HICL Infrastructure : Annual Results for the Year Ended 31 March 2024

Enriching lives through infrastructure

HICL Annual

Report 2024

HICL Annual Report 2024

Contents

Strategic Report

2024 Highlights	2	Top 10 Assets	26
Chair's Statement	3	Sustainability	36
HICL at a glance	6	Financial Review	40
The Infrastructure Market	10	Valuation of the Portfolio	46
HICL's Business Model	14	Risk and Risk Management	53
Key Performance and	18	Viability Statement	62
Quality Indicators		Strategic Report Disclosures	63
Investment Manager's Report	20	TCFD	65

For definitions of our financial terms used throughout this report, please see our Glossary on pages 162 to 163

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HICL Annual Report 2024

Strategic Report

Governance

Financials

Governance		Financials
Board and Governance	72	KPMG LLP's Independent Auditor's Report	100
Board of Directors	74	Income statement	112
The Investment Manager	76	Statement of financial position	113
Corporate Governance Statement	77	Statement of changes in shareholders' equity	114
Management Engagement	81	Cash flow statement	115
Committee (MEC)		Notes to the financial statements	116
Market Disclosure Committee	81
Appendix 1: SFDR Disclosures	148
Nomination Committee	82
Appendix 2: Valuation Policy	160
Risk Committee Report	83
Appendix 3: Infrastructure Market - Sources	161
Audit Committee Report	85
Glossary	162
Directors' Remuneration Report	91
Directors and Advisers	164
Report of the Directors	95
Statement of Directors'
Responsibilities	98

1

HICL Annual Report 2024

2024 Highlights

Delivering sustainable income and capital growth from a diversified core infrastructure portfolio

158.2p	8.35p	8.7% p.a.
NAV1 per share	New Dividend Guidance2	Total Shareholder
2023: 164.9p	for 2026	Return since IPO3
	Reaffirmed Dividend Guidance
	8.25p for 2025

0.7x £736m 1.37x/1.05x

Inflation correlation4	Transactions announced	Dividend cash cover including/excluding
2023: 0.8x	in the year	profits on disposal5
		2023: 1.31x / 1.03x

Total return of 8.7% p.a. since IPO

The chart below shows how the combination of dividend and Net Asset Value (NAV) growth has delivered a total return of 8.7% p.a. from IPO to 31 March 2024.

																116	124	133
													91	100	108
											75	83
										68
									60
								53
						39	46						155	150	150	161	163	156
										147	148
					32				140
	6
	12		25				135
		19				123
	118	120				116
				113
	107	107	110
98
IPO	FY07	FY08	FY09	FY10	FY11	FY12	FY13	FY14	FY15	FY16	FY17	FY18	FY19	FY20	FY21	FY22	FY23	FY24

Cumulative Dividends (p)

NAV per share (p)

References are made throughout to Alternative Performance Measures 'APMs'. These APMs, which include the Investment Basis, are provided alongside IFRS accounting measures to provide additional information to shareholders.

A full reconciliation of the APMs used is disclosed on page 43

1. Net Asset Value, including the dividend of 2.07p declared on 15 May 2024
2. Expressed in pence per Ordinary Share for the financial year ending 31 March. This is a target only and not a profit forecast. There can be no assurance that this target will be met
3. Based on interim dividends paid plus change in NAV per share in the year
4. If outturn inflation was 1% p.a. higher than the valuation assumption in each and every forecast period, the expected return from the portfolio (before Corporate Group expenses) would increase by 0.7%
5. Stated on an Investment Basis, including profits on disposal versus original acquisition cost of £53.4m (2023: £45.5m). Excluding this, dividend cash cover is 1.05x

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HICL Annual Report 2024

Strategic Report

Governance

Financials

Chair's Statement

I am pleased to present resilient annual results for HICL. The significant level of transactions completed over the year has materially reduced gearing and enabled a share buyback programme, whilst enhanced cash flow generation and improved prospects for longer-term earnings support a return to sustainable dividend growth.

