HICL Infrastructure PLC (HICL) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the HICL Infrastructure Plc Interim Results Investor Presentation. [Operator Instructions] Before we begin, we would like to submit the following poll, which will disappear on your screens now. And I would now like to hand you over to the team from HICL Infrastructure, Hal. Good afternoon, sir.

Good afternoon. Good afternoon, everyone. Thanks for dialing in. My name is Hal Cullity. I'm the Vice President of Investor Relations here at Infrared. I'd really like to welcome you guys to this retail presentation. With me today, you've got Edward Hunt, the Fund Manager of HICL; Helen Price, HICL's CFO; as well as Ross Gurney-Read, who is Director in the Fund Management team. I'll hand it over to the team shortly to take us through the presentation. It will be about 30 minutes to take you through the slides, which should leave us plenty of time for some Q&A. We'd really like to answer any questions that you have, so please don't hesitate, any questions on either slides or on the performance over the last 6 months. Please just use the box provider, and we should be able to get to all of your questions at the end. So with that in mind, I'll pass over to Ed to get us started.

Thanks, Hal. Good afternoon. A very warm welcome to this set of interim results for HICL Infrastructure Plc. I met [ Helen, ] the Fund Manager for HICL, I'm a partner at Infrared, HICL's Investment Manager. I'd like to start today's presentation with a revisit of the company's fundamental proposition and key differentiators on Slide 4 of the presentation. Three key elements. First, HICL's core positioning. The company offers investors exposure to the underlying essential infrastructure assets that we rely on in our daily lives. These critical inflation-linked assets invariably sit at the lower end of the infrastructure risk spectrum and we offer this exposure in a highly liquid and diversified structure. Second, our active management approach to driving our performance. This is reflected not only in the approach to individual assets but also by enhancing the quality of the portfolio through asset rotation. This active management DNA underpins HICL's long-term track record of outperformance at 8.7% per annum since IPO in 2006, and this ensures that HICL remains a core holding for investors seeking both income and capital growth. Third, and on the right-hand side of the slide, our established pedigree and track record as a company and Infrared as manager. These markets call for a steady hand, management capability and for robust observable governance. These principles sit at the heart of HICL's offering and are reflected throughout today's results. Let's now take a look at these results starting on Slide 5. This is a solid result for the company, reflecting the quality of HICL's portfolio, our active management approach and set against a challenging macro backdrop. Over GBP 530 million of strategic asset rotation in the period, featuring GBP 324 million of selected divestments. This activity has been accretive to NAV, upgrades the quality of the portfolio and provides shareholders with valuable support for HICL's NAV and valuation approach. This activity has also added further strength to the balance sheet. Proceeds from disposals coupled with HICL's GBP 150 million private placement will reduce drawings on HICL's revolving credit facility by GBP 380 million, to GBP 115 million as those disposals complete. Fund level gearing has been successfully diversified, derisked and has been reduced to 10%. Tactically, we continued to exercise restraint on new investment activity in order to prioritize this balance sheet position. Finally, on the right-hand side of the slide, this result sees the company's weighted average discount rate move up to 8%. So that's an increase of 80 basis points in the period. Since the onset of the higher rate environment, we have increased HICL's discount rate by 140 basis points, almost entirely offset by inflation, and in the same 2-year period, the net asset value has still increased by 4.5p per share. This discount rate of 8% is an important indicator of future expected returns from the portfolio and at yesterday's closing share price, this translates to an 8.2% return after fees. Slide 6 sets out the key metrics from these interim results. On the top left there, you have the 3% reduction in net asset value reflecting higher discount rates and partially offset by higher actual and forecast inflation. On the top right, an underlying return from the portfolio of 8.2%, annualized, that's ahead of expectations. The portfolio continues to perform well and is significantly insulated from both the higher rate environment and the macro volatility that we're seeing. Across the bottom of the slide, the dividend. For these interims, we're reconfirming the guidance for FY '24 and FY '25 at 8.25p per share. And note that we expect to issue extended guidance for FY '26 per the usual timing at the annual results next May. Increase in underlying cash cover to 1.05x is pleasing. We expect this upward trajectory to continue, and that remains a prerequisite for dividend growth. Helen will provide further color on the impact of this and the impact of inflation on our cash flow shortly. In setting the dividend, we also remained very cognizant of HICL's strategic position, and this is something we really set out for investors at the annual results in May. The wasting nature of HICL's PPP portfolio instructs us to evolve the portfolio mix in order to strengthen HICL's long-term earnings base. This is important to ensure that future dividend and NAV growth can be achieved from a genuinely sustainable foundation. The asset rotation achieved in recent periods has enabled us to make very material and very pleasing progress along this journey. Turning to Slide 7 with some comments on inflation and discount rates before I hand over to Helen. On inflation, we've increased the long-term assumptions in the U.K. and that reflects both higher market expectations for inflation and is also supported by the bidding activity that we've observed through the divestments. The chart on the left-hand side of this slide shows our revised inflation expectations for U.K. RPI as a solid line, starting at 3.5% for FY '25, stepping down to 3.25% to 2030 and then reducing to the long-term assumption of 2.5% thereafter. This compares to the dotted line on the chart showing the level that the U.K. long-term gilt market is implying for the same measure, indicating that our assumptions remain prudent. Importantly, HICL offers a real return well in excess of inflation. So on the right-hand side of the slide, if we break down the yield on a 30-year U.K. government bond, using rates at period end, it offers a real return of 1.5% comparing to HICL in the second bar chart, HICL offers a return in excess of 6% over its portfolio-wide inflation assumption, i.e., including our non-U.K. jurisdictions. This spread illustrates the continued attractiveness of HICL's return versus fixed income. In line with our track record, we aim to outperform this return and to deliver capital growth alongside a strong and consistent level of income. For more now on the financial results, I'll pass over to Helen.

