So 9.4p per share forecast in 2035 from the current portfolio and that is up almost 80% versus the same figure in 2015. That 9.4p would be a little bit higher if you include reinvestment. And clearly, you've seen from our investment activity that we're looking to improve that through acquisitions and disposals. If inflation stayed higher, that would also enhance this picture. But the point that we're really looking to make on this slide is that dividends in the future need to be covered by in-year earnings. And if you don't do that, then otherwise, investors will receive the capital back and the NAV will decline. So what this figure shows you is 2 things. Firstly, with projected earnings per share significantly higher than the current dividend at in 2025, we are laying the foundations to support a higher dividend in due course. And secondly, to the extent that earnings in any year exceeds the actual dividend paid, then all those things equal, then the net asset value of the company will continue to grow. We understand that many investors are focused on yield today. And for the best part of 20 years, HICL has delivered the highest dividend in the peer group. But long-term performance does require a long-term mindset and the balance that we're striking with this strategy, we believe to be in the best interest of HICL shareholders. On Slide 7, we've set out the investment proposition as it stands today. And clearly, the efforts that we've been going to deliver our longer-term strategy have already improved our investment proposition. So by shifting from a portfolio that was entirely made up of the PPPs and almost entirely concentrated in the U.K., we've now shifted that to a much more balanced and diversified portfolio. And that underlines that we're not just trying to build a more productive platform, but also a more resilient one as well. Our job as InfraRed as investment managers to HICL is to deliver this investment proposition over the long term, but also to enhance it. InfraRed role is key, and we bring the weight of over 25 years of track record in infrastructure investment as well as 190 people across our international platform to deliver best-in-class executive management to HICL. And in so doing, we support the delivery of HICL's vision. HICL aims to enrich lives through infrastructure by developing strong social foundations, connecting communities and supporting sustainable bond economies. This describes the portfolio as well as our investment ambition and investments that we've made in the period very clearly fall into the baskets on this slide. The vision also really reflects, where we see the growth drivers for underlying infrastructure investment and demand and therefore, where we're seeing the more strategic opportunity for the company and its pipeline. I'll come back and spend a little bit more time on that a bit later, but for now, I'll hand over to Helen to step through the detail of our financial results.

Great. Thanks very much, Ed, and good afternoon to everyone. So just starting with the NAV here. So at 1.8p increase in our NAV per share to 164.9p in the year, as Ed mentioned. And so just stepping through that in a bit more detail, so starting on the left, portfolio performance contributing to 16p. That's made up of value preservation, which is simply the unwind of the discount rate and then value enhancement of 5.8p, and that is the impact of actual inflation being higher than our forecast assumptions as at March '22. We then see 5.3p reduction due to change in discount rates and other economic assumptions. We actually increased our weighted average discount rate for the portfolio to 7.2%. That was an increase of 60 basis points and that has a 9p impact on NAV to the negative. That was partially offset by updates we made to forecast inflation and interest rate assumptions. You can then see other small movements, foreign exchange and expenses and then the 8.25p dividend ranched at 8.3p here for the purposes of the chart, and that gets you to the 164.9p end results in the resilient total shareholder return of 6.3% that Ed covered earlier. Moving on to financial performance and we break down the income statement and the balance sheet in a bit more detail here. Starting with the income statement. So a total income at GBP 254 million, a reduction from last year, principally due to the change that we made to our discount rate in the year. We then saw fund expenses increasing to GBP 40 million due to higher management costs. And then finance costs increasing from GBP 4 million up to GBP 16 million, and that's due to both higher drawings of our RCF, but also higher interest costs. You can also see the ongoing charges ratio increasing from 1.06% to 1.09%. This is a function of the calculation is driven by the net asset and we funded a large portion of our investments this year with debt rather than equity. Turning over to the balance sheet. The main driver of this is the investment portfolio, which I'll cover in a moment. But I think it's important to spend some time on liquidity. So we ended the year with GBP 72 million worth of cash and available liquidity within our RCF of GBP 415 million. Subsequent to the year-end, we've invested in Texas, Nevada transmission and Altitude Infra which is a French fiber business that we announced in April of this year. So we've taken our RCF drawings from GBP 219 million, up to GBP 494 million as at the 19th of May. When we spoke to investors back in November '22, we said we do a number of things to manage our RCF balance, especially in light of the current share price discount. And it's just worth