TIDM3IN
RNS Number : 8596Y
3i Infrastructure PLC
10 May 2023
10 May 2023
Results for the year to 31 March 2023
3i Infrastructure plc ('3i Infrastructure' or the 'Company')
today announces a 14.7% return for the year, delivery of the FY23
dividend target of 11.15 pence and a 6.7% increase in the target
dividend for FY24 to 11.90 pence per share.
Richard Laing, Chair of 3i Infrastructure plc, said:
"3i Infrastructure continues to deliver long-term sustainable
returns. I am delighted to report that we achieved another year of
outperformance, with a total return of 14.7% in the year ended 31
March 2023, well ahead of our target. We have increased the
dividend per share in every year of the Company's existence ."
Scott Moseley and Bernardo Sottomayor, Managing Partners,
Co-Heads of European Infrastructure, 3i Investments plc, added:
"This was another strong year for the Company, materially
exceeding its target return. We have carefully selected our
portfolio, identifying infrastructure companies that benefit from
long-term structural growth trends in their underlying markets. 3i
Infrastructure is well positioned to continue to deliver attractive
shareholder returns."
Performance highlights
Well ahead of our target return of 8-10% 14.7%
p.a. Total return on opening NAV
GBP394m
Total return for the year
GBP3,101m
NAV
336.2p
NAV per share
Delivered FY23 dividend target, fully 11.15p
covered Full year dividend per share for
FY23
Setting higher target for FY24 dividend,
up 6.7% year-on-year
11.90p
Target dividend per share for FY24
------------------------------------
For further information, please contact:
Richard Laing, Chair, 3i Infrastructure Tel: 037 1664 0445
plc
Thomas Fodor, investor enquiries Tel: 020 7975 3469
Kathryn van der Kroft, press Tel: 020 7975 3021
enquiries
For further information regarding the announcement of the
results for 3i Infrastructure plc, please visit
www.3i-infrastructure.com. A recording of the analyst presentation
will be made available on this website during the day.
Notes to the preliminary announcement
Note 1
The statutory accounts for the year to 31 March 2023 have not
yet been delivered to the Jersey Financial Services Commission. The
statutory accounts for the year to 31 March 2022 have been
delivered to the Jersey Financial Services Commission. The
auditor's reports on the statutory accounts for these years are
unqualified. This announcement does not constitute statutory
accounts. The preliminary announcement is prepared on the same
basis as set out in the statutory accounts for the year to 31 March
2022.
Note 2
Subject to shareholder approval, the proposed final dividend is
expected to be paid on 10 July 2023 to holders of ordinary shares
on the register on 16 June 2023. The ex-dividend date for the final
dividend will be on 15 June 2023.
Note 3
This report contains Alternative Performance Measures ('APMs'),
which are financial measures not defined in International Financial
Reporting Standards ('IFRS'). More information relating to APMs,
including why we use them and the relevant definitions, can be
found in the Company's 2023 Annual report and accounts and in the
Financial review section.
Note 4
The preliminary announcement has been extracted from the Annual
report and accounts 2023. The Annual report and accounts 2023 will
be available on the Company's website today. Printed copies of the
Annual report and accounts 2023 will be distributed to shareholders
who have elected to receive printed copy communications on or soon
after 22 May 2023.
Notes to editors
About 3i Infrastructure plc
3i Infrastructure plc is a Jersey-incorporated, closed-ended
investment company, an approved UK Investment Trust, listed on the
London Stock Exchange and regulated by the Jersey Financial
Services Commission. The Company's purpose is to invest responsibly
in infrastructure, delivering long-term sustainable returns to
shareholders and having a positive influence on our portfolio
companies and their stakeholders.
3i Investments plc, a wholly-owned subsidiary of 3i Group plc,
is authorised and regulated in the UK by the Financial Conduct
Authority and is the investment manager of 3i Infrastructure
plc.
This statement has been prepared solely to provide information
to shareholders. It should not be relied on by any other party or
for any other purpose. It and the Company's Annual report and
accounts may contain statements about the future, including certain
statements about the future outlook for 3i Infrastructure plc.
These are not guarantees of future performance and will not be
updated. Although we believe our expectations are based on
reasonable assumptions, any statements about the future outlook are
subject to a number of risks and uncertainties and could change.
Factors which could cause or contribute to such differences
include, but are not limited to, general economic and market
conditions and specific factors affecting the financial prospects
or performance of individual investments within the portfolio of 3i
Infrastructure plc.
This press release is not for distribution (directly or
indirectly) in or to the United States, Canada, Australia or Japan
and is not an offer of securities for sale in or into the United
States, Canada, Australia or Japan. Securities may not be offered
or sold in the United States absent registration under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), or an
exemption from registration under the Securities Act. Any public
offering to be made in the United States will be made by means of a
prospectus that may be obtained from the issuer or selling security
holder and will contain detailed information about 3i Group plc, 3i
Infrastructure plc and management, as applicable, as well as
financial statements. No public offering in the United States is
currently contemplated.
Our purpose
We invest responsibly in infrastructure, delivering long-term
sustainable returns to shareholders and having a positive influence
on our portfolio companies and their stakeholders.
Chair's statement
"Another excellent year, with confidence in the future."
Richard Laing
Chair, 3i Infrastructure
3i Infrastructure continues to deliver long-term sustainable
returns, with another year of outperformance.
I am delighted to report that we achieved another year of
outperformance, with a total return of 14.7% in the year ended 31
March 2023. That return is well ahead of our target to provide
shareholders with a total return of 8% to 10% per annum, to be
achieved over the medium term. Our total return for the three years
since March 2020, the Covid-19 and post-Covid period, was an
impressive 13.7% per annum.
We have built a unique portfolio, which benefits from inflation
linkage and is aligned with long-term megatrends. Our companies,
supported by the engaged asset management approach of 3i, our
Investment Manager, are generating attractive and accretive growth
investment opportunities.
We made another step forward with our sustainability objectives
this year, supported by the establishment of a dedicated
environmental, social and governance ('ESG') team at the Investment
Manager bringing greater focus and increased engagement with our
portfolio companies.
I am grateful to shareholders and the Board of Directors for
their support during the year, including during our equity raise in
February 2023, as well as to the Investment Manager's team for
their continued hard work under the leadership of Scott Moseley and
Bernardo Sottomayor.
Our purpose
Our purpose, is to invest responsibly in infrastructure,
delivering long-term sustainable returns to shareholders and having
a positive influence on our portfolio companies and their
stakeholders.
We invest across a broad range of infrastructure investment
themes and highlight the strong growth prospects of our portfolio
companies in this report. Our portfolio companies invest in,
develop and actively manage essential infrastructure. Examples of
how our portfolio companies have a positive influence are included
in the Sustainability report in the Annual report and accounts
2023.
Performance
The Company generated a total return of GBP394 million in the
year ended 31 March 2023, or 14.7% on opening NAV, ahead of our
target of 8% to 10% per annum to be achieved over the medium term.
This is discussed in more detail in the Review from the Managing
Partners.
The NAV per share increased to 336.2 pence. Our share price has
not kept pace with the growth in our NAV, which resulted in a Total
Shareholder Return ('TSR') of negative 6.9% in the year, ahead of
the FTSE 250, which returned negative 7.9% in the same period.
Since IPO, the Company's annualised TSR is 11.7%, comparing
favourably with the broader market (FTSE 250: 6.1% annualised over
the same period).
Dividend
Following the payment of the interim dividend of 5.575 pence per
share in January 2023, the Board is recommending a final dividend
for the year of 5.575 pence per share, meeting our target for the
year of 11.15 pence per share, 6.7% above last year's total
dividend. We expect the final dividend to be paid on 10 July
2023.
Consistent with our progressive dividend policy, we are
announcing a total dividend target for the year ending 31 March
2024 of 11.90 pence per share, representing an increase of
6.7%.
Corporate governance
The Company's 2022 Annual General Meeting ('AGM') was held on 7
July 2022. All resolutions were approved by shareholders, including
the re-election of the existing Directors.
This year's AGM will be held on 6 July 2023. Further details are
provided in the Notice of Meeting and on the Company's website,
www.3i-infrastructure.com. In September, we were delighted to
welcome Stephanie Hazell as a non-executive Director. Stephanie
brings a broad strategic experience in the infrastructure sector
from her previous roles at National Grid, Orange and Virgin
Group.
Directors' duties
The Directors have a duty to act honestly and in good faith with
a view to the best interests of the Company and to exercise the
care, diligence and skill that a reasonably prudent person would
exercise in comparable circumstances.
In accordance with the AIC Code of Corporate Governance 2019
(the 'AIC Code'), the Board does this through understanding the
views of the Company's key stakeholders and carefully considering
how their interests and the matters set out in section 172 of the
Companies Act 2006 of England and Wales have been considered in
Board discussions and decision making. More detail can be found in
the Directors' duties and Section 172 statement sections later in
this document.
Capital raise and liquidity
We were pleased with the results of our capital raise and would
like to thank our shareholders for their continued support. The
equity raise proceeds of GBP100 million were used to pay down part
of the drawings on the revolving credit facility ('RCF') and partly
used to fund the GBP28 million acquisition of Future Biogas. This
provides additional flexibility to fund attractive discretionary
growth opportunities in our portfolio.
We manage our balance sheet actively, seeking efficiency through
low levels of uninvested cash with a range of funding options
available to the Company for further investment as described in the
Financial review.
Outlook
The past year has seen significant volatility in both equity and
credit markets and in energy and power prices. Against this
backdrop, the Company has remained disciplined in its investment
approach, maintaining adequate liquidity and an appropriate level
of gearing in the Company's portfolio.
Our portfolio consists of resilient businesses providing
essential services to their customers and the communities they
serve, often benefitting from long-term sustainable trends. These
businesses are generating discretionary growth opportunities that
are accretive to our investment cases, leaving us well positioned
to continue to build on our strong performance.
Richard Laing
Chair, 3i Infrastructure plc
9 May 2023
2007 to 2023
In the 16 years since the initial
public offering ('IPO')
the Company has delivered a total
shareholder return of
11.7%
per annum
Review from the Managing Partners
"The Company's top quartile track record is the result of our
deliberate strategy."
Scott Moseley and Bernardo Sottomayor
Managing Partners, Co-Heads of European Infrastructure
3i Investments plc
This was another strong year for the Company, materially
exceeding its target return.
We delivered another strong total return of 14.7% this year.
Since 2015, when we adopted our current strategy of focusing on
core-plus infrastructure investments, NAV per share including
dividends has grown by 19% per annum. Since 3iN's inception in
2007, we have grown NAV per share including dividends by 14% per
annum.
The Company's top quartile track record is the result of our
deliberate strategy.
We have carefully selected our portfolio, identifying
infrastructure companies that benefit from long-term structural
growth trends in their underlying markets.
We work actively with the management teams at our portfolio
companies to define and execute plans to capitalise on those growth
dynamics. Growing markets provide the catalyst for us to continue
to reinvest in our portfolio companies at returns that are likely
to outperform 3iN's portfolio target.
Our portfolio companies' earnings are also typically positively
correlated to inflation, as well as growing in real terms.
The resulting compounding growth dynamics, together with the
resilience that our portfolio companies have displayed throughout
the cycle, including during the recent Covid-19 pandemic,
demonstrate that the Company offers shareholders very high quality
risk-adjusted returns.
Our active management approach also ensured that we locked in
attractive debt financing across the portfolio before the recent
increases in financing costs. The average level of gearing within
our portfolio companies is a relatively modest 33% of enterprise
value and there are no material refinancing requirements within the
portfolio before 2026.
These conservative levels of gearing within our portfolio
companies, combined with strong operational cash generation,
available credit in the RCF and the recent GBP100 million equity
raise, ensures that our portfolio companies are well placed to
finance these growth investment opportunities as they arise.
Sustainability
The importance of sustainability and meeting ESG standards
continues to increase. This year we created a new team to lead ESG
and sustainability initiatives across the portfolio. The additional
focus that this new team brings helps us to engage on ESG topics in
a more meaningful way, to maintain appropriate oversight over new
and developing ESG legislation and to collate relevant data
regarding the performance of the portfolio companies against
certain sustainability indicators. Our companies are now reporting
Scope 1 and 2 greenhouse gas ('GHG') emissions and considering
opportunities to reduce these.
In the year ahead we plan to build on this progress by working
with portfolio companies to measure Scope 3 GHG emissions, further
develop Paris-aligned decarbonisation plans and where possible set
science-based targets.
Investment and divestment activity
During the year we completed a number of transactions as shown
in the table below:
Date Activity
May 2022 Syndication of a 17% stake in ESVAGT for proceeds of GBP87 million
----------------------------------------------------------------------------------------------
June 2022 Sale of the European Projects portfolio for GBP106 million
----------------------------------------------------------------------------------------------
September 2022 Closing of the acquisition of c.100% stake in GCX for GBP318 million
----------------------------------------------------------------------------------------------
October 2022 Further investment in TCR, acquiring the 48% stake owned by funds managed by DWS for GBP338
million
----------------------------------------------------------------------------------------------
November 2022 Syndication of 28% of 3iN's stake in TCR for proceeds of GBP190 million
----------------------------------------------------------------------------------------------
December 2022 Investment of a further GBP15 million to fund DNS:NET's fibre roll-out programme
----------------------------------------------------------------------------------------------
February 2023 Investment of GBP28 million to acquire Future Biogas
----------------------------------------------------------------------------------------------
March 2023 Investment of a further GBP30 million in Infinis to fund the development of its solar roll-out
programme
----------------------------------------------------------------------------------------------
Outlook
Our portfolio is generating strong earnings growth which we are
confident is set to continue. Additionally, we continue to see
strong demand for high quality infrastructure investments, such as
those held by 3iN, amongst private market investors. Our active
management strategy includes planning selectively to divest our
portfolio companies at an optimal moment in time. The scarcity
value of our assets and favourable growth positioning provide
confidence in the outlook for continued value creation.
Scott Moseley and Bernardo Sottomayor
Managing Partners and Co-Heads of European Infrastructure, 3i
Investments plc
9 May 2023
Our business model
An active investor
Unique offering for shareholders
The Company remains unique, providing public market investors
with access to private infrastructure businesses across a variety
of megatrends, sectors and geographies.
Origination approach
We remain a disciplined investor and, where possible, seek
opportunities to transact off-market, only participating in
competitive processes where we believe we have a distinct
advantage.
We have a large and focused investment team, with a broad
network and access across the geographies in which we invest. Our
reputation, local presence and the relationships we develop with
management teams provide us with competitive advantages. This
allowed us to be successful in signing our new investment this year
in Future Biogas on attractive terms.
Asset management
We maintain a significant focus on active asset management and
investment stewardship. We identify high calibre management teams
and look to implement a clear business strategy. We help identify
accretive growth opportunities to the portfolio companies, and
actively help them to convert those, including executing add-on
M&A opportunities and putting in place adequate capital
structures and capex facilities to fund the associated
investments.
We actively look to enhance the infrastructure characteristics
of the businesses we acquire, ensuring that, where possible, capex
is focused on immediate contracted revenue-generating assets,
improving the infrastructure characteristics of the business to
attract competitive financing, adding elements of service that
create customer stickiness, and often implementing operational
efficiency programmes to optimise EBITDA margins. All of this helps
us position our businesses into the core infrastructure space, thus
maximising the potential exit value.
We execute all of the above through ownership control, effective
board presence and governance and by being involved directly in the
companies' key workstreams.
Competition for new investment primarily comes from private
infrastructure funds. Most other UK listed infrastructure funds
typically target smaller investments in finite life contracted
assets like operational and greenfield Public Private Partnership
('PPP') projects or operational renewable portfolios, which are
outside our investment focus.
Our primary investment focus remains mid-market core-plus
infrastructure with controlling majority or significant minority
positions and strong governance rights, whilst adhering to a set of
core investment characteristics and risk factors. More information
on our business model can be found below.
We invest responsibly in infrastructure to create long-term
value for stakeholders.
Enablers Investment characteristics How we create Value created
value
Financial Non-financial
================== ========================
Investment Asset-intensive Buy well 14.7% 2
Manager's business Total return Further investments
team on time-weighted in portfolio companies
Asset bases that Strong governance opening net asset to fund growth
3i Group network are value +9%
hard to replicate Increase in installed
Engaged asset Optimise strategy 11.15p renewable energy
management Provide essential Ordinary dividend capacity
services per share 12
Reputation Execute plan Portfolio companies
and brand Established market 19% reporting on greenhouse
position Asset IRR gas emissions
High ESG Realisation (since inception)
standards Good visibility
of future
Robust policies cash flows
and procedures
An acceptable
Efficient element of demand
balance or market risk
sheet
Opportunities
for
further growth
Sustainability
========================== ================== ================== ========================
Characteristics we look for in new investments
----------------------------------------------------------------------------------------------------------------------
We look to build and maintain a diversified portfolio of assets, across a range of geographies
and sectors, whilst adhering to a set of core investment characteristics and risk factors.
The Investment Manager has a rigorous process for identifying, screening and selecting investments
to pursue. We look for businesses that combine a base of strong cash flow resilience (eg.
contracted revenues) with high through-cycle underlying market growth fundamentals and operational
improvements and M&A opportunities, which allows us to deliver above target returns. Although
investments may be made into a range of sectors, the Investment Manager typically focuses
on identifying investments that meet most or all of the following criteria and are aligned
with identified megatrends:
----------------------------------------------------------------------------------------------------------------------
Asset-intensive business Good visibility of future cash flows
Owning or having exclusive access under long-term Long-term contracts or sustainable demand that allow us to
contracts to assets that are essential forecast future performance with
to deliver the service a reasonable degree of confidence
---------------------------------------------------------- ----------------------------------------------------------
Asset bases that are hard to replicate An acceptable element of demand or market risk
Assets that require time and significant capital or Businesses that have downside protection, but the
technical expertise to develop, with opportunity for outperformance
low risk of technological disruption
---------------------------------------------------------- ----------------------------------------------------------
Provide essential services Opportunities for further growth
Services that are an integral part of a customer's Opportunities to grow or to develop the business into new
business or operating requirements, or markets, either organically or
are essential to everyday life through targeted M&A
---------------------------------------------------------- ----------------------------------------------------------
Established market position Sustainability
Businesses that have a long-standing position, reputation Businesses that meet our Responsible Investing criteria,
and relationship with their customers with opportunities to improve sustainability
- leading to high renewal and retention rates and ESG standards
---------------------------------------------------------- ----------------------------------------------------------
How we create value
We have a rigorous approach to identify the best investment
opportunities and then actively manage our portfolio companies to
drive sustainable growth and value creation.
Buy well Strong governance Optimise strategy
* Effective use of 3i's network * Make immediate improvements * Agree strategic direction
* Comprehensive due diligence * Appropriate board representation and composition * Develop action plan
* Consistent with return/yield targets * Incentivised and align management teams * Right capital structure to fund growth plan
* Fits risk appetite
---------------------------------------------------------- -------------------------------------------------
What we do is framed
Execute plan Realisation by our strategic priorities
---------------------------------------------------------- =================================================
* Ongoing support * (Re)position business and enhance infrastructure
characteristics to maximise exit value
* Monitor performance
* Long-term view but will sell to maximise shareholder
value
* Review further investment opportunities
* Facilitate and execute M&A
============================================= ========================================================== =================================================
What enables us to create value
Investment Manager's team
The Company is managed by an experienced and well-resourced
team. The European infrastructure team was established by 3i Group
plc ('3i Group') in 2005 and now comprises over 50 people,
including over 30 investment professionals.
This is one of the largest and most experienced groups of
infrastructure investment professionals in Europe, supported by
dedicated nance, tax, legal, operations, sustainability and
strategy teams.
3i Group's network
3i Group has a network of of ces, advisers and business
relationships across Europe. The investment management team
leverages this network to identify, access and assess opportunities
to invest in businesses, on a bilateral basis where possible, and
to position the Company favourably in auction processes.
Engaged asset management
We create value from our investments through the Investment
Manager's engaged asset management approach. Through this approach,
the Investment Manager partners with our portfolio companies'
management teams to develop and execute a strategy to create
long-term value in a sustainable way. Examples of this partnership
include developing strategies that support investment in the
portfolio company's asset base over the long term; continued
improvements in operational performance; and establishing
governance models that promote an alignment of interests between
management and stakeholders.
We develop and supplement management teams, often bringing in a
non-executive chair early in our ownership.
Examples of this engaged asset management approach can be found
on our website, www.3i-infrastructure.com.
Strengthen portfolio company Invest in and develop Grow our platform businesses
management teams companies to support a through further investments
sustainable future
Reputation and brand
The Investment Manager and the Company have built a strong
reputation and track record as investors by investing responsibly,
managing their business and portfolio sustainably, and by carrying
out activities according to high standards of conduct and
behaviour. This has been achieved through upholding the highest
standards of governance, at the Investment Manager, the Company and
in investee companies. This in turn has earned the trust of
shareholders, other investors and investee companies, and has
enabled the Investment Manager to recruit and develop employees who
share those values and ambitions for the future.
The Board seeks to maintain this strong reputation through a
transparent approach to corporate reporting, including on our
progress on driving sustainability through our operations and
portfolio. We are committed to communicating in a clear, open and
comprehensive manner and to maintaining an open dialogue with
stakeholders.
Dedicated ESG team
In FY23, the Investment Manager created a new team to lead ESG
and sustainability initiatives across the portfolio. This will
enable an acceleration of the delivery of the Company's ambitions
around sustainability.
The new team's role is to ensure the Company's approach is right
for the portfolio and to drive genuine ambition and progress at
portfolio company level. Dedicated ESG resource enables us to
identify, monitor and realise the value creation opportunities
linked to sustainability for each portfolio company more
effectively.
The team supports each portfolio company on its respective
sustainability journey and consideration of the Company's
objectives at portfolio company level. The team also leads ESG
reporting for the Company and delivers the annual ESG review of the
portfolio.
By interfacing with the Company's strategy, the team supports
the Board to set the Sustainability strategy and objectives for the
Company, and aligns with key stakeholders such as 3i Group,
particularly on climate-related risks and opportunities.
Sustainability and ESG standards are discussed throughout this
report. Please refer to Our approach, the Sustainability report in
the Annual report and accounts 2023 and the Risk report.
"There is a strong link between companies that have high ESG
standards and those that are able to achieve long-term sustainable
business growth."
Anna Dellis
Partner, 3i Investments plc
Robust policies and procedures
Established investment and asset management processes are
supported by the Investment Manager's comprehensive set of best
practice policies, including governance, conduct, cyber security
and anti-bribery.
Efficient balance sheet
The Company's flexible funding model seeks to maintain an
efficient balance sheet with sufficient liquidity to make new
investments. In order to capitalise on discretionary growth
opportunities in the portfolio, during the year we raised new
equity of GBP100 million.
Since FY15 the Company has raised equity three times and
returned capital to shareholders twice following successful
realisations.
Our approach
The infrastructure market
Competitive landscape
2022 was another very strong year for fundraising in the
unlisted infrastructure space, with over US$300 billion raised in
the core, core-plus and value added segments. Fundraising has
become more concentrated around successful managers, with fewer
funds being raised but the average fund size rising. This makes
competition for suitable larger equity investments more
intense.
Macro environment
The past year has seen a structural shift in the macroeconomic
environment with significant inflation, increases in interest rates
and volatile equity markets. This has slowed down M&A activity
and impacted stock market performance.
In this environment, demand for infrastructure assets typically
increases due to the essential nature of the services they provide
and downside protection as they can act as a hedge with revenues
directly or indirectly linked to inflation.
Our portfolio companies benefit from direct contract indexation
and strong market positions providing pricing power. This is
partially offset by the increase in operational costs experienced
by a number of those companies.
Central banks raised interest rates in response to rising
inflation. The impact on our portfolio has been limited, with over
95% of our portfolio company debt either fixed rate or hedged at 31
March 2023, and with no material refinancing due before 2026.
These trends, and our response to them, are discussed in more
detail within the Risk report.
Interest rates Credit Inflation Power prices
* Over 95% of portfolio company debt is fixed rate or * No material near-term refinancing risk in the * Portfolio returns positively correlated to inflation * Energy generating assets benefitted from the high and
hedged at 31 March 2023 portfolio volatile power price environment
* Balanced mix of direct indexation and strong market
* Nearly 90% of portfolio company debt matures beyond positions provide pricing power
the next three financial years
--------------------------------------------------------- ---------------------------------------------------------- -----------------------------------------------------------
Megatrends
Megatrends are shaping the world around us, influencing decision
making and changing the demands placed on our economy and services.
Identifying the potential for change is a key driver of our
investment decision making - from the businesses, sectors and
countries we invest in, to the way we go about finding
opportunities.
As the Company's portfolio continues to grow, we seek to
diversify our investments across a range of megatrends that will
provide a supportive environment for long-term sustainable returns
to shareholders. We also continually assess underlying risk
factors, both when considering new investment opportunities and in
managing the existing portfolio and its exposure to certain risks,
such as commodity prices and foreseeable technological
disruptions.
Investment themes
Renewable energy generation
There is increasing demand for energy generated from renewable
sources such as wind and solar to support the energy transition.
Our investments in Infinis, Attero, and Valorem all generate energy
from a variety of renewable sources and their combined installed
capacity has grown significantly during our ownership.
Electrification/energy transition
The transition towards a low-carbon economy is gathering pace.
Rising electricity consumption is increasing the demand for related
equipment and services such as those provided by Joulz, which has
expanded its offering to include solar and EV charging
products.
Shared resources
Developed economies are experiencing a shift towards a shared
resources model. This can lead to significant cost savings for
users of capital intensive assets and also reduce overall GHG
emissions. In the case of TCR, which provides pooled ground support
equipment at airports, this has reduced the amount of equipment
required.
Waste treatment and recycling
There is a trend towards increasing levels of recycling driven
by regulatory requirements and consumer preferences. Attero is one
of the largest waste treatment and disposal companies in the
Netherlands and is benefitting from this increased demand for its
services.
Automation, digital operations and increasing connectivity
Technology is developing rapidly, changing operating models and
digitalising industrial processes. Business is increasingly mobile
and data driven, which requires increasing levels of connectivity
through digital infrastructure. Our communications infrastructure
investments, Tampnet, GCX and DNS:NET, are benefitting from this
increased demand.
Demand for healthcare
Increasing life expectancy and an ageing population are
increasing the demand for healthcare-related services and
infrastructure. Our investment in Ionisos, which provides cold
sterilisation services to the medical and pharmaceutical
industries, is aligned to this trend.