Thank you very much, Ed. Good afternoon, everybody. So let's start with the NAV. Here, you can see on Slide 9, the breakdown of the 5.5p decrease in NAV per share to 159.4p. Portfolio performance, the return on the investment portfolio contributed 6.9p. Within performance, you can see value preservation, namely the unwind of the discount rate of 6.4p and value enhancements of 0.5p which largely reflect the impact of actual inflation in excess of our forecast assumptions for 2023. Changes to macroeconomic assumptions led to a reduction of 6.2p. We increased the weighted average discount rate to 8%, a negative impact of 13.9p. This was partially offset by adjustments to our forecast inflation totaling 5.1p and interest rates. Finally, the company incurred expenses of 1.9p and paid dividends of 4.1p. Before I move on to the investment portfolio, here is a bit more detail on our important metrics. We ended the period with net debt of GBP 497 million as we funded our investments in Texas Nevada Transmission, Altitude Infra and Hornsea II. To reduce our financing risks in the absence of equity markets, we have purchased a GBP 200 million interest rate cap at 6.5% for our RCF, and we have announced or completed over GBP 320 million of disposals. At the 30th of September, the RCF was GBP 371 million drawn. It's expected to be around GBP 115 million, with gearing of around 10% once these disposals have completed. Conservative balance sheet management is very important for the Board and InfraRed and we are pleased to have made such good progress in such a volatile period. We will look to realize further assets to repay the RCF, but clearly, we are in known rush to do so. Finally, on the income statement side, the ongoing charge ratio increased to 1.11% as the ratio is calculated using net assets. As the disposals complete, we expect the OCR to return back to previous levels. Here on Slide 10, you can see the investment portfolio, which is the main driver of the company's performance. Firstly, our investment process is unchanged. So starting on the left of the page, we invested in Hornsea II and Altitude Infra. Note that Texas Nevada Transmission is included in the opening balance. The disposals are made up of our portfolio sale to John Laing, the sales of Bradford Schools and Sheffield student accommodation as well as the partial disposal of Northwest Parkway. After cash distributions, the net portfolio value was GBP 3.5 billion. I'm showing this as the rebased valuation, which is the basis for determining the portfolio return. The portfolio return is GBP 138 million or 8.2% annualized, ahead of the 7.2% discount rate as at the 31st of March 2023 because of higher-than-expected inflation. The 80 basis point increase in the discount rate reduced the valuation by GBP 280 million. And as usual, I'll cover the approach to discount rates shortly. Changes to economic assumptions generated GBP 157 million. Most of this relates to changes in inflation, which Ed has already covered and interest rate assumptions and we include our valuation assumptions in the appendix on Page 45. Overall, the net valuation of the portfolio was GBP 3.5 billion at the 30th of September, and our commitments are now GBP 65 million. Before I talk through our slide on discount rates, I think it would be helpful to provide more color on the transaction data we are seeing on Slide 11. This year, HICL has announced 9 disposals at or above carrying value, which will generate proceeds totaling GBP 324 million. This has helped to demonstrate the robustness of our net asset value. However, given the discount of our share price to our net asset value, we think it's helpful to set out what we are seeing in the market and to provide some data on the dislocation between public and private markets for infrastructure. There are 2 takeaways from the chart on the left-hand side. Firstly, activity is lower, yes, but core infrastructure transactions are happening, over 60 completed in Q3 as capital availability remains in the private space and inflation-correlated assets remain attractive. This demand for infrastructure in the secondary market can also be seen in the pricing discount for infrastructure only being 7% at 30th of June. This contrasts with the average discount for listed infrastructure at the 30th of June of 21%. Now compare this to real estate. The average discount to NAV, the secondaries was 29%, and this compares to a 31% discount in the listed space. So why has Infrared been able to transact in such a difficult market for real assets? Our relationships with private core infrastructure investors built on our strong track record of realizing assets have allowed HICL shareholders to benefit as these parties have been able to transact in the period. We have sold multiple assets to multiple counterparties covering different sectors and geographies totaling just under 10% of our portfolio. This gives us confidence on the quality of our portfolio even in a difficult market. However, despite this, determining valuations has not been straightforward. People's views of what fair value is, is wider than normal, and we will think this will settle once investors get more certainty that interest rates and inflation have peaked. On Slide 12, you can see our portfolio reference discount rate is 8%. Although HICL can point to its transaction activity, in the same time frame, the average 20- to 30-year U.K. bond yield increased by 120 basis points and rates in the rest of HICL's jurisdictions increased between 80 and 110 basis points. Although the equity risk premium does offer some protection against rising government bond yields, we want to ensure that we have an adequate equity risk premium, which we think is around 3%. In addition, we want to continue our approach to reflect specific jurisdiction volatility. Therefore, we increased the reference rate in the U.K. by 100 basis points and the first points across the rest of the jurisdictions between 20 and 60 basis points. So as at the 30th of September, HICL's average risk-free rate is 4.7% and the implied risk premium is 3.3%. Here on Slide 13, you can see the key sensitivities around our valuation assumptions expressed in a NAV per share impact. These sensitivities are in line with those presented previously with the discount rates and inflation being the key drivers. Importantly, the portfolio is relatively insensitive to other economic assumptions. So let's look at inflation and then refinancing in a little bit more detail on the next 2 slides. Firstly, I've added a new slide on Slide 14 to help demonstrate how the portfolio is expected to benefit from its inflation correlation over the life of the fund. For HICL, higher inflation hits the NAV straight away, but the cash impact builds over time, and you can see this compounding in the chart. So why does it come through like this? Firstly, the contractual structure of PPPs, where inflation is reset every year, usually in February and then invoices are raised under the revised rate from April. We are seeing the impact of the higher inflation in HICL's cash flows, but it is less than GBP 10 million so far. Secondly, operational considerations mean that assets may pause distribution for an extended period. For HICL, COVID delayed High Speed 1s distributions between 2020 and '23, and the regulatory determination meant that Affinity shareholders agreed not to distribute from 2018. When this happens for more than one year, the impact can be sizable and has to be funded from other assets. And lastly, the Board made a strategic decision to reinvest in assets that offer future growth such as Fortysouth and Texas Nevada Transmission. These assets naturally yield less in the short term but are fundamental to ensuring the long-term income capability of the fund. And what you can see overall in this chart is that the cumulative impact of inflation is very, very material for HICL when it compounds. So when you're considering the inflation impact on the portfolio, it's important to consider the cash income over a longer horizon, but also the potential for NAV growth. Finally, from me, Slide 15 is another new slide to help demonstrate how the portfolio is exposed to financing costs and why the sensitivity shown on Slide 13 is so low. Excluding holding company debt, the portfolio is 67% geared, and the Board is comfortable with this because only 14% of the portfolio's debt needs to be refinanced at all. And of this 14%, only 3.3% needs refinance in the next 5 years. And the gearing of these assets is lower at 49%. And I'll now hand you over to Ross to take you through portfolio performance.