spending some time stepping through those. So firstly, we have successfully renegotiated our GBP 400 million RCF and our GBP 330 million accordion into a GBP 650 million RCF facility, where a tenure extended to 30th of June 2026. And we have, at the same time, maintained the margin. Secondly, we said that we would look to sell some assets. And in April of this year, we announced the disposal of 10% of our stake in Northwest Parkway. And thirdly, we said we would look to issue some long-term debt. And we announced on Monday that HICL has issued its first private placement and we have raised GBP 150 million from a debt issue that was 4x oversubscribed. And that debt has a tenure of between 10 and 12 years. We think private placement is an attractive source of funding, particularly in these markets. It provides long-term diverse funding for the company. But the thing that's really important to highlight is the Board is not intending to use private placement to increase the company's debt capacity. We will look to reduce the RCF balance either through an equity raise or through further asset disposals, but the activities that we've taken so far been that we're in no rush to do so. So moving on now to the balance sheet and just stepping through the key movements in particular. For those of you who are not familiar with HICL, we show our valuation on a Directors' Valuation basis, which is the IFRS accounting standard valuation, which is in the dark purple and then the commitments, which are in the light purple. We made GBP 548 million of acquisitions in the year. So that is Texas Nevada transmission, Cross London trains and Fortysouth mainly. And we sold a GBP 113 million of assets. That's the Queen Alexandra Hospital. And we then get a rebased valuation of GBP 3.2 billion. And then this -- on the right-hand side to step through the movements in the investment portfolio. The portfolio return was 10.2%. That's in excess of the 6.6% weighted average discount rate, due to higher than expected inflation. You can then see the impact of the change in the discount rate, which I was referring to when we were talking through the NAV. That's the GBP 181 million or 9p NAV impact. You don't see the changes in economic assumptions, such as inflation and interest rates and then the FX revaluation. It takes you to an investment portfolio value of GBP 3.5 billion at the end of March and GBP 294 million of investment commitments. Moving on to the next slide to go through discount rates in a bit more detail. And so I think it's safe to say that the last few months have not been straightforward to come up with investment valuations. We've been saying for a number of periods that we think that because discount rates haven't followed interest rates, it has created a degree of buffer in what we call the equity risk premium, which is the gray bar on this chart to be able to absorb interest rate rises. We've taken a similar approach to that, that we took as of the 30th of September. So we've applied a U.K.-specific discount rate adjustment as well as an adjustment for the rest of the portfolio. So we adjusted the U.K. portfolio by 70 basis points and the rest of the world by 30 basis points. Part of the reason that we haven't amended our approach in September is that the gilt rates have remained broadly stable, since 30th of September. And so as a result, our risk-free rate, which is the purple bar on this chart, has remained stable at 3.7%, and the implied equity risk premium is 3.5% and that takes you to the total of 7.2% discount rate. One of the other key drivers for discount rates perceptions, it's transaction data. Transactions have been muted over the last 6 months, although that continues to be a good competition for assets that have strong inflation correlation and pricing in those situations is generally holding up. HICL as a fund, generally sells 1 asset per year on average. And as I mentioned earlier, when we sold 10% of our stake in Northwest Parkway. And we saw that above carrying value. So that's a good and helpful indicator of our valuations relative to the outside world. On the next slide, you can see the sensitivities. HICL is most sensitive to discount rate movements and inflation. They're the main drivers of return. You can see the other macroeconomic assumptions on this slide and the fact that the portfolio is relatively insensitive to those. What we have done for this set of results just split out our sensitivity to interest income, and cash deposits and interest expense and that is for debt expense. So people can see an in light of inflation, we've also included a sensitivity on life cycle within this chart. And all of this confirms that the portfolio is relatively insensitive to these items. It's worth spending a bit more time on inflation. And so -- and to talk through how the portfolio has benefited from its inflation correlation, since the inflation started its very rapid ascent in September '21. So a couple of things for HICL, when we make changes to inflation, that hits our net asset value straightaway, but cash takes some time to come through. So let's take the NAV first. So since September '21, we have added 15.5p to our net asset value for the last 18 months, driven by the recent levels of high inflation. But from a cash perspective, the impact is much more muted, and you can see this in the purple bars on the chart. And it's worth explaining why this is. So firstly, HICL has a large portion of its portfolio within PPPs. PPPs generally reset their inflation for the purposes of setting their invoices each February. They then raise invoices on the higher