Global trade and transport
Businesses are seeking to increase supply resilience and achieve
long-term price stability by establishing deeper, more diversified
supplier bases for goods and services. This can help mitigate
disruptions from extreme weather events and other localised
situations. Advario Singapore (Oystercatcher) supports its
customers storing and blending the gasoline used to transport these
goods.
Urbanisation and smart cities
Technology is increasingly being used to enhance the efficiency
and safety of urban areas. SRL's products allow for greater control
of traffic flows, which in turn reduces congestion around roadworks
and improves safety.
We have a positive influence on our portfolio companies.
Our influence
As active owners we seek to ensure that our investee companies
are run responsibly and that they can make a positive contribution
to their employees, customers, suppliers and the local communities
in which they operate. This includes supporting and empowering
management teams to develop resilient business strategies.
We create a culture at our portfolio companies where the
Company's expectation that management teams embed sustainability
into their strategy is well known.
We facilitate and encourage the exchange of best practices by
portfolio companies by connecting companies that are more advanced
in certain sustainability initiatives with others who can benefit
from their expertise.
We seek to manage material ESG risks and opportunities during
the period of the Company's investment. This includes enhancing
portfolio companies' corporate governance and reporting, and
encouraging them to improve their performance over time on
sustainability issues that are material to them, with a particular
focus on health and safety, and climate change.
We require all our portfolio companies to measure their GHG
emissions. We encourage them to identify decarbonisation
strategies. This year, we asked an initial subset of our portfolio
companies to develop GHG emission reduction targets that are
aligned with the objectives of the Paris Agreement.
Our portfolio
Many infrastructure businesses have sustainability at their
core, providing or enabling the provision of essential services to
society, interconnectivity and the appropriate management of
resources.
Whilst the Company does not pursue a sustainability-driven
investment strategy, it does use its influence in the investments
it makes, where appropriate, to seek to contribute positively to
environmental and social sustainability objectives, such as
transitioning to a low carbon and circular economy, enabling a
healthy and safe society and fostering inclusive growth.
We believe such contributions, alongside good ESG performance of
our portfolio, can protect and potentially enhance value for the
Company's shareholders.
Sustainability in action
Examples of our portfolio companies' sustainability
strategies
Contributing to a low-carbon future
-- Invest in the production of clean energy
-- Engage with suppliers on low-carbon innovation
-- Support customers to decarbonise their operations
-- Develop GHG emissions reduction strategies
Supporting safety and good health
-- Adhere to high health and safety standards that protect
employees
-- Enable safe operations for customers
-- Embed a safety culture across the organisation
-- Contribute to high quality healthcare through Ionisos
Fostering inclusive growth
-- Adhere to high governance and ethical work standards
-- Be an employer of choice supported by a diverse and inclusive
culture
-- Create job opportunities and engage with local
communities
-- Support local and international connectivity through our
telecommunication businesses
Our strategy
Our strategy is to maintain a balanced portfolio of
infrastructure investments delivering an attractive mix of income
yield and capital appreciation for shareholders.
Strategic priorities
Maintaining a balanced portfolio Delivering an attractive mix of income 15%
yield and capital growth for Largest single investment by value
shareholders.
Investing in a diversified portfolio
in developed markets, with a focus on
the UK and Europe.
Disciplined approach to new investment Focusing selectively on investments GBP452m
that are value-enhancing to the New investments less amounts
Company's portfolio and syndicated in the financial year
with returns consistent with our
objectives.
-------------------------------------- --------------------------------------
Managing the portfolio intensively Driving value from our portfolio 2
through our engaged asset-management Follow-on investments in portfolio
approach. companies
Delivering growth through platform 2
investments. Portfolio companies refinanced
-------------------------------------- --------------------------------------
Maintaining an efficient Minimising return dilution to GBP404m
balance sheet shareholders from holding excessive Total liquidity
cash, while retaining a
good level of liquidity for future
investment.
-------------------------------------- --------------------------------------
Sustainability a key Ensuring that our investment decisions 979MW, +9%
driver of performance and asset-management approach consider Installed renewable energy capacity,
both the risks increase in year
and opportunities presented by
sustainability.
-------------------------------------- --------------------------------------
Our objectives and KPIs
Our Our KPIs Rationale and definition Performance over
objectives * Total return is how we measure the overall financial the year
are to performance of the Company * Total return of GBP394 million in the year, or 14.7%
provide on time-weighted opening NAV and equity issued
shareholders
with: * Total return comprises the investment return from the
portfolio and income from any cash balances, net of * The portfolio showed good resilience overall with
management and performance fees and operating and strong performance in particular from TCR, Infinis
finance costs. It also includes foreign exchange and Tampnet
movement and movement in the fair value of
derivatives and taxes
* The hedging programme continues to reduce the
volatility in NAV from exchange rate movements
* Total return, measured as a percentage, is calculated
against the opening NAV, net of the final dividend
for the previous year, and adjusted (on a * Costs were managed in line with expectations
time-weighted average basis) to take into account any
equity issued and capital returned in the year
Total return (% on
opening NAV)
----------------------------------
a total
return
of 8% to 10%
per annum,
to be
achieved
over the
medium
term 2019 15.4%
--------- ---------
2020 11.4%
----------------------- ---------
2021 9.2%
----------------------- ---------
2022 17.2%
----------------------- ---------
2023 14.7%
----------------------- ---------
Target 8-10%
----------------------- ---------
Target
To provide shareholders
with a total return
of 8% to 10% per annum,
to be achieved over
the medium term.
Met or exceeded target
for 2023 and every prior
year shown
----------------------------------
a progressive Annual distribution Rationale and definition Performance over
annual (pence per share) * This measure re ects the dividends distributed to the year
dividend shareholders each year * Proposed total dividend of 11.15 pence per share, or
per share GBP101 million, is in line with the target set at the
beginning of the year
* The Company's business model is to generate returns
from portfolio income and capital returns (through
value growth and realised capital profits). Income, * Income generated from the portfolio and cash deposits,
other portfolio company cash distributions and including non-income cash distributions and other
realised capital profits generated are used to meet income from portfolio companies, totalled GBP202
the operating costs of the Company and to make million for the year
distributions to shareholders
* Operating costs and finance costs used to assess
* The dividend is measured on a pence per share basis, dividend coverage totalled GBP66 million in the year
and is targeted to be progressive
* The dividend was fully covered for the year
* Setting a total dividend target for FY24 of 11.90
pence per share, 6.7% higher than for FY23
-------------------- =========================================================== ============================================================
2019 8.65p
----------------------- --------- =========================================================== ============================================================
2020 9.20p
----------------------- ---------
2021 9.80p
----------------------- ---------
2022 10.45p
----------------------- ---------
2023 11.15p
----------------------- ---------
2024 Target 11.90p
----------------------- ---------
Target
Progressive dividend
per share policy.
FY24 dividend target
of 11.90 pence per share.
Dividend per share increased
every year since IPO
================================== =========================================================== ============================================================
Our portfolio
New investment
Future Biogas
Investment rationale
-- Future Biogas is one of the largest anaerobic digestion
('AD') plant developers and biogas producers in the UK, operating
11 AD plants on behalf of institutional investors under long-term
contracts
-- There is strong political support and growing corporate
demand for domestically-produced biomethane, which, as a direct
substitute for fossil natural gas, has an essential role to play in
decarbonising some of the UK's gas-dependent sectors such as heat,
transport and manufacturing
-- On a national scale, the use of biomethane (vs. natural gas)
allows the existing gas infrastructure to help meet the UK
government's net zero and energy security targets without any
change to the existing system
-- Future Biogas will develop a new generation of unsubsidised
AD plants and sell the resulting biomethane under long-term offtake
agreements to corporate buyers
-- In the longer term, Future Biogas intends to enter the
nascent but high potential voluntary carbon offset market through
carbon capture and storage
-- Future Biogas has a highly experienced management team with a
strong track record in the sector
Characteristics
Essential role in the UK's decarbonisation agenda
Biomethane from AD is a ready-to-use and commercially viable solution for hard to decarbonise
industrial sectors. It does not require any upgrade to the existing UK gas infrastructure.
Energy produced by AD plants is carbon neutral, as the CO(2) released during the process matches
the CO(2) absorbed from the atmosphere by the feedstock. In the future, carbon capture and
storage could be introduced to make the process carbon negative.
---------------------------------------------------------------------------------------------------
Established market position
Future Biogas is one of the largest producers of biomethane in the nascent UK market and
a highly experienced developer and operator of AD plants, with full-service capabilities in
development, construction and operations.
---------------------------------------------------------------------------------------------------
Supply/demand of biomethane
The challenge to decarbonise industrial and manufacturing sectors, and the disparity in biomethane
supply and demand, is expected to sustain a very strong market for green gas in the long term.
---------------------------------------------------------------------------------------------------
Acceptable element of gas price risk
Future Biogas is exposed to a degree of gas price volatility through its existing management
contracts. However, new AD plants are core to our investment thesis and will be underpinned
by long-term offtake agreements with corporates.
---------------------------------------------------------------------------------------------------
Sustainable farming practices
By promoting a regenerative farming approach, feedstock from energy crops can be sustainably
integrated into agricultural systems. The circular process of returning digestate back to
land can help replenish soil nutrients and carbon, and displaces demand for carbon-intensive
artificial fertilisers.
---------------------------------------------------------------------------------------------------
Opportunities for growth
The investment in Future Biogas, whilst modest today, creates an opportunity for significant
follow-on investment in new AD plant at attractive returns.
---------------------------------------------------------------------------------------------------
Portfolio review
The portfolio is generating strong growth momentum supported by
long-term tailwinds. We are confident that it will continue to
generate attractive further investment opportunities and is well
positioned to deliver our target returns.
The Company's portfolio was valued at GBP3,641 million at 31
March 2023 (2022: GBP2,873 million) and delivered a total portfolio
return in the year of GBP501 million, including income and
allocated foreign exchange hedging (2022: GBP509 million).
Table 1 summarises the valuations and movements in the
portfolio, as well as the return for each investment, for the
year.
Table 1: Portfolio summary (31 March 2023, GBPm)
================================================
Portfolio
Directors' Directors' Allocated Underlying total
valuation Investment Accrued Foreign valuation foreign portfolio return
31 March in the Divestment income Value exchange 31 March exchange income in in the
Portfolio 2022 year in the movement movement translation 2023 hedging the year year(1)
assets year
--------------- ---------- ---------- ---------- -------- -------- ----------- ---------- --------- ---------- ---------
TCR 279 352(2,4) (190)(3) 4 86 6 537 (2) 18 108
ESVAGT 548 44(2) (87)(3) (2) 7 (25) 485 22 46 50
Infinis 332 30(5) (9)(6) 2 52 - 407 - 16 68
GCX - 318(4) - 19 - (14) 323 15 18 19
Ionisos 237 - - 9 43 9 298 (7) 9 54
Tampnet 241 6(2) - - 52 (7) 292 13 6 64
Joulz 241 6(2) - - 30 10 287 (7) 6 39
Oystercatcher 230 - (12)(6) - 17 19 254 (14) 4 26
SRL 200 18(2) (1)(6) - 2 - 219 - 19 21
Valorem 144 - - - 38 6 188 (4) 4 44
DNS:NET 202 22(2,5) - - (54) 9 179 (6) 8 (43)
Attero 116 - (23)(6) - 47 4 144 (3) 1 49
Future Biogas - 28(4) - - - - 28 - - -
--------------- ---------- ---------- ---------- -------- -------- ----------- ---------- --------- ---------- ---------
Economic
infrastructure
portfolio 2,770 824 (322) 32 320 17 3,641 7 155 499
--------------- ---------- ---------- ---------- -------- -------- ----------- ---------- --------- ---------- ---------
Projects 103 - (104) (1) - 2 - (1) 1 2
Total portfolio
reported in
the Financial
statements 2,873 824 (426) 31 320 19 3,641 6 156 501
--------------- ---------- ---------- ---------- -------- -------- ----------- ---------- --------- ---------- ---------
This comprises the aggregate of value movement, foreign exchange translation,
1 allocated foreign exchange hedging and underlying portfolio income
in the year.
Capitalised interest totalling GBP95 million across the portfolio.
2
Syndication of investments in ESVAGT (GBP87 million) and TCR (GBP190
3 million).
New acquisitions of GCX (GBP318 million), Future Biogas (GBP28 million)
4 and further stake in TCR (GBP338 million).
Follow-on investments in Infinis (GBP30 million) and DNS:NET (GBP15
5 million).
Shareholder loan/share premium repayment (non-income cash).
6
The total portfolio return in the year of GBP501 million was
15.1% (2022: GBP509 million, 19.8%) of the aggregate of the opening
value of the portfolio and investments less amounts syndicated in
the year (excluding capitalised interest), which totalled GBP3,325
million.
Performance was strong across the portfolio, driven by
outperformance from a number of portfolio companies, but
particularly TCR, Tampnet, Ionisos, Attero and Valorem, each of
which continues to benefit from positive underlying growth trends.
The other portfolio companies performed in line with expectations,
with the exception of DNS:NET, which continues to face challenges
with its fibre network roll out.
Table 2 shows the portfolio return in the year for each asset as
a percentage of the aggregate of the opening value of the asset and
investments in, and syndication of, the asset in the year
(excluding capitalised interest). Note that this measure does not
time-weight for investments and syndications in the year and
includes foreign exchange movements net of hedging.
Table 2: Portfolio return by asset (year to 31 March 2023,
%)
Total portfolio
return 15.1
TCR 25.3
-------
ESVAGT 10.9
-------
Infinis 18.9
-------
GCX* 6.0
-------
Ionisos 22.8
-------
Tampnet 26.4
-------
Joulz 16.4
-------
Oystercatcher 11.1
-------
SRL 10.3
-------
DNS:NET (19.6)
-------
Valorem 30.5
-------
Attero 42.1
-------
Future Biogas* 0.6
-------
Projects** 1.9
-------
* GCX acquired in August 2022 and Future Biogas acquired in
February 2023 and return not annualised.
** Divested in June 2022 and return not annualised.
Movements in portfolio value
The movements in portfolio value were driven principally by the
delivery of planned cash flows and other asset outperformance as
well as new and follow-on investments and syndications made during
the year. A reconciliation of the movement in portfolio value is
shown in Table 3 below. The portfolio summary shown in Table 1
details the analysis of these movements by asset. Changes to
portfolio valuations arise due to several factors, as shown in
Table 4.
The portfolio generated a value gain of GBP320 million in the
year, alongside income of GBP156 million.
Table 3: Reconciliation of the movement in portfolio value (year
to 31 March 2023, GBPm)
Opening portfolio value at 1 April 2022 2,873
Investment(1) 824
Divestment/capital repaid (426)
Value movement 320
Exchange movement(2) 19
Accrued income movement 31
------------------------------------------ ------
Closing portfolio value at 31 March 2023 3,641
------------------------------------------ ------
1 Includes capitalised interest.
2 Excludes movement in the foreign exchange hedging programme (see
Table 12 in the Financial review).
Portfolio activity
Our renewable energy generating companies, Infinis, Valorem and
Attero, performed strongly in the year and have made substantial
progress in developing their pipelines of new projects towards and
into operation. This is reflected in an overall increase in
installed capacity from 898MW to 979MW over the year, as shown in
the Sustainability report in the Annual report and accounts
2023.
Infinis had a very strong year, generating a value gain of GBP52
million driven by higher forecast future power prices and price
volatility which benefitted the power response assets in
particular. Its power response assets experienced higher running
hours driven by the UK's power generation capacity constraints.
Infinis made significant progress in further establishing a
1.5GW solar energy generation and battery storage pipeline across
various stages of development.
In March 2023, we invested a further GBP30 million of equity to
support the development of this pipeline, with the remainder of the
funding coming from the company's own cash generation and debt
facilities.
Valorem materially outperformed the prior year despite the
French government's 90% windfall tax. Its closed capacity now
totals 778MW of wind and solar projects including new projects in
France and Finland and its first project in Greece. It has a
healthy 5.7GW pipeline of wind and solar projects in Europe as well
as long-term feed-in tariffs unaffected by the windfall tax. The
market fundamentals in France and the EU for renewable developers
remains strong, particularly due to recent availability issues
experienced by the French nuclear power sector and France's
renewables development targets. French solar and wind auction
tariffs increased by c.25% in 2022 versus 2021.
Attero also benefitted from high power prices although its
hedging strategy insulates it from short-term price volatility.
Despite waste supply volumes being slightly lower than expectations
due to lower economic activity, the company outperformed the prior
year due to the higher electricity price outlook and good
availability at its EfW plants.
The GBP47 million value increase in Attero is due to several
waste supply contracts recontracted at increased gate fees and for
longer periods, as well as the higher longer-term electricity price
outlook.
Preparations for a potential divestment of Attero are at an
advanced stage. Any sale proceeds are expected to contribute
towards partially repaying drawings on the Company's RCF.
TCR materially outperformed expectations, increasing in value by
GBP86 million, due to a number of significant contract wins and
extensions, higher utilisation rates of the fleet, and stronger
than expected repair and maintenance activity.
This outperformance reflects a sustained rebound of air traffic
levels as well as an increased post-pandemic demand for its
full-service rental model globally. TCR added over 35 airports to
its portfolio in 2022 and its off-lease rate has reverted to
pre-Covid-19 levels.
In November 2022, TCR completed the bolt-on acquisition of
Adaptalift, an Australian-headquartered ground service equipment
lessor, adding incremental contracted EBITDA at an attractive
valuation with strong expected synergies.
TCR successfully raised additional debt from existing and new
lenders to support its next growth phase.
ESVAGT and Joulz, which indirectly contribute to the energy
transition, have performed well and are benefitting from the
tailwinds in this sector.
ESVAGT had a good year, benefitting from contract rates in
excess of our expectations and high utilisation levels. Inflation
is generally positive for ESVAGT due to its index-linked contracts,
although cost inflation, in particular fuel costs, accelerated in
the year.
In January 2023, ESVAGT's joint venture in the United States,
CREST, won its first SOV contract in the US offshore wind market.
The 15-year SOV contract is with Siemens Gamesa, servicing the
Coastal Virginia Offshore Windfarm, the largest offshore wind
project in the US (2.6GW), and was an important milestone in
ESVAGT's growth ambitions, representing an incremental step up in
earnings.
The pipeline for further new SOVs in the North Sea and the
rapidly accelerating US wind market is strong and we expect a
number of tenders will take place over the next 12 months.
ESVAGT's ERRV segment continued to see good momentum due to the
improved oil and gas markets, attractive supply/demand dynamics and
an increased focus on security of supply in Europe.
Joulz performed ahead of expectations due to strong growth in
the order book, including for its large integrated Energy
Transition Solutions. The business made considerable progress
diversifying its supplier base to mitigate the risk of delays
previously experienced in completing new installations, primarily
due to key hardware suppliers struggling to keep up with rising
demand.
The company's long-term contracts are directly linked to
inflation, and this provided good protection for higher operating
and capital costs.
In December 2022, Joulz successfully raised debt financing,
which was utilised to replenish its revolving credit facility,
supporting the funding of further growth opportunities. As part of
a planned transition, a new CEO joined the business in March
2023.
Our communications infrastructure investments, Tampnet, GCX and
DNS:NET, are taking advantage of the acceleration in digitalisation
trends.
Tampnet performed well in the year, increasing in value by GBP52
million, driven by higher forecast revenues due to the signing of
new private network contracts, identification of new potential
growth opportunities and extended life assumptions resulting from
higher energy prices and the increased focus on security of energy
supply by governments in Europe and the US. It exceeded budgeted
revenue and EBITDA targets due to increased offshore activity on
the back of improved sentiment in the energy markets and stronger
demand for bandwidth upgrades.
Tampnet is progressing a number of new fibre projects in the
North Sea and the Gulf of Mexico and signed a number of important
new contracts in both regions. The company is also in discussions
with several carbon capture and storage projects in the North Sea
which are located within Tampnet's existing network. The
digitisation proposition offered by Tampnet (combining low-latency
connectivity with services such as Private Networks) is continuing
to prove popular with customers, and we expect to see an
acceleration of the short-term penetration of digitisation
projects.
GCX had a good year with strong growth in lease revenues,
although indefeasible right of use sales are behind schedule. The
business secured a significant managed services contract during the
year and is experiencing increasing demand for bandwidth capacity
across its network. The business is evaluating a number of
opportunities to expand its subsea network as well as the
development of terrestrial assets. GCX and Tampnet announced a
strategically important partnership which supports the increasing
network connectivity demands of the data centre market in the
Nordics.
DNS:NET continues to experience delays in the roll out of its
fibre network in the Berlin area and specifically in connecting and
activating customers. We have updated the forecasts to reflect more
conservative roll-out assumptions, which has led to a GBP54 million
value decrease in the year.
Operational performance was below expectations as delays to
connect and activate new homes persist, which we see as an
industry-wide challenge. The delivery of a network built by a local
authority to be transferred to DNS:NET under concession contract is
also running behind schedule.
During the year, we invested a further GBP15 million to support
the business's roll out and have worked with the company to
optimise its business model and strengthen the management team in
order to minimise and recover the roll out delays. A new CFO was
appointed in January 2023. He is overseeing the implementation of a
new ERP system and other initiatives. Hiring to further strengthen
the management team is also underway, aimed at providing the
bandwidth and experience to accelerate the network roll out.
Ionisos delivered meaningful growth against prior year due to
strong volume growth, notably in the medical and pharmaceutical
segments, resulting in a GBP43 million gain in value.
In order to meet growing demand, Ionisos progressed various
expansion opportunities, including extending existing sterilisation
facilities, acquiring the Daniken E-Beam plant in Switzerland, and
a new greenfield EO plant in Kleve, Germany, which became
operational in January 2023. In a capacity constrained market,
these initiatives will increase Ionisos's ability to address and
meet strong underlying demand growth for sterilisation, whilst
diversifying its technology mix and expanding the geographic
footprint from which it will service its medical and pharmaceutical
client base.
Oystercatcher performed well in the year. Advario Singapore
Limited's ('ADS') customer activity levels were high and all
available capacity was let. This was despite a backdrop of a
backwardation market structure for petroleum products. Our positive
medium-term outlook remains unchanged given the terminal is the
premier gasoline blending terminal in Singapore and the wider
region.
A strategic transition to some green fuel storage is progressing
well. In 2022, a first agreement was signed with a customer to
start storing and blending sustainable aviation fuel ('SAF') at
ADS. The project to convert existing storage to accommodate SAF is
on track and is expected to be operational in mid-2023. We believe
this gives ADS a first mover advantage for SAF-related business in
Singapore.
SRL performed broadly in line with plan during the financial
year. Whilst higher than in the previous year, activity levels were
slightly lower than expected due to delays in capital expenditure
programmes in the public sector and construction sectors resulting
in fewer days on hire than forecast. The Investment Manager is
working closely with management to professionalise account
management processes and optimise fleet utilisation and build.
Summary of portfolio valuation methodology
Investment valuations are calculated at the half-year and at the
financial year end by the Investment Manager and then reviewed by
the Board. Investments are reported at the Directors' estimate of
fair value at the relevant reporting date.
The valuation principles used are based on International Private
Equity and Venture Capital ('IPEV') valuation guidelines, generally
using a discounted cash flow ('DCF') methodology (except where a
market quote is available), which the Investment Manager considers
to be the most appropriate valuation methodology for unquoted
infrastructure equity investments.
Where the DCF methodology is used, the resulting valuation is
checked against other valuation benchmarks relevant to the
particular investment, including, for example:
-- earnings multiples;
-- recent transactions; and
-- quoted market comparables.
In determining a DCF valuation, we consider and reflect changes
to the two principal inputs, being forecast cash flows from the
investment and discount rates.
We consider both the macroeconomic environment and
investment-specific value drivers when deriving a balanced base
case of cash flows and selecting an appropriate discount rate.
Inflation in the UK and Europe has risen sharply which has put
pressure on supply chain and employee costs.
The portfolio is positively correlated to inflation, but the
ability to pass cost inflation to customers varies by portfolio
company so we take a granular approach to modelling the effects of
inflation.
Higher longer-term power prices have positively affected the
valuation of our energy generating portfolio companies, although
the majority of our power price exposure was hedged in the short to
medium term.
Future power price projections are taken from independent
forecasters and changes in these assumptions will affect the future
value of these investments. Recently introduced taxes on renewable
electricity generators vary in their applicability and we have
considered their impact on each company individually, based on
their circumstances.
Table 4: Components of value movement (year to 31 March 2023, GBPm)
----------------------------------------------------------------------------------------------------------------------
Value movement component Value movement Description
in the year
------------------------------------- -------------- ---------------------------------------------------------------
Planned growth 175 Net value movement resulting from the passage of time,
consistent with the discount rate and
cash flow assumptions at the beginning of the year less
distributions received and capitalised
interest in the year.
------------------------------------- -------------- ---------------------------------------------------------------
Other asset performance 99 Net value movement arising from actual performance in the year
and changes to future cash
flow projections, including financing assumptions and changes
to regulatory assumptions.
------------------------------------- -------------- ---------------------------------------------------------------
Discount rate movement (6) Value movement relating to changes in the discount rate applied
to the portfolio cash flows.
------------------------------------- -------------- ---------------------------------------------------------------
Macroeconomic assumptions 52 Value movement relating to changes to macroeconomic out-turn or
assumptions, eg. power prices,
inflation, interest rates and taxation rates. This includes
changes to regulatory returns
that are directly linked to macroeconomic variables.
------------------------------------- -------------- ---------------------------------------------------------------
Total value movement before exchange 320
------------------------------------- -------------- ---------------------------------------------------------------
Foreign exchange retranslation 19 Movement in value due to currency translation to year-end date.
------------------------------------- -------------- ---------------------------------------------------------------
Total value movement 339
------------------------------------- -------------- ---------------------------------------------------------------
TCR operates in the aviation sector, which has been severely
affected by travel restrictions over the past three years.
The value of TCR assumes a full recovery in air traffic to
pre-Covid-19 levels in 2024, consistent with the assumptions made
in the prior year.
As a 'through-the-cycle' investor with a strong balance sheet,
we consider valuations in the context of the longer-term value of
the investments. This includes consideration of climate change risk
and stranded asset risk. Factors considered include physical risk,
litigation risk linked to climate change and transition risk (for
example, assumptions on the timing and extent of decommissioning of
North Sea oil fields, which affects Tampnet and ESVAGT).