Thank you very much, Helen. Good afternoon, everyone. So before I do dive into the portfolio and how the asset is performing, it's worth revisiting HICL's market positioning, which is set out on Slide 17. We're a core infrastructure investor that is positioned at the lower end of the infrastructure risk spectrum. And as such, all of our investments benefit from 3 key characteristics of core infrastructure that you see here on the slide. Firstly, high cash flow quality through contracts, entrenched demand or regulated revenues. Secondly, defensive market positioning that is benefiting from low or no competition with high barriers to entry. And finally, criticality. Essential assets that provide the backbone to society and therefore, operate with a strong social license. This framework has guided us when assessing and progressing new acquisitions and also describes the existing portfolio, which is summarized over the page on Slide 18. You might be familiar with the 2 charts on this slide, which highlights the diversification that Infrared has achieved over the years through considered portfolio construction. As Ed mentioned earlier, the recent acquisition and disposal activity has further improved this diversification. HICL's portfolio is now well-balanced across geographies, sectors and revenue types. You can see from the right-hand chart that concentration risk is well managed. HICL's largest asset is 8% of the portfolio with the top 10 assets representing less than half of the total portfolio value. PPPs make up the vast majority of the rest of the portfolio as well as 4 of the top 10. These assets performed well in the period, benefiting from availability-based revenues, which are often inflation-linked and contracted costs, including long-term fixed-rate debt. I'll now step through the performance of the 6 largest assets individually, starting with Affinity Water on Slide 19. So just under 8% of the portfolio by value, Affinity is HICL's largest investment. As a water-only company, Affinity is not responsible for sewerage services, its only role is to supply clean water to around 4 million households in the Southeast of England. From an operational perspective, performance over the first half of this financial year has been good. The company continuing to improve in several areas, most notably leakage as set out here on the slide. Over the last 12 months, Infrared has worked closely with HICL's co-shareholders and the Affinity Board to oversee an evolution of the senior management team, including the appointment of CEO Keith Haslett in late 2022. Keith's team is delivering a continued improvement in operational performance as reflected in Ofwat's latest report on the sector. Affinity submitted its PR24 business plan to Ofwat in late September with a draft determination due in the summer of next year. The capital investment set out in the plan will increase Affinity's RCV by over 30% in real terms and HICL may consider funding some of this with equity during AMP8 which would be contingent on a fair final determination and the resumption of equity distributions. More broadly, we believe that the business is well placed for PR24 is performing well operationally, has no exposure to sewerage and has a resilient capital structure with no refinancing required until the next regulatory period. On Slide 20, we provide some detail on the 3 largest demand-based assets, which together are 15% of the portfolio by value. And as a whole, I'm pleased to say that demand-based asset segment has performed well, and I'll briefly cover each in turn. So starting with the A63. Light vehicle traffic continues to grow strongly, with leisure demand resulting in over 5% more cars using the road during the peak summer season this year than in the previous year. This would have resulted in revenue slightly ahead of our expectations, were it not for an accident, which prevented toll collection for a 3-week period in August. However, we do expect to recover both the cost of the damage and the lost revenue through insurance, and the solid underlying performance of the asset is backed up by October traffic being just above 1% of our valuation assumption on a blended basis. Moving on to Northwest Parkway. Traffic also continues to grow strongly here in absolute terms and is now less than 10% below pre-COVID levels. The rapid increase in passengers using Denver International Airport which is served by the Parkway and contributes approximately 30% of the total traffic volume has supported the strong operational performance in the first half of this year. Revenues were slightly ahead of HICL's forecast, and traffic is on track to return to pre-COVID levels by 2025. And finally, on High Speed 1, domestic services continue to be booked at around 3/4 of their pre-COVID levels despite steady growth in underlying passenger volumes. We do expect the situation to continue for several years, noting that the financial impact is almost entirely mitigated by the contractual revenue underpin provided by the DfT. On the other hand, international train path bookings were once again slightly ahead of our valuation assumption and as a result, HS 1 resumed shareholder