amounts from April. So the very sharp increases that you saw in inflation from April '22 will come into HICL's results in 2024. Secondly, HICL's 2 largest correlated assets to inflation, namely Affinity Water and HS1 are currently not distributing. They are expected to recommence distributions in 2025. So that's the calendar year for Affinity and 2023, again, the calendar year for High Speed 1. And then lastly, as Ed mentioned, when he was talking through his equivalent version of this chart, we've made a deliberate decision to invest in assets with growth potential. And those assets generally have lower yields in the first few years before building out both their yields and also their earnings over time. So for HICL, it's important to look at both a NAV that's come from inflation, but also the cash that's come from inflation when judging the impact on the portfolio. I'll go to leave you with a slide that shows the potential for HICL if inflation continues to be at current levels. This chart explains the sensitivity in NAV terms, which is the chart on the left as well as cash terms on the right. And in very simple terms, if U.K., RPI remains at 8% rather than our forecast 5%, then we should see another 3.1p of NAV value created in the next financial year. The chart on the right shows the cash, as I mentioned, and this also reiterates the point that the impact on cash is muted and builds over time and compounds over time. With that, I'll hand over to Ross to talk you through the portfolio.

Brilliant. Thank you very much, Helen. Good afternoon, everyone. So I'm going to start by just providing a snapshot of the portfolio, which is set out here on Slide 18. And the 2 charts really clearly highlight the diversification that InfraRed has achieved through considered portfolio construction. HICL's assets span a range of sectors, revenue types and geographies and with the top 10 assets splits across 4 different countries. You can also see that those 10 assets represent under half of the total portfolio by value and managing concentration risk continues to be a key focus as the portfolio evolves. The acquisitions and disposals announced this year significantly improved the overall diversification of the portfolio, and these are the primary reason why the weighted average asset life has increased by over 2 years since March '22. HICL has also has a new communication sector this year. The value in the chart represents the company's holding in 40 South, but this value has now increased to 8% following the completion of HICL's investment into Altitude Infra, which Ed will talk to you through a bit later. So for now, I'll step through the performance of the 6 largest assets individually and then cover the PPPs of the group. So starting off with Affinity Water on Page 19, which at 7% of the portfolio by value is HICL's largest investment. And Affinity is responsible for the supply of clean water only, so not sewage services. Operational performance during the year was slightly behind the expectations, and this was largely as a results of some challenging external events, namely weather and energy costs. This had a knock-on impact on operating costs and revenue penalties particularly those relating to burst and supply interruptions, although the overall impact on the valuation wasn't material. Leakage continues to be a key focus for the management team, and this is now really paying off with Affinity achieving its sector-leading reduction target for the year. Over the course of the current regulatory period, the business will invest around a GBP 100 million in leakage production. And this, combined with the positive impact to the inflation is the reason why Affinity's regulatory capital value is expected to grow almost 50% in nominal terms between 2020 and 2025. The final methodology for the 2024 price review was released in the year, and this suggests continued high investment in the network, which in turn or it will in further RCV growth. And this has been incorporated into HICL's valuation and the new Affinity CEO, Keith Haslett and his team are working closely with Ofwat's, as they prepare to submit the business plan in October '23. So on Slide 20, we provide some detail on the 3 largest demand-based assets, which together are 16% of the portfolio by value. And as a whole, this segment performed in line with expectations during the year, but I'll briefly step through each asset in turn. So starting with the A63. Traffic here was slightly ahead of our valuation assumption, thanks to strong light vehicle growth of nearly 10% year-on-year. HGV traffic was flat, but we're not seeing any material impact from increased fuel costs or wider economic volatility, which really reinforces the importance of the road's strategic location. And this is further evidenced by the strong start to the current financial year with traffic 3.5% above management's expectations this April on a blended basis. Moving on to Northwest Parkway. Traffic grew nearly 6% year-on-year and was at 86% of pre-COVID levels on average. That's slightly behind our valuation assumption of 90%. We do expect traffic levels to continue to increase and usage of the road was at 91% of pre-COVID levels in April '23. However, it is clear that commuter travel patterns have changed, with lower levels of peak time congestion, making alternative routes more viable in the short term. And as a result, we expect traffic to return to pre-COVID levels in March '25 as 2 years later than previously assumed. This has been taken from an independent traffic study, which importantly validated our long-term growth assumptions. And