REG - 3i Infrastructure - Half-year Report
07/11/2023 07:00
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RNS Number : 5551S 3i Infrastructure PLC 07 November 2023
7 November 2023
Results for the six months to 30 September 2023
The portfolio continues to generate attractive value growth, outperforming 3i
Infrastructure's target return of 8-10% per annum. We are on track to deliver
the FY24 dividend target of 11.90 pence per share, which is 6.7% higher than
the previous year and expected to be fully covered by net income.
Performance highlights
Continued growth in NAV, driven by our largest assets
£191m 6.3%
Total return for the period Total return on opening
(September 2022: £247m) net asset value ('NAV') (September 2022: 9.3%)
£3,241m 351.4p
NAV (31 March 2023: £3,101m) NAV per share
(31 March 2023: 336.2p)
Good level of income and non-income cash to support the dividend
£104m
Total income and
non-income cash
(September 2022: £98m)
On track to deliver the FY24 dividend target, 6.7% higher
5.95p than FY23
Interim dividend per share
(FY23 interim dividend:
5.575p per share)
Value uplift achieved on sale of Attero
c.31%
Increase based on agreed EUR sales proceeds for Attero versus March 2023
valuation
Richard Laing, Chair of 3i Infrastructure plc ('3i Infrastructure', '3iN' or
the 'Company')
"The portfolio continues to outperform with strong value growth in real terms,
driven by our largest assets. We are on track to deliver our FY24 dividend
target, which is a 6.7% increase on last year's dividend."
Performance
The Company generated a total return of 6.3% on opening NAV for the first half
of the year, ahead of our target return of 8% to 10% per annum. The NAV per
share increased to 351.4 pence. The portfolio overall is performing robustly
and ahead of expectations. During the period, we were pleased to agree the
sale of Attero at a c.31% uplift to our March 2023 valuation, demonstrating
the resilient demand from private market investors for our high-quality
infrastructure investments.
Interim dividend
The Board is announcing an interim dividend of 5.95 pence per share, scheduled
to be paid on 11 January 2024 to holders of ordinary shares on the register on
24 November 2023. The ex-dividend date will be 23 November 2023. As an
investment trust, the Company is permitted to designate dividends wholly or
partly as interest distributions for UK tax purposes. The Board is designating
5.65 pence of the 5.95 pence interim dividend as an interest distribution.
Corporate governance
The Company's Annual General Meeting ('AGM') was held on 6 July 2023. All
resolutions were approved by shareholders, including the re-election of the
existing Directors to the Board. There have been a number of changes to the
Board since the AGM. Paul Masterton served on the Board until 20 July 2023 and
Martin Magee was appointed as a non-executive Director on the same date. I
would like to express my gratitude to Paul for his valuable contribution over
the past 10 years as Senior Independent Director and welcome Martin to the
Board. Martin, a Jersey resident, brings relevant experience in the
infrastructure sector from his previous roles at Jersey Electricity plc and
Scottish Power plc. Stephanie Hazell has been appointed as the Senior
Independent Director, replacing Paul.
Also on 20 July, Ian Lobley stepped down from the Board after nine years'
service. I would also like to thank Ian for his valuable contribution. Ian was
replaced by Jennifer Dunstan as the 3i Group plc nominated Director of the
Company.
Both Jennifer and Martin will stand for election at the Company's AGM in July
2024.
Richard Laing
Chair
For further information, please contact:
Thomas Fodor, investor enquiries Tel: 020 7975 3469
Kathryn van der Kroft, press enquiries Tel: 020 7975 3021
Notes
This report contains Alternative Performance Measures ('APMs'), which are
financial measures not defined in International Financial Reporting Standards
('IFRS'). These include Total return on opening NAV, NAV per share, Total
income and non-income cash, Investment value including commitments, Total
portfolio return percentage and Total liquidity. More information relating to
APMs, including why we use them and the relevant definitions, can be found in
the Financial review section and in the Company's Annual report and accounts
2023. The Total return for the period is the total comprehensive income for
the period under IFRS.
For further information regarding the announcement of the results for 3i
Infrastructure plc, please visit www.3i-infrastructure.com. The analyst
presentation will be made available on this website.
Notes to editors
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 to 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 Half-yearly report 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 may be influenced by
factors that could cause actual outcomes and results to be materially
different.
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.
3i Infrastructure plc Half-yearly report 2023
Review from the Managing Partners
3i Infrastructure's portfolio once again exceeded its target return during the
period, further demonstrating its quality and resilience. The portfolio is
structurally positioned to deliver growth in real terms throughout the
economic cycle.
The c.31% value uplift achieved by the Attero exit illustrates the robust
demand for high-quality, core-plus infrastructure companies amongst private
market investors. It also extends our realised investment track record to a
weighted average IRR of 21% since 3i Infrastructure's inception in 2007. This
is truly exceptional performance.
We are encouraged by the strength in earnings growth across the portfolio,
particularly evident in our larger companies, which we expect will continue to
benefit from the structural tailwinds underpinning the original investment
theses.
We continue to work closely with our portfolio company management teams to
maximise value creation throughout our ownership. This includes defining
strategy, supporting M&A activity, capital structuring, identifying and
executing further growth investments, and ultimately preparing and leading
exit processes.
The value of our active management approach is apparent across our portfolio.
We see evidence in the strength of the earnings our companies are achieving,
in the quality and motivation of our management teams, in the outcomes we have
achieved on exits such as Attero and also in our portfolio company debt
management activities. Our portfolio has no material near-term refinancing
exposure because we proactively secured long duration debt structures whilst
interest rates were at historical lows.
The portfolio also continues to demonstrate real return protection through its
positive value correlation to inflation.
Fixed interest products are now offering their highest returns for the last 15
years, driving a rebalancing of investors' portfolio weightings. In our view,
3i Infrastructure's core-plus portfolio displays an attractive return premium
to fixed income products, which is typically not evident in PPP/PFI
concessions or core infrastructure. 3iN's return profile continues to be
attractive and relevant, even in a changing market environment.
During the period, we extended the maturity of the Company's £900 million
Revolving Credit Facility ('RCF') by an additional 12 months, to November
2026, providing further flexibility for us to manage investment and divestment
activity.
Proceeds from the Attero sale will be applied to reduce the outstanding RCF
balance.