distributions during the period around 6 months earlier than we were expecting. Although border congestion does continue to constrain services, Eurostar has worked closely with HS 1 to increase its timetable over the summer as demonstrated by the fact that in some weeks, services were at or above 95% of pre-COVID levels. In a further vote of confidence, Eurostar has returned to booking almost all of its part in advance with the equivalent of 91% of pre-COVID levels already contracted for the first half of next year. And in this context, it's encouraging to see several parties publicly expressing an appetite to run international services on HS 1. And we believe this demonstrates the inherent strategic appeal of the U.K.'s only high-speed rail link with the continent. On Slide 21, we cover the third and fourth largest assets in the portfolio, which both were acquired relatively recently. I'm happy to say that both assets are bedding in relatively well to the portfolio and complement HICL's diversification. So at Fortysouth, which is New Zealand's largest independent tower company, InfraRed has been working closely with its partners to build out the business. During the period, the company reached its steady state staffing level of around 30 full-time employees. Operational performance since acquisition has been in line with our expectations with revenues underpinned by availability-based inflation-linked anchor tenancy contracts with One NZ. The management team has also successfully accelerated Fortysouth's Tower upgrades program to help meet New Zealand's 5G rollout targets and is on track to deliver nearly 300 new towers over the next 4 years as contractually agreed with One NZ. The September valuation reflects the management team's business plan and is slightly above our original acquisition price. Moving on to TNT. Both Cross Texas Transmission and One Nevada Transmission continue to perform very well operationally as demonstrated by the availability over the period, which you can see here on the slide. The impact of higher actual and forecast U.S. interest rates has been reflected in the September valuation. The company's next refinancing event is expected to occur in 2024 but the tech and regulatory mechanism enables a full pass-through of asset-level debt costs through the mechanism. In the longer term, CTT also remains well placed to capture growth from the rollout of renewable energy generation ahead of our long-term business plan assumption. These 2 investments were key part of the company's investment activity over the last 18 months. And in the next section, we have a summary of all the acquisitions and disposals that HICL's made since April '22, which you can find a couple of slides on Page 23. I won't dwell too long here, but you can see that we have been quite busy. And hopefully, this slide brings to life the portfolio rotation that Ed was talking about at the start of the presentation. There are 15 different assets on this page, of which 10 have moved in or out of the portfolio over the last 6 months. The appendix on Page 42, we have the usual detailed table setting out the transaction activity, including key dates and the size of the asset. But what you can clearly see from this page is that the recent activity, i.e., over the last 6 months has been heavily weighted towards disposals, comprising 9 assets worth over GBP 320 million. As such, I'd like to spend a couple of minutes going into our approach to disposals, which you can find over the page on Slide 24. So while we have been busy, you can see from the top of the page that InfraRed has a long and successful track record of making selective disposals for HICL dating back to 2012. In fact, if you include recent activity, the company has divested of over GBP 800 million worth of assets since IPO, with the proceeds generally being rotated into high-quality core infrastructure investments, which have improved diversification and key portfolio metrics. This disposal activity has also directly benefited HICL's long-term shareholders with over 7.5p of NAV outperformance since IPO as a result of divesting assets above carrying value. In this context, InfraRed has a well-established methodology for identifying and executing disposal candidates, which was used to good effect over the last 6 months. It starts with a dispassionate review of the entire portfolio based on each asset's contribution to 4 key metrics: total return, yield, asset life and inflation correlation. By processing each of these variables against the portfolio average, we're able to create a heat map setting out which assets aren't pulling their weight. From this short list, we then take into account whether any of the selected assets of characteristics or contractual provisions we're less keen on. And by following this methodology, we're consistently able to generate value for shareholders and improve the composition of the portfolio. Disposals are also an important source of funding for HICL, particularly at the time when capital markets are less accessible. And on that note, I'll hand it back over to Ed, who will explain how we approach capital allocation and also touch on the outlook going forward.