We take a granular approach to these risks, for example each
relevant offshore oil and gas field has been assessed individually
to forecast the market over the long term and a low terminal value
has been assumed at the end of the forecast period.
In the case of stranded asset risk, we consider long-term
threats that may impact value materially over our investment
horizon, for example, technological evolution, climate change, or
societal change.
For ESVAGT, which operates ERRVs in the North Sea servicing
sectors, including the oil and gas market, we do not assume any new
vessels or replacement vessels in our valuation for that segment of
the business.
A number of our portfolio companies are set to benefit from
these long-term megatrends and, in the base case for each of our
valuations, we take a balanced view of potential factors that we
estimate are as likely to result in underperformance as
outperformance.
Discount rate
Table 5 shows the movement in the weighted average discount rate
applied to the portfolio at the end of each year since the
Company's inception and the position as at March 2023. The weighted
average discount rate increased over the course of FY23 due to the
evolution of the portfolio mix following the realisation of the
European Projects portfolio and the completion of the GCX and
Future Biogas acquisitions.
The range of discount rates used in individual valuations at 31
March 2023 is also shown, which is broadly consistent with the
prior year.
During the year, we witnessed an increase in risk-free rates
across Europe as central banks took action in response to higher
inflation. Given the significant risk premium included in our
long-term discount rates and the continued appetite for
high-quality infrastructure businesses, rising risk-free rates did
not impact the discount rates used to value our portfolio companies
at 31 March 2023.
Table 5: Portfolio weighted average discount rate (31 March,
%)
March 08 12.4
March 09 13.8
============
March 10 12.5
============
March 11 13.2
============
March 12 12.6
============
March 13 12.0
============
March 14 11.8
============
March 15 10.2
============
March 16 9.9
============
March 17 10.0
============
March 18 10.5
============
March 19 10.8
============
March 20 11.3
============
March 21 10.8
============
March 22 10.9
============
March 23 11.3
============
March 23 range 10.0 to 13.2
============
Portfolio company debt
Our portfolio companies are funded by long-term senior-secured
debt alongside equity from the Company and other shareholders.
Valorem also uses project financing in its portfolio of renewable
energy projects. There were no mezzanine or junior debt structures
within our portfolio at 31 March 2023 (2022: none).
In recent years, the Investment Manager proactively refinanced
facilities across the portfolio, extending the term of the debt and
securing low fixed rates or hedged interest rates.
When considering the appropriate quantum of debt for a portfolio
company, we typically look for an investment grade level of risk.
Some portfolio companies have an investment grade credit rating
from a credit rating agency. Table 6 below shows the average
loan-to-value ('LTV') ratio across the portfolio as well as the
portfolio value analysed across a range of loan-to-value levels.
The average loan-to-value ratio is 33% (2022: 34%) with all
portfolio companies below a ratio of 40% at 31 March 2023 (2022:
below 45%).
Table 6: Portfolio company leverage* (3iN value at 31 March
2023)
Net debt/Enterprise value 3iN value
('LTV')
<25% GBP473m
----------
26-30% GBP907m
----------
31-35% GBP1,089m
----------
36-40% GBP956m
----------
Average LTV(1) 33%
----------
1 LTV is calculated as the aggregate Net Debt to Enterprise Value ratio
of the individual portfolio companies.
* This analysis excludes Future Biogas, which was acquired in February
2023, and Valorem, which is financed at the project level. Project
financing typically employs higher levels of gearing.
Investment track record
As shown in Table 7, since its launch in 2007, 3i Infrastructure
has built a portfolio that has provided:
-- significant income, supporting the delivery of a progressive
annual dividend;
-- consistent capital growth; and
-- strong capital profits from realisations.
These have contributed to a 19% annualised asset Internal Rate
of Return ('IRR') since the Company's inception. The European
portfolio has generated strong returns, in line with, or in many
cases ahead of, expectations.
These returns were underpinned by substantial cash generation in
the form of income or capital profits.
The value created through this robust investment performance has
been crystallised in a number of instances through well-managed
realisations, shown as 'Realised assets' in Table 7.
While the Company is structured to hold investments over the
long term, it has sold assets where compelling offers will generate
additional shareholder value.
Portfolio asset returns in Table 7 include an allocation of
foreign exchange hedging where applicable.
Table 7: Portfolio asset returns throughout holding period
(since inception, GBPm)
Value Proceeds on
including disposals/
Money Total accrued capital Cash
multiple IRR cost income returns income
---------------------------------- -------- ---- ----- --------- ----------- ------
Existing portfolio (Total return)
ESVAGT 1.5x 329 485 - -
Infinis 1.7x 352 407 88 99
TCR 1.9x 304 537 4 24
Tampnet 1.6x 187 292 - 13
Joulz 1.6x 195 287 2 24
Ionisos 1.7x 186 298 - 10
Oystercatcher 3.2x 139 254 47 146
DNS:NET 0.9x 205 179 - 6
SRL 1.2x 191 219 1 2
Valorem 2.6x 81 188 - 22
Attero 2.2x 88 144 25 28
Future Biogas 1.0x 28 28 - -
GCX 1.0x 318 323 - -
Realised assets (Total return)
WIG (realised December 2019) 1.7x 27% 265 - 431 21
XLT (realised March 2019) 5.9x 40% 63 - 332 38
Elenia (realised February 2018) 4.5x 31% 195 - 766 106
AWG (realised February 2018) 3.3x 16% 173 - 410 154
Eversholt (realised April 2015) 3.3x 41% 151 - 391 114
Projects (realised assets) 1.9x 22% 289 - 446 103
Others(1) 1.2x 8% 138 - 145 24
India Fund 0.6x (6%) 108 - 61 -
---------------------------------- -------- ---- ----- --------- ----------- ------
Portfolio asset returns include allocation of foreign exchange
hedging where applicable. Dates of asset realisations refer to
completion dates.
1 Others includes junior debt portfolio, T2C and Novera.
Asset IRR to 31 March
2023
19%
Since inception
Financial review
James Dawes
CFO, Infrastructure
The Company delivered strong NAV growth and continues to grow
its dividend per share.
Key financial measures (year to 31 March) 2023 2022
------------------------------------------ --------- ---------
Total return(1) GBP394m GBP404m
NAV GBP3,101m GBP2,704m
NAV per share 336.2p 303.3p
Total income GBP158m GBP133m
Total income and non-income cash GBP202m GBP143m
Portfolio asset value GBP3,641m GBP2,873m
Cash balances GBP5m GBP17m
Total liquidity(2) GBP404m GBP786m
------------------------------------------ --------- ---------
1 IFRS Total comprehensive income for the year.
2 Includes cash balances of GBP5 million (2022: GBP17 million) and GBP399
million (2022: GBP769 million) undrawn balances available under the
Company's total revolving credit facility of GBP900 million.
The Company delivered another year of outperformance, with the
portfolio generating strong capital growth and income materially
higher than the prior year. The dividend was well covered by net
income this year. The target dividend for FY24 of 11.90 pence per
share is an increase of 6.7% over FY23.
Total net investment in the year was GBP452 million, including
the closing of the investments in GCX, TCR and Future Biogas, the
syndication of a portion of the investments in ESVAGT and TCR and
further investments in DNS:NET and Infinis. The Company maintained
low levels of uninvested cash throughout the year and actively
managed its liquidity position through its GBP900 million RCF
facility and a GBP100 million capital raise in February 2023.
Returns
Total return
The Company generated a total return for the year of GBP394
million, representing a 14.7% return on time-weighted opening NAV
and equity issued net of the prior year final dividend (2022:
GBP404 million, 17.2%). This performance is significantly ahead of
the target return of 8% to 10% per annum to be achieved over the
medium term.
This outperformance was driven by strong performance across the
portfolio, particularly from TCR, Tampnet, Valorem, Attero and
Ionisos, partially offset by underperformance from DNS:NET. Changes
in the valuation of the Company's portfolio assets are described in
the Movements in portfolio value section of the Portfolio review.
The investment cases of our portfolio companies reflected in the
valuations at 31 March 2023 are fully funded, with the exception of
the DNS:NET fibre roll out. Our companies continue to generate
discretionary growth opportunities that are accretive to our
investment cases.
Total income and non-income cash of GBP202 million in the year
was significantly higher than last year, due to income from new
investments in GCX, ESVAGT, TCR and SRL (2022: GBP143 million).
Non-income cash receipts reflect distributions from underlying
portfolio companies, which would usually be income to the Company,
but which are distributed as a repayment of investment for a
variety of reasons. Whilst non-income cash does not form part of
the total return shown in Table 8, it is included when considering
dividend coverage.
An analysis of the elements of the total return for the year is
shown in Table 8.
Table 8: Summary total return (year to 31 March, GBPm)
2023 2022
--------------------------------------------------------------------- ----- -----
Capital return (excluding exchange) 320 375
Foreign exchange movement in portfolio 19 9
--------------------------------------------------------------------- ----- -----
Capital return (including exchange) 339 384
Movement in fair value of derivatives and exchange on EUR borrowings 6 (2)
--------------------------------------------------------------------- ----- -----
Net capital return 345 382
Total income 158 133
Costs(1) (109) (111)
--------------------------------------------------------------------- ----- -----
Total return 394 404
--------------------------------------------------------------------- ----- -----
1 Includes non-portfolio related exchange gain of GBP2 million (2022:
loss of GBP3 million).
Table 9: Reconciliation of the movement in NAV (year to 31 March
2023, GBPm)
Opening NAV at 1 April 2022(1) 2,657
Equity raised in February 2023 100
---------------------------------------- -----
Adjusted opening NAV 2,757
Capital return 320
Net foreign exchange movement (2) 25
Total income 158
Net costs including management fees (3) (109)
---------------------------------------- -----
NAV before distributions 3,151
Distribution to shareholders (50)
---------------------------------------- -----
Closing NAV at 31 March 2023 3,101
---------------------------------------- -----
1 Opening NAV of GBP2,704 million net of final dividend of GBP47 million
for the prior year.
2 Foreign exchange movements are described in Table 12.
3 Includes non-portfolio related exchange gain of GBP2 million.
Capital return
The capital return is the largest element of the total return.
The portfolio generated a value gain of GBP320 million in the year
to 31 March 2023 (2022: GBP375 million), as shown in Table 9. There
was a positive contribution across the majority of the portfolio
and the largest contributors were TCR (GBP86 million), Infinis
(GBP52 million) and Tampnet (GBP52 million). The only negative
contribution was from DNS:NET (GBP54 million). These value
movements are described in the Portfolio review section.
Income
The portfolio generated income of GBP156 million in the year
(2022: GBP127 million). Of this amount, GBP1 million was through
dividends (2022: GBP24 million) and GBP155 million through interest
on shareholder loans (2022: GBP103 million). An additional GBP2
million of interest was accrued on the vendor loan notes issued in
lieu of WIG proceeds (2022: GBP6 million) together with a further
GBP0.5 million of interest receivable on deposits (2022: GBP0.1
million).
Total income and non-income cash is shown in Table 10.
Table 10: Total income and non-income cash (year to 31 March, GBPm)
------------------------------------------------------------------------
2023 2022
--------------------------------------------- ------------ -----------
Total income 158 133
Non-income cash 44 10
--------------------------------------------- ------------ -----------
Total 202 143
--------------------------------------------- ------------ -----------
A strong income contribution from the new investments in GCX and
SRL and higher non-income cash receipts, particularly from Attero,
offset the reduction in income from the divestment of the European
Projects portfolio. A breakdown of portfolio income is provided in
Table 13, together with an explanation of the change from prior
year.
Interest income from the portfolio was significantly higher than
prior year due to the new investments in GCX, SRL, TCR and ESVAGT.
Dividend income was lower than prior year due to a high level of
dividend income from Tampnet in the prior year as liquidity
preserved during the pandemic was released.
Foreign exchange impact
The portfolio is diversified by currency as shown in Table 11.
We aim to deliver steady NAV growth for shareholders, and the
foreign exchange hedging programme helps us to do this by reducing
our exposure to fluctuations in the foreign exchange markets.
Portfolio foreign exchange movements, after accounting for the
hedging programme, increased the net capital return by GBP25
million (2022: increased by GBP7 million).
Table 11: Portfolio value by currency (at 31 March 2023)
EUR 52%
GBP 18%
DKK 13%
USD 9%
NOK 8%
---- ---
As shown in Table 12, the reported foreign exchange gain on
investments of GBP19 million (2022: GBP9 million) included a gain
of GBP13 million from the Company's exposure to the US dollar,
largely through Tampnet, which was not hedged in the first half of
the year. This was accompanied by a GBP6 million gain on the
hedging programme (2022: loss of GBP2 million). The positive hedge
benefit resulted from favourable interest rate differentials on the
euro hedging programme.
Table 12: Impact of foreign exchange ('FX') movements on
portfolio value (year to 31 March 2023, GBPm)
Hedged assets Unhedged assets for part of the year
(EUR/SGD/DKK/NOK/USD) (USD)
----------------------- ---------------------- ------------------------------------
FX gain before hedging 6 13
FX gain after hedging 12 13
----------------------- ---------------------- ------------------------------------
Table 13: Breakdown of portfolio income (year to 31 March,
GBPm)
Dividend Interest Dividend Interest Comments
(FY23) (FY23) (FY22) (FY22)
==================== ========= ========= ========= ========= =====================================
ESVAGT - 46 - 28 Further investment in FY22
==================== ========= ========= ========= ========= =====================================
Tampnet - 6 17 5 FY22 release of liquidity retained
==================== ========= ========= ========= ========= =====================================
Infinis - 16 - 17
==================== ========= ========= ========= ========= =====================================
TCR - 18 - 13 Further investment in October 2022
==================== ========= ========= ========= ========= =====================================
Ionisos - 9 - 9
==================== ========= ========= ========= ========= =====================================
SRL - 19 - 7 Full year of ownership
==================== ========= ========= ========= ========= =====================================
Joulz - 6 - 6
==================== ========= ========= ========= ========= =====================================
Oystercatcher - 4 - 5
==================== ========= ========= ========= ========= =====================================
Attero - 1 4 1 Additional non-income cash of GBP23m
==================== ========= ========= ========= ========= =====================================
DNS:NET - 8 - 4 Further investment in FY22 and FY23
==================== ========= ========= ========= ========= =====================================
Valorem 1 3 1 3
==================== ========= ========= ========= ========= =====================================
GCX - 18 - - New investment in FY23
==================== ========= ========= ========= ========= =====================================
Projects Portfolio - 1 2 5 Divestment in June 2022
-------------------- --------- --------- --------- --------- -------------------------------------
Costs
Management and performance fees
During the year to 31 March 2023, the Company incurred
management fees of GBP47 million (2022: GBP43 million), including
transaction fees of GBP3 million (2022: GBP10 million). The fees,
payable to 3i plc, consist of a tiered management fee, and a
one-off transaction fee of 1.2% payable in respect of new
investments. The management fee tiers range from 1.4%, reducing to
1.2% for any proportion of gross investment value above GBP2.25
billion.
An annual performance fee is also payable by the Company,
amounting to 20% of returns above a hurdle of 8% of the total
return. This performance fee is payable in three equal annual
instalments, with the second and third instalments only payable if
certain future performance conditions are met. This hurdle was
exceeded for the year ended 31 March 2023, resulting in a
performance fee payable to 3i plc in respect of the year ended 31
March 2023 of GBP45 million (2022: GBP54 million).
The first instalment, of GBP15 million, will be paid in May 2023
along with the second instalment of GBP18 million relating to the
previous year's performance fee and the third instalment of GBP2
million relating to the FY21 performance fee.
For a more detailed explanation of how management and
performance fees are calculated, please refer to Note 18 of the
accounts.
Fees payable
Fees payable on investment activities include costs for
transactions that did not reach, or have yet to reach, completion
and the reversal of costs for transactions that have successfully
reached completion and were subsequently borne by the portfolio
company. For the year to 31 March 2023, fees payable totalled less
than GBP1 million (2022: GBP3 million).
Other operating and finance costs
Operating expenses, comprising Directors' fees, service provider
costs and other professional fees, totalled GBP3 million in the
year (2022: GBP3 million).
Finance costs of GBP16 million (2022: GBP5 million) in the year
comprised arrangement and commitment fees for the Company's GBP900
million RCF and interest on drawings. Finance costs were higher
than in FY22 due to an increase in interest rates and a greater
average drawn balance.
Ongoing charges ratio
The ongoing charges ratio measures annual operating costs, as
disclosed in Table 14 below, against the average NAV over the
reporting period.
The Company's ongoing charges ratio is calculated in accordance
with the Association of Investment Companies ('AIC') recommended
methodology and was 1.64% for the year to 31 March 2023 (2022:
1.41%). The ongoing charges ratio is higher in periods where new
investment levels are high and new equity is raised or capital is
returned to shareholders. Realisation of assets reduces the ongoing
charges ratio. The cost items that contributed to the ongoing
charges ratio are shown below.
The AIC methodology does not include transaction fees,
performance fees or finance costs. However, the AIC recommends that
the impact of performance fees on the ongoing charges ratio is
noted, where performance fees are payable. The ratio including the
performance fee was 3.19% (2022: 3.52%). The total return of 14.7%
for the year is after deducting this performance fee and ongoing
charges.
Table 14: Ongoing charges (year to 31 March, GBPm)
-------------------------------------------------------
2023 2022
-------------------------------------- ------- ------
Investment Manager's fee 44.6 32.6
Auditor's fee 0.8 0.6
Directors' fees and expenses 0.5 0.5
Other ongoing costs 1.9 2.4
-------------------------------------- ------- ------
Total ongoing charges 47.7 36.1
-------------------------------------- ------- ------
Ongoing charges ratio 1.64% 1.41%
-------------------------------------- ------- ------
Balance sheet
The NAV at 31 March 2023 was GBP3,101 million (2022: GBP2,704
million). The principal components of the NAV are the portfolio
assets, cash holdings, the fair value of derivative financial
instruments, borrowings under the RCF and other net assets and
liabilities. A summary balance sheet is shown in Table 15.
At 31 March 2023, the Company's net assets after the deduction
of the proposed final dividend were GBP3,050 million (2022:
GBP2,657 million).
Table 15: Summary balance sheet (at 31 March, GBPm)
---------------------------------------------------- ----- -----
2023 2022
---------------------------------------------------- ----- -----
Portfolio assets 3,641 2,873
Cash balances 5 17
Derivative financial instruments 39 8
Borrowings (501) (231)
Other net (liabilities)/assets (83) 37
---------------------------------------------------- ----- -----
NAV 3,101 2,704
---------------------------------------------------- ----- -----
Cash and other assets
Cash balances at 31 March 2023 totalled GBP5 million (2022:
GBP17 million).
Cash on deposit was managed actively by the Investment Manager
and there are regular reviews of counterparties and their limits.
Cash is principally held in AAA-rated money market funds.
Other net assets and liabilities predominantly comprise a
performance fee accrual of GBP83 million (2022: GBP64 million),
including amounts relating to prior year fees.
The movement from March 2022 is due to an increase in the
performance fee payable of GBP45 million, following the
outperformance in the period. GBP26 million of prior year
performance fees were paid during the period. The vendor loan note
of GBP98 million, included as an asset within other net assets at
March 2022, was redeemed in July 2022.
Borrowings
The Company increased the commitments under its RCF in July 2022
from GBP700 million to GBP900 million in order to maintain a good
level and maturity of liquidity for further investment whilst
minimising returns dilution from holding excessive cash balances.
This is a three-year facility, with a maturity date of November
2025. A further one-year extension option is available under the
facility agreement. At 31 March 2023, the total amount drawn was
GBP501 million.
An additional credit facility of GBP300 million available at the
beginning of this financial year, with a maturity of less than one
year, was cancelled in July 2022 at the same time as the
commitments under the RCF were increased.
Capital raise
In February 2023, the Company successfully completed a capital
raise, with net proceeds of GBP100 million, by way of a placing of
ordinary shares in the capital of the Company at 330 pence per
share. The placing price represented a discount of approximately
3.4% to the share price immediately prior to the announcement of
the placing. A total of 30,915,990 new ordinary shares were
admitted to trading on the London Stock Exchange main market for
listed securities on 14 February 2023. The Company now has a total
of 922,350,000 shares in issue, an increase of 3.5%. Soft
pre-emption was followed where possible in allocating the
shares.
NAV per share
The total NAV per share at 31 March 2023 was 336.2 pence (2022:
303.3 pence). This reduces to 330.6 pence (2022: 298.1 pence) after
the payment of the final dividend of 5.575 pence (2022: 5.225
pence). There are no dilutive securities in issue.
Dividend and dividend cover
The Board has proposed a dividend for the year of 11.15 pence
per share, or GBP101 million in aggregate (2022: 10.45 pence; GBP93
million). This is in line with the Company's target announced in
May last year.
When considering the coverage of the proposed dividend, the
Board assesses the income earned from the portfolio, interest
received on cash balances and any additional non-income cash
distributions from portfolio assets which do not follow from a
disposal of the underlying assets, as well as the level of ongoing
operational costs incurred in the year. The Board also takes into
account any surpluses retained from previous years, and net capital
profits generated through asset realisations, which it considers
available as dividend reserves for distribution.
Table 16 shows the calculation of dividend coverage and dividend
reserves. The dividend was fully covered for the year with a
surplus of GBP35 million (2022: no surplus).
The retained amount available for distribution, following the
payment of the final dividend, the realised profit over cost
relating to the sale of the European Projects portfolio and the
performance fee will be GBP814 million (2022: GBP794 million). This
is a substantial surplus, which is available to support the
Company's progressive dividend policy, particularly should
dividends not be fully covered by income in a future year.
A shortfall could arise, for example, due to holding substantial
uninvested cash or through lower distributions being received from
portfolio companies in order to preserve liquidity.
Table 16: Dividend cover (year to 31 March, GBPm)
---------------------------------------------------------------
2023 2022
-------------------------------------------------- ----- ----
Total income, other income and non-income cash 202 143
Operating costs, including management fees (66) (50)
Dividends paid and proposed (101) (93)
-------------------------------------------------- ----- ----
Dividend surplus for the year 35 -
Dividend reserves brought forward from prior year 794 868
Realised gain/(loss) over cost on disposed assets 30 (20)
Performance fees (45) (54)
-------------------------------------------------- ----- ----
Dividend reserves carried forward 814 794
-------------------------------------------------- ----- ----
Table 17 shows that the Company has consistently covered the
dividend over the last five years.
Table 17: Dividend cover (five years to 31 March 2023, GBPm)
Net Dividend
income(1)
========== ========== =========
Mar 2019 165 70
Mar 2020 105 82
Mar 2021 87 87
Mar 2022 93 93
Mar 2023 136 101
========== ========== =========
1 Net income is Total income, other income and non-income cash less
operating costs.
Sensitivities
The sensitivity of the portfolio to key inputs to our valuations
is shown in Table 18 and described in more detail in Note 7 to the
accounts. The portfolio valuations are positively correlated to
inflation. The longer-term inflation assumptions beyond two years
remain consistent with central bank targets, eg. UK CPI at 2%.
The sensitivities shown in Table 18 are indicative and are
considered in isolation, holding all other assumptions constant.
Timing and quantum of price increases will vary across the
portfolio and the sensitivity may differ from that modelled.
Changing the inflation rate assumption may necessitate
consequential changes to other assumptions used in the valuation of
each asset.
Table 18: Portfolio sensitivities (year to 31 March 2023)
Sensitivity -1% (GBPm) -1% (%) +1% (GBPm) +1% (%)
Discount rate 343 9.4 (296) (8.1)
----------- -------- ----------- --------
Inflation (for two
years) (52) (1.4) 47 1.3
----------- -------- ----------- --------
Interest rate 175 4.8 (182) (5.0)
----------- -------- ----------- --------
Alternative Performance Measures ('APMs')
We assess our performance using a variety of measures that are
not specifically defined under IFRS and are therefore termed APMs.
The APMs that we use may not be directly comparable with those used
by other companies. These APMs provide additional information of
how the Company has performed over the year and are all financial
measures of historical performance.
The APMs are consistent with those disclosed in prior years but
this year we have added two new APMs, Total liquidity and Portfolio
debt to enterprise value. The Directors monitor total liquidity to
assess the Company's ability to make further investments, the
efficiency of the balance sheet, and short-term viability.
Portfolio debt to enterprise value is monitored to assess the
underlying gearing of portfolio companies, the consequential risk
in the forecast cashflows of those companies and the ability of
portfolio companies to fund capital expenditure from their own
resources.
-- Total return on opening NAV reflects the performance of the
capital deployed by the Company during the year. This measure is
not influenced by movements in share price or ordinary dividends to
shareholders. This is a common APM used by investment companies
-- The NAV per share is a measure of the underlying asset base
attributable to each ordinary share of the Company and is a useful
comparator to the share price. This is a common APM used by
investment companies
-- Total income and non-income cash is used to assess dividend
coverage based on distributions received and accrued from the
investment portfolio
-- Investment value including commitments measures the total
value of shareholders' capital deployed by the Company
-- Total portfolio return percentage reflects the performance of
the portfolio assets during the year
-- Total liquidity is a measure of the Company's ability to make
further investments and meet its short-term obligations
-- Portfolio debt to enterprise value is a measure of underlying
indebtedness of the portfolio companies
The definition and reconciliation to IFRS of the APMs is shown
below.
APM Purpose Calculation Reconciliation to IFRS
---------------------------- ---------------------------- ---------------------------- ----------------------------
Total return on A measure of the overall It is calculated as the The calculation uses IFRS
opening NAV financial performance of the total return of GBP394 measures.
Company. million, as shown in the
For further information see Statement of comprehensive
the KPI section. income, as a percentage of
the opening NAV of GBP2,704
million net of the final
dividend for
the previous year of GBP47
million, adjusted on a
time-weighted basis for the
receipt of the
GBP100 million capital raise
on 14 February 2023. An
adjustment to increase the
opening NAV
by GBP13 million is required
for this time weighting.
