REG - 3i Infrastructure - Annual results <Origin Href="QuoteRef">3IN.L</Origin> - Part 4

3i InfrastructureAnnouncement

11/05/2017 07:07

- Part 4: For the preceding part double click  ID:nRSK7959Ec 

                                                          
 Assets                         1,659.9         187.5      41.2    20.0         1,905.6  
 Liabilities                    (65.3)          (0.5)      -       (105.2)      (171.0)  
 Net assets                     1,591.6         187.0      41.2    (85.2)       1,734.6  
 As at 31 March 2016                                                                     
 Assets                         1,064.0         173.1      53.2    49.8         1,340.1  
 Liabilities                    (42.4)          (0.4)      -       (20.3)       (63.1)   
 Net assets                     1,021.6         172.7      53.2    29.5         1,277.0  
 
 
The following is an analysis of the Group's investment return, profit before
tax, assets, liabilities and net assets by geography for the year to 31 March
2017: 
 
                                  UK and    Continental                   
                                  Ireland1  Europe2      Asia    Total    
 For the year to 31 March 2017    £m        £m           £m      £m       
 Investment return                79.7      152.3        0.4     232.4    
 Profit/(loss) before tax         50.9      95.0         0.4     146.3    
 For the year to 31 March 2016                                            
 Investment return/(loss)         49.1      206.8        (10.3)  245.6    
 Profit/(loss) before tax         13.1      163.4        (10.3)  166.2    
 As at 31 March 2017                                                      
 Assets                           848.8     1,015.6      41.2    1,905.6  
 Liabilities                      (105.4)   (65.6)       -       (171.0)  
 Net assets                       743.4     950.0        41.2    1,734.6  
 As at 31 March 2016                                                      
 Assets                           562.8     724.1        53.2    1,340.1  
 Liabilities                      (22.8)    (40.3)       -       (63.1)   
 Net assets                       540.0     683.8        53.2    1,277.0  
 
 
 1  Including Channel Islands. All centrally incurred costs have been deemed to be incurred in the UK and Ireland while recognising these costs support       
    allocations across geographies.                                                                                                                           
 2  Continental Europe includes all returns generated from and investment portfolio value relating to the Group's investments in Oiltanking, including those  
    derived from its underlying business in Singapore.                                                                                                        
 
 
The operating segments have been presented to provide additional information
on the portfolio segments as well as the geographical areas in which the Group
operates. Under this presentation, the geographical analysis of assets and
liabilities for March 2016 has been restated mainly to allocate all derivative
instruments against continental Europe to better reflect the purpose of the
hedging programme. 
 
The Group generated 34.3% (2016: 20.0%) of its investment return in the period
from investments held in the UK and Ireland and 65.5% (2016: 84.2%) of its
investment return from investments held in continental Europe. During the
period, the Group generated 91.2% (2016: 99.3%) of its investment return from
investments in Economic Infrastructure businesses, 8.6% (2016: 4.8%) from
investments in Projects and 0.2% (2016: (4.1)%) from its investment in the
India Fund. Given the nature of the Group's operations, the Group is not
considered to be exposed to any operational seasonality or cyclicality that
would impact the financial results of the Group during the period or the
financial position of the Group at 31 March 2017. 
 
2 Advisory and performance fees payable 
 
                                                 Year to   Year to   
                                                 31 March  31 March  
                                                 2017      2016      
                                                 £m        £m        
 Advisory fee payable directly from the Company  19.8      10.8      
 Performance fee                                 3.9       19.5      
                                                 23.7      30.3      
 
 
Total advisory and performance fees payable by the Company for the year to 31
March 2017 were £23.7 million (2016: £30.3 million). In addition to the fees
described above, management fees of £4.5 million (2016: £4.2 million) were
paid to 3i Group plc from unconsolidated subsidiary entities. Note 8 provides
further details on the calculation of the advisory fee, performance fee and
management fees. 
 