Thanks, Ross. So I'm now on Slide 25 of the presentation. Capital allocation is clearly top of investors' minds, recognizing the discounts that are prevalent across the sector. The Board and InfraRed remain clear about the company's priorities in the current market. HICL has a long track record of asset [ recycling, ] as you've just heard from Ross. And in this market, the Board and manager have elected to accelerate this activity, which, among other considerations, has created significant free cash. The company has applied this to reduce its revolving credit facility, firm in the view that the most prudent capital allocation from a risk and return perspective is the reduction of short-term inflation rate debt. Going forward, the Board and manager intend to further reduce their revolving credit facility over time, and we continue to have some live disposal activity ongoing. In terms of other uses of capital, it is recognized that the bar for new investments is suitably high, set by both the cost of debt and the relative return and risk proposition offered by repurchasing the company's shares. The company has a buyback policy, the application of which is discussed regularly with the Board, duly considering prevailing market conditions and that the company remains drawn on its revolving credit facility. We do expect the current market volatility to offer up attractive investment situations and InfraRed and the Board will continue to evaluate these as and when and exercising very high investment discipline. The next slide teases out this tactical position against the broader strategic opportunity. So in the near term, on the top half of the slide, volatility will undoubtedly continue. Cautiously, we're seeing the beginnings of some macroeconomic stability, but geopolitical conditions, conflict, and elections in the U.K. and the U.S. are likely to add to the various uncertainties that markets will need to grapple with over the next 6 to 12 months. HICL's portfolio is robust and well insulated from the macro volatility, and we've taken steps to ensure that that's the case. Strategically, across the bottom half of the slide, the prospects for infrastructure investment remain very encouraging. Underlying infrastructure demand continues to be driven by the powerful megatrends of decarbonization, digitalization and demographic change. Governments facing these infrastructure demands recognize that public balance sheets cannot deliver and acknowledge that competition exists to attract the capital and capability that can, the private sector. The combination of these forces coming together creates a very attractive long-term backdrop for private investment in infrastructure. It's right for the company to focus on and adapt to the conditions right in front of us but we should also remain mindful of the very significant strategic opportunity that awaits the company on the other side. Finally then some concluding remarks on Slide 28. The period has been a fruitful one for the company, over GBP 530 million of strategic asset rotation, including over GBP 320 million of disposals. The activity has improved portfolio quality, validated the NAV and played a role in further strengthening the company's balance sheet. Underlying portfolio performance remains solid, asset performance is well insulated from the macro environment, assets continue to perform in line with expectations. Materially increased the discount rate to 8% with a significant offset provided from higher inflation. The 8% discount rate is an important indicator of future returns. And of course, on the current share price, the return is higher still. As we move forward, we are well positioned for the short-term volatility ahead but also ready to capitalize on the very positive strategic outlook for core infrastructure investment. That concludes the presentation this afternoon, but at this point, we'll take some questions and how is going to be comparing the questions that have come through on the platform.