---------------------------- ---------------------------- ---------------------------- ----------------------------
NAV per share A measure of the NAV per It is calculated as the NAV The calculation uses IFRS
share in the Company. divided by the total number measures and is set out in
of shares in issue at the Note 14 to the accounts.
balance
sheet date.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Total income and A measure of the income and It is calculated as the Total income uses the IFRS
non-income cash other cash receipts by the total income from the measures Investment income
Company which support the underlying portfolio and and Interest receivable. The
payment of other assets plus non-income non-income
expenses and dividends. cash being the repayment of cash, being the proceeds
shareholder loans not from partial realisations of
resulting from the disposal investments, are shown in
of an underlying the Cash flow
portfolio asset. statement. The realisation
proceeds which result from a
partial sale of an
underlying portfolio
asset are not included
within non-income cash.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Investment A measure of the size of the It is calculated as the The portfolio asset value is
value including investment portfolio portfolio asset value plus the 'Investments at fair
commitments including the value of the amount of the contracted value through profit or
further contracted commitment. loss' reported
future investments committed At 31 March 2023, the under IFRS. The value of
by the Company. Company had no investment future commitments is set
commitments. out in Note 16 to the
accounts.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Total portfolio A measure of the financial It is calculated as the The calculation uses capital
return percentage performance of the total portfolio return in return (including exchange),
portfolio. the year of GBP501 million, movement in fair value of
as shown in derivatives,
Table 1, as a percentage of underlying portfolio income,
the sum of the opening value opening portfolio value and
of the portfolio and investment in the year. The
investments reconciliation
less amounts syndicated in of all these items to IFRS
the year (excluding is shown in Table 1,
capitalised interest) of including in the footnotes.
GBP3,325 million.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Total liquidity A measure of the Company's It is calculated as the cash The calculation uses the
ability to make further balance of GBP5 million plus cash balance, which is an
investments and meet its the undrawn balance IFRS measure and undrawn
short-term obligations. available under balances available
the Company's revolving under the Company's
credit facility of GBP399 revolving credit facility,
million. which are described in Note
11 to the accounts.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Portfolio debt to enterprise A measure of underlying It is calculated as total The calculation is a
value indebtedness of the debt as a percentage of the portfolio company measure
portfolio companies. enterprise value of the and therefore cannot be
portfolio companies, reconciled to the Company's
and does not include accounts under IFRS.
indebtedness of the Company.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Risk report
"Thoughtful risk management is a cornerstone of our risk
governance framework."
Wendy Dorman
Chair, Audit and Risk Committee
This was the second year of a three-year cycle of risk reviews,
whereby the Audit and Risk Committee (the 'Committee'), alongside
the Investment Manager, conducted a thorough review to identify and
consider the impact and likelihood of the key, principal and
emerging risks facing the Company today.
Against the backdrop of the current geopolitical and
macroeconomic environment, the Company has continued to perform
strongly, supported by our risk management framework and process,
which enables appropriate and responsive decision making.
The following sections explain how we identify and manage risks
to the Company. We outline the key risks, our assessment of their
potential impact on the Company and our portfolio in the context of
the current environment and how we seek to mitigate them.
Our risk review process follows a three-year cycle, whereby once
every three years we carry out a detailed review involving each
Director independently assessing the risks facing the Company, then
collating and comparing the results, which we refer to as the
'blank sheet of paper exercise'. This was performed last year as it
was the first year of the cycle.
This year, a number of risks were reassessed to reflect
developments in the year, and the list of emerging risks was
refreshed. The Committee updated the risk register and risk matrix
as a result of the analysis conducted during the year, and
considered the alignment of the principal risks identified to the
Company's strategic objectives.
Approach to risk governance
The Board is ultimately responsible for the risk management of
the Company. It seeks to achieve an appropriate balance between
mitigating risk and generating long-term sustainable risk-adjusted
returns for shareholders. Integrity, objectivity and accountability
are embedded in the Company's approach to risk management.
The Board exercises oversight of the risk framework, methodology
and process through the Committee. The risk framework is designed
to provide a structured and consistent process for identifying,
assessing and responding to risks. The Committee ensures that there
is a consistent approach to risk across the Company's strategy,
business objectives, policies and procedures.
The Company is also reliant on the risk management frameworks of
the Investment Manager and other key service providers, as well as
on the risk management operations of each portfolio company.
The Board manages risks through reports from the Investment
Manager and other service providers and through representation on
all portfolio companies' boards by the Investment Manager's team
members.
There were no significant changes to the overall approach to
risk governance or its operation in FY23, but we continued to
refine our framework for risk management where appropriate.
Risk framework
Risk-related reporting
Internal External - Annual report
------------------------------------------ ---------------------------------------
* Monthly management accounts * Risk appetite
* Internal and external audit reports * Viability statement
* Service provider control reports * Resilience statement
* Risk logs * Internal controls
* Compliance reports * Going concern
* Risk-related reporting * Statutory/accounting disclosures
------------------------------------------ ---------------------------------------
Risk appetite
The Committee discusses the Company's risk appetite annually and
this year concluded that it remained broadly stable. As an
investment company, the Company seeks to take investment risk. The
appetite for investment risk is described previously in the Our
business model section, and in the Investment policy towards the
end of this document. Investments are made subject to the
Investment Manager's Responsible Investment policy, which addresses
an important element of our appetite for investment risk. Given the
strong competition for new investments, investment discipline
remains a key consideration.
The target risk-adjusted objective of delivering 8% to 10%
return per annum over the medium term remains consistent with our
current portfolio investment cases, including our recent new
investments. It is expected that, as the portfolio expands, the
range of expected returns in individual investment cases may also
expand to include higher risk/return 'value add' cases and lower
risk/return 'core' investments. We recognise that this has the
potential to result in greater volatility in returns on an
individual asset basis.
The benefits of diversification across sectors, countries and
types of underlying economic risk will mitigate this volatility,
and the Company has sought to build a diverse portfolio while
considering carefully the underlying risks to which our portfolio
companies are exposed. The Committee concluded that the risk
appetite of the Company for core-plus infrastructure investments
has not changed, and remains appropriate for our investment mandate
and target returns. The Covid-19 pandemic provided a severe test of
the appropriateness of the Company's risk appetite, and its
attractiveness to investors. The portfolio overall has been
resilient, and benefitted from diversification across
infrastructure subsectors and types of underlying risks.
The key tools used by the Committee to define the Company's risk
appetite and to determine the appetite for key risks are the risk
register and the risk matrix.
The process of creating and reviewing the risk register and risk
matrix is described below, together with a discussion of the
Company's appetite for each of the key risks. Beyond the appetite
for investment risk discussed above, the Company seeks to limit or
manage exposure to other risks to acceptable levels.
Risk review process
The Company's risk review process includes the monitoring of key
strategic and financial metrics considered to be indicators of
potential changes in its risk profile. The review takes place three
times a year, with the last review in April 2023, and includes, but
is not limited to, the following:
-- infrastructure and broader market overviews;
-- key macroeconomic indicators and their impact on the
performance and valuation of portfolio companies;
-- regular updates on the operational and financial performance
of portfolio companies;
-- experience of investment and divestment processes;
-- compliance with regulatory obligations, including
climate-related regulations;
-- analysis of new and emerging regulatory initiatives;
-- liquidity management;
-- assessment of climate risks to the portfolio, including
physical, transition and litigation risks;
-- consideration of scenarios that may impact the viability of
the Company;
-- assessment of emerging risks; and
-- review of the Company's risk log.
The Committee uses the risk framework to identify emerging and
key risks, and to evaluate changes in risks over time. The
framework is designed to manage rather than eliminate the risk of
failure to achieve objectives and breaches of risk appetite.
Developments during the year in the more significant key risks or
'principal risks' are discussed later in this document. These are
risks that the Committee considers to have the potential to
materially impact the delivery of our strategic objectives.
Risk categorisation
The Committee uses the following categorisation to describe risks
that are identi ed during the risk review process.
Emerging risks Key risks Principal risks
----------------------------- --------------------------
An emerging risk is one A key risk is considered The Committee maintains
that may currently to pose the a risk matrix, onto which
in future be likely risk of a material impact the key risks are mapped
to have a material impact on the Company. Risks by impact and likelihood.
on the performance of may be identi ed as emerging The principal risks are
the Company and the achievement risks and subsequently identi ed on the risk
of our long-term objectives, become key risks. Identi matrix as those with
but that is not yet considered ed key risks may cease the highest combination
to be a key risk and to be considered key of impact and likelihood
is subject to uncertainty risks over time. scores.
as to nature, impact
and timing.
----------------------------- --------------------------
The Committee evaluates the probability of each identified risk
materialising and the impact it may have, with reference to the
Company's strategy and business model.
The review process assesses the likelihood and impact of each
risk over two timeframes, within three years and beyond three
years. The evaluation of these key risks is then presented on a
risk matrix. Mitigating controls have been developed for each risk
and the adequacy of the mitigation is then assessed and, if
necessary, additional controls are implemented and reviewed by the
Committee at a subsequent meeting.
The Committee considers the identified principal risks in
greater detail in the assessment of the Company's viability.
A number of scenarios have been developed to reflect plausible
outcomes should the principal risks be experienced, as well as
consideration of stressed scenarios that could result in the
Company ceasing to be viable.
As the Company is an investment company, the stressed scenarios
reflect reduced cash flows from the Company's investment portfolio,
such that debt covenants are breached and liabilities not met.
The Investment Manager models the impact of these scenarios on
the Company and reports the results to the Committee. The resulting
assessment of viability is included in this Risk report.
Review during the year
In October 2022, the Committee reassessed the identified key
risks and considered any update to the list of emerging risks
currently facing the Company. This involved a 'blank sheet of
paper' exercise where each Director, and several members of the
Investment Manager's team, identified the top emerging risks facing
the Company, and discussed changes to the impact and likelihood of
the principal risks.
In December 2022, the Investment Manager analysed the data
collected and identified the emerging and principal risks facing
the Company, scoring the principal risks for impact and likelihood
(within a three-year period and beyond a three-year period). In
January 2023, the results of the principal risk scoring were
considered and assessed by the Committee and additional changes
made. In April 2023, the Committee reviewed the updated risk
register and risk matrix and the Company's appetite for each of the
key risks.
We have a relatively diverse spread of assets in the portfolio
and it is important that risk diversity is maintained as we evolve
the portfolio through new investments, realisations and
syndications.
Future realisations and syndications may continue the evolution
of risk in the portfolio in line with our strategy and allow the
Company to manage its exposure to more sensitive assets, or to take
account of where the risk profile of an asset has changed over
time.
We are confident that the portfolio remains defensive and
resilient, and in a position to benefit from accretive but
discretionary growth opportunities as highlighted in the Investment
Manager's review. We believe the current appetite for risk is
appropriate.
Risk register review process
October 2022
Directors identify potential emerging or new key risks facing
the Company
December 2022
Analysis and interpretation of responses
January 2023
Impact and likelihood of the identified risks considered
April 2023
Risk register and risk matrix updated
Emerging risks
The Company is a long-term investor and therefore needs to
consider the impact of both identified key risks, as detailed
below, and risks that are considered emerging or longer-term. Risk
categorisation, including the definition of emerging risk, is shown
above.
The Board and the Investment Manager consider these factors when
reviewing the performance of the portfolio and when evaluating new
investments, seeking to identify which factors present a potential
risk and can either be mitigated or converted into
opportunities.
As part of the ongoing risk identification and management of the
Company, the Committee considers whether these emerging risks
should be added to the Company's risk register. The risk register
is a 'live' document that is reviewed and updated regularly by the
Committee as new risks emerge and existing risks change. Examples
of emerging risks that were considered during the year include the
impact of energy price caps, UK political change, escalation of the
conflict in Ukraine, divergence between the UK and the EU
regulation increasing friction over trade in goods and services,
and escalating regulatory reporting requirements, including
climate-related reporting requirements. In some cases, emerging
risks may already be considered within a broader identified key
risk, such as market and economic risk.
Key risks
Key risks are mapped by impact and likelihood on a risk matrix.
During the year, the Committee considered the development of all
the key risks in detail. Within the category of key risks, the
principal risks identified by the Committee in the financial year
are set out in the Principal risks and mitigation table below
alongside how the Company seeks to mitigate these risks.
The risk review showed a high level of consistency with the
prior year, with a small number of changes in the key risks
identified. The assessment of likelihood and impact of the key
risks resulted in some changes to the principal risks facing the
Company.
Market and economic risk was considered the top risk facing the
Company and was considered to have increased during the year. This
includes the consequences of sanctions on Russia and Russian
companies, increased commodity and energy prices, rising inflation
and interest rates, supply chain constraints and a heightened risk
of recession.
Following the high level of new investment, the management of
liquidity risk is considered to have increased.
The risk of an inappropriate rate of investment and loss of
senior Investment Manager staff is considered to have increased
this year, given this liquidity risk.
These changes are reflected in the Principal risks and
mitigations table.
Fraud and cyber risk
We remain vigilant to cyber- and other IT-related issues which
could result in disruption to the Company, loss of data and/or
reputational damage. The Investment Manager has a robust fraud risk
assessment and anti-fraud programme in place. The latter includes
fraud prevention work by their Internal Audit team, mandatory
training to maintain vigilance and awareness, and provision of an
independent reporting service or 'hotline' accessible by all staff.
The Investment Manager's cyber security programme also aims to
identify and mitigate the risks of third-party frauds, for example
ransomware and phishing attacks, through the use of IT security
tools and regular staff training. There is also a detailed business
continuity and disaster recovery plan, should a significant event
occur. The Company asks its service providers to inform it of any
significant cyber events that they experience.
Environmental sustainability and climate risk
Environmental sustainability and ESG are an increasingly
important focus amongst our shareholders and in the wider
market.
Climate risk includes the short- to medium-term impacts,
including transitional changes (for example, regulation and
financial) as well as the long-term emerging risk of climate change
(for example, flooding events). Failure to identify and mitigate
risks at this stage could result in a reduction in the
attractiveness of our assets, reputational damage and a reduction
in value of our portfolio in the future.
Although there is still much uncertainty around the extent and
timing of the impact of climate change, government and societal
action, and future regulations, we recognise that climate-related
risk is a key risk as well as an investment theme for the Company.
We have separated climate-related risk into two distinct but
related risks.
Climate regulation risk addresses the regulatory risk to the
Company and the portfolio associated with the transition to a
low-carbon economy. Climate risk addresses the physical and
transition risks from climate change on the portfolio.
ESG and sustainability is increasingly important in the context
of our strategic and investment objectives. Further information on
work done in relation to ESG reporting, including climate-related
disclosures, and our approach to climate-related risk and
opportunities can be found in our Sustainability report. All of the
companies in our portfolio recognise the importance of considering
climate change and of evolving a sustainable business model. As
discussed in the Sustainability report, the physical and transition
climate-related risks are also seen as opportunities for all
companies in our portfolio.
There are no acute physical nor transition risks identified in
the portfolio that would suggest that climate risk is a principal
risk, although an example of the impact of a transition risk is the
introduction of a tax on imported waste or a carbon tax in the
Netherlands, which impacts Attero, and the risk of early
decommissioning of oil and gas assets, which impacts some customers
of Tampnet and ESVAGT.
We consider that the mitigating controls at the Company and the
Investment Manager over climate regulation risk prevent this from
being a principal risk at the moment.
Principal risks and mitigations
External
Principal risk Risk description Risk mitigation
Market/economic
* Macroeconomic or market volatility, such as may arise * Resources and experience of the Investment Manager on
Risk exposure from the consequences of the conflict in Ukraine and deal-making, asset management and hedging solutions
movement in the from the effects on economies of post-pandemic demand to market volatility
year and supply imbalances, ows through to pricing,
Increased valuations and portfolio performance
* Periodic legal and regulatory updates on the
Link to Company's markets and in-depth market and sector
Strategic * Fiscal tightening impacts market environment research from the Investment Manager and other
priorities advisers
Manage
portfolio * Risk of sovereign default lowers market sentiment and
intensively increases volatility * Portfolio diversi cation to mitigate the impact of a
downturn in any geography or sector or portfolio
company-specific effects
* Misjudgement of in ation and/or interest rate outlook
* The permanent capital nature of an investment trust
allows us to look through market volatility and the
economic cycle
----------------------------------------------------------- -----------------------------------------------------------
Competition
* Increased competition for the acquisition of assets * Continual review of market data and review of Company
Risk exposure in the Company's strategic focus areas return target compared to market returns
movement in the
year
No significant * Deal processes become more competitive and prices * Ongoing analysis of the competitor landscape
change increase
Link to * Origination experience and disciplined approach of
Strategic * New entrants compete with a lower cost of capital Investment Manager
priorities
Disciplined
approach * Strong track record and strength of the 3i
Infrastructure brand
----------------------------------------------------------- -----------------------------------------------------------
Debt markets
deteriorate * Debt becomes increasingly expensive, eroding returns * The Investment Manager maintains close relationships
Risk exposure with a number of banks and monitors the market
movement in the through transactions and advice
year * Debt availability is restricted
No significant
change * Regular reporting of Company liquidity and portfolio
* The Company's RCF or portfolio company debt cannot be company re nancing requirements
Link to re nanced due to lack of appetite from banks
Strategic
priorities * Investment Manager has extensive experience in
Manage raising debt finance for portfolio companies,
portfolio alongside an in-house Treasury team to provide advice
intensively on treasury issues
* Active management of portfolio company debt
facilities, with fixed rates and long duration of
debt
----------------------------------------------------------- -----------------------------------------------------------
Operational
Principal risk Risk description Risk mitigation
Loss of senior
Investment * Members of the deal team at the Investment Manager * Performance-linked compensation packages, including
Manager staff leave, and 'deal-doing' and portfolio management an element of deferred remuneration
capability in the short to medium term is restricted
Risk exposure
movement in * Notice periods within employment contracts
the year
Increased
* Strength and depth of the senior team and strength of
Link to the 3i Group brand
Strategic
priorities
Maintain * Careful management and robust planning of senior
balanced management transition
portfolio
Sustainability
key driver
---------------------------------------------------------- -----------------------------------------------------------
Strategic
Principal risk Risk description Risk mitigation
Management of
liquidity * Failure to manage the Company's liquidity, including * Regular reporting of current and projected liquidity
cash and available credit facilities
Risk exposure
movement in * Investment and planning processes consider sources of
the year * Insufficient liquidity to pay dividends and operating liquidity
Increased expenses or to make new investments
Link to * Flexible funding model, where liquidity can be sought
Strategic * Hold excessive cash balances, introducing cash drag from available cash balances including reinvestment
priorities on the Company's returns of proceeds from realisations, committed credit
Disciplined facilities which can be increased with approval from
approach our lenders, and the issue of new share capital
* Growth opportunities can be part or fully funded by
portfolio company cash balances and/or available debt
facilities
-------------------------------------------------------------- -----------------------------------------------------------
Deliverability
of * Failure to ensure the investment strategy can deliver * Market returns are reviewed regularly
return target the return target and dividend policy of the Company
Risk exposure * The Investment Manager and other advisers to the
movement in * Failure to adapt the strategy of the Company to Company report on market positioning
the year changing market conditions
No significant
change * Investment process addresses expected return on new
investments and the impact on the portfolio
Link to
Strategic * Consideration of megatrends in the investment process
priorities
Maintain
balanced * Consideration of risks, including ESG and climate
portfolio risks, in the investment process
Sustainability
key driver
-------------------------------------------------------------- -----------------------------------------------------------
Investment
Principal risk Risk description Risk mitigation
Security of
assets * An incident, such as a cyber or terrorist attack * Regular review of the Company and key service
Risk exposure providers
movement in
the year * Unauthorised access to information and operating
No significant systems * Regular review and update of cyber due diligence for
change potential investments
* Regulatory and legal risks from failure to comply
Link to with cyber-related laws and regulations, including * Review of portfolio companies for cyber risk
Strategic data protection management and incident readiness
priorities
Maintain
balanced
portfolio
Sustainability
key driver
--------------------------------------------------------- ------------------------------------------------------------
Poor
investment * Misjudgement of the risk and return attributes of a * Robust investment process with thorough challenge of
performance new investment the investment case supported by detailed due
Risk exposure diligence
movement in
the year * Material issues at a portfolio company
No significant * Investment Manager's active asset management approach,
change including proactive management of issues arising at
Link to * Poor judgement in the realisation of an asset portfolio company level
Strategic
priorities
Maintain * Experience of the Investment Manager's team in
balanced preparing for and executing realisations of
portfolio investments
Sustainability
key driver
--------------------------------------------------------- ------------------------------------------------------------
Development of significant key risks in the year
The disclosures in the Risk report are not an exhaustive list of
risks and uncertainties faced by the Company, but rather a summary
of significant key risks which are under active review by the
Board. These significant key risks have the potential to affect
materially the achievement of the Company's strategic objectives
and impact its financial performance. This disclosure shows
developments in these significant key risks for the year. The risks
that have been identified as principal risks are described in more
detail in the Principal risks and mitigations table.
External risks - market and competition
In the face of rising interest rates and macroeconomic
uncertainty, infrastructure assets have proven relatively resilient
when compared to the dislocation in other markets, but a difficult
GDP environment remains a key risk for the Company.
Infrastructure's fundamental characteristics as an asset class
anchored by predictable, long-term revenue streams that are often
linked to inflation have positioned the sector well to withstand
recessionary risk and volatile markets.
The urgency of tackling climate change has also made investment
in some sectors, such as those with a focus on energy transition,
relatively insulated from macro headwinds. As a result, the
European infrastructure market continues to experience strong
demand for new investments. Private funds with a core-plus
infrastructure focused mandate have significant amounts of dry
powder and these are the Company's primary competition for new
investment. Fundraising has increased at a faster pace than the
number of funds raised, resulting in larger fund sizes creating
intense competition for suitable infrastructure targets. There
remains a risk that pricing does change for core-plus
infrastructure in the medium term, but at this point we are not
seeing any upward pressure on discount rates for core-plus
infrastructure investments as these tend to have greater discount
rate headroom to risk-free rates and strong inflation protection
features. In this environment, the Investment Manager continues to
leverage its network and skills to look for investments that can
deliver attractive and sustainable risk-adjusted returns to the
Company's shareholders.
Inflation in the UK and Europe has risen sharply in the year,
driven by rising energy costs, supply chain bottlenecks, labour and
raw material shortages and the reopening of economies from
pandemic-related lockdowns. The portfolio is positively correlated
to inflation as most portfolio companies have revenues at least
partially linked to inflation, although higher inflation may also
result in increased costs and supply chain disruption and, should
it persist, is generally bad for economies as a whole.
Sensitivities to macroeconomic assumptions are discussed in the
Financial review and in Note 7 to the accounts.
Central bank base rates increased during the year in response to
higher inflation and, although there is evidence, particularly in
Europe, that this is bringing inflation back towards target levels,
there is a risk that inflation will return to a level either above
or below our long-term assumptions. There are no material
refinancing requirements in the portfolio until 2026 and over 95%
of long-term debt facilities are either hedged or fixed rate at 31
March 2023. This mitigates the risk from further near-term interest
rate rises.
The Company is exposed to movements in sterling exchange rates
against a number of currencies, most significantly the euro.
The Company operates a hedging programme which substantially
offsets volatility in returns from exchange rate movements. The
Board monitors the effectiveness of the Company's hedging policy on
a regular basis.
The valuation of our portfolio companies that generate
electricity is affected by the evolution of long-term power price
forecasts and by fluctuations in the spot power price. Medium-term
power price forecasts have also increased considerably during the
year, driven by gas supply concerns, record carbon prices, low wind
levels and higher commodity prices, particularly for gas. This has
benefitted those portfolio companies that generate electricity and
typically sell it on a forward basis in order to avoid spot market
volatility: Infinis, Attero and Valorem.
Sanctions on Russia and Russian companies, together with the
recovery from the Covid-19 pandemic, led to an increase in oil
prices, peaking in June 2022.
Since then prices have come down, due to a softer economic
environment and reduced trans-shipment volumes, but the market
continues to be backwardated. For Oystercatcher, this may maintain
some short-term downward pressure on pricing of contract
renewals.
Ionisos is a provider of cold sterilisation and ionising
radiation treatment services to the medical, pharmaceutical,
plastics and cosmetics industries. Gamma radiation, one of the
three methods of cold sterilisation used, relies on the radioactive
decay of Cobalt-60, a scarce resource. Although a worldwide
shortage of Cobalt-60 is expected until 2028, resulting from
increased demand and the permanent closure of a large Russian
reactor, Ionisos is in a good position to maintain its capacity as
it has recently expanded its supplier base and is in advanced
discussions with one supplier for a five-year supply agreement.
During the past three years, TCR was affected by air traffic
movements and passenger numbers being substantially below the
levels seen before the Covid-19 pandemic.
We are pleased with the performance of TCR over the duration of
the pandemic and the strong performance this year and we have
maintained our assumption of a return to pre-pandemic levels of air
travel by 2024.
DNS:NET is being affected by the industry-wide challenge of
rolling out a FTTH network in Germany due to the complexity of the
construction process and difficulty in obtaining permits for
construction, alongside cost inflation. The German government is
planning to accelerate the roll out through a simpler and
digitalised approval process.
External risks - regulatory and tax
The Company's investments in Infinis, Valorem and Attero are
exposed to electricity market regulation risk in their respective
countries. On 1 January 2023, the UK government introduced a levy
or price cap on extraordinary returns from electricity generation
(the 'EGL').
The EGL is an exceptional and time-limited measure that is due
to expire in 2028.
The French and Dutch governments introduced taxes on merchant
revenues above a price cap for 2023. The effect of current and
proposed legislation is reflected in the valuations of these
portfolio companies.
Strategic risks
The Company manages its balance sheet and liquidity position
actively, seeking to maintain adequate liquidity to pursue new
investment opportunities, while not diluting shareholder returns by
holding surplus cash balances. At 31 March 2023 there was GBP5
million available in cash, with drawings of GBP501 million under
the RCF. During the year the Company raised a further GBP100
million through an equity placing and extended the maturity of its
RCF facility to November 2025.
The portfolio is diversified across sector and geography, with
no investment above 15% of portfolio value.
Investment risks
As part of our investment due diligence and active portfolio
management, the Investment Manager uses specialist cyber security
advisers to ensure that our companies remain vigilant and continue
to focus on effective operations of controls against possible
cyber-attacks. Some of our portfolio companies do experience fraud
attempts, some of which are successful, but none have had a
material impact on any of our companies.
Operational risks
The key areas of operational risk include attracting and
retaining key personnel at the Investment Manager, and whether the
Investment Manager's team can continue to support the delivery of
the Company's objectives. The team has strength and depth, and the
transition in senior management has been carefully managed. The
Board monitors the performance of the Investment Manager through
the Management Engagement Committee. It also monitors the
performance of key service providers, receiving reports of any
significant control breaches.
Resilience statement
Our resilience comes from the effective implementation of our
business model. Key elements of our business model relating to
resilience include the Investment Manager's disciplined approach to
new investment and engaged asset management, the defensive
characteristics of our portfolio of investments, high ESG
standards, our flexible funding model and efficient balance sheet,
and the capability of the Investment Manager's team.