3 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 are observable in the market either directly (ie as prices) or indirectly (ie derived from prices)  Derivative financial instruments held at fair value  
 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 Group determines whether transfers have occurred
between levels in the hierarchy by re-assessing the categorisation (based on
the lowest level input that is significant to the fair value measurement as a
whole) for each reporting period. 
 
At 31 March 2017, the Group held the following classes of financial
instruments that are measured at fair value. For all other assets and
liabilities their carrying value approximates to fair value. During the year
ended 31 March 2017, there were no transfers of financial instruments between
levels of the fair value hierarchy (2016: none). 
 
Financial instruments classification 
 
                                                   As at 31 March 2017  
 Level 1                                           Level 2              Level 3  Total    
                                                   £m                   £m       £m       £m       
 Financial assets                                                                                  
 Investments at fair value through profit or loss  -                    -        1,815.6  1,815.6  
 Derivative financial instruments                  -                    5.7      -        5.7      
                                                   -                    5.7      1,815.6  1,821.3  
 Financial liabilities                                                                             
 Derivative financial instruments                  -                    (61.8)   -        (61.8)   
                                                                                                   
 
 
                                                   As at 31 March 2016  
 Level 1                                           Level 2              Level 3  Total    
                                                   £m                   £m       £m       £m       
 Financial assets                                                                                  
 Investments at fair value through profit or loss  -                    -        1,228.8  1,228.8  
 Derivative financial instruments                  -                    10.5     -        10.5     
                                                   -                    10.5     1,228.8  1,239.3  
 Financial liabilities                                                                             
 Derivative financial instruments                  -                    (38.3)   -        (38.3)   
 
 
3 Investments at fair value through profit or loss and financial instruments
continued 
 
Reconciliation of financial instruments categorised within Level 3 of fair
value hierarchy 
 
                                                     As at     
                                                     31 March  
                                                     2017      
 Level 3 fair value reconciliation                   £m        
 Opening fair value                                  1,228.8   
 Additions                                           469.2     
 Disposal proceeds and repayments                    (33.0)    
 Fair value movement (including exchange movements)  150.6     
 Closing fair value                                  1,815.6   
 
 
                                                     As at     
                                                     31 March  
                                                     2016      
 Level 3 fair value reconciliation                   £m        
 Opening fair value                                  1,231.5   
 Additions                                           187.2     
 Disposal proceeds and repayments                    (376.9)   
 Fair value movement (including exchange movements)  187.0     
 Closing fair value                                  1,228.8   
 
 
All unrealised movements on investments and foreign exchange movements are
recognised in profit or loss in the consolidated 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 approvals have been received. It is not possible to
identify with certainty where any investments may be sold within one year. 
 
Unquoted investments 
 
The Group 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 Group's policy is to fair value both the equity and 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. As at 31 March 2017, the fair value of unquoted investments was
£1,788.3 million (2016: £1,203.8 million). Individual portfolio asset
valuations are shown within the Portfolio summary. 
 
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 long-term inflation rate assumption and interest rates assumption used to
project the future cash flows. 
 
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
£167.4 million (2016: £124.7 million). Decreasing the discount rate used in
the valuation of each asset by 1% would increase the value of the portfolio by
£200.1 million (2016: £151.1 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
inflation rate assumptions for the country of domicile of the investments in
the portfolio range from 5.0% (India) (2016: 5.0%) to 2.0% (Finland) (2016:
2.0%) including the UK at 2.5% (UK RPI) (2016: 2.5%). Changing the inflation
rate assumption may result in consequential changes to other assumptions used
in the valuation of each asset. The impact of increasing the inflation rate
assumption by 1% for the next two years would increase the value of the
portfolio by £41.3 million (2016: £29.1 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 £40.9 million (2016: £28.2
million). 
 
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 £111.6 million (2016:
£90.0 million). Decreasing the interest rate assumption used in the valuation
of each asset by 1% would increase the value of the portfolio by £114.0
million (2016: £86.8 million). This calculation does not take account of any
offsetting variances which may be expected to prevail if interest rates
changed, the most significant impact would be in the portfolio assets with
regulated returns where the future allowed return may also be influenced by
the interest rate. 
 