as a result, the overall impact on the valuation was relatively low and was partially offset by the positive impact of actual inflation on toll rates. Finally, on this slide, High Speed 1, in the first full year since 2019 with no travel restrictions, Eurostar demand has really responded positively and international train path bookings was slightly ahead of our valuation assumption at just under 80% of pre-COVID levels. This is despite strike action during the year, which did impact some services, but was well managed by the HS1 team and network rail high speed. The border issues do continue to constrain Eurostar bookings, but the operator has shown a clear desire to run more services where possible, as evidenced by train path bookings this April reaching 86% of pre-COVID levels, and the HS1 team continues to work closely with key stakeholders there. In this context, we've retained our assumption of a return to pre-COVID levels in March '25, but the valuation reflects increased confidence around the long-term attractiveness of international rail services, highlighted by the fact that Eurostar is now booking around 85% of its planned services in advance from this month onwards. Domestic services continue to be booked at below pre-COVID levels, and our valuation now assumes that this continues until March '28, 3 years longer than the previous assumption, given the desire of the state managed operator to control its costs. However, the financial impact of this to us is largely mitigated by the underpin provided by the U.K. Department for Transport, which guarantees the equivalent of 96% of pre-COVID revenues. On this next slide, we want to take the opportunity to briefly touch on the performance of the 2 largest acquisitions made during the year. It's still relatively early days, but both assets are currently performing in line with their acquisition assumptions. So starting with Fortysouth. They signed in July '22 and completed a few months later. And just as a reminder, this is New Zealand's largest independent tower company and involves over 1,500 towers, which were previously part of One NZ, that's formerly Vodafone New Zealand. Our local asset management team has been ensuring the carve-out runs smoothly, and this is now largely complete. Operational performance has been in line with expectations. and Fortysouth's revenues are highly predictable given the long-term inflation-linked availability-based contracts with One NZ. The rollout of new towers and upgrading the existing towers to enable more co-location is another important part of the company's business plan. This is also being undertaken by One NZ and is on schedule. Moving on to TNT, this asset comprises 2 distinct electricity transmission networks in the U.S. Cross Texas Transmission or CTT, and One Nevada transmission. The acquisition was announced in September '22, but completed shortly after the year-end. We've been monitoring performance over the period between signing and completion and we are pleased to see that both assets remained fully available over the winter months. InfraRed specialist asset management team in North America is building on its long-standing relationship with LS Power, which co-owns and operates the transmission lines. The volatile macro environment, since we signed the transaction does highlight some particularly attractive characteristics of this asset. Notably for CTT, it operates under an established regulatory framework, which has over 20 years of track record, and this provides protection against higher cost of equity and debts. In the longer term, TNT is also very well placed to capture growth, both from the rollouts of renewables, as well as the investment for great resilience. So on Slide 22, we have the PPPs. These were 60% of the portfolio by value at the year-end. And these assets performed well, thanks to their availability-based contracted revenues, which tend to be linked to inflation as well as their predominantly contracted costs. HICL's PPPs benefit from long-term fixed rate debt with no refinancing assumed across the entire PPP portfolio. InfraRed continued its track record of delivering projects through construction at Paris-Saclay University, which opened for students during the year. Several key milestones were also achieved at Blankenberg Tunnel and the B247, which are due to commence operations in 2024 and '26, respectively. Active management's improvement of facility condition was another key area of focus. And we are particularly pleased to have agreed to terms for a major program of works at Pinderfields and Pontefract hospitals, which enabled shareholder distributions to resume during this year. And finally, on this slide, we have noted HICL's investment in Cross London trains, which completed in September '22. And this asset benefits from a 20-year availability contract and also improves and diversifies counterparty exposure across the portfolio. And this acquisition demonstrates our focus on improving portfolio composition and diversification, which will continue to guide our approach in the future. So just before I hand back to Ed, I just wanted to briefly mention that we've also published HICL's 2023 sustainability report today. This Slide 23 sets out a few key highlights. Given the amount of content in the report, I'm not going to attempt to cover it all now, but I would direct you towards the report, which has been published today on HICL's website. So that's all for me. I'm going to pass you back over to Ed, who will take you through an update on the market, our investment activity and the outlook for the coming months.