Portfolio review
TCR delivered another strong performance in the period, delivering impressive
earnings growth and further demonstrating the accelerating demand for its
full-service rental model globally. A number of new contracts were won in the
period across multiple locations throughout Europe, the US and Australia. We
expect that TCR is well positioned to grow organically with its existing
clients as well as increasing both the number of airports at which it operates
as well as the market penetration of its full service rental offering,
propelled by the clear need for fleet renewal investment required to
decarbonise ground support equipment.
ESVAGT had a good first half, driven by increasing day rates and high levels
of vessel utilisation. ESVAGT is the clear market leader in European offshore
wind Service Operation Vessel ('SOV') provision, with nine vessels currently
in operation. A further three SOVs are under construction, each being built to
service long-term charter agreements. All are progressing to plan. Whilst we
note recent unit price pressure impacting certain high profile wind farm
developments, the near-term pipeline for new SOVs in the North Sea and USA
remains strong, driven by government targets and an increasing focus on energy
security.
Infinis's landfill gas generation assets continued to perform ahead of
expectations, offsetting the lower volatility in power prices which reduced
demand for its power response assets. The company continues to make
significant progress in developing its 1.6GW solar and battery pipeline.
Tampnet had a very strong first half, exceeding EBITDA targets. The importance
of Tampnet's infrastructure to its customers' operations is evident in growing
average revenue per customer, as well as increasing interest in its private
network solution. The scale of the carbon capture and offshore wind
opportunities is also emerging. Tampnet's infrastructure and expertise are
likely to be important facilitators of the energy transition offshore. We are
working closely with the management team to define and scope the potential
opportunity and design the appropriate strategy.
Joulz continues to benefit from the attractive combination of its
inflation-linked long-term contracts, as well as fast moving Dutch energy
transition ambitions. The new CEO joined in March and is actively focused on
further expanding Joulz's product offering. During the period, a highly
comparable peer to Joulz was sold at an attractive valuation, providing
further evidence of the strong appetite from private infrastructure investors
for comparable energy transition platforms.
Ionisos's valuation progressed in line with expectations in the period. Lower
Covid-related bio-processing volumes and reduced demand in markets linked to
the construction industry were offset by receipt of a one-off insurance
payment in settlement of issues previously reported at its discontinued
Italian subsidiary. The acquisition of an E-Beam plant in Daniken,
Switzerland, completed in June and current trading at that facility is ahead
of expectations. During the period, Ionisos received permits to build a new
X-ray greenfield facility in North East France. This will enlarge Ionisos's
sterilisation offering and support its customers' growth ambitions in the
medical and pharmaceutical market. In support of these investments, during the
period Ionisos completed a €60 million debt raise, accompanied by a further
€5 million equity investment from 3i Infrastructure.
Oystercatcher's financial performance was in line with expectations during the
period. Its Singapore storage facilities continued to operate at capacity and
with slightly improved rates, despite the continued backwardation market
structure for petroleum products. The project to convert gasoline tanks to
sustainable aviation fuel completed on time and on budget and now represents
7% of total storage capacity. Management has been exploring the potential to
increase the proportion of sustainable fuels. A new contract to store
sustainable marine fuel oil in the terminal's fuel oil tanks was signed during
the period, with premium rates to those achieved on non-sustainable fuel
products. The financing assumptions in our valuation have been updated to
reflect increasing debt costs within the oil storage sector.
SRL performed well in the period, with revenues and utilisation levels ahead
of expectations. Management is seeking to expand its offering in underserved
regions of the UK and is working with contractors on products to improve
health and safety performance on large capital projects.
DNS:NET has made progress on the rollout of its fibre-to-the-home ('FTTH')
network in the Berlin area. 3iN invested a further €24 million in the period
to part-fund the ongoing rollout. The company, like many others rolling out
FTTH networks in Germany, is still experiencing delays in connecting and
activating customers, which, in turn, has negatively impacted the availability
and cost of debt. To reflect the uncertainties in access to capital markets
and the rollout delivery, we have increased the discount rate, leading to the
valuation reduction reported. The Investment Manager has dedicated material
time embedding resources in the company, instigating significant
organisational change and improving management capabilities. We have appointed
a new CEO, with the requisite experience to deliver the network rollout.
Valorem performed well in the first half of the year, with revenues from
electricity generation and growth in installed capacity both ahead of plan.
French wind auction tariffs have continued to increase in the last 12 months,
reflecting increases in the cost of equipment and interest rates. To help fund
its value accretive development pipeline, Valorem successfully raised a €75
million Green Euro bond private placement and is finalising the sale of a
minority stake in a subset of its French operational portfolio at attractive
terms, despite the current volatile market environment.
GCX is experiencing growing bandwidth capacity demand whilst achieving cost
savings, which we anticipate will result in margin improvements. The business
is growing its recurring, leased-bandwidth revenue contribution, partially as
a result of increasing adoption of Artificial Intelligence applications and
multi-billion investments in capacity and route diversification by the
hyperscalers. GCX continues to explore a number of attractive growth
opportunities which would enhance the value of its existing network.
Future Biogas has performed ahead of our expectations since our acquisition in
February 2023, driven by the outperformance of its managed plant portfolio.
During the period, the company signed a new gas supply agreement for
unsubsidised green gas with AstraZeneca ('AZ'). To deliver this green gas a
new plant will be constructed. 3iN invested a further £35 million to fund the
construction of the plant which will supply 100 GWh of biomethane to AZ's UK
sites and will be the UK's first unsubsidised Anaerobic Digestion ('AD')
plant. The AZ contract is an important milestone in delivering the investment
thesis of transitioning Future Biogas from a manager of third-party biogas
plants into an owner and operator. A growing list of viable sites is being
targeted for the construction of new AD plants and interest from high-quality
corporate counterparties to partner with Future Biogas is highly encouraging.
On 24 July 2023, the Company signed an agreement to sell Attero to Ardian
Infrastructure. Expected net proceeds from the sale are approximately €215
million, representing an uplift of €51 million on the value at 31 March
2023. This results in a 23% gross IRR and a 2.7x gross money multiple for the
Company. Completion is expected by
30 November 2023.
The portfolio is analysed below.