Thanks, Ed. There's some great questions that have come through, but it's not too late. [Operator Instructions] The management team really are here for you. So please don't hesitate for asking a question. So starting off, a great question from Ian. How confident are you in sustaining the dividend given the broader market dynamics, maybe one for Helen to kick off?

Sure. Thank you very much, Hal. I think for both the Board and the investment manager, we're very focused on growing and building the dividend cash cover because a sustainable long-term dividend is absolutely fundamental to the company. We're very pleased that the dividend cash cover has improved to 1.05x, and we expect it to continue to improve. And the Board has given dividend guidance out for 2024 and 2025. One of the key reasons for us diversifying the portfolio is I've mentioned into some of the newer assets that we've been purchasing over the last 18 months was to buy assets that would replace the naturally wasting PPP assets and to create a sustainable long-term dividend for the company and sustainable long-term earnings from the portfolio company. So with that in mind, we are comfortable with the sustainability of the dividend as we stand here today.

Thanks, Helen. Question from Matthew asking about Slide 7, Ed. I would like to know how we come to the 8.9%.

Sure. So the way we will look at this is by taking the discount rate for the portfolio. So that's the expectation of future returns. We then adjust this for the share price discount by using the discount rate sensitivities. So that allows us to say, okay, well, at this level, it implies a further discount rate movement of X and then we reduce fees, broadly equivalent to the OCR. So what that means is it takes you from a discount rate of 8%, up to an expected return of 8.9% using those additional levers.

Question in from Stephen on sustainability, asking how sustainability initiatives are impacting the overall performance of the portfolio. Maybe one for Ross to kick us off with.