Thanks, Ross. So I'll begin this section just with a quick reminder of HICL's market positioning. HICL is a core infrastructure investor. And what we mean by that is that it's positioned at the lower end of the infrastructure risk spectrum. We seek investments that benefit from the 3 key characteristics of core infrastructure that you see set out here on this slide. So high cash flow quality and that can be through contracts, entrenched demand, regulated revenues. Secondly, defensive market positioning. So we're really looking for assets with low or no competition and have high barriers to entry. And thirdly, criticality. We're looking for essential assets that provide the backbone to society and therefore, operate with strong social license. This describes the portfolio. It also describes how we go about screening and due diligence in assets. And in fact, when we're putting together investment papers for new assets, we will assess assets against these parameters at the start of the investment paper. Our investment activity over the 12 months is set out on this next slide. Look, clearly, a very active trading environment. We actually reviewed 84 opportunities in the year, 13 opportunities were taken to detail the due diligence. As you can see, it's a highly targeted approach and it's framed by really narrowing the list down to the specific characteristics that we want to bring into HICL's portfolio. And then overlaying that with the angle or the specific point of difference that InfraRed has to secure the transaction. And on that basis, we were quite successful. So overall, 7 transactions, 5 of which were acquisitions, 2 disposals. And I should note that 2 of the transactions shaded in the table were actually signed at the end of the previous financial year. You'll also note here, we've included the Hornsea II offshore transmission asset at the bottom of the list or the Hornsea II OFTO. We are a preferred bidder on the OFTO. We expect to reach financial close in June, July this year. But more broadly, this transaction activity adds highly attractive characteristics to the portfolio, and that includes protection from higher rates through either inflation correlation, or a regulated return, and that's important. Secondly, it significantly contribute to those strategic objectives that I set out at the beginning, by bringing a long asset life growth potential and higher long-term earnings in the portfolio. And lastly, it also showcases the really big opportunity that we're seeing in modern economy infrastructure. We've got a good example of modern economy infrastructure on the next slide, which is the most recent communications asset that we purchased. It's a fiber-to-the-home business in France. And I just want to set out that for you now. So we announced this transaction in April, it completed at the start of May and it represents around 2% of HICL's portfolio. HICL acquired the stake in a consortium with other infrared managed co-investors. And together, we speak for 15.1% of the altitude business. Another infrastructure investor also bought a minority stake on the exact same terms immediately after HICL. So Altitude Infra, it's the largest independent fiber owner operator in France, and it has a controlling interest in 27 rural fiber concessions. So in the rural part of France, these are set up as concessions. They're set up as regional monopolies. You are the only fiber provider in that region and you have wholesale market positioning. So you're not selling to end users, you're selling to the key Internet service providers. And because of that monopolistic positioning, the -- and the competitive dynamic than the market is subject to regulatory oversight. The transaction is accretive to the portfolio, it adds diversification, provides that growth and also enhances long-term earnings generation. So looking forward more broadly, the opportunity set for core infrastructure, in our view, is perhaps as large as it has been for any moment in the history of the asset class. And there's a few things coming together to make that statement. The state of aging infrastructure, demographic shifts, the megatrends that we see around digitalization and decarbonization are powerful and entrenched, and these are continuing to drive the need for infrastructure spending. HICL in the short term has 5 live transactions. I mentioned the Hornsea II OFTO, where HICL is preferred bidder. The offshore transmission assets have pretty very attractive for us. This is our fifth one. Their availability-based cash flows has inflation correlation and a strong yield. We also have some potential disposals in our life deals. And