Portfolio - Breakdown by value
at 30 September 2023
TCR 15%
ESVAGT 13%
Infinis 11%
GCX 9%
Tampnet 9%
Ionisos 8%
Joulz 7%
Oystercatcher 6%
SRL 6%
Valorem 5%
Attero 5%
DNS:NET 4%
Future Biogas 2%
Sustainability
We continue to actively engage with our portfolio companies on Environmental,
Social and Governance matters, notably on the topics of climate change,
occupational health and safety, and diversity, equity and inclusion.
In particular, we are working closely with our portfolio companies to support
their efforts in developing carbon emission reduction strategies and roadmaps
that are aligned with the ambition of the Science Based Targets initiative
('SBTi'). The Investment Manager wrote to SBTi in April 2023 to commit to set
science-based targets and is working to formulate these. It will report using
the TCFD framework by the 2024 deadline set by the FCA for asset managers such
as 3i.
Outlook
We continue to focus our asset management activities on ensuring we maximise
returns from 3iN's existing portfolio. In practice, that means supporting our
portfolio companies to continue to deliver earnings growth, combined with
occasional, well-managed exits.
This strategy is well-proven.
We expect earnings growth to be underpinned by the structural megatrends we
identified as part of our original investment cases, supplemented by capex
reinvestment at rates of return that we forecast will be accretive. This
growth capex is predominantly funded by the portfolio companies directly,
through a combination of internal cash generation and available debt
facilities. Material levels of capex reinvestment provide visibility over
further earnings and value growth.
At the appropriate moment during our hold period, we will initiate sales
processes for our investments. As evidenced by our extensive track record,
these sales tend to be well supported by the deep pool of private market
capital actively seeking high quality, core-plus infrastructure investments
such as those held by 3iN. This is a core component of our portfolio
management and value creation strategy.
We are focused on continuing to grow value for 3iN shareholders whilst being
responsible custodians of our investments. We are confident we have the
portfolio and team to allow us to do so.
Scott Moseley and Bernardo Sottomayor
Managing Partners and Co-Heads of European Infrastructure
3i Investments plc
6 November 2023
Financial review
The portfolio delivered another period of strong income growth and solid
capital returns. The Company signed an agreement to sell Attero for expected
net proceeds of approximately €215 million, representing an uplift of €51
million on the value at 31 March 2023. Follow-on investments of £35 million
into Future Biogas, £20 million into DNS:NET and £5 million into Ionisos
were completed in the period. The Company actively manages its liquidity
position through its £900 million RCF. During the period, we extended the
maturity of this RCF to November 2026, providing liquidity to fund growth in
existing portfolio companies and good flexibility over the timing of repayment
of drawings.
The portfolio has the income-generating capacity to support the Company's
progressive dividend policy and the interim dividend is covered by income and
non-income cash in the period. We are on track to deliver the full-year
dividend target, which we also expect to be fully covered.
The weighted average discount rate ('WADR') was unchanged from March 2023 at
11.3%, as an increase in the discount rate of DNS:NET was offset by a change
in the valuation methodology for Attero from a discounted cash flow basis to a
sale basis. The remaining change in portfolio mix had an immaterial impact on
the WADR. 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 30 September 2023. The agreement to sell
Attero at a significant premium to NAV supports this assessment.
Portfolio and returns
The Company generated a total return for the six-month period of £191
million, representing a 6.3% return on opening NAV (September 2022: £247
million, 9.3%), ahead of the target return of 8% to 10% per annum. The
Company's portfolio was valued at £3,892 million at 30 September 2023 (31
March 2023: £3,641 million) and delivered a total portfolio return in the
period of £233 million, including income and allocated foreign exchange
hedging (September 2022: £285 million).
Table 1 summarises the valuation and movements in the portfolio, as well as
the return for each investment, for the period.
Table 1: Portfolio summary (30 September 2023, £m)
Directors' Directors' Allocated Underlying Portfolio
valuation Investment Divestment Accrued Foreign valuation foreign portfolio total return
31 March in the in the income Value exchange 30 September 2023 exchange income in the period in the period(1)
2023 period period movement movement translation hedging
Portfolio assets
TCR 537 11(2) - - 33 (5) 576 5 11 44
ESVAGT 485 23(2) - 1 2 - 511 2 24 28
Infinis 407 - - 4 13 - 424 - 9 22
GCX 323 29(2) - (14) 6 4 348 (4) 15 21
Tampnet 292 - - 3 37 3 335 - 10 50
Ionisos 298 5 - 5 8 (4) 312 4 4 12
Joulz 287 3(2) - - 10 (4) 296 3 3 12
Oystercatcher 254 - (6)(3) - 5 (3) 250 2 2 6
SRL 219 - - 10 1 - 230 - 10 11
Valorem 188 - - - 19 (2) 205 3 2 22
Attero 144 - - - 45 (2) 187 1 1 45
DNS:NET 179 20 - 5 (50) (2) 152 3 5 (44)
Future Biogas 28 35 - - 3 - 66 - 1 4
Total portfolio reported in the Financial statements 3,641 126 (6) 14 132 (15) 3,892 19 97 233
1 This comprises the aggregate of value movement, foreign exchange translation,
allocated foreign exchange hedging and underlying portfolio income in the
period.
2 Capitalised interest.
3 Shareholder loan repayment (non-income cash).
Portfolio return by asset
Table 2 below shows the portfolio return in the period for each asset as a
percentage of the aggregate of the opening value of the asset and investment
in the asset in the period (excluding capitalised interest). Note that this
measure does not time-weight for investments in the period.
Table 2: Portfolio return by asset (six months to 30 September 2023, not
annualised)
Portfolio assets
TCR 8.2%
ESVAGT 5.8%
Infinis 5.4%
GCX 6.5%
Tampnet 17.1%
Ionisos 4.0%
Joulz 4.2%
Oystercatcher 2.4%
SRL 5.0%
Valorem 11.7%
Attero(1) 31.3%
DNS:NET (22.1)%
Future Biogas 6.4%
Total portfolio return(2) 6.3%
1 Change in valuation methodology from discounted cash flow basis to sale basis.
2 Portfolio returns include FX net of hedging.
Sensitivities
Our approach to valuation is consistent with previous years.
Our inflation assumptions for the first two years of our projections reflect
the current and forecast inflation levels. The longer-term inflation
assumptions beyond two years remain consistent with central bank targets, e.g.