Yes, very happy to do so. And while it hasn't been explicitly mentioned in this presentation, it is just worth mentioning that sustainability really is at the heart of the company's business model. We think it's intrinsic to the way that HICL operates. And that's one of the reasons why earlier in the year, we did officially categorized ourselves as an articulate fund under SFDR and the company also does have an extensive sustainability report, which was published at the same time as the annual report in May 2023. In terms of how the initiatives run through the portfolio, that's a very good question. There are a couple of ways. Firstly, InfraRed active management and specifically through what we call our portfolio impact strategy ensures that at the asset level, we're taking an active role in ensuring that individual assets try and impact things that improve the user experience and actually the wider stakeholder set of the assets and we're pleased to say that since the launch of that initiative, we've impacted many, many things on the ground. The other main reason -- the other main way that we track this is through what we call our survey every year of our portfolio companies and this is where we track and then disclose publicly a number of key measures in relation to sustainability. That could be, for example, CO2 emissions, water and energy use or also certain governance measures that are put in place such as policies and health and safety. So we really do have an active role across all of our portfolio companies and it's very much part of our model.

A question from Nick, who asked -- can I ask what percentage of your portfolio has contractual inflation protection built into the leases? Split of RPI and CPI and the extent to which it is capped. Maybe Ed had to start this one off...

Yes, Helen might want to come in on this one as well. So inflation flows through different asset types in different ways. So -- but effectively, it is contractually provided for across the entire portfolio, and we expressed that through the measure of 0.8x. So this means that if inflation was 1% higher for all future years, then the return you could expect from HICL would increase by 80 basis points. So through, for example, a PPP asset, it's contractually enshrined in the document. As Ross said, PPPs make up 57% of the portfolio. And effectively, what this means is that the revenues that are coming from the public sector are rebased annually in line with the RPI that has been recorded over the previous year. So that's very much a contractual pass-through. In a toll road asset, which comprises just under 20% of the portfolio alongside other demand-based assets. It's slightly different but similar as well and that you're allowed to increase your toll revenues by inflation and then it's a decision by the project whether or not those -- or those tolls are put through and that's a judgment by the management team. And I can say that across our largest demand-based assets, we've been increasing the tolls and there's been very little impact on demand for those roads. So that's feeding through directly. And then on regulated assets, it's slightly different again, whereby the asset base, for example, on Affinity Water, the regulated capital value of the asset is linked to RPI and so that increases and that provides the return base that's applied to equity. Ross, anything you'd like to add?

Yes. I think the only thing just on the RPI and CPI split. So U.K. PPP, PFI projects tend to be linked to U.K. RPI. The main U.K. asset that's linked to CPI is Affinity Water. As Ed mentioned, at the moment, the RCV is linked to RPI and also CPI. Going forward, that will be CPI. And then outside of the U.K., it tends to be CPI. So for those large demand-based assets, A63, Northwest Parkway, and also in other jurisdictions such as New Zealand, it tends to be a consumer price index.

A 2-part question from Marcus on acquisitions. First thing, what is the criteria that's used to select new acquisitions? And the second being, how has the portfolio diversification changed with the recent transactions that we've seen in the last...

Sure. So maybe, Ross, do you want to start with the revisit of the core infra framework, and we'll go from there?

Yes, absolutely. And I think the best place to start is the core infrastructure framework as I set out, and that's -- you can find on Slide 17 of the presentation. That really does govern on an overarching level, the types of assets that we can and can't invest in. We're pretty agnostic about which sectors we invest in, but we do invest in a certain structure of asset and a certain risk categorization of asset, and that's defined by the core infrastructure framework. So those 3 characteristics, high-quality cash flows, defensive market positioning and criticality. More broadly, when we're looking at acquisitions, there are 4 key metrics, much like when we look at disposals, we want new acquisitions to improve our 4 key portfolio metrics. So that's total return yield, weighted average asset life and inflation correlation. And then at the moment, specifically, and this is something that Ed mentioned when we come to look at the decision to make new acquisitions, we also consider that against the bar, in particular, for returns that set by the price implied by buying back our own portfolio and also the borrowing costs on HICL's RCF. So that's a specific consideration in the current circumstance. Ed, I don't know whether you want to add anything further to that.