it's worth mentioning that investors should also expect to see us continuing to utilize that active recycling of capital as we go about enhancing the shape of the overall portfolio. Shareholders should also expect that any transaction activity is undertaken with a high degree of caution and discipline. We expect markets to remain volatile in the short term and for participants to continue to exercise a degree of caution, HICL is among them. Finally, then on Slide 30, just some concluding remarks. I think just to reiterate, this is a resilient result. The company is performing as designed with that inflation correlation effectively offsetting the downside of a higher rate environment. HICL has also made significant progress in its strategic efforts to future-proof the company. We need to recognize that the increasing maturity of our PPP concessions needs to be managed and our strategy is to proactively build an enduring platform for long-term NAV and dividend growth. And as we do this, we expect to have the strategic tailwinds for the sector at our backs. So even though shorter-term conditions remain volatile, we've got a solid balance sheet, and we think that HICL is well positioned to continue to execute its strategy through all manner of market conditions. So I'll leave it there. We've got a little bit longer than we expected, but I can see we've got some Q&A. So I'll hand back to the team and we'll start getting into the Q&A.

Edward, thank you very much indeed, and thanks to the team for the presentation. [Operator Instructions] Just while the team take a few moments to review those questions submitted already. I'd like to remind you the recording of the presentation along with the copy of the slides and the published Q&A can be accessed via your investor dashboard. However, as you can see, we had a number of questions that have come through from our investors today throughout the presentation. So if I may just hand back over to you to click on that Q&A tab, where appropriate to do. So just read out the question and direct it to the team, that would be fantastic.

Perfect. So thanks, everyone, for submitting your questions. Like I said, we did go over there. There was a lot to cover, but we still do have a little bit of time so keep them coming through. So the first one from Matthew, why has the company not been able to maintain the increase in dividend given the high level of inflation correlation? Maybe, Ed, if you can kick us off for this one.

Yes, I'll kick off and then ask if Helen wants to add to it. But I think what we're saying is that inflation doesn't drop into the cash flows immediately. It's something that, as you saw on Helen's chart, it builds up over time. And there's actually a contractual lag between inflation being seen on the print and then actually coming through the contracts, going to the models, going to the banks and then dropping out as a dividend. So we expect to see the impact of inflation increasingly over time. That's going to help cash cover build up over the next few years as well as other factors. But the other part of that is that we're also continuing to manage the longer end of the piece, which is really around having that strong platform of earnings. And that's meant that we've actually gone and bought some assets which has long life and strong earnings contribution, but may be lower yielding initially. So we're finding a balance between making sure that we deliver a strong yield today as well as being able to deliver a strong and growing dividend and NAV over the longer term, so the trade-offs that we've made.

One for Helen here from James. Does it seem odd to you that the equity risk premium has declined as the risk-free rate has increased? Why wouldn't equity risk premium rise so the total discount rate reflected the change in risk-free rates?

The main reason is because discount rates and interest rates don't move into step. And you can see in the chart on Slide 13 that where there is a gradual step down of risk-free rates in particular. So between, say, September 2009 to September 2014, there was a very sort of marked shift and yet the overall discount rate decline in that equivalent period was much more reduced. The risk-free rate is only a component of the valuation. Actually, the principal thing is what people are prepared to pay. And there is often a dislocation between the risk-free rate. So in the U.K., the U.K. gilt relative to what an investor would be prepared to pay for something, and that's why they don't move in direct correlation. Now clearly, that they do move over time and it -- following it to gradual trend, but it's not like-for-like.