3 Investments at fair value through profit or loss and financial instruments
continued 
 
Unlisted funds 
 
The Company invests in one externally managed fund, The Dalmore Capital Fund,
which is not quoted in an active market. The Company considered the valuation
techniques and inputs used in valuing this fund to ensure they are reasonable
and appropriate and therefore the net asset value ("NAV") of this fund may be
used as an input into measuring its fair value. In measuring this fair value,
the NAV 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 and fund manager. The Company classifies the fair
value of this investment as Level 3. As at 31 March 2017, the fair value of
unlisted funds was £17.6 million (2016: £18.3 million).  The fund NAV reflects
a 31 March 2017 valuation date (2016: 31 March 2016 valuation date). A 10%
adjustment in the fair value of the fund would result in a £1.8 million (2016:
£1.8 million) change in the valuation. 
 
Intermediate holding companies 
 
The Company invests in a number of intermediate holding companies that are
used to hold the unquoted investments, valued as referred to above. All other
assets and liabilities of the intermediate holding companies are held either
at fair value or a reasonable approximation to fair value. The fair value of
these intermediate holding companies therefore approximates to their NAV and
the Company classifies the fair value as Level 3. As at 31 March 2017, the
fair value of the other assets and liabilities within these intermediate
holding companies was £9.7 million (2016: £6.7 million). 
 
Over-the-counter derivatives 
 
The Company uses over-the-counter foreign currency derivatives and interest
rate swaps to hedge foreign currency movements and interest rates
respectively. The derivatives are held at fair value which represents the
replacement cost of the instruments at the balance sheet date. The valuation
technique incorporates various inputs including foreign exchange spot and
forward rates, interest rate curves, 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 
 
Valuations are the responsibility of the Board of Directors of the Company.
The valuation of unquoted investments, debt and unlisted funds held by the
Group is performed on a half-yearly basis by the valuation team of the
Investment Adviser and reviewed by the Investment Committee of the Investment
Adviser. 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. On a
half-yearly basis, the Investment Committee 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. The Investment Committee
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. Any changes in valuation methods are
discussed and agreed with the Audit and Risk Committee before being approved
by the Board. 
 
4 Issued capital 
 
                                           As at 31 March 2017  As at 31 March 2016  
 Number                                    £m                   Number               £m            
 Issued and fully paid                                                                                    
 Opening balance                           793,216,413          887.8                881,351,570   887.8  
 Issued as part of open offer and placing  233,333,333          385.0                -             -      
 Share consolidation                       -                    -                    (88,135,157)  -      
 Closing balance                           1,026,549,746        1,272.8              793,216,413   887.8  
 
 
Aggregate issue costs of £13.1 million arising from IPO and subsequent share
issues were offset against the stated capital account in previous years. In
addition, the stated capital account was reduced by Court order on 20 December
2007 with an amount of £693.1 million transferred to a new, distributable
reserve which has been combined with retained reserves in these accounts. 
 
On 10 June 2016, 233.3 million shares were admitted for trading further to the
offer and placing at an issue price of 165.0 pence per share or an aggregate
amount of £385.0 million. Issue costs of £6.2 million arising from this offer
have been offset against the stated capital account. Therefore, as at 31 March
2017, the residual value on the stated capital account was £560.4 million. 
 
In the prior year, a share consolidation took place, which was set at a ratio
of nine new ordinary shares for every 10 existing shares. The share
consolidation ratio was based on a share price of 168.8 pence per share,
equivalent to approximately 10% of the market capitalisation of the Company at
that time. 
 