Well, I think the second part of the question was around diversification and how that's changed. And it's right to say that we've continued to diversify the portfolio. The types of assets that we've brought in really does reflect the evolution of the core infrastructure landscape more broadly. And as a core infrastructure fund, it's reflected in the types of assets that we've acquired. That's really as assets meet that risk profile that Ross mentioned, they become suitable for investment. But there really are some advantages in the way that we've diversified the portfolio across different sectors, across different revenue types and across different geographies. Clearly, one of the biggest risks that we face with infrastructure investment is the fact that we really do sit at the nexus of public and private and we provide quality public assets that are essential and critical to those markets. So you do have a direct interface with the public sector, and there's a political and regulatory exposure to the asset. So by having different clients, in different countries, we're able to mitigate that risk and provide a balanced risk profile across a broader set of assets.

Question for Helen. Apart from Affinity Water, which assets in the portfolio are yet to resume distributions or are yet to start distribution since being acquired?

I'm pleased to say that all of our recently acquired assets have started distributing in line with expectations. Affinity is the largest asset that isn't distributing by quite some way. And the rest of the assets that aren't distributing at the moment or not material. I would just say that it's quite normal when you hold an asset up to 30 years for things to happen and assets to go in and out of lockup, Affinity is the most material. And as I mentioned, they stopped distributing in 2018.

A question here for Ross from Ed, has there not been a new competitor announced for Eurostar? Someone has been paying attention to the news. And will that be good for HS 1?

Yes, it's a very timely point to mention. I think there is actually multiple announcements in the press certainly in the industry press over the last 6 months or so around potential new entrants, which would [indiscernible] to be a successful run on HS 1. Clearly, what we see this as a positive indictment of the inherent attractiveness of the line, it does effectively hold the monopoly position for high-speed rail services between London, Paris, Brussels, Amsterdam and beyond. And in terms of how we treat that in our valuation, we do take a probability-weighted view of one or more of these new incumbents coming into place. We'd say that we take a relatively conservative view given there's still a way to go before the -- these new services would actually run. But what you would say is that if there was to be more competition that was ultimately successful on the line, it would be good news for consumers, but it would also be good news for HS 1.

Question from James. It's 2 questions here. First is with such a high PPP contribution, how happy are you with the Labor victory next year?

Well, the Labor Party is in a very different position than it was 4, 5 years ago. And the noises that we're hearing out of the shadow cabinet are very much in line with attracting private investment into infrastructure and key to attracting new capital into infrastructure is looking after old capital that's been investing in infrastructure. So we think that the Labor Party should have come into power next year would be -- continue to be supportive of the role of private capital and investment. And we're seeing that even in recent announcements around the shadow chancellors' formation of an infrastructure council to help guide their efforts to attract private capital into infrastructure investment.

The second question from James for Helen. Slowly, the GBP is drooping, where should future allocation is like?

We split out on Page 41 of the presentation, the allocation of the portfolio between geographies. And so you can see that the U.K. has 63% of the portfolio. That has been gradually declining over the last few years. It's safe to say that we have seen more opportunities for the portfolio outside of the U.K., but that's not to say that in the future and following on from Ed's comment that we won't see good opportunities in the U.K. and we remain open-minded relative to the U.K. versus other jurisdictions. The key thing is that the investments meet our key criteria, which both Ed and Ross set out throughout the presentation.

And one final question from Ed again for Helen. Given the recent rally and long-end gilts, is it like that the discount rate might have to tighten in the next set of results?

It will be a very nice problem to have. I think the rally over 10 days or so have been welcome, but I think it remains too early to tell whether or not we'll be able to move discount rates. The key determinant will be transaction data and transaction volumes. And as I mentioned, the difference in fair values for individuals and investors remains quite wide. And that needs to stabilize and come in again, I think before we can see a meaningful movement in discount rates.

And that's all of the questions that we've had through. So once again, thank you very much for dialing in, and thank you very much for the questions. It was a really good run through the portfolio. And I'd like to pass back to the investment company team to finish off the presentation.

Hal, Ed, Helen, Ross. Thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations? This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of management team of HICL Infrastructure Plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.