UK CPI at 2%. A 1% increase in short-term (two-year) inflation assumptions is
estimated to increase the portfolio value by £43 million and a 1% decrease is
estimated to decrease the portfolio value by £44 million.
The weighted average discount rate is 11.3%. Increasing the discount rate used
in the valuation of each asset by 1% would reduce the value of the portfolio
by £327 million and decreasing the discount rate used by 1% would increase
the value of the portfolio by £376 million.
The portfolio valuations are partially protected against changes in interest
rates as long-term fixed rate or hedged debt is in place across the majority
of our portfolio. 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 £224 million. A 1% decrease in the interest rate assumption
would increase the value of the portfolio by £221 million.
These sensitivities 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. Sensitivities to key
inputs to our valuations are described in more detail in Note 4 to the
accounts.
Total return
An analysis of the elements of the total return for the period is shown in
Table 3 below. The Company generated a total return for the six-month period
of £191 million, representing a 6.3% return on opening NAV (September 2022:
£247 million, 9.3%), ahead of the target return of 8% to 10% per annum.
Table 3: Summary total return (six months to 30 September, £m)
2023 2022
Capital return (excluding exchange) 132 210
Foreign exchange movement in portfolio (15) 86
Capital return (including exchange) 117 296
Movement in fair value of derivatives and exchange on EUR borrowings 19 (81)
Net capital return 136 215
Total income(1) 98 72
Costs including exchange movements (43) (40)
Total return 191 247
1 Includes interest receivable on cash balances held of £1 million (September
2022: £2 million).
The capital return is the largest element of the total return. The portfolio
generated a value gain of £132 million in the six-month period to 30
September 2023 (September 2022: £210 million), driven principally by
outperformance from a number of portfolio companies, particularly Attero,
Tampnet, Valorem and TCR, which was offset by a value reduction for DNS:NET.
The value increase in Attero of £45 million reflects the agreed sale of the
investment for a price considerably above its opening valuation. Tampnet's
value gain of £37 million is driven by higher forecast revenue per customer
due to increasing demand for bandwidth and strong interest in its private
network solution. The value increase in TCR of £33 million reflects the
outperformance and significant earnings growth of the business during the
period. The DNS:NET valuation has been reduced by £50 million due to the
revision of cashflow forecasts to reflect delays in the projected rollout of
its FTTH network and an increase in the discount rate used.
The movement in foreign exchange rates generated a loss of £15 million in the
period (September 2022: gain of £86 million). This was offset by a gain on
the movement in the value of derivatives and the exchange gain on Euro
drawings of £19 million (September 2022: loss of £81 million). The foreign
exchange hedging programme supports our objective to deliver steady NAV growth
for shareholders by reducing our exposure to fluctuations in the foreign
exchange markets.
Total income was £98 million (September 2022: £72 million), comprising
portfolio income of £97 million and interest receivable on cash balances of
£1 million. The income by portfolio company is shown in Table 1 above. The
dividend to shareholders is supported by this income, together with non-income
cash receipts of £6 million during the period (September 2022: £26 million).
These non-income cash receipts reflect distributions from underlying portfolio
companies, which would usually be income to the Company, but that are instead
distributed as a repayment of investment for a variety of reasons. While
non-income cash does not form part of the total return shown in Table 3, it is
included when considering dividend coverage. Total income and non-income cash
is shown in Table 4 below.
Table 4: Total income and non-income cash (six months to 30 September, £m)
2023 2022
Total income 98 72
Non-income cash 6 26
Total 104 98
Costs
Management and performance fees
During the period to 30 September 2023, the Company incurred management fees
of £24 million (September 2022: £22 million), including a one-off £1
million transaction fee relating to the additional investments in Future
Biogas, Ionisos and DNS:NET (September 2022: £2 million). The year-on-year
increase also reflects the higher average value of the portfolio in the
period.
The annual performance hurdle of 8% was not exceeded in the first half of the
year, as the total return for the period was 6.3%, resulting in no performance
fee accrual (September 2022: £9 million).
Other operating and finance costs
Operating expenses, comprising Directors' fees, service provider costs and
other professional fees, totalled
£1 million in the period (September 2022: £2 million).
Finance costs of £16 million in the period (September 2022: £5 million)
comprised interest, arrangement and commitment fees for the Company's £900
million RCF. Finance costs were higher than in the prior period as more funds
were drawn and interest rates increased in the UK and Eurozone. During the
period, we extended the maturity of the RCF by one year to November 2026.
Ongoing charges ratio
The ongoing charges ratio measures annual operating costs, as disclosed in
Table 5 below, against the average NAV over the reporting period.
The Company's ongoing charges ratio is calculated in accordance with the
methodology recommended by the Association of Investment Companies ('AIC') and
was 1.61% for the period to 30 September 2023 (September 2022: 1.58%).
The AIC methodology does not include 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 cost items
that contributed to the ongoing charges ratio are shown below. There was no
performance fee accrual in the period to 30 September 2023. The ratio
including the performance fee accrual for September 2022 was 1.89%.
Table 5: Ongoing charges (six months to 30 September, annualised £m)
2023 2022
Investment Manager's fee 47.3 40.9
Auditor's fee 0.8 0.6
Directors' fees and expenses 0.5 0.4
Other ongoing costs 2.3 2.4
Total ongoing charges 50.9 44.3
Ongoing charges ratio 1.61% 1.58%
Balance sheet
The NAV at 30 September 2023 was £3,241 million (31 March 2023: £3,101
million). The principal components of the NAV are the portfolio assets, cash
holdings, the fair value of derivative financial instruments, borrowings and
other net liabilities. A summary balance sheet is shown in Table 6.
Table 6: Summary balance sheet (£m)
As at 30 September 2023 As at 31 March 2023
Portfolio assets 3,892 3,641
Cash balances 6 5
Derivative financial instruments 16 39
Borrowings (628) (501)
Other net liabilities (45) (83)
NAV 3,241 3,101
Cash is principally held in AAA-rated money market funds. The Company has a
£900 million RCF in order to maintain a good level of liquidity for further
investment while minimising returns dilution from holding excess cash
balances.
At 30 September 2023, £628 million of the facility was drawn, leaving £272
million available in the facility. Following the expected completion of the
sale of the investment in Attero for c.€215 million (equivalent to £187
million based on 30 September exchange rates) in November, c.£459 million
will be available. In September, the RCF maturity date was extended by a year
to November 2026 with no changes to terms.