5 Per share information 
 
The earnings and net assets per share attributable to the equity holders of
the Company are based on the following data: 
 
                                             Year to   Year to   
                                             31 March  31 March  
                                             2017      2016      
 Earnings per share (pence)                                      
 Basic and diluted                           14.9      20.3      
 Earnings (£m)                                                   
 Profit after tax for the year               146.3     166.2     
 Number of shares (million)                                      
 Weighted average number of shares in issue  981.2     816.8     
 
 
                               As at     As at     
                               31 March  31 March  
                               2017      2016      
 Net assets per share (pence)                      
 Basic and diluted             169.0     161.0     
 Net assets (£m)                                   
 Net assets                    1,734.6   1,277.0   
 
 
6 Dividends 
 
 Declared and paid during the year                  Year to 31 March 2017  Year to 31 March 2016  
 Pence per share                                    £m                     Pence per share        £m      
 Special dividend paid on ordinary shares           -                      -                      17.000  149.8  
 Interim dividend paid on ordinary shares           3.775                  38.8                   3.625   28.8   
 Prior year final dividend paid on ordinary shares  3.625                  28.7                   3.620   31.9   
                                                    7.400                  67.5                   24.245  210.5  
 
 
The Company proposes paying a final dividend of 3.775 pence per share (2016:
3.625 pence) which will be payable to those shareholders that are on the
register on 16 June 2017. On the basis of the shares in issue at year end,
this would equate to a total final dividend of £38.8 million (2016: £28.8
million). 
 
The final dividend is subject to approval by shareholders at the AGM in July
2017. 
 
7 Contingent liabilities 
 
As at 31 March 2017, the Company had issued E35.5 million (£30.3 million)
(2016: E29.7 million, £23.4 million) in the form of Letters of Credit, drawn
against the Revolving Credit Facility, for the investments into the A27/A1,
RIVM, La Santé, Hart van Zuid and Condorcet PPP projects. During the year the
Letter of Credit relating to the A12 project was cancelled following the
investment in the project. 
 
8 Related parties 
 
Transactions between 3i Infrastructure and 3i Group 
 
3i Group plc ("3i Group") holds 33.8% (2016: 34.0%) of the ordinary shares of
the Company. This classifies 3i Group as a "substantial shareholder" of the
Company as defined by the Listing Rules. 
 
The Group has committed US$250 million to the 3i India Infrastructure Fund
("the India Fund") to invest in the Indian infrastructure market. 3i Group has
also committed US$250 million of investment capital to the India Fund. No
commitments (2016: nil) were drawn down by the India Fund from the Company
during the year. In total, commitments of US$183.7 million or £146.8 million
re-translated (2016: US$183.7 million or £127.6 million) had been drawn down
at 31 March 2017 by the India Fund from the Company. As the India Fund has
reached the end of its investment period, the Company's outstanding commitment
to the India Fund is limited to 15% of the original US$250 million commitment.
At 31 March 2017, the outstanding commitment was US$37.5 million, or £30.0
million re-translated (2016: US$37.5 million or £26.1 million). 
 
3i Networks Finland Limited, a subsidiary of 3i Group, receives a priority
profit share from 3i Networks Finland LP, an unconsolidated subsidiary of the
Company. During the year, £2.2 million (2016: £2.0 million) was payable
directly to 3i Group, of which the Company's share was £1.9 million (2016:
£1.7 million) and which was therefore offset against the total advisory fee
payable by the Company. As at 31 March 2017, nil remained outstanding (2016:
nil). 
 
3i Osprey GP Limited, a subsidiary of 3i Group, receives a priority profit
share from 3i Osprey LP, an unconsolidated subsidiary of the Company. During
the year, £3.8 million (2016: £3.7 million) was payable directly to 3i Group,
of which the Company's share was £2.6 million (2016: £2.5 million) and which
was therefore offset against the total advisory fee payable by the Company. As
at 31 March 2017, £0.3 million remained outstanding (2016: £0.3 million). 
 
3i Investments plc, a subsidiary of 3i Group, acts as the exclusive Investment
Adviser to the Company and provides its services under an Investment Advisory
Agreement ("IAA"). It also acts as the manager for the India Fund. 3i plc,
another subsidiary of 3i Group, together with 3i Investments plc, provides
support services to the Company. 
 