This is underpinned by the strong institutional culture and
values of our Investment Manager, high standards of corporate
governance, and effective risk management.
Over the life of the Company, the Investment Manager has built a
resilient and diversified portfolio with good growth potential and
downside protection that delivers an attractive mix of income yield
and capital appreciation for shareholders. This has been achieved
through consistent delivery of our strategic priorities.
Short-term resilience
The Directors assess the Company's short-term resilience through
monitoring portfolio, pipeline and finance reports. These are
prepared monthly, and discussed at quarterly scheduled board
meetings and board update calls held between scheduled meetings.
Six-monthly detailed investment reviews are prepared by the
Investment Manager and discussed with the Board, as part of the
half-yearly and annual valuation and reporting processes. These
reviews describe sources of risk at portfolio company level, and
mitigating actions being taken or considered.
The resilience of key suppliers, including the Investment
Manager, is considered annually or more frequently if appropriate.
The Audit and Risk Committee is provided with relevant extracts of
reports from the Investment Manager's internal audit team, which
includes an annual report on the Investment Manager's European
infrastructure investment team. Further detail is included in the
Governance section of the Annual report and accounts 2023.
The Directors manage the Company's liquidity actively, reviewing
reports on current and forecast liquidity from the Investment
Manager, alongside recommendations for seeking additional liquidity
when appropriate. The Directors approved the issue of new equity
during the year, raising GBP100 million net of issue costs, and the
extension of the RCF to GBP900 million of commitments. Further
discussion on the RCF can be found in the Financial review.
The identification of material uncertainties that could cast
significant doubt over the ability of the Company to continue as a
going concern forms the basis of the Going concern statement
below.
Going concern
The Company's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Strategic report and in the Financial statements
and related Notes to our Annual report and accounts to 31 March
2023. The nancial position of the Company, its cash ows, liquidity
position and borrowing facilities are also described in the
Financial statements and related Notes to the accounts.
In addition, Note 9 to the accounts includes the Company's
objectives, policies and processes for managing its capital, its
nancial risk management objectives, details of its nancial
instruments and hedging activities, and its exposures to credit
risk and liquidity risk.
The Directors have made an assessment of going concern, taking
into account the Company's cash and liquidity position, current
performance and outlook, which considered the impact of the higher
inflationary and interest rate environment, using the information
available up to the date of issue of these Financial
statements.
The Company has liquid nancial resources and a strong investment
portfolio providing a predictable income yield and an expectation
of medium-term capital growth.
The Company manages and monitors liquidity regularly, ensuring
that it is suf cient.
At 31 March 2023, liquidity remained strong at GBP404 million
(2022: GBP786 million). Liquidity comprised cash and deposits of
GBP5 million (2022: GBP17 million) and undrawn facilities of GBP399
million (2022: GBP769 million). The GBP900 million revolving credit
facility matures beyond 12 months of the date of this report.
The Company had no contracted investment commitment at 31 March
2023. However, the Company expects to make follow-on investments in
portfolio companies to fund growth opportunities.
The Company had ongoing charges of GBP48 million in the year to
31 March 2023, detailed in Table 14 in the Financial review, which
are indicative of the ongoing run rate in the short term. In
addition, the FY23 performance fee of GBP45 million (2022: GBP54
million) is due in three equal instalments with the rst instalment
payable in the next 12 months along with the second instalment of
FY22's performance fee and the third instalment of FY21's
performance fee, and a proposed nal dividend for FY23 of GBP51
million which is expected to be paid in July.
Although not a commitment, the Company has announced a dividend
target for FY24 of 11.90 pence per share. Income and non-income
cash is expected to be received from the portfolio investments
during the coming year, some of which will be required to support
the payment of this dividend target and the Company's other nancial
commitments.
The Directors have acknowledged their responsibilities in
relation to the Financial statements for the year to 31 March 2023.
After making the assessment on going concern, the Directors
considered it appropriate to prepare the Financial statements of
the Company on a going concern basis.
The Company has suf cient nancial resources and liquidity and is
well-positioned to manage business risks in the current economic
environment and can continue operations for a period of at least 12
months from the date of this report. This is supported by the
scenario analysis and stress testing described in the medium-term
resilience section and the Viability statement. Accordingly, the
Directors continue to adopt the going concern basis in preparing
the Annual report and accounts.
Medium-term resilience
The assessment of medium-term resilience, which includes
modelling of stressed scenarios and reverse stress tests, considers
the viability and performance of the Company in the event of
specific stressed scenarios which are assumed to occur over a
three-year horizon. This stress testing forms the basis of the
Viability statement.
The Directors consider that a three-year period to March 2026 is
an appropriate period to review for assessing the Company's
viability. This re ects greater predictability of the Company's
cash ows over that time period and increased uncertainty
surrounding economic, political and regulatory changes over the
longer term.
The stress testing focuses on the principal risks, but also
reflects those new and emerging risks that are considered to be of
sufficient importance to require active monitoring by the Audit and
Risk Committee. The scenarios used are described in the Viability
statement. The medium-term resilience of the Company is assessed
through analysing the impact of these scenarios on key metrics such
as total return, income yield, net asset value, covenants on the
RCF and available liquidity.
Viability statement
The Directors consider the medium-term prospects of the Company
to be favourable. The Company has a diverse portfolio of
infrastructure investments, producing good and reasonably
predictable levels of income which cover the dividend and costs.
The defensive nature of the portfolio and of the essential services
that the businesses in which we invest provide to their customers
are being demonstrated in the current climate. The Investment
Manager has a strong track record of investing in carefully
selected businesses and projects and of driving value through an
engaged asset management approach. The Directors consider that this
portfolio can continue to meet the Company's objectives.
The Directors have assessed the viability of the Company over a
three-year period to March 2026. The Directors have taken account
of the current position of the Company, including its liquidity
position, with GBP5 million of cash and GBP399 million of undrawn
credit facilities, and the principal risks it faces, which are
documented in this Risk report.
The Directors have considered the potential impact on the
Company of a number of scenarios in addition to the Company's
business plan and recent forecasts, which quantify the nancial
impact of the principal risks occurring. These scenarios represent
severe yet plausible circumstances that the Company could
experience, including a signi cant impairment in the value of the
portfolio and a reduction in the cash ows available from portfolio
companies from a variety of causes.
The assessment was conducted over several months, during which
the proposed scenarios were evaluated by the Board, the assumptions
set, and the analysis produced and reviewed. Analysis included the
impact of an escalation of the conflict in Ukraine on our portfolio
companies and the impact of a resulting economic downturn. Other
considerations included the possible impact of climate-related
events and transition risks, widespread economic turmoil, a
reduction in cash distributions from portfolio companies to the
Company, a tightening of debt markets and the failure of a large
investment.
The assumptions used to model these scenarios included a fall in
value of some or all of the portfolio companies, a reduction in
cash ows from portfolio companies, a reduction in the level of new
investment and/or realisations, the imposition of additional taxes
on distributions from, or transactions in, the portfolio companies,
an increase in the cost of debt and restriction in debt
availability, and an inability for the Company to raise equity. The
implications of changes in the in ation, interest rate and foreign
exchange environment were also considered, separately and in
combination.
The results of this assessment showed that the Company would be
able to withstand the impact of these scenarios occurring over the
three-year period. The Directors also considered scenarios that
would represent a serious threat to its liquidity and viability in
that time period. These scenarios were considered to be remote,
such as a fall in equity value of the portfolio of materially more
than 50% whilst being fully drawn on the RCF including the
accordion, or an equivalent fall in income.
Based on this assessment, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the three-year
period to March 2026.
Long-term resilience
As described above, the long-term resilience of the Company,
beyond the Viability statement period, comes from the effective
implementation of our business model and consistent delivery of our
strategic objectives.
Our approach to origination and portfolio construction, focus on
price discipline and engaged asset management approach enable us to
adapt in response to new and emerging risks and challenges,
including climate change and developments in megatrends.
The characteristics that we look for in infrastructure
investments, support the long-term resilience of the Company. The
performance of the portfolio through the Covid-19 pandemic provided
good evidence of this.
The underlying megatrends supporting the longer-term resilience
of each portfolio company are identified in the Our approach
section.
We have a long-term investment time horizon made possible by our
permanent capital base that is unconstrained by the fixed
investment period and fundraising cycle seen in private limited
partnership funds.
Although the scenarios and stress testing to support the
Viability statement are modelled over a three-year time horizon,
the resilience shown by the Company, and its ability to recover
from these stressed situations, supports the assessment of our
resilience over a longer term than three years.
Directors' duties
Section 172 statement
The Company adheres to the AIC Code of Corporate Governance (the
'AIC Code') and it is the intention of the AIC Code that the
matters set out in section 172 of the Companies Act 2006 ('s172')
are reported on to the extent they do not conflict with Jersey
law.
We recognise that our business can only grow and prosper by
acting in the long-term interests of our key stakeholders and that
a good understanding of the key issues affecting stakeholders
should be an integral part of the Board's decision-making process.
The insights that the Board gains through the stakeholder
engagement mechanisms it has in place form an important part of the
context for all the Board's discussions and decision-making
processes.
As an externally managed investment trust, the Company has no
employees or customers and its key stakeholders are its
shareholders, third-party professional advisers and service
providers (most notably the Investment Manager), portfolio
companies, communities in which the Company operates, lenders, and
government and regulatory bodies.
Day-to-day engagement with our stakeholders is principally
managed by the Investment Manager although, where appropriate, the
Directors have direct touchpoints with stakeholders during the
year.
Throughout this Annual report we provide examples of how the
Directors promote the success of the Company for the benefit of its
members in line with our purpose and our strategy, while taking
into account the likely consequences of decisions in the long term,
the need to build relationships with stakeholders, and ensuring
that business is conducted responsibly. The governance section of
the Annual report and accounts 2023, sets out the Company's
stakeholders and how the Board considered matters under s172 during
its deliberations.
Under Jersey Law, the Directors are obliged to act honestly and
in good faith with a view to the best interests of the Company; and
to exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances.
Pursuant to s172, a Director of a company must act in the way
they consider, in good faith, would most likely promote the success
of the company for the benefit of its members, and in doing so have
regard (amongst other matters) to:
The likely consequences of any decisions in the long term
Our purpose and strategy, combined with the responsible
investment approach of the Investment Manager, focus on sustainable
returns and outcomes.
The impact of the Company's operations on the community and
environment
We use our influence to promote a commitment in our portfolio
companies to mitigate any adverse environmental and social impacts,
and to enhance positive effects on their communities and the
environment.
The interests of the Company's employees
Whilst we do not have any employees, our purpose includes the
intention to have a positive influence on our portfolio companies
and their stakeholders, which includes the employees of those
portfolio companies.
The desirability of the Company maintaining a reputation for
high standards of business conduct
Our success relies on maintaining a strong reputation, and our
values and ethics are aligned to our purpose, our strategy and our
ways of working.
The need to foster the Company's business relationships with
suppliers, customers and others
We engage with all our stakeholders either directly or through
the Investment Manager.
The need to act fairly between members of the Company
The Board actively engages with its shareholders and considers
their interests when implementing our strategy.
Read more in our Annual report and accounts 2023, available on
our website
Accounts and other information
Statement of comprehensive income
For the year to 31 March
Year to Year to
31 March 31 March
2023 2022
Notes GBPm GBPm
----------------------------------------------------------------- ------ --------- ---------
Net gains on investments 7 339 384
Investment income 7 156 127
Fees payable on investment activities - (3)
Interest receivable 2 6
----------------------------------------------------------------- ------ --------- ---------
Investment return 497 514
Movement in the fair value of derivative financial instruments 5 18 (2)
Management and performance fees payable 2 (92) (97)
Operating expenses 3 (3) (3)
Finance costs 4 (16) (5)
Exchange movements (10) (3)
Profit before tax 394 404
----------------------------------------------------------------- ------ --------- ---------
Income taxes 6 - -
----------------------------------------------------------------- ------ --------- ---------
Profit after tax and profit for the year 394 404
----------------------------------------------------------------- ------ --------- ---------
Total comprehensive income for the year 394 404
================================================================= ====== ========= =========
Earnings per share
Basic and diluted (pence) 14 44.0 45.3
---------------------------------------------------------------- ------ --------- ---------
Statement of changes in equity
For the year to 31 March
Stated Total
capital Retained Capital Revenue shareholders'
account reserves(1) reserve(1) reserve(1) equity
For the year to 31 March 2023 Notes GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ------ -------- -------------- ------------- ----------- --------------
Opening balance at 1 April 2022 779 1,282 643 - 2,704
Issue of shares 100 - - - 100
Total comprehensive income for the year - - 316 78 394
Dividends paid to shareholders of the
Company during the year 15 - - (19) (78) (97)
---------------------------------------- ------ -------- -------------- ------------- ----------- --------------
Closing balance at 31 March 2023 879 1,282 940 - 3,101
---------------------------------------- ------ -------- -------------- ------------- ----------- --------------
Stated Total
capital Retained Capital Revenue shareholders'
account reserves(1) reserve(1) reserve(1) equity
For the year to 31 March 2022 Notes GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ------ -------- -------------- ------------- ----------- --------------
Opening balance at 1 April 2021 779 1,282 330 (1) 2,390
Total comprehensive income for the year - - 324 80 404
Dividends paid to shareholders of the
Company during the year 15 - - (11) (79) (90)
---------------------------------------- ------ -------- -------------- ------------- ----------- --------------
Closing balance at 31 March 2022 779 1,282 643 - 2,704
---------------------------------------- ------ -------- -------------- ------------- ----------- --------------
1 The Retained reserves, Capital reserve and Revenue reserve are distributable reserves. Retained
reserves relate to the period prior to 15 October 2018. Further information can be found in
Accounting policy H.
Balance sheet
As at 31 March
2023 2022
Notes GBPm GBPm
------------------------------------------------- ------ ----- -----
Assets
Non-current assets
Investments at fair value through profit or loss 7 3,641 2,873
Derivative financial instruments 10 29 6
------------------------------------------------- ------ ----- -------
Total non-current assets 3,670 2,879
------------------------------------------------- ------ ----- -------
Current assets
Derivative financial instruments 10 28 20
Trade and other receivables 8 4 104
Cash and cash equivalents 5 17
------------------------------------------------- ------ ----- -------
Total current assets 37 141
------------------------------------------------- ------ ----- -------
Total assets 3,707 3,020
------------------------------------------------- ------ ----- -------
Liabilities
Non-current liabilities
Derivative financial instruments 10 (10) (6)
Trade and other payables 12 (48) (38)
Loans and borrowings 11 (501) (231)
------------------------------------------------- ------ ----- -------
Total non-current liabilities (559) (275)
------------------------------------------------- ------ ----- -------
Current liabilities
Derivative financial instruments 10 (8) (12)
Trade and other payables 12 (39) (29)
------------------------------------------------- ------ ----- -------
Total current liabilities (47) (41)
------------------------------------------------- ------ ----- -------
Total liabilities (606) (316)
------------------------------------------------- ------ ----- -------
Net assets 3,101 2,704
------------------------------------------------- ------ ----- -------
Equity
Stated capital account 13 879 779
Retained reserves 1,282 1,282
Capital reserve 940 643
Revenue reserve - -
------------------------------------------------- ------ ----- -------
Total equity 3,101 2,704
------------------------------------------------- ------ ----- -------
Net asset value per share
Basic and diluted (pence) 14 336.2 303.3
------------------------------------------------- ------ ----- -------
The Financial statements and related Notes were approved and
authorised for issue by the Board of Directors on 9 May 2023 and
signed on its behalf by:
Richard Laing
Chair
Cash flow statement
For the year to 31 March
Year to Year to
31 March 31 March
2023 2022
GBPm GBPm
------------------------------------------------------------------ --------- ---------
Cash flow from operating activities
Purchase of investments (729) (761)
Proceeds from other financial assets 98 12
Proceeds from partial realisations of investments 322 140
Proceeds from full realisations of investments 104 8
Investment income1 30 54
Fees rebated/(paid) on investment activities 1 (4)
Operating expenses paid (3) (4)
Interest received 3 -
Management and performance fees paid (72) (50)
Amounts (paid)/received on the settlement of derivative contracts (13) 27
Net cash flow from operating activities (259) (578)
------------------------------------------------------------------ --------- ---------
Cash flow from financing activities
Fees and interest paid on financing activities (16) (6)
Proceeds from issue of share capital 102 -
Share issue expenses (2) -
Dividends paid (97) (90)
Drawdown of revolving credit facility 2,188 955
Repayment of revolving credit facility (1,918) (724)
------------------------------------------------------------------ --------- ---------
Net cash flow from financing activities 257 135
------------------------------------------------------------------ --------- ---------
Change in cash and cash equivalents (2) (443)
------------------------------------------------------------------ --------- ---------
Cash and cash equivalents at the beginning of the year 17 462
Effect of exchange rate movement (10) (2)
------------------------------------------------------------------ --------- ---------
Cash and cash equivalents at the end of the year 5 17
------------------------------------------------------------------ --------- ---------
1 Investment income includes dividends of GBP1 million (2022:
GBP24 million) and interest of GBP29 million (2022: GBP30
million).
Reconciliation of net cash flow to movement in net debt
For the year to 31 March
Year to Year to
31 March 31 March
2023 2022
Notes GBPm GBPm
============================================= ====== ========= =========
Change in cash and cash equivalents (2) (443)
Drawdown of revolving credit facility 11 (2,188) (955)
Repayment of revolving credit facility 11 1,918 724
--------------------------------------------- ------ --------- ---------
Change in net debt resulting from cash flows (272) (674)
--------------------------------------------- ------ --------- ---------
Movement in net debt (272) (674)
Net (debt)/cash at the beginning of the year (214) 462
Effect of exchange rate movement (10) (2)
--------------------------------------------- ------ --------- ---------
Net debt at the end of the year (496) (214)
--------------------------------------------- ------ --------- ---------
In the above reconciliation there were no non-cash
movements.
Significant accounting policies
Corporate information
3i Infrastructure plc (the 'Company') is a company incorporated
in Jersey, Channel Islands. The Financial statements for the year
to 31 March 2023 comprise the Financial statements of the Company
as defined in IFRS 10 Consolidated Financial Statements.
The Financial statements were authorised for issue by the Board
of Directors on 9 May 2023.
Statement of compliance
These Financial statements have been prepared in accordance with
United Kingdom adopted International Financial Reporting Standards
('IFRS') and International Accounting Standards.
These Financial statements have also been prepared in accordance
with and in compliance with the Companies (Jersey) Law 1991.
Basis of preparation
In accordance with IFRS 10 (as amended), entities that meet the
definition of an investment entity are required to fair value
certain subsidiaries through profit or loss in accordance with IFRS
9 Financial Instruments, rather than consolidate their results. The
Company does not have any consolidated subsidiaries, which would
include subsidiaries that are not themselves investment entities
and provide investment-related services to the Company.
The Financial statements of the Company are presented in
sterling, the functional currency of the Company, rounded to the
nearest million except where otherwise indicated.
The preparation of financial statements in conformity with IFRS
requires the Board to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on experience and other factors
that are believed to be reasonable under the circumstances, the
results of which form the basis of determining the carrying values
of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
Going concern
The Financial statements are prepared on a going concern basis
as disclosed in the Risk report, as the Directors are satisfied
that the Company has the resources to continue in business for the
foreseeable future. The Directors have made an assessment of going
concern, taking into account a wide range of information relating
to present and future conditions, including the Company's cash and
liquidity position, current performance and outlook, which
considered the impact of the higher inflationary and interest rate
environment, ongoing geopolitical uncertainties and current and
expected financial commitments, using the information available up
to the date of issue of these Financial statements. As part of this
assessment the Directors considered:
-- the analysis of the adequacy of the Company's liquidity,
solvency and capital position. The Company manages and monitors
liquidity regularly, ensuring it is adequate and sufficient. At 31
March 2023, liquidity remained strong at GBP404 million (2022:
GBP786 million). Liquidity comprised cash and deposits of GBP5
million (2022: GBP17 million) and undrawn revolving credit
facilities of GBP399 million (2022: GBP769 million) with a maturity
date of November 2025. Income and non-income cash is expected to be
received from the portfolio investments during the coming year, a
portion of which will be required to support the payment of the
dividend target and the Company's other financial commitments;
-- uncertainty around the valuation of the Company's assets as
set out in the Key sources of estimation uncertainties section. The
valuation policy and process was consistent with prior years. This
year a key focus of the portfolio valuations at 31 March 2023 was
an assessment of the impact of the macroeconomic environment on the
operational and financial performance of each portfolio company. In
particular this focused on increasing inflationary pressures,
rising interest rates and the impact on the cost of debt,
volatility in power prices and ongoing geopolitical uncertainties.
We have incorporated into our cash flow forecasts a balanced view
of future income receipts and expenses; and
-- the Company's financial commitments. The Company had no
investment commitments at 31 March 2023. The Company had ongoing
charges of GBP48 million in the year to 31 March 2023, detailed in
Table 14 in the Financial review, which are indicative of the
ongoing run rate in the short term. The Company has a FY23
performance fee accrual of GBP45 million, a third of which is
payable within the next 12 months. The Company has a FY22
performance fee accrual of GBP36 million relating to the second and
third instalments of the FY22 fee, the second instalment being due
within the next 12 months, an accrual of GBP2 million relating to
the third instalment of the FY21 fee due within the next 12 months
and a proposed final dividend for FY23 of GBP51 million. In
addition, while not a commitment at 31 March 2023, the Company has
a dividend target for FY24 of 11.90 pence per share.
In addition to the considerations listed above there are a
number of actions within management control to enhance available
liquidity. These include the timing of certain income receipts from
the portfolio and the level and timing of new investments or
realisations.
Having performed the assessment of going concern, the Directors
considered it appropriate to prepare the Financial statements of
the Company on a going concern basis. The Company has sufficient
financial resources and liquidity and is well placed to manage
business risks in the current economic environment and can continue
operations for a period of at least 12 months from the date of
approval of these Financial statements.
Key judgements
The preparation of financial statements in accordance with IFRS
requires the Directors to exercise judgement in the process of
applying the accounting policies defined below. The following
policies are areas where a higher degree of judgement has been
applied in the preparation of the Financial statements.
(i) Assessment as investment entity - Entities that meet the
definition of an investment entity within IFRS 10 are required to
measure their subsidiaries at fair value through profit or loss
rather than consolidate them unless they provided
investment-related services to the Company. To determine that the
Company continues to meet the definition of an investment entity,
the Company is required to satisfy the following three
criteria:
(a) the Company obtains funds from one or more investors for the
purpose of providing those investor(s) with investment management
services;
(b) the Company commits to its investor(s) that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income, or both; and
(c) the Company measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Company meets the criteria as follows:
-- the stated strategy of the Company is to deliver stable
returns to shareholders through a mix of income yield and capital
appreciation;
-- the Company provides investment management services and has
several investors who pool their funds to gain access to
infrastructure-related investment opportunities that they might not
have had access to individually; and
-- the Company has elected to measure and evaluate the
performance of all of its investments on a fair value basis. The
fair value method is used to represent the Company's performance in
its communication to the market, including investor presentations.
In addition, the Company reports fair value information internally
to Directors, who use fair value as the primary measurement
attribute to evaluate performance.
The Directors are of the opinion that the Company has all the
typical characteristics of an investment entity and continues to
meet the definition in the standard. This conclusion will be
reassessed on an annual basis.
(ii) Assessment of investments as structured entities - A
structured entity is an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity. Additional disclosures are required by
IFRS 12 for interests in structured entities, whether they are
consolidated or not. The Directors have assessed whether the
entities in which the Company invests should be classified as
structured entities and have concluded that none of the entities
should be classified as structured entities as voting rights are
the dominant factor in deciding who controls these entities.
(iii) Assessment of consolidation requirements - The Company
holds significant stakes in the majority of its investee companies
and must exercise judgement in the level of control of the
underlying investee company that is obtained in order to assess
whether the Company should be classified as a subsidiary.
The Company must also exercise judgement in whether a subsidiary
provides investment-related services or activities and therefore
should be consolidated or held at fair value through profit or
loss. Further details are shown in significant accounting policy 'A
Classification' below.
During the year, the Company set up three wholly owned
subsidiary entities for the new investment in Future Biogas. The
Directors have assessed whether any of these entities provide
investment-related services and have concluded that they should not
be consolidated and that they should all be held at fair value
through profit or loss.
The adoption of certain accounting policies by the Company also
requires the use of certain critical accounting estimates in
determining the information to be disclosed in the Financial
statements.
Key sources of estimation uncertainties
Valuation of the investment portfolio
The key area where estimates are significant to the Financial
statements and have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year is in the valuation of the investment
portfolio. The portfolio is well-diversified by sector, geography
and underlying risk exposures. The key risks to the portfolio are
discussed in further detail in the Risk report.
The majority of assets in the investment portfolio are valued on
a discounted cash flow basis which requires assumptions to be made
regarding future cash flows, terminal value and the discount rate
to be applied to these cash flows. The methodology for deriving the
fair value of the investment portfolio, including the key
estimates, is set out in the Portfolio valuation methodology
section. Refer to Note 7 for further details of the valuation
techniques, significant inputs to those techniques and sensitivity
of the fair value of these investments to the assumptions that have
been made.
The discount rate applied to the cash flows in each investment
portfolio company is a key source of estimation uncertainty. The
acquisition discount rate is adjusted to reflect changes in
company-specific risks to the deliverability of future cash flows
and is calibrated against secondary market information and other
available data points, including comparable transactions. The
discount rates applied to the investment portfolio at 31 March 2023
range from 10.0% to 13.2% (2022: 10.0% to 13.2%) and the weighted
average discount rate applied to the investment portfolio is 11.3%
(2022: 10.9%). The increase in the year is due to the evolution of
the portfolio mix following the realisation of the European
Projects portfolio and the completion of the GCX and Future Biogas
acquisitions. In the prior year, the Projects portfolio was valued
on a sales basis and was removed from the discount rate range.
The cash flows on which the discounted cash flow valuation is
based are derived from detailed financial models. These incorporate
a number of assumptions with respect to individual portfolio
companies, including: forecast new business wins or new orders;
cost-cutting initiatives; liquidity and timing of debtor payments;
timing of non-committed capital expenditure and construction
activity; the terms of future debt refinancing; and macroeconomic
assumptions such as inflation and energy prices. Future power price
projections are taken from independent forecasters, and changes in
these assumptions will affect the future value of our
energy-generating portfolio companies.