Derivative financial instruments reflect the foreign exchange hedging
programme described previously.
Other net liabilities predominantly comprise a performance fee accrual of £48
million (31 March 2023: £83 million), relating to fees earned in prior years.
£35 million of prior year performance fees were paid during the period.
NAV per share
The total NAV per share at 30 September 2023 was 351.4 pence (31 March 2023:
336.2 pence). This will reduce to
345.5 pence (31 March 2023: 330.6 pence) after the payment of the interim
dividend of 5.95 pence (31 March 2023: final dividend of 5.575 pence).
Dividend
The Board has announced an interim dividend for the period of 5.95 pence per
share or £55 million in aggregate (September 2022: 5.575 pence; £50
million). This is half of the Company's target full-year dividend for FY24 of
11.90 pence per share. The Board is designating 5.65 pence of the 5.95 pence
interim dividend payable as an interest distribution.
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. The
table below defines our APMs and should be read in conjunction with the Annual
report and accounts 2023.
APM Purpose Calculation Reconciliation to IFRS
Total return on opening NAV A measure of the overall financial performance of the Company. It is calculated as the total return of £191 million, as shown in the The calculation uses IFRS measures.
Statement of comprehensive income, as a percentage of the opening NAV of
£3,101 million net of the final dividend for the previous year of £51
million.
NAV per share A measure of the NAV per share in the Company. It is calculated as the NAV of £3,241 million divided by the total number of The calculation uses IFRS measures and is set out in Note 7 to the accounts.
shares in issue at the balance sheet date of 922.4 million.
Total income and non-income cash A measure of the income and other cash receipts by the Company which support It is calculated as the total income from the underlying portfolio and other Total income uses the IFRS measures Investment income and Interest receivable.
the payment of expenses and dividends. assets plus non-income cash
being the repayment of shareholder loans or share premium repayments
not resulting from the disposal of an underlying portfolio asset. This is
shown in Table 4. The non-income cash, being the proceeds from partial realisations of
investments, are shown in the Cash flow statement. The realisation proceeds
which result from a partial sale of an underlying portfolio asset are not
included within non-income cash.
Investment value including commitments A measure of the size of the investment portfolio including the value of It is calculated as the portfolio asset value plus the amount of the The portfolio asset value is the 'Investments at fair value through profit or
further contracted future investments committed by the Company. contracted commitment. At 30 September 2023, the Company had no investment loss' reported under IFRS. At 30 September 2023, the Company had no investment
commitments. commitments.
Total portfolio return percentage A measure of the financial performance of the portfolio. It is calculated as the total portfolio return in the period of £233 million, The calculation uses capital return (including exchange), movement in fair
as shown in Table 1, as a percentage of the sum of the opening value of the value of derivatives, underlying portfolio income, opening portfolio value and
portfolio and investments in, and syndication of, assets during the period investment in the period. The reconciliation of all these items to IFRS is
(excluding capitalised interest) of £3,701 million. shown in Table 1 including in the footnotes.
Total liquidity A measure of the Company's ability to make further investments and meet its It is calculated as the cash balance of £6 million plus the undrawn balance The calculation uses the cash balance, which is an IFRS measure, and undrawn
short-term obligations. available under the Company's revolving credit facility of £272 million. balances available under the Company's revolving credit facility, which are
described in Note 5 to the accounts.
Risk Review
Review of principal risks and uncertainties
The Company's approach to risk governance, the risk review process and risk
appetite is set out in the Risk report in the Annual report and accounts 2023,
which can be found on our website www.3i-infrastructure.com
(http://www.3i-infrastructure.com) .
The principal risks to the achievement of the Company's objectives are
unchanged from those reported on pages 73 to 75 of the Annual report and
accounts 2023. Developments in relation to these principal risks during the
period are outlined below.
External risks - market and competition
During the period, we have seen a rise in interest rates and risk-free rates
as central banks responded to higher inflation. The market for high-quality
core-plus infrastructure companies, such as those in our portfolio, remains
competitive. The realisation of Attero at a c.31% premium to the March 2023
valuation provides evidence that our approach to valuations remains
appropriate. There remains a risk that pricing does change for core-plus
infrastructure in the medium term.
Inflation in the UK and Europe has eased in the period, although it remains
above central bank targets. The portfolio is positively correlated to
inflation as most portfolio companies have revenues at least partially linked
to inflation. Sensitivities to macroeconomic assumptions are discussed in the
Financial review and in Note 4 to the accounts.
Interest rates continued to rise in the period, although there are now signs
that they are near the top of the cycle in the UK and Europe. There are no
material refinancing requirements in the portfolio until 2026 and over 93% of
long-term debt facilities are either hedged or fixed rate. 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. During the period, sterling
appreciated c.1% against the euro. The Company operates a hedging programme
which substantially offsets any foreign exchange movements.
Current and medium-term power prices remain elevated but have decreased
considerably since the prior year. This is broadly in line with forecasts for
the period and is reflected in the results of Infinis, Attero and Valorem.
These portfolio companies generate electricity and typically sell it on a
forward basis in order to avoid spot market volatility.
Strategic risks
The Company actively manages its balance sheet and liquidity position, seeking
to maintain adequate liquidity to pursue investment opportunities, without
diluting shareholder returns by holding surplus cash. At 30 September 2023,
there was £6 million available in cash, with drawings of £628 million under
the RCF. During the period, the Company extended the maturity of its facility
to November 2026. In July 2023, the Company agreed the realisation of its
investment in Attero for c.€215 million, with completion expected in
November 2023. Proceeds will be used to repay drawings on the RCF.