Under the IAA, an annual advisory fee is payable to 3i plc based on the Gross
Investment Value of the Company at the end of each financial period. Gross
Investment Value is defined as the total aggregate value (including any
subscription obligations) of the investments of the Group as at the start of a
financial period plus any investment (excluding cash) made during the period
valued at cost (including any subscription obligations). The applicable annual
rate is 1.5%, dropping to an annual rate of 1.25% for investments that have
been held by the Group for longer than five years. A lower fee of 1% per annum
is applicable for any investments in greenfield projects. The advisory fee
accrues throughout a financial period and quarterly instalments are payable on
account of the advisory fee for that period. The advisory fee is not payable
in respect of cash or cash equivalent liquid temporary investments held by the
Group throughout a financial period. For the year to 31 March 2017, £24.3
million (2016: £15.0 million) was payable and nil remained due to 3i plc at 31
March 2017 (2016: £0.8 million). This amount includes fees of £4.5 million
(2016: £4.2 million) which were paid directly from unconsolidated subsidiary
entities to 3i plc. 
 
The IAA also provides for an annual performance fee to be payable to 3i plc.
This becomes payable when the Adjusted Total Return per ordinary share (being
mainly closing Net Asset Value per share aggregated with any distributions
made in the course of the financial period and any accrued performance fees
relating to the financial period) for the period exceeds the Target Total
Return per share, being the Net Asset Value per ordinary share equal to the
opening Net Asset Value per ordinary share increased at a rate of 8% per annum
("the performance hurdle"). If the performance hurdle is exceeded, the
performance fee will be equal to 20% of the Adjusted Total Return per share in
excess of the performance hurdle for the relevant financial period, multiplied
by the weighted average of the total number of shares in issue over the
relevant financial period. In addition, the performance fee includes a high
watermark requirement so that, before payment of a performance fee, besides
the 8% performance hurdle, the return must also exceed the performance level
in respect of which any performance fee has been paid in the previous three
financial years. The performance hurdle and high watermark requirement was
exceeded for the year to 31 March 2017 and a performance fee of £3.9 million
(2016: £19.5 million) has been accrued and £3.9 million remained due to 3i plc
(2016: £19.5 million). 
 
Under the IAA, the Investment Adviser's appointment may be terminated by
either the Company or the Investment Adviser giving the other not less than 12
months' notice in writing, to expire no earlier than 8 May 2019, 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 Adviser may also terminate the agreement on two months' notice
given within two months of a change of control of the Company. 
 
Pursuant to the UK Support Services Agreement, the Company also pays 3i plc an
annual fee for the provision of support services. Such remuneration is payable
quarterly in arrears. The cost incurred for the year to 31 March 2017 was £0.8
million (2016: £0.8 million). The outstanding balance payable as at 31 March
2017 was £0.2 million (2016: £0.2 million). 
 
Investment policy 
 
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 Adviser, that that
is the most appropriate and effective means of investing), which may be
advised or managed either by the Investment Adviser 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 advisory fee payable under the
Investment Advisory Agreement and the relevant proportion of any performance
fee will be deducted from the annual performance fee, if payable, under the
Investment Advisory 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 £50
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 and would
be subject to Board approval. 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 Group (valuing investments on the basis included in
the Group'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 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 Group 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 Group 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 2017. 
 
Board of Directors and their functions 
 
Richard Laing 
 
Non-executive Chairman and chairman of the Management Engagement Committee and
of the Nomination Committee. 
 
Doug Bannister 
 
Non-executive Director. 
 
Wendy Dorman 
 
Non-executive Director. 
 
Ian Lobley 
 
Non-executive Director. 
 
Paul Masterton 
 
Non-executive Director and Chairman of the Remuneration Committee. 
 
Steven Wilderspin 
 
Non-executive Director and chairman of the Audit and Risk Committee. 
 
Portfolio valuation methodology 
 
A description of the methodology used to value the investment portfolio of 3i
Infrastructure and its consolidated subsidiary ("the Group") is set out below
in order to provide more detailed information than is included within the
accounting policies and the Investment Adviser'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 (formerly the European Private Equity and Venture Capital
Association). 
 
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 judgments, 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 judgments 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 Group 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 
 
·     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 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 Group has made investments into other infrastructure funds, the
value of the investment will be derived from the Group'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. 
 
This information is provided by RNS
The company news service from the London Stock Exchange