With the uncertain macroeconomic backdrop persisting, the Board and Investment Manager prioritised balance sheet management and disciplined capital allocation in the year. The acceleration of HICL's (HICL Infrastructure PLC and its subsidiaries, defined as "HICL" or "the Group")1 strategic asset disposal programme, generating over £500m of proceeds, will enable the complete repayment of HICL's Revolving Credit Facility ("RCF") and the launch of a £50m share buyback. These are responsible, long-term decisions which have created value and demonstrate the Board's approach to capital allocation.

HICL's diversified portfolio of high-quality core infrastructure assets is, by design, substantially insulated from market volatility and performed in line with expectations during the period. Despite this, the Company's2 shares have traded at a significant discount to their Net Asset Value ("NAV"). The Board and Investment Manager have been aligned in their view that sustained transaction activity is fundamental to demonstrating the robustness of the Company's valuation. With this in mind, HICL disposed of nine assets, all at or above carrying value and representing 13.5% of the opening investment portfolio by value. The most recent was Northwest Parkway in February 2024 at a 30% premium to its most recent valuation. These transactions reinforce the Board's conviction that the Company's stock remains materially undervalued.

The share price at 31 March 2024 implies a long-term expected return from the portfolio of 8.9% p.a. net of costs, representing a 4.8% implied equity risk premium which has widened by 60bps since the Company's interim results at 30 September 20233. The Board believes this represents compelling risk-adjusted value, as demonstrated by its commitment to undertake up to £50m in share buybacks over a 12-month period.

Financial performance

HICL's NAV per share at 31 March 2024 was 158.2p (March 2023: 164.9p). This resilient result was underpinned by the underlying return from the portfolio of 9.0% (March 2023: 10.2%), which exceeded HICL's weighted average discount rate of 7.2% as at 31 March 2023. This outperformance was offset by the effects of macroeconomic assumptions, particularly increased discount rates, which resulted in earnings per share for the year of 1.5p (March 2023: earnings of 9.9p). Total Shareholder Return ("TSR") was 1.0%4 (March 2023: 6.3%).

HICL invests in assets with strong

social foundations such as healthcare and education, assets that connect communities from rail and road to communications; and assets that support the transition to

a low-carbon modern economy.

1. HICL Infrastructure PLC and its subsidiaries is defined as either HICL or the Group throughout the Report
2. HICL Infrastructure PLC, the Company only, is defined as the Company throughout the Report
3. Based on discount rate, less Ongoing Charges Ratio, adjusted to reflect the share price discount to the NAV using published discount rate sensitivities
4. Based on interim dividends paid plus change in NAV per share in the year

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HICL Annual Report 2024

Chair's Statement continued

The Board is pleased to issue new dividend guidance of 8.35pps for the year to 31 March 2026, signifying a return to sustainable, long-term dividend growth.

The primary driver of the decrease in NAV per share in the year was an 80bps increase in the weighted average discount rate used to value the portfolio, reflecting increased long-term government bond yields in HICL's key markets. This was materially offset by higher near-term forecast inflation rates as well as profitable transaction activity in the year.

A more detailed explanation of the portfolio's valuation and discount rate movements over the year is given in the Valuation of the Portfolio section, starting on page 46.

Business model in action

Accretive asset rotation has long been a key component of HICL's differentiated strategy, with 26 disposals contributing over 10.1p to NAV per share since its IPO in 2006. During the year, the Board and Investment Manager accelerated HICL's disposal programme across a range of sectors and geographies generating over £500m in cash proceeds. This decisive action enabled HICL to self-fund portfolio evolution, repay the RCF and launch a £50m buyback programme.

The combined £736m of transactions announced during the year have contributed c.3.3p to HICL's NAV per share, improved portfolio composition and contributed positively to key portfolio metrics.

More information on these transactions can be found in the Investment Manager's Report starting on page 20.

Race Bank OFTO

158.2p

NAV per share

at 31 March 2024

8.35pps

New dividend guidance for FY 2026

£736m

of transactions announced

Portfolio evolution

HICL's strategic approach to portfolio construction underpins its ability to deliver an attractive investment proposition for decades to come. Careful and considered transaction activity in recent years has deliberately extended HICL's revenue streams, introducing assets positioned to capture real growth and to balance the increasing maturity of the Group's PPP concessions.