Statement of comprehensive income
for the six months to 30 September
Six months to Six months to
30 September 2023 30 September 2022
Notes (unaudited) (unaudited)
£m £m
Net gains on investments 4 117 296
Investment income 97 70
Interest receivable 1 2
Investment return 215 368
Movement in the fair value of derivative financial instruments 14 (81)
Management and performance fees 2 (24) (31)
Operating expenses (1) (2)
Finance costs (16) (5)
Exchange movements 3 (2)
Profit before tax 191 247
Income taxes 3 - -
Profit after tax and profit for the period 191 247
Total comprehensive income for the period 191 247
Earnings per share
Basic and diluted (pence) 7 20.7 27.7
Statement of changes in equity
for the six months to 30 September
Stated Total
capital Retained Capital Revenue shareholders'
For the six months to 30 September 2023 account reserves reserve reserve equity
(unaudited) Notes £m £m £m £m £m
Opening balance at 1 April 2023 879 1,282 940 - 3,101
Total comprehensive income for the period - - 131 60 191
Dividends paid to shareholders of the Company during the period 8 - - - (51) (51)
Closing balance at 30 September 2023 879 1,282 1,071 9 3,241
Stated Total
capital Retained Capital Revenue shareholders'
For the six months to 30 September 2022 account reserves reserve reserve equity
(unaudited) Notes £m £m £m £m £m
Opening balance at 1 April 2022 779 1,282 643 - 2,704
Total comprehensive income for the period - - 202 45 247
Dividends paid to shareholders of the Company during the period 8 - - (1) (45) (46)
Closing balance at 30 September 2022 779 1,282 844 - 2,905
Balance Sheet
as at 30 September
30 September 2023 31 March 2023
(unaudited) (audited)
Notes £m £m
Assets
Non-current assets
Investments at fair value through profit or loss 4 3,892 3,641
Derivative financial instruments 4 28 29
Total non-current assets 3,920 3,670
Current assets
Derivative financial instruments 4 10 28
Trade and other receivables 4 4
Cash and cash equivalents 6 5
Total current assets 20 37
Total assets 3,940 3,707
Liabilities
Non-current liabilities
Derivative financial instruments 4 (5) (10)
Trade and other payables (15) (48)
Loans and borrowings (628) (501)
Total non-current liabilities (648) (559)
Current liabilities
Derivative financial instruments 4 (17) (8)
Trade and other payables (34) (39)
Total current liabilities (51) (47)
Total liabilities (699) (606)
Net assets 3,241 3,101
Equity
Stated capital account 6 879 879
Retained reserves 1,282 1,282
Capital reserve 1,071 940
Revenue reserve 9 -
Total equity 3,241 3,101
Net asset value per share
Basic and diluted (pence) 7 351.4 336.2
The Financial statements and related Notes were approved and authorised for
issue by the Board of Directors on
6 November 2023 and signed on its behalf by:
Richard Laing
Chair
Cash flow statement
for the six months to 30 September
Six months to Six months to
30 September 2023 30 September 2022
(unaudited) (unaudited)
£m £m
Cash flow from operating activities
Purchase of investments (60) (318)
Proceeds from other financial assets - 98
Proceeds from partial realisations of investments 6 118
Proceeds from full realisations of investments - 105
Investment income(1) 18 18
Fees rebated on investment activities - 2
Operating expenses paid (2) (2)
Interest received 1 -
Management and performance fees paid (61) (50)
Amounts received/(paid) on the settlement of derivative contracts 36 (3)
Net cash flow from operating activities (62) (32)
Cash flow from financing activities
Fees and interest paid on financing activities (16) (5)
Dividends paid (51) (46)
Drawdown of revolving credit facility 310 1,924
Repayment of revolving credit facility (179) (1,827)
Net cash flow from financing activities 64 46
Change in cash and cash equivalents 2 14
Cash and cash equivalents at the beginning of the period 5 17
Effect of exchange rate movement (1) (2)
Cash and cash equivalents at the end of the period 6 29
1 Investment income includes dividends of £8 million (September 2022: £1
million) and interest of £10 million (September 2022: £17 million) received
from portfolio assets held directly by the Company.
Accounting policies
Basis of preparation
These financial statements are the unaudited Half-yearly condensed financial
statements (the 'Half-yearly Financial Statements') of 3i Infrastructure plc
(the 'Company'), a company incorporated and registered in Jersey for
the six-month period ended 30 September 2023.
The Half-yearly Financial Statements have been prepared in accordance with
International Accounting Standard 34 Interim Financial Reporting ('IAS 34').
The accounting policies are consistent with those set out in the Annual report
and accounts 2023 and those which we expect to adopt for the Annual report and
accounts 2024, which will be prepared in accordance with United Kingdom
adopted international accounting standards. They should be read in conjunction
with the financial statements for the year to 31 March 2023, as they provide
an update of previously reported information. The financial statements are
prepared on a going concern basis, as the Directors are satisfied that the
Company has the resources to continue in business for the foreseeable future.
In making this assessment, the Directors have considered a wide range of
information relating to present and future conditions, including future
projections of profitability and cash flows. The key factors likely to affect
the Company's ability to continue as a going concern were set out in the
Annual report and accounts 2023. The Company is in a strong position in
relation to its ability to continue to operate and the Company has sufficient
resources to meet its ongoing needs. At 30 September 2023, the Company's
liquidity totalled £278 million (31 March 2023: £404 million). Liquidity
comprised cash and deposits of £6 million (31 March 2023: £5 million) and
undrawn facilities of £272 million (31 March 2023: £399 million) with a
maturity date of November 2026. 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. Proceeds of approximately €215
million are due to be received from the sale of Attero in November.
The Half-yearly Financial Statements were authorised for issue by the
Directors on 6 November 2023.
The Half-yearly Financial Statements do not constitute statutory accounts. The
Financial Statements for the year to
31 March 2023, prepared in accordance with United Kingdom adopted
International Financial Reporting Standards ('IFRS') and International
Accounting Standards, and on which the auditors issued a report, which was
unqualified, have been filed with the Jersey Financial Services Commission.
Key judgements and sources of estimation uncertainties
The preparation of the Half-yearly 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 historical experience and other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making the judgements about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the revision
affects only that period or in the period of the revision and future periods
if the revision affects both current and future periods. All judgements used
in the preparation of the Half-yearly Financial Statements are consistent with
those stated in the Annual report and accounts 2023.
The key area where estimates are significant to the Half-yearly Financial
Statements and have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities in future periods is in the
valuation of the investment portfolio. 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 and the discount rate to be
applied to these cash flows. The portfolio is well diversified by sector,
geography and underlying risk exposures. The valuation of each asset has
significant estimation in relation to asset specific items and the potential
impact of macroeconomic factors such as near-term power price expectations,
inflation and supply shortages. The key risks to the portfolio are discussed
in further detail in the Risk review section. A key focus of the portfolio
valuations at 30 September 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 a high inflationary market,
rising interest rates and ongoing geopolitical uncertainties. We have
incorporated into our cash flow forecasts a balanced view of future income
receipts and expenses.