The Summary of portfolio valuation methodology section provides
further details on some of the assumptions that have been made in
deriving a balanced base case of cash flows.
The terminal value attributes a residual value to the portfolio
company at the end of the projected discrete cash flow period based
on market comparables. The terminal value assumptions consider
climate change risk and stranded asset risk. The valuation of each
asset has significant estimation in relation to asset specific
items but there is also consideration given to the impact of wider
megatrends such as the transition to a lower-carbon economy and
climate change.
The effects of climate change, including extreme weather
patterns or rising sea levels in the longer term could impact the
valuation of the assets in the portfolio in different ways. The
Summary of portfolio valuation methodology section earlier in this
document provides further details on some of the assumptions that
have been made in deriving terminal values and some of the risk
factors considered in the cash flow forecasts.
New and amended standards adopted for the current year
Standards and amendments to standards applicable to the Company
that became effective during the year and were adopted by the
Company on 1 April 2022 are listed below:
Amendments to IFRS 17 Insurance contracts (1 January 2023)
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2) (1 January 2023)
Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12) (1 January 2023)
Annual Improvement to IFRS Standards 2018-2020 Cycle -
Amendments to IFRS 1 First-time Adoption of International Financial
Reporting Standards, IFRS 9 Financial Instruments, IFRS 16 Leases
and IAS 41 Agriculture
Amendments to IAS 1 Classification of Liabilities as Current or
Non-current (1 January 2023)
Amendments to IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors (1 January 2023)
Amendments to IAS 16 Property, Plant and Equipment - Proceeds
before Intended Use (1 January 2022)
Amendments to IAS 37 Provisions, Contingent Liabilities and
Contingent Assets - Onerous Contracts (1 January 2022)
Amendments to IFRS 3 Business Combinations (1 January 2022)
Standards and amendments issued but not yet effective
As at 31 March 2023, the following new or amended standards,
which have not been applied in these Financial statements, had been
issued by the International Accounting Standards Board ('IASB') but
are yet to become effective:
Classification of Liabilities as Current or Non-current
(Amendments to IAS 1) (1 January 2024)
Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)
(1 January 2024)
Non-current Liabilities with Covenants (Amendments to IAS 1) (1
January 2024)
The Company intends to adopt these standards when they become
effective, but does not currently anticipate the standards will
have a significant impact on the Company's Financial statements.
Current assumptions regarding the impact of future standards will
remain under consideration in light of interpretation notes as and
when they are issued.
A Classification
(i) Subsidiaries - Subsidiaries are entities controlled by the
Company. Control exists when the Company is exposed, or has rights,
to variable returns from its involvement with the subsidiary entity
and has the ability to affect those returns through its power over
the subsidiary entity. In accordance with the exception under IFRS
10 Consolidated Financial Statements, the Company only consolidates
subsidiaries in the Financial statements if they are deemed to
perform investment-related services and do not meet the definition
of an investment entity. Investments in subsidiaries that do not
meet this definition are accounted for as Investments at fair value
through profit or loss with changes in fair value recognised in the
Statement of comprehensive income in the year. The Directors have
assessed all entities within the structure and concluded that there
are no subsidiaries of the Company that provide investment-related
services or activities.
(ii) Associates - Associates are those entities in which the
Company has significant influence, but not control, over the
financial and operating policies. Investments that are held as part
of the Company's investment portfolio are carried in the Balance
sheet at fair value even though the Company may have significant
influence over those entities.
(iii) Joint ventures - Interests in joint ventures that are held
as part of the Company's investment portfolio are carried in the
Balance sheet at fair value. This treatment is permitted by IFRS 11
and IAS 28, which allows interests held by venture capital
organisations where those investments are designated, upon initial
recognition, as at fair value through profit or loss and accounted
for in accordance with IFRS 9 with changes in fair value recognised
in the Statement of comprehensive income in the year.
B Exchange differences
Transactions entered into by the Company in a currency other
than its functional currency are recorded at the rates ruling when
the transactions occur. Foreign currency monetary assets and
liabilities are translated to the functional currency at the
exchange rate ruling at the balance sheet date.
Foreign exchange differences arising on translation to the
functional currency are recognised in the Statement of
comprehensive income. Foreign exchange differences relating to
investments held at fair value through profit or loss are shown
within the line Net gains on investments. Foreign exchange
differences relating to other assets and liabilities are shown
within the line Exchange movements.
Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated using the
exchange rate at the date of the transactions. Non-monetary assets
and liabilities denominated in foreign currencies that are stated
at fair value are translated to the functional currency using
exchange rates ruling at the date the fair value was determined
with the associated foreign exchange difference being recognised
within the unrealised gain or loss on revaluation of the asset or
liability.
C Investment portfolio
Recognition and measurement - Investments are recognised and
de-recognised on a date where the purchase or sale of an investment
is under a contract whose terms require the delivery or settlement
of the investment.
The Company manages its investments with a view to profiting
from the receipt of investment income and obtaining capital
appreciation from changes in the fair value of investments.
Therefore, all unquoted investments are measured at fair value
through profit or loss upon initial recognition and subsequently
carried in the Balance sheet at fair value, applying the Company's
valuation policy. Acquisition-related costs are accounted for as
expenses when incurred.
Net gains or losses on investments are the movement in the fair
value of investments between the start and end of the accounting
period, or investment disposal date, or the investment acquisition
date and the end of the accounting period, including
divestment-related costs where applicable, converted into sterling
using the exchange rates in force at the end of the period; and are
recognised in the Statement of comprehensive income.
Income
Investment income is that portion of income that is directly
related to the return from individual investments. It is recognised
to the extent that it is probable that there will be an economic
benefit and the income can be reliably measured.
The following specific recognition criteria must be met before
the income is recognised:
-- dividends from equity investments are recognised in the
Statement of comprehensive income when the Company's rights to
receive payment have been established. Special dividends are
credited to capital or revenue according to their
circumstances;
-- interest income from loans that are measured at fair value
through profit or loss is recognised as it accrues by reference to
the principal outstanding and the effective interest rate
applicable, which is the rate that exactly discounts the estimated
future cash flows through the expected life of the financial asset
to the asset's carrying value or principal amount. The remaining
changes in the fair value movement of the loans are recognised
separately in the line Net gains on investments in the Statement of
comprehensive income;
-- distributions from investments in Limited Partnerships are
recognised in the Statement of comprehensive income when the
Company's rights as a Limited Partner to receive payment have been
established; and
-- fees receivable represent amounts earned from investee
companies on completion of underlying investment transactions and
are recognised on an accruals basis once entitlement to the revenue
has been established.
D Fees
(i) Fees - Fees payable represent fees incurred in the process
of acquiring an investment and are measured on the accruals
basis.
(ii) Management fees - A management fee is payable to 3i plc,
calculated as a tiered fee based on the Gross Investment Value of
the Company and is accrued in the period it is incurred. Further
details on how this fee is calculated are provided in Note 18.
(iii) Performance fee - The Investment Manager is entitled to a
performance fee based on the total return generated in the period
in excess of a performance hurdle of 8%. The fee is payable in
three equal annual instalments and is accrued in full in the period
it is incurred. Further details are provided in Note 18.
(iv) Finance costs - Finance costs associated with loans and
borrowings are recognised on an accruals basis using the effective
interest method.
E Treasury assets and liabilities
Short-term treasury assets and short- and long-term treasury
liabilities are used to manage cash flows and the overall costs of
borrowing. Financial assets and liabilities are recognised in the
Balance sheet when the relevant company entity becomes a party to
the contractual provisions of the instrument.
(i) Cash and cash equivalents - Cash and cash equivalents in the
Balance sheet and Cash flow statement comprise cash at bank,
short-term deposits with an original maturity of three months or
less and AAA-rated money market funds. Money market funds are
accounted for at amortised cost under IFRS 9. However, due to their
short-term and liquid nature, this is the same as fair value.
Interest receivable or payable on cash and cash equivalents is
recognised on an accruals basis.
(ii) Bank loans, loan notes and borrowings - Loans and
borrowings are initially recognised at the fair value of the
consideration received, net of issue costs associated with the
borrowings. Where issue costs are incurred in relation to arranging
debt finance facilities these are capitalised and disclosed within
Trade and other receivables and amortised over the life of the
loan.
After initial recognition, loans and borrowings are subsequently
measured at amortised cost using the effective interest method,
which is the rate that exactly discounts the estimated future cash
flows through the expected life of the liabilities. Amortised cost
is calculated by taking into account any issue costs and any
discount or premium on settlement.
(iii) Derivative financial instruments - Derivative financial
instruments are used to manage the risk associated with foreign
currency fluctuations in the valuation of the investment portfolio.
This is achieved by the use of forward foreign currency contracts.
Such instruments are used for the sole purpose of efficient
portfolio management. All derivative financial instruments are held
at fair value through profit or loss.
Derivative financial instruments are recognised initially at
fair value on the contract date and subsequently remeasured to the
fair value at each reporting date. All changes in the fair value of
derivative financial instruments are taken to the Statement of
comprehensive income.
The maturity profile of derivative contracts is measured
relative to the financial contract settlement date of each contract
and the derivative contracts are disclosed in the Financial
statements as either current or non-current accordingly.
F Other assets
Assets, other than those specifically accounted for under a
separate policy, are stated at their consideration receivable less
impairment losses. Such assets are short-term in nature and the
carrying value of these assets is considered to be approximate to
their fair value. Assets are reviewed for recoverability and
impairment using the expected credit loss model simplified
approach. The Company will recognise the asset's lifetime expected
credit losses at each reporting period where applicable in the
Statement of comprehensive income. An impairment loss is reversed
at subsequent financial reporting dates to the extent that the
asset's carrying amount does not exceed its carrying value, had no
impairment been recognised.
Assets with maturities less than 12 months are included in
current assets, assets with maturities greater than 12 months after
the Balance sheet date are classified as non-current assets.
G Other liabilities
Liabilities, other than those specifically accounted for under a
separate policy, are stated based on the amounts which are
considered to be payable in respect of goods or services received
up to the financial reporting date. Such liabilities are short-term
in nature, the carrying value of these liabilities is considered to
be approximate to their fair value.
H Equity and reserves
(i) Share capital - Share capital issued by the Company is
recognised at the fair value of proceeds received and is credited
to the Stated capital account. Direct issue costs net of tax are
deducted from the fair value of the proceeds received.
(ii) Equity and reserves - The Stated capital account of the
Company represents the cumulative proceeds recognised from share
issues or new equity issued on the conversion of warrants made by
the Company net of issue costs and reduced by any amount that has
been transferred to Retained reserves, in accordance with Jersey
Company Law, in previous years. Share capital is treated as an
equity instrument, on the basis that no contractual obligation
exists for the Company to deliver cash or other financial assets to
the holder of the instrument.
On 15 October 2018, the Company became UK tax domiciled and,
with effect from that date, was granted UK approved investment
trust status. Financial statements prepared under IFRS are not
strictly required to apply the provisions of the Statements of
Recommended Practice issued by the UK Association of Investment
Companies for the financial statements of Investment Trust
Companies (the 'AIC SORP'). However, where relevant and
appropriate, the Directors have looked to follow the
recommendations of the SORP. From this date, the retained profits
of the Company have been applied to two new reserves, being the
Capital reserve and the Revenue reserve. These are in addition to
the existing Retained reserves which incorporate the cumulative
retained profits of the Company (after the payment of dividends)
plus any amounts that have been transferred from the Stated capital
account of the Company to 15 October 2018.
The Directors have exercised their judgement in applying the AIC
SORP and a summary of these judgements are as follows:
-- Net gains on investments are applied wholly to the Capital
reserve as they relate to the revaluation or disposal of
investments;
-- Dividends are applied to the Revenue reserve except under
specific circumstances where a dividend arises from a return of
capital or proceeds from a refinancing, when they are applied to
the Capital reserve;
-- Fees payable are applied to the Capital reserve where the
service provided is, in substance, an intrinsic part of an
intention to acquire or dispose of an investment;
-- Movement in the fair value of derivative financial
instruments is applied to the Capital reserve as the derivative
hedging programme is specifically designed to reduce the volatility
of sterling valuations of the non-sterling denominated
investments;
-- Management fees are applied to the Revenue reserve as they
reflect ongoing asset management. Where a transaction fee element
is due on the acquisition of an investment it is applied to the
Capital reserve;
-- Performance fees are applied wholly to the Capital reserve as
they arise mainly from capital returns on the investment
portfolio;
-- Operating costs are applied wholly to the Revenue reserve as
there is no clear connection between the operating expenses of the
Company and the purchase and sale of an investment;
-- Finance costs are applied wholly to the Revenue reserve as
the existing borrowing is not directly linked to an investment;
and
-- Exchange movements are applied to the Revenue reserve where
they relate to exchange on non-portfolio assets.
(iii) Dividends payable - Dividends on ordinary shares are
recognised in the period in which the Company's obligation to make
the dividend payment arises. For the period to 15 October 2018,
dividends were deducted from Retained reserves. For subsequent
periods, dividends are deducted first from the Revenue reserve and
then from the Capital reserve if required.
I Income taxes
Income taxes represent the sum of the tax currently payable,
withholding taxes suffered and deferred tax. Tax is charged or
credited in the Statement of comprehensive income, except where it
relates to items charged or credited directly to equity, in which
case the tax is also dealt with in equity.
The tax currently payable is based on the taxable profit for the
year. This may differ from the profit included in the Statement of
comprehensive income because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible.
To enable the tax charge to be based on the profit for the year,
deferred tax is provided in full on temporary timing differences,
at the rates of tax expected to apply when these differences
crystallise. Deferred tax assets are recognised only to the extent
that it is probable that sufficient taxable profits will be
available against which temporary differences can be set off. In
practice, some assets that are likely to give rise to timing
differences will be treated as capital for tax purposes. Given
capital items are exempt from tax under the Investment Trust
Company rules, deferred tax is not expected to be recognised on
these balances. All deferred tax liabilities are offset against
deferred tax assets, where appropriate, in accordance with the
provisions of IAS 12.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Notes to the accounts
1 Operating segments
The Directors review information on a regular basis that is
analysed by portfolio segment; being Economic infrastructure
businesses, the Projects portfolio and the India Fund. In prior
years they also analysed the portfolio by geography. Since the
India Fund reached the end of its life and moved into liquidation
and because some of the investments such as GCX, TCR, ESVAGT and
Tampnet operate in multiple jurisdictions, this geographic
distinction is no longer relevant and is therefore no longer
reported. These segments are reviewed for the purpose of resource
allocation and the assessment of their performance. In accordance
with IFRS 8, the segmental information provided below uses these
segments for the analysis of results as it is the most closely
aligned with IFRS reporting requirements. The Company is an
investment holding company and does not consider itself to have any
customers.
The following is an analysis of the Company's investment return,
profit before tax, assets, liabilities and net assets by portfolio
segment:
Economic
infrastructure Projects India
businesses portfolio Fund Unallocated1 Total
For the year to 31 March 2023 GBPm GBPm GBPm GBPm GBPm
------------------------------ -------------- --------- ----- ------------ -----
Investment return 492 3 - 2 497
Profit/(loss) before tax 511 2 - (119) 394
------------------------------ -------------- --------- ----- ------------ -----
For the year to 31 March 2022
============================== ============== ========= ===== ============ =====
Investment return 486 18 5 5 514
Profit/(loss) before tax 483 19 5 (103) 404
------------------------------ -------------- --------- ----- ------------ -----
As at 31 March 2023
============================== ============== ========= ===== ============ =====
Assets 3,698 - - 9 3,707
Liabilities (18) - - (588) (606)
------------------------------ -------------- --------- ----- ------------ -----
Net assets/(liabilities) 3,680 - - (579) 3,101
------------------------------ -------------- --------- ----- ------------ -----
As at 31 March 2022
============================== ============== ========= ===== ============ =====
Assets 2,796 105 - 119 3,020
Liabilities (18) (1) - (297) (316)
------------------------------ -------------- --------- ----- ------------ -----
Net assets/(liabilities) 2,778 104 - (178) 2,704
------------------------------ -------------- --------- ----- ------------ -----
1 Unallocated includes cash, management and performance fees payable,
RCF drawn and other payables and receivables (including vendor loan
notes) which are not directly attributable to the investment portfolio.
During the year, the Company generated 99% (2022: 95%) of its
investment return from investments in Economic infrastructure
businesses, 1% (2022: 4%) from investments in Projects and none
(2021: 1%) from its investment in the India Fund. Given the nature
of the Company's operations, the Company is not considered to be
exposed to any operational seasonality or cyclicality that would
impact the financial results of the Company during the year or the
financial position of the Company at 31 March 2023.
2 Management and performance fees payable
Year to Year to
31 March 31 March
2023 2022
GBPm GBPm
----------------- --------- ---------
Management fee 47 43
Performance fee 45 54
----------------- --------- ---------
92 97
----------------- --------- ---------
Total management and performance fees payable by the Company for
the year to 31 March 2023 were GBP92 million (2022: GBP97 million).
Note 18 provides further details on the calculation of the
management fee and performance fee.
3 Operating expenses
Operating expenses include the following amounts:
Year to Year to
31 March 31 March
2023 2022
GBPm GBPm
------------------------------ --------- ---------
Audit fees 0.6 0.6
Directors' fees and expenses 0.5 0.5
------------------------------ --------- ---------
In addition to the fees described above, audit fees of GBP0.05
million (2022: GBP0.05 million) are payable by unconsolidated
subsidiary entities for the year to 31 March 2023 to the Company's
auditor.
Services provided by the Company's auditor
During the year, the Company obtained the following services
from the Company's auditor.
Year to Year to
31 March 31 March
2023 2022
Audit services GBPm GBPm
---------------------------------------------------------------- --------- ---------
Statutory audit1 Company 0.52 0.40
UK and Jersey unconsolidated subsidiaries2 0.05 0.05
0.57 0.45
--------------------------------------------------------------- --------- ---------
1 Amounts exclude VAT.
2 These amounts are payable from unconsolidated subsidiary entities
and do not form part of operating expenses but are included in the
net gains on investments.
Non-audit services
Deloitte LLP and their associates provided non-audit services
for fees totalling GBP95,891 for the year to 31 March 2023 (2022:
GBP104,635). This related to agreed-upon procedures work in respect
of the management and performance fees GBP8,316 (2022: GBP7,560),
agreed-upon procedures work in respect of Sustainability KPIs for
the RCF reporting GBP27,000 (2022: GBP27,000) and the review of the
interim financial statements GBP60,575 (2022: GBP55,575). In line
with the Company's policy, Deloitte LLP provided non-audit services
to certain investee companies. The fees for these services are
ordinarily borne by the underlying investee companies or
unconsolidated subsidiaries, and therefore are not included in the
expenses of the Company. Details on how such non-audit services are
monitored and approved can be found in the Governance section of
the Annual report and accounts 2023.
4 Finance costs
Year to Year to
31 March 31 March
2023 2022
GBPm GBPm
----------------------------------------------------------------------------- --------- ---------
Finance costs associated with the debt facilities 14 3
Professional fees payable associated with the arrangement of debt financing 2 2
----------------------------------------------------------------------------- --------- ---------
16 5
----------------------------------------------------------------------------- --------- ---------
The finance costs associated with the debt facilities have
increased for the year to 31 March 2023 as a result of higher
average drawings, increased SONIA and EURIBOR rates and increases
in the total available facilities. The average monthly drawn
position during the year was GBP368 million (2022: GBP80 million)
and the average monthly total available facilities was GBP562
million (2022: GBP508 million).
5 Movement in the fair value of derivative financial
instruments
Year to Year to
31 March 31 March
2023 2022
GBPm GBPm
------------------------------------------------------------------ --------- ---------
Movement in the fair value of forward foreign exchange contracts 18 (2)
------------------------------------------------------------------ --------- ---------
The movement in the fair value of derivative financial
instruments is included within profit before tax but not included
within investment return.
6 Income taxes
Year to Year to
31 March 31 March
2023 2022
GBPm GBPm
----------------------------------------------------------------- --------- ---------
Current taxes
Current year - -
----------------------------------------------------------------- --------- ---------
Total income tax charge in the Statement of comprehensive income - -
----------------------------------------------------------------- --------- ---------
Reconciliation of income taxes in the Statement of comprehensive
income
The tax charge for the year is different from the standard rate
of corporation tax in the UK, currently 19% (2022: 19%), and the
differences are explained below:
Year to Year to
31 March 31 March
2023 2022
GBPm GBPm
--------------------------------------------------------------------------------------- --------- ---------
Profit before tax 394 404
Profit before tax multiplied by rate of corporation tax in the UK of 19% (2022: 19%) 75 77
Effects of:
Non-taxable capital profits due to UK approved investment trust company status (67) (70)
Non-taxable dividend income - (5)
Dividends designated as interest distributions (9) (3)
Temporary differences on which deferred tax is not recognised 1 1
Total income tax charge in the Statement of comprehensive income - -
--------------------------------------------------------------------------------------- --------- ---------
The Company's affairs are directed so as to allow it to meet the
requisite conditions to continue to operate as an approved
investment trust company for UK tax purposes. The approved
investment trust status allows certain capital profits of the
Company to be exempt from tax in the UK and also permits the
Company to designate the dividends it pays, wholly or partly, as
interest distributions. These features enable approved investment
trust companies to ensure that their investors do not ultimately
suffer double taxation of their investment returns, ie once at the
level of the investment fund vehicle and then again in the hands of
the investors.
Under the UK Finance Act 2021, the UK corporation tax rate will
increase for large companies from the current rate of 19% to 25%
with effect from 1 April 2023. Should the Company recognise any
deferred tax assets and liabilities, a rate of 19% or 25% would be
used depending on when the assets and liabilities are expected to
be crystallised.
7 Investments at fair value through profit or loss and financial
instruments
All financial instruments for which fair value is recognised or
disclosed are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
Level Fair value input description Financial instruments
------- -------------------------------------------------------- ---------------------------------------------------
Level 1 Quoted prices (unadjusted and in active markets) Quoted equity investments
Level 2 Inputs other than quoted prices included in Level 1 that Derivative financial instruments held at fair value
are observable in the market either
directly (ie as prices) or indirectly (ie derived from
prices)
Level 3 Inputs that are not based on observable market data Unquoted investments and unlisted funds
------- -------------------------------------------------------- ---------------------------------------------------
For assets and liabilities that are recognised in the Financial
statements on a recurring basis, the Company determines whether
transfers have occurred between levels in the hierarchy by
reassessing the categorisation (based on the lowest level input
that is significant to the fair value measurement as a whole) for
each reporting period.
The table below shows the classification of financial
instruments held at fair value into the fair value hierarchy at 31
March 2023. For all other assets and liabilities, their carrying
value approximates to fair value. During the year ended 31 March
2023, there were no transfers of financial instruments between
levels of the fair value hierarchy (2022: none).
Trade and other receivables in the Balance sheet includes GBP4
million of deferred finance costs relating to the arrangement fee
for the revolving credit facility and additional facilities (2022:
GBP2 million). This has been excluded from the table below as it is
not categorised as a financial instrument.
Financial instruments classification
As at 31 March 2023
-------------------------------------
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
-------------------------------------------------- --------- -------- -------- ------
Financial assets
Investments at fair value through profit or loss - - 3,641 3,641
Trade and other receivables - - - -
Derivative financial instruments - 57 - 57
-------------------------------------------------- --------- -------- -------- ------
- 57 3,641 3,698
------------------------------------------------------------ -------- -------- ------
Financial liabilities
Derivative financial instruments - (18) - (18)
-------------------------------------------------- --------- -------- -------- ------
- (18) - (18)
------------------------------------------------------------ -------- -------- ------
As at 31 March 2022
-------------------------------------
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
-------------------------------------------------- --------- -------- -------- ------
Financial assets
Investments at fair value through profit or loss - - 2,873 2,873
Trade and other receivables - 102 - 102
Derivative financial instruments - 26 - 26
-------------------------------------------------- --------- -------- -------- ------
- 128 2,873 3,001
------------------------------------------------------------ -------- -------- ------
Financial liabilities
Derivative financial instruments - (18) - (18)
-------------------------------------------------- --------- -------- -------- ------
- (18) - (18)
------------------------------------------------------------ -------- -------- ------
Reconciliation of financial instruments categorised within Level
3 of fair value hierarchy
As at As at
31 March 31 March
2023 2022
Level 3 fair value reconciliation GBPm GBPm
--------------------------------------------------- -------- --------
Opening fair value 2,873 1,804
Additions 824 816
Disposal proceeds and repayment (426) (148)
Movement in accrued income 31 17
Fair value movement (including exchange movements) 339 384
--------------------------------------------------- -------- --------
Closing fair value 3,641 2,873
--------------------------------------------------- -------- --------
The fair value movement (including exchange movements) is equal
to the Net gains on investments showing in the Statement of
comprehensive income. All unrealised movements on investments and
foreign exchange movements are recognised in profit or loss in the
Statement of comprehensive income during the year and are
attributable to investments held at the end of the year.
The holding period of the investments in the portfolio is
expected to be greater than one year. Therefore, investments are
classified as non-current unless there is an agreement to dispose
of the investment within one year and all relevant regulatory or
other third-party approvals have been received. It is not possible
to identify with certainty whether any investments may be sold
within one year.
Investment income of GBP156 million (2022: GBP127 million)
comprises dividend income of GBP1 million (2022: GBP24 million) and
interest of GBP155 million (2022: GBP103 million).
Unquoted investments
The Company invests in private companies which are not quoted on
an active market. These are measured in accordance with the
International Private Equity Valuation guidelines with reference to
the most appropriate information available at the time of
measurement. Further information regarding the valuation of
unquoted investments can be found in the Portfolio valuation
methodology section.
The Company's policy is to fair value both the equity and
shareholder debt investments in infrastructure assets together
where they will be managed and valued as a single investment, were
invested at the same time and cannot be realised separately. The
Directors consider that equity and debt share the same
characteristics and risks and they are therefore treated as a
single unit of account for valuation purposes and a single class
for disclosure purposes. As at 31 March 2023, the fair value of
unquoted investments was GBP3,641 million (2022: GBP2,873 million).
Individual portfolio asset valuations are shown in the Portfolio
summary.
The fair value of the investments is sensitive to changes in the
macroeconomic assumptions used as part of the portfolio valuation
process. As part of its analysis, the Board has considered the
potential impact of a change in a number of the macroeconomic
assumptions used in the valuation process. By considering these
potential scenarios, the Board is well positioned to assess how the
Company is likely to perform if affected by variables and events
that are inherently outside of the control of the Board and the
Investment Manager.