This strategic evolution is now reflected in HICL's asset base: mature shorter-life assets providing a strong yield ("Yielders"), complemented by assets with longer asset life, stronger inflation correlation and greater growth potential ("Growers"). HICL's Yielders deliver a forecast

10-year cash yield of c.10% against a weighted average life of 14 years, contrasted with HICL's Growers which are forecast to deliver a 10-year growth rate of 7% p.a. and benefit from a weighted average asset life of 48 years. The combination of these two asset groups provides a robust and enduring earnings platform from which the Company expects to deliver dividend and NAV growth for shareholders over the long term.

Return to dividend growth

The Board reconfirms the dividend guidance of 8.25pps for the year to 31 March 2025, and is pleased to issue new dividend guidance of 8.35pps for the year to 31 March 2026, signifying a return to sustainable, long-term dividend growth1.

The Board recognises the important role played by the Company's dividend in delivering its compelling total return proposition, and remains focused on providing investors with an attractive income stream alongside a growing earnings base. This approach requires appropriate balance, over the long term, between distributions to shareholders and reinvestment for future growth.

The impact of high inflation over the past 18 months is increasingly flowing through into higher cash receipts across the portfolio, and is supported by real growth in HICL's demand-based assets, all of which are now making regular distributions. In addition, the asset rotation undertaken in the year has improved the portfolio's yield profile. Together this provides the Board with the confidence that dividend cash cover will continue to improve in the coming years and that a growing dividend will be appropriately supported both by cash and earnings over the long term.

The Board will continue to assess the ability for further dividend growth over the coming year, as Affinity Water progresses through its regulatory review.

1 This is a target only and not a profit forecast. There can be no assurance that this target will be met

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HICL Annual Report 2024

Strategic Report

Governance

Financials

Sustainability progress

HICL's critical infrastructure investments form the foundations of societies, economies and local communities. The Group's assets respond to fundamental socioeconomic needs and provide critical services. Over 35 million people worldwide use HICL's assets in their daily lives, with the underlying assets employing over 2,300 people directly and thousands more through their supply chains. The Board recognises that positive outcomes for HICL shareholders are intrinsically linked to positive outcomes for the communities served by HICL's assets.

The Board's strategy is to improve both the impact and disclosure of HICL's sustainability approach. Improvements this year have included an investor survey, led by a third party, on HICL's sustainability approach. HICL received an average rating of 7.8 out of 10 for its ESG disclosures and 7.6 out of 10 for its ESG metrics and targets. The survey also provided valuable perspectives on the evolving landscape of ESG reporting frameworks, and the metrics most commonly used by investors.

This information will enable the Company to continue to meet sustainability reporting expectations and offer accountability to investors.

Further information on this shareholder survey, as well as an in-depth review of HICL's and Investment Manager's sustainability performance and ambitions, can be found in HICL's standalone Sustainability Report, available on the Company's website under Reports & Publications, the highlights of which are on page 36 of this report.

Capital allocation

The Board maintains a strong focus on capital allocation. This was evidenced during the year by the acceleration of HICL's strategic asset disposal programme,

the prioritisation of reducing RCF drawings, the announcement of a share buyback programme and the execution of highly selective accretive investments.

Going forward, the Board will continue to apply a highly- disciplined approach to capital allocation, with a suitably high bar for new acquisitions, guided by the relative attraction of further share buybacks.

Lewisham School

Outlook

The Board and Investment Manager's disciplined approach to balance sheet management has provided a platform from which HICL can execute its strategy with flexibility and enhanced financial firepower.

The growth potential in the infrastructure sector, particularly in those areas that support the modern economy, is considered vast. Alongside HICL's resilient concession-based portfolio, more recent growth-oriented investments enhance the Company's long-term earnings drivers and provide greater potential for outperformance through active management. I invite you to look at the increased disclosure on the key growth drivers for these assets which are included in the Top 10 assets section starting on page 26.