Notes to the accounts
1 Operating segments
In previous years, the Directors reviewed information on a regular basis that
was analysed by portfolio segment; being Economic Infrastructure businesses,
the Projects portfolio and the India fund, and by geography. Following the
sale of the Projects portfolio and the India Fund reaching the end of its
life, these segments are no longer relevant and the Directors are of the
opinion that the Company is engaged in a single segment of business being
investment in Core-plus infrastructure. The internal information shared with
the Directors on a monthly basis to allocate resources, assess performance and
manage the Company presents the business as a single segment comprising the
total portfolio of investments.
The Company is an investment holding company and does not consider itself to
have any customers. 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 period or
the financial position of the Company at 30 September 2023.
2 Management and performance fees
Six months to Six months to
30 September 2023 30 September 2022
(unaudited) (unaudited)
£m £m
Management fee 24 22
Performance fee - 9
24 31
Total management and performance fees payable by the Company for the period to
30 September 2023 were
£24 million (September 2022: £31 million). Note 9 provides further details
on the calculation of the management fee and performance fee.
3 Income taxes
Six months to Six months to
30 September 2023 30 September 2022
(unaudited) (unaudited)
£m £m
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 Company is a UK tax resident approved investment trust. The tax charge for
the period is different from the standard rate of corporation tax in the UK,
currently 25% (2022: 19%), and the differences are explained below:
Six months to Six months to
30 September 30 September
2023 2022
£m £m
Profit before tax 191 247
Profit before tax multiplied by rate of corporation tax in the UK of 25% 48 47
(2022: 19%)
Effects of:
Non-taxable capital profits due to UK approved investment trust company status (33) (40)
Non-taxable dividend income (2) -
Dividends designated as interest distributions (13) (9)
Brought forward losses - (1)
Temporary differences on which deferred tax is not recognised - 3
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, i.e. once at the level of the investment fund vehicle and
then again in the hands of the investors.
4 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 Derivative financial instruments held at fair value
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
30 September 2023. For all other assets and liabilities, their carrying value
approximates to fair value. During the period ended 30 September 2023, there
were no transfers of financial instruments between levels of the fair value
hierarchy (31 March 2023: none).
Trade and other receivables on the Balance sheet includes £4 million of
deferred finance costs relating to the arrangement fee for the revolving
credit facility (31 March 2023: £4 million). This has been excluded from the
table below as it is not categorised as a financial instrument.
Financial instruments classification
As at 30 September 2023
(unaudited)
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial assets
Investments at fair value through profit or loss - - 3,892 3,892
Derivative financial instruments - 38 - 38
- 38 3,892 3,930
Financial liabilities
Derivative financial instruments - (22) - (22)
- (22) - (22)
As at 31 March 2023
(audited)
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial assets
Investments at fair value through profit or loss - - 3,641 3,641
Derivative financial instruments - 57 - 57
- 57 3,641 3,698
Financial liabilities
Derivative financial instruments - (18) - (18)
- (18) - (18)
Reconciliation of financial instruments categorised within Level 3 of fair
value hierarchy
As at 30 September 2023 As at 31 March 2023
(unaudited) (audited)
Level 3 fair value reconciliation £m £m
Opening fair value 3,641 2,873
Additions 126 824
Disposal proceeds and repayment (6) (426)
Movement in accrued income 14 31
Fair value movement (including exchange movements) 117 339
Closing fair value 3,892 3,641
All unrealised movements on investments and foreign exchange movements are
recognised in profit or loss in the Statement of comprehensive income during
the period and are attributable to investments held at the end of the period.
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,
including the intermediate holding company through which the investment in
Attero is held.
Investment income of £97 million (September 2022: £70 million) comprises
dividend income of £8 million (September 2022: £1 million) and interest
income of £89 million (September 2022: £69 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 of the Annual report and Accounts 2023.
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 30 September 2023, the fair value of unquoted investments was £3,892
million (31 March 2023: £3,641 million). Individual portfolio asset
valuations are shown in Table 1 in the Financial review section.
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, the interest rate assumption used to
project the future cash flows and the forecast cash flows themselves.
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.
Increasing the discount rate used in the valuation of each asset by 1% would
reduce the value of the portfolio by
£327 million (31 March 2023: £296 million). Decreasing the discount rate
used in the valuation of each asset by 1% would increase the value of the
portfolio by £376 million (31 March 2023: £343 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 assumption for the country of domicile of the
investments in the portfolio is 2.0% (31 March 2023: 2.0%). The long-term RPI
assumption for UK assets is 2.5% (31 March 2023: 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 be to increase the value of the
portfolio by £43 million (31 March 2023: £47 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 £44 million (31
March 2023: £52 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 £224 million (31 March
2023: £182 million). Decreasing the interest rate assumption used in the
valuation of each asset by 1% would increase the value of the portfolio by
£221 million (31 March 2023: £175 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.
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 at 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 30 September 2023,
the fair value of the other assets and liabilities within these intermediate
holding companies was less than £1 million
(31 March 2023: less than £1 million).
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.
5 Loans and borrowings
The Company had a £900 million revolving credit facility ('RCF') at 30
September 2023. In September 2023, the maturity of the RCF was extended to 3
November 2026 with no changes to terms.
The RCF is secured by a floating charge over the bank accounts of the Company.
Interest is payable at EURIBOR or SONIA 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 30 September 2023,
the Company had £628 million of drawings under the RCF (31 March 2023: £501
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.