The majority of the assets held within Level 3 are valued on a
discounted cash flow basis, hence the valuations are sensitive to
the discount rate assumed in the valuation of each asset. Other
significant unobservable inputs include the inflation rate
assumption, the interest rates assumption used to project the
future cash flows, and the forecast cash flows themselves. The
sensitivity to the inflation rate and interest rates is described
below and the sensitivity to the forecast cash flows is captured in
the Market risk section in Note 9.
A discussion of discount rates applied can be found in the
Summary of portfolio valuation methodology section. Increasing the
discount rate used in the valuation of each asset by 1% would
reduce the value of the portfolio by GBP296 million (2022: GBP258
million). Decreasing the discount rate used in the valuation of
each asset by 1% would increase the value of the portfolio by
GBP343 million (2022: GBP297 million).
The majority of assets held within Level 3 have revenues that
are linked, partially linked or in some way correlated to
inflation. The long-term CPI inflation rate assumption across all
jurisdictions is 2.0% (2022: 2.0%). The long-term RPI assumption
for the UK is 2.5% (2022: 2.5%). The impact of increasing the
short-term inflation rate assumption by 1% for the next two years
would increase the value of the portfolio by GBP47 million (2022:
GBP43 million). Decreasing the inflation rate assumption used in
the valuation of each asset by 1% for the next two years would
decrease the value of the portfolio by GBP52 million (2022: GBP46
million). The timing and quantum of price increases will vary
across the portfolio and the sensitivity may differ from that
modelled. Changing the inflation rate assumption may result in
consequential changes to other assumptions used in the valuation of
each asset.
The valuations are sensitive to changes in interest rates, which
may result from: (i) unhedged existing borrowings within portfolio
companies; (ii) interest rates on uncommitted future borrowings
assumed within the asset valuations; and (iii) cash deposits held
by portfolio companies. These comprise a wide range of interest
rates from short-term deposit rates to longer-term borrowing rates
across a broad range of debt products. Increasing the cost of
borrowing assumption for unhedged borrowings and any future
uncommitted borrowing and the cash deposit rates used in the
valuation of each asset by 1% would reduce the value of the
portfolio by GBP182 million (2022: GBP158 million). Decreasing the
interest rate assumption for unhedged borrowings used in the
valuation of each asset by 1% would increase the value of the
portfolio by GBP175 million (2022: GBP156 million). This
calculation does not take account of any offsetting variances which
may be expected to prevail if interest rates changed, including the
impact of inflation discussed above.
Over-the-counter derivatives
The Company uses over-the-counter foreign currency derivatives
to hedge foreign currency movements. The derivatives are held at
fair value which represents the price that would be received to
sell or transfer the instruments at the balance sheet date. The
valuation technique incorporates various inputs, including foreign
exchange spot and forward rates, and uses present value
calculations. For these financial instruments, significant inputs
into models are market observable and are included within Level
2.
Valuation process for Level 3 valuations
The valuations on the Balance sheet are the responsibility of
the Board of Directors of the Company. The Investment Manager
provides a valuation of unquoted investments, debt and unlisted
funds held by the Company on a half-yearly basis. This is performed
by the valuation team of the Investment Manager and reviewed by the
valuation committee of the Investment Manager. The valuations are
also subject to quality assurance procedures performed within the
valuation team. The valuation team verifies the major inputs
applied in the latest valuation by agreeing the information in the
valuation computation to relevant documents and market information.
The valuation committee of the Investment Manager considers the
appropriateness of the valuation methods and inputs, and may
request that alternative valuation methods are applied to support
the valuation arising from the method chosen. On a half-yearly
basis, the Investment Manager presents the valuations to the Board.
This includes a discussion of the major assumptions used in the
valuations, with an emphasis on the more significant investments
and investments with significant fair value changes. Any changes in
valuation methods are discussed and agreed with the Audit and Risk
Committee before the valuations on the Balance sheet are approved
by the Board.
8 Trade and other receivables
Year to Year to
31 March 31 March
2023 2022
GBPm GBPm
----------------------------------------- --------- ---------
Current assets
Vendor loan notes - 100
Other receivables including prepayments - 2
Capitalised finance costs 4 2
----------------------------------------- --------- ---------
4 104
----------------------------------------- --------- ---------
9 Financial risk management
A full review of the Company's objectives, policies and
processes for managing and monitoring risk is set out in the Risk
report. This Note provides further detail on financial risk
management, cross-referring to the Risk report where applicable and
providing further quantitative data on specific financial
risks.
Each investment made by the Company is subject to a full risk
assessment through a consistent investment approval process. The
Board's Management Engagement Committee, Audit and Risk Committee
and the Investment Manager's investment process are part of the
overall risk management framework of the Company.
The funding objective of the Company is that each category of
investment ought to be broadly matched with liabilities and
shareholders' funds according to the risk and maturity
characteristics of the assets, and that funding needs are to be met
ahead of planned investment.
Capital structure
The Company has a continuing commitment to capital efficiency.
The capital structure of the Company consists of cash held on
deposit and in AAA-rated money market funds, borrowing facilities
and shareholders' equity. The Company's Articles require its
outstanding borrowings, including any financial guarantees to
support subsequent obligations, to be limited to 50% of the gross
assets of the Company. The type and maturity of the Company's
borrowings are analysed in Note 11 and the Company's equity is
analysed into its various components in the Statement of changes in
equity. Capital is managed so as to maximise the return to
shareholders, while maintaining a strong capital base that ensures
that the Company can operate effectively in the marketplace and
sustain future development of the business. The Board is
responsible for regularly monitoring capital requirements to ensure
that the Company is maintaining sufficient capital to meet its
future investment needs.
The Company is regulated by the Jersey Financial Services
Commission under the provisions of the Collective Investment Funds
(Jersey) Law 1988 as a listed closed-ended collective investment
fund and is not required as a result of such regulation to maintain
a minimum level of capital.
Capital is allocated for investment in infrastructure across the
UK and continental Europe. As set out in the Company's investment
policy, the maximum exposure to any one investment is 25% of gross
assets (including cash holdings) at the time of investment.
Credit risk
The Company is subject to credit risk on the debt component of
its unquoted investments, cash, deposits, derivative contracts and
receivables. The maximum exposure to credit risk as a result of
counterparty default equates to the current carrying value of these
financial assets. Throughout the year and the prior year, the
Company's cash and deposits were held with a variety of
counterparties, principally in AAA-rated money market funds. The
counterparties selected for the derivative financial instruments
were all banks with a minimum of a BBB+ credit rating with at least
one major rating agency.
The credit quality of unquoted investments, which are held at
fair value and include debt and equity elements, is based on the
financial performance of the individual portfolio companies. The
credit risk relating to these assets is based on their enterprise
value and is reflected through fair value movements. This
incorporates the impact from macroeconomic factors such as
inflation and interest rate rises and the volatility in energy
prices. The performance of underlying investments is monitored by
the Board to assess future recoverability.
For those assets and income entitlements that are not past due,
it is believed that the risk of default is small and capital
repayments and interest payments will be made in accordance with
the agreed terms and conditions of the investment. If the portfolio
company has failed and there is no expectation to recover any
residual value from the investment, the Company's policy is to
record an impairment for the full amount of the loan. When the net
present value of the future cash flows predicted to arise from the
asset, discounted using the effective interest rate method, implies
non-recovery of all or part of the Company's investment, a fair
value movement is recorded equal to the valuation shortfall.
As at 31 March 2023, the Company had no loans or receivables or
debt investments considered past due (2022: nil).
The Company actively manages counterparty risk. Counterparty
limits are set and closely monitored by the Board and a regular
review of counterparties is undertaken by the Investment Manager
and reported to the Board. As at 31 March 2023, the Company did not
consider itself to have a significant exposure to any one
counterparty and held deposits and derivative contracts with a
number of different counterparties to reduce counterparty risk
(2022: same).
Due to the size and nature of the investment portfolio there is
the potential for concentration risk. This risk is managed by
diversifying the portfolio by sector and geography.
Liquidity risk
Further information on how liquidity risk is managed is provided
in the Risk report. The table below analyses the maturity of the
Company's contractual liabilities.
Payable Due within Due between Due between
on demand 1 year 1 and 2 years 2 and 5 years Total
2023 GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ---------- ----------- -------------- -------------- ------
Liabilities
Loans and borrowings(1) - (26) (26) (517) (569)
Trade and other payables (4) (35) (33) (15) (87)
Derivative contracts - (4) (6) (8) (18)
Financial commitments(2) - - - - -
------------------------------------------ ---------- ----------- -------------- -------------- ------
Total undiscounted financial liabilities (4) (65) (65) (540) (674)
------------------------------------------ ---------- ----------- -------------- -------------- ------
1 Loans and borrowings relate to undrawn commitment fees and interest
payable on the RCF referred to in Note 11.
2 Financial commitments are described in Note 16 and are not recognised
in the Balance sheet.
Payable Due within Due between Due between
on demand 1 year 1 and 2 years 2 and 5 years Total
2022 GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ---------- ----------- -------------- -------------- ------
Liabilities
Loans and borrowings(1) - (7) (5) (234) (246)
Trade and other payables (4) (26) (20) (18) (68)
Derivative contracts - (12) (3) (3) (18)
Financial commitments(2) (302) - - - (302)
------------------------------------------ ---------- ----------- -------------- -------------- ------
Total undiscounted financial liabilities (306) (45) (28) (255) (634)
------------------------------------------ ---------- ----------- -------------- -------------- ------
1 Loans and borrowings relate to undrawn commitment fees and interest
payable on the RCF and additional facilities referred to in Note
11.
2 Financial commitments are described in Note 16 and are not recognised
in the Balance sheet.
The derivative contracts liability shown is the net cash flow
expected to be paid on settlement. In order to manage the
contractual liquidity risk the Company has free cash and debt
facilities in place.
Market risk
The valuation of the Company's investment portfolio is largely
dependent on the underlying trading performance of the companies
within the portfolio, but the valuation of the portfolio and the
carrying value of other items in the Financial statements can also
be affected by interest rate, currency and market price
fluctuations. The Company's sensitivities to these fluctuations are
set out below.
(i) Interest rate risk
Further information on how interest rate risk is managed is
provided in the Risk report.
An increase of 100 basis points in interest rates over 12 months
(2022: 100 basis points) would lead to an approximate decrease in
net assets and net profit of the Company of GBP5 million (2022:
GBP2 million). This exposure relates principally to changes in
interest payable on the drawn RCF balance at the year end. The
average cash balance of the Company, which is more representative
of the cash balance during the year, was GBP29 million (2022:
GBP269 million) and the weighted-average interest earned was 1.62%
(2022: 0.04%).
In addition, the Company has indirect exposure to interest rates
through changes to the financial performance of portfolio companies
caused by interest rate fluctuations as disclosed in Note 7. This
risk is considered a component of market risk described in section
(iii). The Company does not hold any fixed rate debt investments or
borrowings and is therefore not exposed to fair value interest rate
risk.
(ii) Currency risk
Further information on how currency risk is managed is provided
in the Risk report. The currency denominations of the Company's net
assets are shown in the table below. The sensitivity analysis
demonstrates the exposure of the Company's net assets to movements
in foreign currency exchange rates. The hedging strategy is
discussed in the Financial review.
As at 31 March 2023
---------------------------------------------------------
Sterling(1) Euro NOK DKK US dollar Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------------------------- ------------ ------- ------ ------ ---------- ------
Net assets 506 1,486 293 489 327 3,101
Sensitivity analysis
Assuming a 10% appreciation in sterling against the
euro, NOK, DKK and US dollar exchange
rates:
Impact of exchange movements on net profit and net
assets 159 (135) (27) (44) (30) (77)
-------------------------------------------------------- ------------ ------- ------ ------ ---------- ------
1 Sterling impact relates to the impact of fair value movement in derivatives
held by the Company to hedge foreign currency fluctuations in the
valuation of the investment portfolio. The notional amount of the
derivatives is disclosed in Note 10.
As at 31 March 2022
------------------------------------------------------
Sterling(1) Euro NOK DKK US dollar Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------ ------------ ------ ----- ----- ---------- ------
Net assets 456 1,457 243 548 - 2,704
Sensitivity analysis
Assuming a 10% appreciation in sterling against the euro,
NOK, DKK and US dollar exchange
rates:
Impact of exchange movements on net profit and net assets 139 (132) (22) (50) - (65)
----------------------------------------------------------- ------------ ------ ----- ----- ---------- ------
1 Sterling impact relates to the impact of fair value movement in derivatives
held by the Company to hedge foreign currency fluctuations in the
valuation of the investment portfolio. The notional amount of the
derivatives is disclosed in Note 10.
The impact of an equivalent depreciation in sterling against the
euro, NOK, DKK and US dollar exchange rates has the inverse impact
on net profit and net assets from that shown above. The risk
exposure at the year end is considered to be representative of this
year as a whole.
(iii) Market risk
Further information about the management of external market risk
and its impact on price or valuation, which arises principally from
unquoted investments, is provided in the Risk report. A 10%
increase in the fair value of those investments would have the
following direct impact on net profit and net assets. The impact of
a change in all cash flows has an equivalent impact on the fair
value, as set out below.
As at As at
31 March 31 March
2023 2022
Investments Investments
at fair value at fair value
GBPm GBPm
--------------------------------------- -------------- --------------
Increase in net profit and net assets 364 287
--------------------------------------- -------------- --------------
The impact of a 10% decrease in the fair value of those
investments would have the inverse impact on net profit and net
assets from that shown above. The risk exposure at the year end is
considered to be representative of this year as a whole.
By the nature of the Company's activities, it has large
exposures to individual assets that are susceptible to movements in
price. This risk concentration is managed within the Company's
investment strategy as discussed in the Risk report.
(iv) Fair values
The fair value of the investment portfolio is described in
detail in the Portfolio valuation methodology section and in Note
7. The fair values of the remaining financial assets and
liabilities approximate to their carrying values (2022: same).
The sensitivity analysis in respect of the interest rate,
currency and market price risks is considered to be representative
of the Company's exposure to financial risks throughout the period
to which they relate (2022: same).
10 Derivative financial instruments
As at As at
31 March 31 March
2023 2022
GBPm GBPm
------------------------------------ --------- ---------
Non-current assets
Forward foreign exchange contracts 29 6
Current assets
Forward foreign exchange contracts 28 20
------------------------------------ --------- ---------
Non-current liabilities
Forward foreign exchange contracts (10) (6)
Current liabilities
Forward foreign exchange contracts (8) (12)
------------------------------------ --------- ---------
Forward foreign exchange contracts
The Company uses forward foreign exchange contracts to minimise
the effect of fluctuations in the investment portfolio from
movements in exchange rates and also to fix the value of certain
expected future cash flows arising from distributions made by
investee companies.
The fair value of these contracts is recorded in the Balance
sheet. No contracts are designated as hedging instruments and
consequently all changes in fair value are taken through profit or
loss.
As at 31 March 2023, the notional amount of the forward foreign
exchange contracts held by the Company was GBP1,982 million (2022:
GBP1,555 million).
11 Loans and borrowings
The Company increased the commitments under its revolving credit
facility ('RCF') in July 2022 from GBP700 million to GBP900
million. An additional facility of GBP300 million available at the
beginning of the financial year, with a maturity of less than one
year, was cancelled in July 2022. In September 2022, the maturity
of the RCF was extended to 3 November 2025. The Company has the
right to extend the RCF by a further year provided that existing
lenders consent.
The RCF is secured by a floating charge over the bank accounts
of the Company. Interest is payable at SONIA or EURIBOR plus a
fixed margin on the drawn amount. This fixed margin is subject to a
small adjustment annually based upon performance against agreed
sustainability metrics. As at 31 March 2023, the Company had GBP501
million of drawings under the RCF (March 2022: GBP231 million). The
RCF has one financial covenant, a loan-to-value ratio.
There was no change in total financing liabilities for the
Company during the period as the cash flows relating to the
financing liabilities were equal to the income statement expense.
Accordingly, no reconciliation between the movement in financing
liabilities and the cash flow statement has been presented.
12 Trade and other payables
As at As at
31 March 31 March
2023 2022
GBPm GBPm
--------------------------------- --------- ---------
Non-current liabilities
Performance fee 48 38
Current liabilities
Management and performance fees 37 27
Accruals and other creditors 2 2
--------------------------------- --------- ---------
87 67
--------------------------------- --------- ---------
The carrying value of all liabilities is representative of fair
value (2022: same).
13 Issued capital
As at 31 March 2023 As at 31 March 2022
----------------------------------- ====================== ======================
Number GBPm Number GBPm
----------------------------------- -------------- ------ -------------- ------
Authorised, issued and fully paid
Opening balance 891,434,010 1,496 891,434,010 1,496
Issue of ordinary shares 30,915,990 102 - -
Closing balance 922,350,000 1,598 891,434,010 1,496
----------------------------------- -------------- ------ -------------- ------
Reconciliation to Stated capital account
As at 31 March 2023 As at 31 March 2022
-------------------------------------------------- ------------------- -------------------
GBPm GBPm
-------------------------------------------------- ------------------- ---------------------
Proceeds from issue of ordinary shares 1,598 1,496
Transfer to retained reserves on 20 December 2007 (693) (693)
Cost of issue of ordinary shares (26) (24)
Stated capital account closing balance 879 779
-------------------------------------------------- ------------------- ---------------------
On 14 February 2023, 30.9 million shares were admitted for
trading further to the equity placing at an issue price of 330.0
pence per share or an aggregate amount of GBP102 million. Issue
costs of GBP2 million arising from this offer have been offset
against the stated capital account. Therefore, as at 31 March 2023,
the residual value on the stated capital account was GBP879 million
(2022: GBP779 million).
14 Per share information
The earnings and net asset value per share attributable to the
equity holders of the Company are based on the following data:
Year to Year to
31 March 31 March
2023 2022
-------------------------------------------- --------- ---------
Earnings per share (pence)
Basic and diluted 44.0 45.3
Earnings (GBPm)
Profit after tax for the year 394 404
-------------------------------------------- --------- ---------
Number of shares (million)
Weighted average number of shares in issue 895.2
-------------------------------------------- --------- ---------
Number of shares at the end of the year 922.4 891.4
-------------------------------------------- --------- ---------
As at As at
31 March 31 March
2023 2022
------------------------------ --------- ---------
Net assets per share (pence)
Basic and diluted 336.2 303.3
Net assets (GBPm)
Net assets 3,101 2,704
------------------------------ --------- ---------
15 Dividends
Year to 31 March 2023 Year to 31 March 2022
Declared and paid during the year
--------------------------------------------------- ======================== ========================
Pence per share Pence per
GBPm share GBPm
--------------------------------------------------- ---------------- ------ -------------- --------
Interim dividend paid on ordinary shares 5.575 50 5.225 46
Prior year final dividend paid on ordinary shares 5.225 47 4.900 44
--------------------------------------------------- ---------------- ------ -------------- --------
10.800 97 10.125 90
--------------------------------------------------- ---------------- ------ -------------- --------
The Company proposes paying a final dividend of 5.575 pence per
share (2022: 5.225 pence) which will be payable to those
shareholders that are on the register on 16 June 2023. On the basis
of the shares in issue at year end, this would equate to a total
final dividend of GBP51 million (2022: GBP47 million).
The final dividend is subject to approval by shareholders at the
AGM in July 2023 and has therefore not been accrued in these
Financial statements.
16 Commitments
As at As at
31 March 31 March
2023 2022
GBPm GBPm
---------------------- ---------- ---------
Unquoted investments - 302
---------------------- ---------- ---------
During the year, the Company invested in GCX and, as a result,
the prior year commitment of US$398 million (GBP302 million) was
extinguished.
17 Contingent liabilities
As at 31 March 2023, the Company had no contingent liabilities
(2022: nil).
18 Related parties
Transactions between 3i Infrastructure and 3i Group
3i Group plc ('3i Group') holds 29.2% (2022: 30.2%) of the
ordinary shares of the Company. This classifies 3i Group as a
'substantial shareholder' of the Company as defined by the Listing
Rules. During the year, 3i Group received dividends of GBP29
million (2022: GBP27 million) from the Company.
In 2007 the Company committed US$250 million to the India Fund
to invest in the Indian infrastructure market. 3i Group also
committed US$250 million to the India Fund. The India Fund has
reached the end of its life and moved into liquidation and the
outstanding commitment is no longer callable. Therefore, no
commitments were drawn down by the India Fund from the Company
during the year (2022: nil).
3i Investments plc, a subsidiary of 3i Group, is the Company's
Alternative Investment Fund Manager and provides its services under
an Investment Management Agreement ('IMA'). 3i Investments plc also
acts as the investment manager of the India Fund. 3i plc, another
subsidiary of 3i Group, together with 3i Investments plc, provides
support services to the Company (which are ancillary and related to
the investment management service), which it is doing pursuant to
the terms of the IMA.
Fees under the IMA consist of a tiered management fee and time
weighting of the management fee calculation and a one-off
transaction fee of 1.2% payable in respect of new investments. The
applicable tiered rates are shown in the table below. The
management fee is payable quarterly in advance.
Gross investment value Applicable tier rate
----------------------- --------------------
Up to GBP1.25bn 1.4%
GBP1.25bn to GBP2.25bn 1.3%
Above GBP2.25bn 1.2%
----------------------- --------------------
For the year to 31 March 2023, GBP47 million (2022: GBP43
million) was payable, including one-off transaction fees payable in
respect of new investments, and advance payments of GBP45 million
were made resulting in an amount due to 3i plc of GBP2 million at
31 March 2023 (2022: GBP1 million). In consideration of the
provision of support services under the IMA, the Company pays the
Investment Manager an annual fixed fee. The cost for the support
services incurred for the year to 31 March 2023 was GBP1 million
(2022: GBP1 million). There was no outstanding balance payable as
at 31 March 2023 (2022: nil).
Under the IMA, a performance fee is payable to the Investment
Manager equal to 20% of the Company's total return in excess of 8%,
payable in three equal annual instalments. The second and third
instalments will only be payable if either (a) the Company's
performance in the year in which that instalment is paid also
triggers payment of a performance fee in respect of that year, or
(b) if the Company's performance over the three years starting with
the year in which the performance fee is earned exceeds the 8%
hurdle on an annual basis. There is no high water mark
requirement.
The performance hurdle requirement was exceeded for the year to
31 March 2023 and therefore a performance fee of GBP45 million was
recognised (2022: GBP54 million). The outstanding balance payable
as at 31 March 2023 was GBP83 million (2022: GBP64 million), which
includes the second instalment of the FY22 fee and the third
instalment of the FY21 fee.
Year Performance fee Outstanding balance at Payable in FY24
(GBPm) 31 March (GBPm) (GBPm)
----- --------------- ---------------------- ---------------
FY23 45 45 15
FY22 54 36 18
FY21 7 2 2
--------- --------------- ---------------------- ---------------
Under the IMA, the Investment Manager's appointment may be
terminated by either the Company or the Investment Manager giving
the other not less than 12 months' notice in writing, but subject
to a minimum term of four years from 15 October 2018, unless 3i
Investments plc has previously ceased to be a member of 3i Group,
or with immediate effect by either party giving the other written
notice in the event of insolvency or material or persistent breach
by the other party. The Investment Manager may also terminate the
agreement on two months' notice given within two months of a change
of control of the Company.
Regulatory information relating to fees
3i Investments plc acts as the Alternative Investment Fund
Manager ('AIFM') to the Company. In performing the activities and
functions of the AIFM, the AIFM or another 3i company may pay or
receive fees, commissions or non-monetary benefits to or from third
parties of the following nature:
-- Payments for third-party services: The Company may retain the
services of third-party consultants; typically this is for an
independent director or other investment management specialist
expertise. The amount paid varies in accordance with the nature of
the service and the length of the service period and is usually,
but not always, paid or reimbursed by the portfolio companies. The
payment may involve a flat fee, retainer or success fee. Such
payments, where borne by the Company, are included within Operating
expenses. In some circumstances, the AIFM may retain the services
of third-party consultants which are paid for by the AIFM and not
recharged to the Company.
-- Payments for services from 3i companies: Other 3i companies
may provide investment advisory and other services to the AIFM or
other 3i companies and receive payment for such service.