Driven by the Manager's proven ability to consistently realise investments at attractive valuations, the Company expects to continue to progress strategic and accretive asset rotation. Prevailing market dislocation is anticipated to provide opportunities to further enhance portfolio construction and generate shareholder value through selective investments, without recourse to equity markets.

HICL's diversified portfolio of over 100 high-quality,inflation-linked assets reflects the evolution of the core infrastructure market - offering shareholders attractive risk-adjusted value for today, with exposure to the powerful infrastructure megatrends driving the returns of tomorrow.

Mike Bane

Chair

21 May 2024

8.7%

p.a.

Total return since IPO in 2006

0.7x

Inflation correlation

29.4 years

Weighted average asset life

£50m

Announced share buyback programme

The Board recognises that positive outcomes for HICL shareholders are intrinsically linked to positive outcomes for the communities served by HICL's assets.

Download the HICL Sustainability Report online www.HICL.com

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HICL Annual Report 2024

HICL at a glance

Our purpose is to be a pre-eminent investor in essential core infrastructure in our chosen markets

Our vision is to enrich lives through infrastructure

Strong social foundations

45%

of portfolio

Assets that constitute the foundation of our societies, such as:

• Health
• Education
• Fire, Law and Order
• Accommodation

Connecting communities

37%

of portfolio

Assets that link people to the economy and each other, such as:

• Availability or toll roads
• Rail and rolling stock
• Fibre networks
• Mobile towers

Sustainable modern economies

18%

of portfolio

Assets supporting the energy transition and continued resource security, such as:

• Water
• OFTOs
• Electricity transmission

Read more about our Top 10 investments on page 26

A commitment to sustainability

As a prominent long-term investor in core infrastructure, HICL has a role in society that extends beyond its shareholders.

Read more about HICL's sustainability highlights on page 36

As a trusted steward of essential infrastructure that sits at the heart of communities, sustainability and a focus on creating positive societal impacts are firmly embedded in HICL's business model.

Mike Bane

Chair of the Board of Directors

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HICL Annual Report 2024

Strategic Report

Governance

Financials

InfraRed is the Investment Manager, operating for the investment portfolio and responsible for delivering HICL's purpose and vision

US$13bn+	230+	100+
Equity under	Investments	Infrastructure
management1		professionals
25+ yr	160+
Track record	Employees in five
Read more at www.ircp.com	international offices

A strong investment proposition

Read more on page 14

HICL's Investment Proposition is to deliver sustainable income and capital growth from a diversified portfolio of investments in core infrastructure.

Diversification

We provide shareholders with immediate access to a portfolio of

Sustainability

We invest in assets that sit at the heart of communities. 35 million people have access to our infrastructure

Total return

Since IPO we have delivered a Total Shareholder Return of

100+	35m
assets	people
Yield	Inflation correlation
We deliver a	We deliver a return
sustainable dividend	that correlates to
	long-term inflation

8.7% p.a.

Asset life

We offer cash flow visibility from long-life infrastructure assets

8.25p	0.7x	29.4 yr
per share 2024		weighted average asset life

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HICL Annual Report 2024

HICL at a glance continued

A diverse portfolio with over 100 assets1

Read more about out Top 10 investments on page 26

1

2

	t	s		3
n
e
m
t			49.5%
i
s
e
v
n				4
I
g
n
i
n
a
m
e		5
R
				6

1

Affinity Water

Sector: Electricity & Water

Location: UK

• of portfolio: 8.3% HICL holding: 33.2%

10

7

8

9

5

High Speed 1

Sector: Transport

Location: UK

A diverse portfolio of over 100 assets

	4			7	1
	3				2
2	Geography		6	Sector
		1			3
				5	4
1UK		64%	1Accommodation	9%
2EU		22%	2Education		10%
3North America	7%	3Electricity & Water	18%
4Australia/New Zealand	7%	4Health		22%
			5Fire, Law & Order	5%
			6Transport		27%
			7Communications	9%

1 By value, at 31 March 2024, using Directors' Valuation

• of portfolio: 4.6% HICL holding: 21.8%

8

Pinderfields & Pontefract Hospitals

Sector: Health

Location: UK

• of portfolio: 3.5% HICL holding: 100.0%

8