6 Issued capital
As at 30 September 2023 As at 31 March 2023
(unaudited) (audited)
Number £m Number £m
Authorised, issued and fully paid
Opening balance 922,350,000 1,598 891,434,010 1,496
Issue of ordinary shares - - 30,915,990 102
Closing balance 922,350,000 1,598 922,350,000 1,598
Reconciliation to Stated capital account
As at As at
30 September 2023 31 March 2023
£m £m
Proceeds from issue of ordinary shares 1,598 1,598
Transfer to retained reserves on 20 December 2007 (693) (693)
Cost of issue of ordinary shares (26) (26)
Stated capital account closing balance 879 879
7 Per share information
The earnings and net assets per share attributable to the equity holders of
the Company are based on the following data:
Six months to Six months to
30 September 2023 30 September 2022
(unaudited) (unaudited)
Earnings per share (pence)
Basic and diluted 20.7 27.7
Earnings (£m)
Profit after tax for the year 191 247
Number of shares (million)
Weighted average number of shares in issue 922.4 891.4
As at As at
30 September 31 March
2023 2023
(unaudited) (audited)
Net asset value per share (pence)
Basic and diluted 351.4 336.2
Net assets (£m)
Net assets 3,241 3,101
8 Dividends
Six months to 30 September 2023 Six months to 30 September 2022
(unaudited) (unaudited)
Declared and paid during the period pence per share £m pence per share £m
Prior year final dividend paid on ordinary shares 5.575 51 5.225 46
The Company proposes paying an interim dividend of 5.95 pence per share
(September 2022: 5.575 pence) which will be payable to those shareholders that
are on the register on 24 November 2023. On the basis of the shares in issue
at 30 September 2023, this would equate to a total interim dividend of £55
million (September 2022: £50 million). The designation of a portion of the
dividend as an interest distribution is described in the Information for
shareholders section.
9 Related parties
Transactions between the Company and 3i Group
3i Group plc ('3i Group') holds 29.2% (31 March 2023: 29.2%) 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 period, 3i Group received dividends of £15 million
(September 2022: £14 million) from the Company.
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 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 £1.25bn 1.4%
£1.25bn to £2.25bn 1.3%
Above £2.25bn 1.2%
For the period to 30 September 2023, £24 million (September 2022: £22
million) was payable and advance payments of £24 million were made resulting
in no amount due to 3i plc at 30 September 2023 (31 March 2023: £2 million
due to 3i plc). In consideration of the provision of support services under
the IMA, the Company pays the Investment Manager an annual fee that increases
each year on 1 October by the amount of the prevailing CPI rate of the current
year. The cost for the support services incurred for the period to 30
September 2023 was £0.5 million (September 2022: £0.5 million). There was no
outstanding balance payable at 30 September 2023 (31 March 2023: 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.
The performance hurdle requirement was not exceeded for the period to 30
September 2023 and, therefore, no performance fee accrual was recognised
(September 2022: £9 million). The outstanding balance payable as at 30
September 2023 was £48 million (31 March 2023: £83 million), which includes
the second and third instalments of the FY23 fee and the third instalment of
the FY22 fee.
Year Performance fee Outstanding balance at 30 September 2023 Payable in FY24
(£m) (£m) (£m)
FY23 45 30 15
FY22 54 18 18
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, 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.
Independent review report to 3i Infrastructure plc
Conclusion
We have been engaged by 3i Infrastructure plc ('the Company') to review the
condensed set of financial statements
in the Half-yearly financial report for the six months ended 30 September 2023
which comprises the Statement of comprehensive income, the Statement of
changes in equity, the Balance sheet, the Cash flow statement, the accounting
policies section and related notes 1 to 9.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2023 is not prepared,
in all material respects, in accordance with United Kingdom adopted
International Accounting Standard 34 and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in the accounting policies, the Annual financial statements of
the Company are prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial statements
included in this Half-yearly financial report has been prepared in accordance
with United Kingdom adopted International Accounting Standard 34, "Interim
Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the Directors have
inappropriately adopted the going concern basis of accounting or that the
Directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The Directors are responsible for preparing the Half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the Half-yearly financial report, the Directors are responsible
for assessing the Company's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
Company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the Half-yearly financial report, we are responsible for
expressing to the Company a conclusion on the condensed set of financial
statements in the Half-yearly financial report. Our Conclusion, including our
Conclusion Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the Company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the Company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
London, United Kingdom
Date: 6 November 2023
Notes
1 Legislation in Jersey governing the preparation and dissemination of condensed
financial statements may differ from legislation in other jurisdictions.
Statement of Directors' responsibilities
The Directors, who are required to prepare the financial statements on a going
concern basis unless it is not appropriate, are satisfied that the Company has
the resources to continue in business for the foreseeable future
and that the financial statements continue to be prepared on a going concern
basis.
The Directors confirm to the best of their knowledge that:
• the condensed set of financial statements have been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted by the United
Kingdom;
• the Half-yearly report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to
assess the Company's performance; and
• the Half-yearly report includes a fair review of the information
required by the FCA's Disclosure and Transparency Rules (4.2.7 R and 4.2.8 R).
The Directors of 3i Infrastructure plc and their functions are listed below.
By order of the Board
Richard Laing
Chair
6 November 2023
Board of Directors and their functions
Richard Laing
Non-executive Chair and chair of the Nomination Committee, Disclosure
Committee and the Management Engagement Committee.
Doug Bannister
Independent Non-executive Director.
Wendy Dorman
Independent Non-executive Director and chair of the Audit and Risk Committee.
Jennifer Dunstan (appointed 20 July 2023)
Non-executive Director.
Stephanie Hazell
Senior Independent Non-executive Director and chair of the Remuneration
Committee.
Samantha Hoe-Richardson
Independent Non-executive Director.
Ian Lobley (resigned 20 July 2023)
Non-executive Director.
Martin Magee (appointed 20 July 2023)
Independent Non-executive Director.
Paul Masterton (resigned 20 July 2023)
Senior Independent Non-executive Director and chair of the Remuneration
Committee.
Information for shareholders
Financial calendar
Ex-dividend date for final dividend 23 November 2023
Record date for final dividend 24 November 2023
Interim dividend expected to be paid 11 January 2024
Full year results expected date 8 May 2024
Designation of dividends as interest distributions
As an approved investment trust, the Company is permitted to designate
dividends wholly or partly as interest distributions for UK tax purposes.
Dividends designated as interest in this way are taxed as interest income in
the hands of shareholders and are treated as tax deductible interest payments
made by the Company. The Company expects to make such dividend designations in
periods in which it is able to use the resultant tax deduction to reduce the
UK corporation tax it would otherwise pay on the interest income it earns from
its investments. The Board is designating 5.65 pence of the 5.95 pence interim
dividend payable in respect of the period as an interest distribution.
3i Infrastructure plc
Registered office
11-15 Seaton Place
St. Helier
Jersey JE4 0QH
Channel Islands
www.3i-infrastructure.com (http://www.3i-infrastructure.com)
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