19 Unconsolidated subsidiaries and related undertakings
Name Place of incorporation and operation Ownership interest
----------------------------------------------------------- ------------------------------------- ------------------
Investment holding companies:
----------------------------------------------------------- ------------------------------------- ------------------
3i Tampnet Holdings Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
3iN Attero Holdco Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
3i Amalthea Topco Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
3i Green Gas Limited (formerly 3i LFG Topco Limited) Jersey 100%
----------------------------------------------------------- ------------------------------------- ------------------
3i Infrastructure (Luxembourg) S.à r.l. Luxembourg 100%
----------------------------------------------------------- ------------------------------------- ------------------
3i Infrastructure (Luxembourg) Holdings S.à r.l. Luxembourg 100%
----------------------------------------------------------- ------------------------------------- ------------------
3i India Infrastructure Fund A LP UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
3i ERRV Denmark Limited (Dissolved in the year) Jersey 100%
----------------------------------------------------------- ------------------------------------- ------------------
ERRV Luxembourg Holdings S.à r.l. (Dissolved in the
year) Luxembourg 100%
----------------------------------------------------------- ------------------------------------- ------------------
DNS:NET Group:
----------------------------------------------------------- ------------------------------------- ------------------
DNS Holdings GmbH Germany 64%
----------------------------------------------------------- ------------------------------------- ------------------
DNS Bidco GmbH Germany 64%
----------------------------------------------------------- ------------------------------------- ------------------
DNS:NET Internet Service GmbH Germany 64%
----------------------------------------------------------- ------------------------------------- ------------------
DNS:NET Netzgesellschaft I Verwalkungs GmbH Germany 64%
----------------------------------------------------------- ------------------------------------- ------------------
DNS:NET Netzgesellschaft I GmbH & Co. KG Germany 64%
----------------------------------------------------------- ------------------------------------- ------------------
DNS:NET Breitband Internet GmbH Germany 64%
----------------------------------------------------------- ------------------------------------- ------------------
Antennen-Schulze GmbH Germany 64%
----------------------------------------------------------- ------------------------------------- ------------------
ESVAGT Group:
----------------------------------------------------------- ------------------------------------- ------------------
ERRV Holdings ApS Denmark 83%
----------------------------------------------------------- ------------------------------------- ------------------
ERRV ApS Denmark 83%
----------------------------------------------------------- ------------------------------------- ------------------
ESVAGT A/S Denmark 83%
----------------------------------------------------------- ------------------------------------- ------------------
ESVAGT Holdings Inc USA 83%
----------------------------------------------------------- ------------------------------------- ------------------
ESVAGT Norge AS Norway 83%
----------------------------------------------------------- ------------------------------------- ------------------
ESVAGT Holdings Ltd UK 83%
----------------------------------------------------------- ------------------------------------- ------------------
ESVAGT UK Ltd UK 83%
----------------------------------------------------------- ------------------------------------- ------------------
Future Biogas Group:
----------------------------------------------------------- ------------------------------------- ------------------
Future Biogas Holdco Limited UK 81%
----------------------------------------------------------- ------------------------------------- ------------------
Future Biogas Midco Limited UK 81%
----------------------------------------------------------- ------------------------------------- ------------------
Future Biogas Bidco Limited UK 81%
----------------------------------------------------------- ------------------------------------- ------------------
Future Biogas Group Limited UK 81%
----------------------------------------------------------- ------------------------------------- ------------------
Future Biogas Limited UK 81%
----------------------------------------------------------- ------------------------------------- ------------------
Future Biogas Systems Limited UK 81%
----------------------------------------------------------- ------------------------------------- ------------------
F3B Limited UK 81%
----------------------------------------------------------- ------------------------------------- ------------------
Moor Bio-Energy Limited UK 81%
----------------------------------------------------------- ------------------------------------- ------------------
Fern Farming Limited UK 81%
----------------------------------------------------------- ------------------------------------- ------------------
FB Feedstocks Limited UK 81%
----------------------------------------------------------- ------------------------------------- ------------------
GCX Group:
----------------------------------------------------------- ------------------------------------- ------------------
GCX Topco Limited UK 98%
----------------------------------------------------------- ------------------------------------- ------------------
GCX Midco Limited UK 98%
----------------------------------------------------------- ------------------------------------- ------------------
GCX Bidco Limited UK 98%
----------------------------------------------------------- ------------------------------------- ------------------
GCX Holdings Limited Bermuda 98%
----------------------------------------------------------- ------------------------------------- ------------------
GCX Global Limited Bermuda 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Limited Bermuda 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Asia Limited Hong Kong 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom UK Limited UK 98%
----------------------------------------------------------- ------------------------------------- ------------------
GCX India Services Limited India 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Atlantic France SAS France 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Deutschland GmbH Germany 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Atlantic UK Limited UK 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Nederland B.V. The Netherlands 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Singapore Pte Limited Singapore 98%
----------------------------------------------------------- ------------------------------------- ------------------
GCXG India Private Limited India 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Taiwan Limited Taiwan 59%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Development Limited Bermuda 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Hellas AE Greece 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Development Services Company LLC Egypt 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Network Services DAC Ireland 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Ireland DAC Ireland 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Ireland Network DAC Ireland 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Network USA Limited USA 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Espana Network SAU Spain 98%
----------------------------------------------------------- ------------------------------------- ------------------
FLAG Telecom Japan Limited Japan 98%
----------------------------------------------------------- ------------------------------------- ------------------
GCX Managed Services Limited Bermuda 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco Group Limited UK 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco UK Limited UK 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco Global Limited UK 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco International Limited UK 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco ROW Limited UK 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco GmbH Germany 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco SAS France 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco (Asia Pacific) Pte Limited Singapore 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco SpZoo Poland 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco NV Belgium 98%
----------------------------------------------------------- ------------------------------------- ------------------
Euronet Spain SA Spain 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco Switzerland A.G. Switzerland 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco Sweden AB Sweden 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco Srl Italy 98%
----------------------------------------------------------- ------------------------------------- ------------------
Net Direct SA (Proprietary) Limited South Africa 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco (Shanghai) Co. Ltd China 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco Japan KK Japan 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco Australasia Pty Limited Australia 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco BV The Netherlands 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco Deutschland GmbH Germany 98%
----------------------------------------------------------- ------------------------------------- ------------------
VNO Direct Limited UK 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco US, LLC USA 98%
----------------------------------------------------------- ------------------------------------- ------------------
Vanco Solutions Inc. USA 98%
----------------------------------------------------------- ------------------------------------- ------------------
Yipes Holdings, Inc. USA 98%
----------------------------------------------------------- ------------------------------------- ------------------
Reliance Globalcom Services Inc. USA 98%
----------------------------------------------------------- ------------------------------------- ------------------
YTV Inc. USA 98%
----------------------------------------------------------- ------------------------------------- ------------------
Infinis Group:
----------------------------------------------------------- ------------------------------------- ------------------
Infinis Energy Group Holdings Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Infinis Energy Management Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Infinis Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Infinis (Re-Gen) Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Novera Energy (Holdings 2) Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Novera Energy Generation No. 1 Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Novera Energy Operating Services Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Gengas Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Bidston Methane Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Novera Energy Generation No. 2 Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Renewable Power Generation Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Novera Energy Generation No. 3 Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Mayton Wood Energy Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Costessey Energy Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Infinis Alternative Energies Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Infinis Energy Services Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Novera Energy Services UK Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Infinis China (Investments) Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Infinis Energy Storage Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Infinis (Shoreside) Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Barbican Holdco Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Barbican Bidco Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Alkane Energy Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Alkane Energy UK Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Seven Star Natural Gas Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Regent Park Energy Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Leven Power Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Rhymney Power Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Alkane Energy CM Holdings Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Alkane Energy CM Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Infinis Solar Holdings Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Infinis Solar Developments Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Durham Solar 1 Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Infinis Solar Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
ND Solar Enterprise Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Aura Power Solar UK6 Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Ionisos Group:
----------------------------------------------------------- ------------------------------------- ------------------
Epione Holdco SAS France 96%
----------------------------------------------------------- ------------------------------------- ------------------
Epione Bidco SAS France 96%
----------------------------------------------------------- ------------------------------------- ------------------
Financière 3TA SAS France 96%
----------------------------------------------------------- ------------------------------------- ------------------
Financière 3TB SAS France 96%
----------------------------------------------------------- ------------------------------------- ------------------
Ionisos Holdco SAS France 96%
----------------------------------------------------------- ------------------------------------- ------------------
Ionisos Bidco SAS France 96%
----------------------------------------------------------- ------------------------------------- ------------------
Ionisos Mutual Services SAS France 96%
----------------------------------------------------------- ------------------------------------- ------------------
Ionisos SAS France 96%
----------------------------------------------------------- ------------------------------------- ------------------
Ionisos GmbH Germany 96%
----------------------------------------------------------- ------------------------------------- ------------------
Ionmed Esterilizacion SA Spain 96%
----------------------------------------------------------- ------------------------------------- ------------------
Scandinavian Clinics Estonia OÜ Estonia 96%
----------------------------------------------------------- ------------------------------------- ------------------
Steril Milano Srl Italy 96%
----------------------------------------------------------- ------------------------------------- ------------------
Joulz Group:
----------------------------------------------------------- ------------------------------------- ------------------
Joulz Holdco B.V. The Netherlands 99%
----------------------------------------------------------- ------------------------------------- ------------------
Joulz Manco B.V. The Netherlands 83%
----------------------------------------------------------- ------------------------------------- ------------------
Joulz Bidco B.V. The Netherlands 99%
----------------------------------------------------------- ------------------------------------- ------------------
Joulz Diensten B.V. The Netherlands 99%
----------------------------------------------------------- ------------------------------------- ------------------
Joulz Meetbedrijf B.V. The Netherlands 99%
----------------------------------------------------------- ------------------------------------- ------------------
Joulz Infradiensten B.V. The Netherlands 99%
----------------------------------------------------------- ------------------------------------- ------------------
Joulz Laadoplossingen B.V. The Netherlands 99%
----------------------------------------------------------- ------------------------------------- ------------------
Zonel Energy Group Holding B.V. The Netherlands 99%
----------------------------------------------------------- ------------------------------------- ------------------
Zonel Energy Systems B.V. The Netherlands 99%
----------------------------------------------------------- ------------------------------------- ------------------
Zonel Energy West B.V. The Netherlands 99%
----------------------------------------------------------- ------------------------------------- ------------------
Zonel Energy Services B.V. The Netherlands 99%
----------------------------------------------------------- ------------------------------------- ------------------
ZonWind Administration and Development Company B.V. The Netherlands 99%
----------------------------------------------------------- ------------------------------------- ------------------
Dutch Durables Energy 2 B.V. The Netherlands 99%
----------------------------------------------------------- ------------------------------------- ------------------
Dutch Durables Energy 5 B.V. The Netherlands 99%
----------------------------------------------------------- ------------------------------------- ------------------
Dutch Durables Energy 6 B.V. The Netherlands 99%
----------------------------------------------------------- ------------------------------------- ------------------
Oystercatcher Group:
----------------------------------------------------------- ------------------------------------- ------------------
Oystercatcher Holdco Limited UK 100%
----------------------------------------------------------- ------------------------------------- ------------------
Oystercatcher Luxco 1 S.à r.l. Luxembourg 100%
----------------------------------------------------------- ------------------------------------- ------------------
Oystercatcher Luxco 2 S.à r.l. Luxembourg 100%
----------------------------------------------------------- ------------------------------------- ------------------
SRL Traffic Systems Group:
----------------------------------------------------------- ------------------------------------- ------------------
Amalthea Holdco Limited UK 92%
----------------------------------------------------------- ------------------------------------- ------------------
Amalthea Midco Limited UK 92%
----------------------------------------------------------- ------------------------------------- ------------------
Amalthea Bidco Limited UK 92%
----------------------------------------------------------- ------------------------------------- ------------------
Jupiter Bidco Limited UK 92%
----------------------------------------------------------- ------------------------------------- ------------------
SRL Traffic Systems Limited UK 92%
----------------------------------------------------------- ------------------------------------- ------------------
SRL GmbH Germany 92%
----------------------------------------------------------- ------------------------------------- ------------------
SRL Traffic Systems Limited Ireland 92%
----------------------------------------------------------- ------------------------------------- ------------------
TCR Group:
----------------------------------------------------------- ------------------------------------- ------------------
3i Envol Limited Jersey 72%
----------------------------------------------------------- ------------------------------------- ------------------
Envol Holdings Limited Jersey 69%
----------------------------------------------------------- ------------------------------------- ------------------
Envol Midco Limited UK 69%
----------------------------------------------------------- ------------------------------------- ------------------
Envol Investments Limited UK 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR Group Shared Services SDN, BHD. Malaysia 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR New Zealand Limited New Zealand 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR APAC (Singapore) Pte Limited Singapore 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR Ground Support Equipment Canada Inc. Canada 69%
----------------------------------------------------------- ------------------------------------- ------------------
DCL Aviation Group Inc. Canada 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR GSE Singapore Pte Limited Singapore 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR AD LLC UAE 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR Middle East LLC Saudi Arabia 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR CapVest S.A. Belgium 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR GSE Australia PLY Limited Australia 69%
----------------------------------------------------------- ------------------------------------- ------------------
EEM Solution PLY Limited Australia 69%
----------------------------------------------------------- ------------------------------------- ------------------
Adaptalift GSE Pty Limited Australia 69%
----------------------------------------------------------- ------------------------------------- ------------------
Adaptalift GSE Singapore Pte Limited Singapore 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR Solution SDN, BHD. Malaysia 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR International USA, Inc. USA 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR Americas LLC USA 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR International N.V. Belgium 69%
----------------------------------------------------------- ------------------------------------- ------------------
Trailer Construction & Repairing Netherland (TCR) B.V. Netherlands 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR Belgium N.V. Belgium 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR France SAS France 69%
----------------------------------------------------------- ------------------------------------- ------------------
Aerobatterie SAS France 69%
----------------------------------------------------------- ------------------------------------- ------------------
Aerolima IMMS Sarl Luxembourg 69%
----------------------------------------------------------- ------------------------------------- ------------------
Aerolima Ing é nerie SAS France 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR UK Limited UK 69%
----------------------------------------------------------- ------------------------------------- ------------------
Technical Maintenance Solutions UK Limited UK 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR-GmbH Trailer, Construction, Repairing and Equipment
Rental Germany 69%
----------------------------------------------------------- ------------------------------------- ------------------
Trailer Construction & Repairing Ireland Limited Ireland 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR Italia S.p.A. Italy 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR Norway AS Norway 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR Sweden AB Sweden 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR Denmark ApS Denmark 69%
----------------------------------------------------------- ------------------------------------- ------------------
TCR Finland OY Finland 69%
----------------------------------------------------------- ------------------------------------- ------------------
Trailer Construction and Repairing Iberica S.A.U. Spain 69%
----------------------------------------------------------- ------------------------------------- ------------------
Dormant entities:
----------------------------------------------------------- ------------------------------------- ------------------
3i WIG Limited Jersey 100%
----------------------------------------------------------- ------------------------------------- ------------------
3i Osprey LP UK 69%
----------------------------------------------------------- ------------------------------------- ------------------
The list above comprises the unconsolidated subsidiary
undertakings of the Company as at 31 March 2023.
There are no current commitments or intentions to provide
financial or other support to any of the unconsolidated
subsidiaries, including commitments or intentions to assist the
subsidiaries in obtaining financial support except for those
disclosed in Note 16 (2022: none). No such financial or other
support was provided during the year (2022: none).
Investment policy (unaudited)
The Company aims to build a diversified portfolio of equity
investments in entities owning infrastructure businesses and
assets. The Company seeks investment opportunities globally, but
with a focus on Europe, North America and Asia.
The Company's equity investments will often comprise share
capital and related shareholder loans (or other financial
instruments that are not shares but that, in combination with
shares, are similar in substance). The Company may also invest in
junior or mezzanine debt in infrastructure businesses or
assets.
Most of the Company's investments are in unquoted companies.
However, the Company may also invest in entities owning
infrastructure businesses and assets whose shares or other
instruments are listed on any stock exchange, irrespective of
whether they cease to be listed after completion of the investment,
if the Directors judge that such an investment is consistent with
the Company's investment objectives.
The Company will, in any case, invest no more than 15% of its
total gross assets in other investment companies or investment
trusts which are listed on the Official List.
The Company may also consider investing in other fund structures
(in the event that it considers, on receipt of advice from the
Investment Manager, that that is the most appropriate and effective
means of investing), which may be advised or managed either by the
Investment Manager or a third party. If the Company invests in
another fund advised or managed by 3i Group, the relevant
proportion of any advisory or management fees payable by the
investee fund to 3i plc will be deducted from the annual management
fee payable under the Investment Management Agreement and the
relevant proportion of any performance fee will be deducted from
the annual performance fee, if payable, under the Investment
Management Agreement.
For the avoidance of doubt, there will be no similar set-off
arrangement where any such fund is advised or managed by a third
party.
For most investments, the Company seeks to obtain representation
on the board of directors of the investee company (or equivalent
governing body) and in cases where it acquires a majority equity
interest in a business, that interest may also be a controlling
interest.
No investment made by the Company will represent more than 25%
of the Company's gross assets, including cash holdings, at the time
of making the investment. It is expected that most individual
investments will exceed GBP50 million. In some cases, the total
amount required for an individual transaction may exceed the
maximum amount that the Company is permitted to commit to a single
investment. In such circumstances, the Company may consider
entering into co-investment arrangements with 3i Group (or other
investors who may also be significant shareholders), pursuant to
which 3i Group and its subsidiaries (or such other investors) may
co-invest on the same financial and economic terms as the Company.
The suitability of any such co-investment arrangements will be
assessed on a transaction-by-transaction basis.
Depending on the size of the relevant investment and the
identity of the relevant co-investor, such a co-investment
arrangement may be subject to the related party transaction
provisions contained in the Listing Rules and may therefore require
shareholder consent.
The Company's Articles require its outstanding borrowings,
including any financial guarantees to support subsequent
obligations, to be limited to 50% of the gross assets of the
Company (valuing investments on the basis included in the Company's
accounts).
In accordance with Listing Rules requirements, the Company will
only make a material change to its investment policy with the
approval of shareholders.
Statement of Directors' responsibilities
In accordance with the FCA's Disclosure Guidance and
Transparency Rules, the Directors confirm to the best of their
knowledge that:
a) the Financial statements, prepared in accordance with
applicable accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company taken as a whole; and
b) the Annual report and accounts include a fair review of the
development and performance of the business and the position of the
Company taken as a whole, together with a description of the
principal risks and uncertainties faced by the Company.
The Directors of the Company and their functions are listed
below. The Directors have acknowledged their responsibilities in
relation to the Financial statements for the year to 31 March
2023.
Richard Laing
Chair
9 May 2023
Board of Directors and their functions
Richard Laing
Non-executive Chair and Chair of the Nominations Committee and
the Management Engagement Committee.
Doug Bannister
Non-executive Director.
Wendy Dorman
Non-executive Director and Chair of the Audit and Risk
Committee.
Stephanie Hazell
Non-executive Director.
Samantha Hoe-Richardson
Non-executive Director.
Ian Lobley
Non-executive Director.
Paul Masterton
Senior Independent Director and Chair of the Remuneration
Committee.
Portfolio valuation methodology (unaudited)
A description of the methodology used to value the investment
portfolio of the Company is set out below in order to provide more
detailed information than is included within the accounting
policies and the Investment Manager's review for the valuation of
the portfolio. The methodology complies in all material aspects
with the International Private Equity and Venture Capital valuation
guidelines which are endorsed by the British Private Equity and
Venture Capital Association and Invest Europe.
Basis of valuation
Investments are reported at the Directors' estimate of fair
value at the reporting date in compliance with IFRS 13 Fair Value
Measurement. Fair value is defined as 'the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date'.
General
In estimating fair value, the Directors seek to use a
methodology that is appropriate in light of the nature, facts and
circumstances of the investment and its materiality in the context
of the overall portfolio. The methodology that is the most
appropriate may consequently include adjustments based on informed
and experience-based judgements, and will also consider the nature
of the industry and market practice. Methodologies are applied
consistently from period to period except where a change would
result in a better estimation of fair value. Given the
uncertainties inherent in estimating fair value, a degree of
caution is applied in exercising judgements and making necessary
estimates.
Investments may include portfolio assets and other net
assets/liabilities balances. The methodology for valuing portfolio
assets is set out below. Any net assets/liabilities within
intermediate holding companies are valued in line with the Company
accounting policy and held at fair value or approximate to fair
value.
Quoted investments
Quoted equity investments are valued at the closing bid price at
the reporting date. In accordance with International Financial
Reporting Standards, no discount is applied for liquidity of the
stock or any dealing restrictions. Quoted debt investments will be
valued using quoted prices provided by third-party broker
information where reliable or will be held at cost less fair value
adjustments.
Unquoted investments
Unquoted investments are valued using one of the following
methodologies:
-- Discounted Cash Flow ('DCF');
-- Proportionate share of net assets;
-- Sales basis; and
-- Cost less any fair value adjustments required.
DCF
DCF is the primary basis for valuation. In using the DCF basis,
fair value is estimated by deriving the present value of the
investment using reasonable assumptions and estimation of expected
future cash flows, including contracted and uncontracted revenues,
expenses, capital expenditure, financing and taxation, and the
terminal value and date, and the appropriate risk-adjusted discount
rate that quantifies the risk inherent to the investment. The
terminal value attributes a residual value to the investee company
at the end of the projected discrete cash flow period. The discount
rate will be estimated for each investment derived from the market
risk-free rate, a risk-adjusted premium and information specific to
the investment or market sector.
Proportionate share of net assets
Where the Company has made investments into other infrastructure
funds, the value of the investment will be derived from the
Company's share of net assets of the fund based on the most recent
reliable financial information available from the fund. Where the
underlying investments within a fund are valued on a DCF basis, the
discount rate applied may be adjusted by the Company to reflect its
assessment of the most appropriate discount rate for the nature of
assets held in the fund. In measuring the fair value, the net asset
value of the fund is adjusted, as necessary, to reflect
restrictions on redemptions, future commitments, illiquid nature of
the investments and other specific factors of the fund.
Sales basis
The expected sale proceeds will be used to assign a fair value
to an asset in cases where offers have been received as part of an
investment sales process. This may either support the value derived
from another methodology or may be used as the primary valuation
basis. A marketability discount is applied to the expected sale
proceeds to derive the valuation where appropriate.
Cost less fair value adjustment
Any investment in a company that has failed or, in the view of
the Board, is expected to fail within the next 12 months, has the
equity shares valued at nil and the fixed income shares and loan
instruments valued at the lower of cost and net recoverable
amount.
Glossary
Alternative Investment Fund ('AIF') 3i Infrastructure plc is an
AIF managed by 3i Investments plc.
Alternative Investment Fund Manager ('AIFM') is the regulated
manager of an AIF. For 3i Infrastructure plc, this is 3i
Investments plc.
Approved Investment Trust Company This is a particular UK tax
status maintained by 3i Infrastructure plc. An approved Investment
Trust company is a UK tax resident company which meets certain
conditions set out in the UK tax rules, which include a requirement
for the company to undertake portfolio investment activity that
aims to spread investment risk and for the company's shares to be
listed on an approved exchange. The 'approved' status for an
investment trust must be agreed by the UK tax authorities and its
benefit is that certain profits of the company, principally its
capital profits, are not taxable in the UK.
Asset IRR refers to the internal rate of return of the existing
and realised portfolio since the inception of the Company. The
asset IRR to 31 March 2023 is 19% (2022: 19%). This calculation
incorporates the cost of each investment, cash income, proceeds on
disposal, capital returns, valuation as at 31 March 2023, including
accrued income and an allocation of foreign exchange hedging.
Association of Investment Companies ('AIC') The Association of
Investment Companies is a UK trade body for closed-ended investment
companies.
Board The Board of Directors of the Company.
Capex refers to capital expenditure which is money a company
uses to acquire, upgrade, and maintain physical assets such as
property, plants, buildings, technology, or equipment. Capex is
often used to undertake new projects or investments by a company
which add some future economic benefit to the operation.
Capital reserve recognises all profits that are capital in
nature or have been allocated to capital. These profits are
distributable by way of a dividend.
Company 3i Infrastructure plc.
Discounting The reduction in present value at a given date of a
future cash transaction at an assumed rate, using a discount factor
reflecting the time value of money.
E-Beam refers to electron beams, a method of sterilisation used
by Ionisos.
EO refers to ethylene oxide, a method of sterilisation used by
Ionisos.
ERRV is an Emergency Rescue and Response Vessel.
ESG refers to environmental, social and governance.
External auditor The independent auditor, Deloitte LLP.
Fair value through profit or loss ('FVTPL') is an IFRS
measurement basis permitted for assets and liabilities which meet
certain criteria. Gains and losses on assets and liabilities
measured as FVTPL are recognised directly in the Statement of
comprehensive income.
FTTC refers to fibre-to-the-cabinet. This describes the
fibre-optic cable in place from the local telephone exchange to a
distribution point, commonly called a roadside cabinet.
FTTH refers to fibre-to-the-home. This describes the fibre-optic
connection to individual homes or buildings.
FY15, FY18, FY19, FY21, FY22, FY23, FY24 refers to the financial
years to 31 March 2015, 31 March 2018, 31 March 2019, 31 March
2021, 31 March 2022, 31 March 2023 and 31 March 2024,
respectively.
Initial Public Offering ('IPO') is the mechanism by which a
company admits its stock to trading on a public stock exchange. 3i
Infrastructure plc completed its IPO in March 2007.
International Financial Reporting Standards ('IFRS') are
accounting standards issued by the International Accounting
Standards Board ('IASB'). The Company's Financial statements are
required to be prepared in accordance with IFRS, as adopted by the
UK.
Investment income is that portion of income that is directly
related to the return from individual investments and is recognised
as it accrues. It is comprised of dividend income, income from
loans and receivables, and fee income. It is recognised to the
extent that it is probable that there will be an economic benefit
and the income can be reliably measured.
IRR refers to the internal rate of retrun and is a metric used
to estimate the profitability of investments.
Key Performance Indicator ('KPI') is a measure by reference to
which the development, performance or position of the Company can
be measured effectively.
Money multiple is calculated as the cumulative distributions or
realisation proceeds plus any residual value divided by invested or
paid-in capital.
Net annualised return is the annualised growth rate in NAV per
share to 31 March 2023, including ordinary and special dividends
paid. The net annualised return since the inception of the Company
to 31 March 2023 was 14% (2022: 14%) and since the change in
strategy in FY16 to 31 March 2023 was 19% (2022: 19%).
Net asset value ('NAV') is a measure of the fair value of all
the Company's assets less liabilities.
Net assets per share ('NAV per share') is the NAV divided by the
total number of shares in issue.
Net gains on investments is the movement in the fair value of
investments between the start and end of the accounting period, or
investment disposal date, or the investment acquisition date and
the end of the accounting period, including divestment related
costs where applicable, converted into sterling using the exchange
rates in force at the end of the period.
Ongoing charges A measure of the annual recurring operating
costs of the Company, expressed as a percentage of average NAV over
the reporting period.
Paris Agreement is an international treaty on climate change,
adopted in 2015
Public Private Partnership ('PPP') is a government service or
private business venture which is funded and operated through a
partnership of government and one or more private sector
companies.
Retained reserves recognise the cumulative profits to 15 October
2018, together with amounts transferred from the Stated capital
account.
Revenue reserve recognises all profits that are revenue in
nature or have been allocated to revenue.
Revolving credit facility ('RCF') A GBP900 million facility
provided by the Company's lenders with a maturity date in November
2025.
SORP means the Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and Venture Capital
Trusts.
SOV is a service operation vessel.
Stated capital account The Stated capital account of the Company
represents the cumulative proceeds recognised from share issues or
new equity issued on the conversion of warrants made by the Company
net of issue costs and reduced by any amount that has been
transferred to Retained reserves, in accordance with Jersey Company
Law, in previous years.
Sustainability KPIs Sustainability metrics in relation to the
sustainability-linked revolving credit facility. The facility
includes targets across ESG themes aligned with our purpose.
TCFD is the Task Force on Climate-related Financial
Disclosures.
Total return measured as a percentage, is calculated against the
opening NAV, net of the final dividend for the previous year, and
adjusted (on a time weighted average basis) to take into account
any equity issued and capital returned in the year.
Total shareholder return ('TSR') is the measure of the overall
return to shareholders and includes the movement in the share price
and any dividends paid, assuming that all dividends are reinvested
on their ex-dividend date.
For further information see our website
www.3i-infrastructure.com
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END
FR FLFIAEDIAIIV
(END) Dow Jones Newswires
May 10, 2023 02:00 ET (06:00 GMT)
3i Infrastructure (LSE:3IN)
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