REG - 3i Infrastructure - Results for the six months to 30 September 2022
08/11/2022 07:00
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RNS Number : 5967F 3i Infrastructure PLC 08 November 2022
8 November 2022
Results for the six months to 30 September 2022
The portfolio has generated outstanding performance, significantly exceeding
3i Infrastructure's target returns. We are also on track to deliver the FY23
dividend target of 11.15 pence per share, which is 6.7% higher than the
previous year and expected to be fully covered.
Performance highlights
£247m, 9.3% Total return on opening NAV Strong first-half performance driving growth in
net asset value ('NAV')
(September 2021: £250m, 10.6%)
325.8p
NAV per share
(March 2022: 303.3p)
£2,905m
NAV
(March 2022: £2,704m)
£98m Good level of income and non-income cash to support the dividend
Total income and non-income cash
(September 2021: £56m)
5.575p On track to deliver the FY23 dividend target,
Interim dividend per share 6.7% higher than FY22
(FY22 interim dividend: 5.225p per share)
Richard Laing, Chair of 3i Infrastructure plc (the 'Company' or '3i
Infrastructure')
"We have delivered an outstanding first-half performance with strong value
growth in real terms from our differentiated portfolio. We are on track to
deliver our FY23 dividend target, which is 6.7% higher than last year."
Performance
The Company generated a total return of 9.3% on opening NAV for the first half
of the year, substantially ahead of our target return of 8% to 10% per annum.
The NAV per share increased to 325.8 pence. The portfolio overall is
performing robustly and ahead of expectations. During the period, we were
pleased that we completed the acquisition of Global Cloud Xchange ('GCX') and
agreed to acquire our co-investor's stake in TCR.
Interim dividend
The Board is announcing an interim dividend of 5.575 pence per share,
scheduled to be paid on 12 January 2023 to holders of ordinary shares on the
register on 25 November 2022. The ex-dividend date will be 24 November 2022.
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 5.4 pence of the 5.575 pence interim dividend as an interest
distribution.
Corporate governance
The Company's Annual General Meeting was held on 6 July 2022. All resolutions
were approved by shareholders, including the re-election of the existing
Directors to the Board. In September, we were delighted to welcome Stephanie
Hazell as a non-executive Director. Stephanie brings broad strategic
experience in the infrastructure sector from her previous roles at National
Grid, Orange and Virgin Group.
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 and Total portfolio return percentage. 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 2022. 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 impact 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 acts as
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
or in any other jurisdiction. 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, 3i India Infrastructure Fund and the Investment Manager,
as applicable, as well as financial statements. No public offering in the
United States is currently contemplated.
3i Infrastructure plc Half-yearly report 2022
Review from the Managing Partners
3i Infrastructure's excellent performance during the period has demonstrated,
once again, that this is a high quality and diversified portfolio, with proven
resilience, that is structurally positioned to deliver growth in real terms
throughout the economic cycle.
During the period, the portfolio exceeded its target returns, driven by
exposure to selected megatrends. These megatrends continue to provide
long-term tailwinds to our investment cases.
As a result of our active management, the portfolio has no near-term
refinancing exposure and over 85% of long-term debt is effectively fixed rate.
Additionally, the portfolio has continued to demonstrate its positive value
correlation to both inflation and power prices.
Extending the maturity of the Company's £900 million Revolving Credit
Facility ('RCF') to November 2025 provides sufficient flexibility to manage
investment and divestment activity.
Portfolio review
In October 2022, 3i Infrastructure completed the acquisition of its
co-investor's 48% stake in TCR. The final acquisition price was £338 million.
We made this acquisition because we believe TCR is well positioned in the
post-pandemic environment and is experiencing increasing demand for its full
service rental model. During the period, TCR's revenues increased as
utilisation and traffic continued to recover and management signed a number of
new contracts and contract extensions.
ESVAGT continues to benefit from growth in offshore wind markets. The new
Service Operation Vessel ('SOV') contract wins achieved under our ownership
have materially improved the quality and longevity of earnings and reduced
volatility. ESVAGT's legacy Emergency Rescue and Response Vessel ('ERRV')
fleet achieved strong results during the period due to higher day rates and
utilisation, driven by the increased focus on security of energy supply in
Europe. In June, we syndicated c.17% of our stake in ESVAGT. This transaction
helps the Company to maintain a balanced portfolio and provides useful
additional liquidity, whilst retaining full governance of the asset.
Infinis had a strong first half driven by outperformance in its renewable
generation assets and solar development pipeline. During the period, Infinis
was awarded its first 15-year, CPI-linked CfD contracts for two new solar
sites and the development of its pipeline of solar and battery operations is
on track. The business now has 147MW of fully consented sites with a further
189MW in the planning process. 39MW of new planning consents were received in
the period.
Tampnet is benefitting from accelerating demand for offshore connectivity.
During the period, Tampnet's business plan was updated to reflect its growth
trajectory. Its customers continue to upgrade their long-term bandwidth
requirements and invest in digital infrastructure to decrease costs, improve
operations and extend asset life. Additionally, Tampnet's management team has
identified new initiatives to capture customers beyond operating oil and gas
platforms (e.g. wind farms, carbon capture projects and deepsea fish farms)
which may provide further upside beyond our current valuation.
Joulz continues to see growth in new orders, including for integrated energy
transition solutions that have been enabled by the bolt-on acquisitions
completed in recent years. The company's long-term contracts are directly
linked to inflation. During the period, the company experienced some delays in
completing new installations, primarily due to key hardware suppliers
struggling to keep up with rising demand. However, the company has now
contracted with additional suppliers which should add capacity over the coming
months.
Ionisos performed ahead of expectations in the period due to strong volume
growth, notably in the medical and pharma segments. We are working with the
management team to increase capacity to meet strongly increasing demand
through growth initiatives. In July 2022, the new plant in Kleve, Germany,
received approval from the local authorities and operations are due to start
in early 2023.
Oystercatcher experienced some pressure on contract renewal rates during the
period as a consequence of market backwardation. However, our positive
medium-term outlook remains unchanged given the terminal is one of the leading
gasoline blending facilities in Singapore and the wider region. The terminal
recently signed a contract with Neste to blend and store sustainable aviation
fuel which should position it well for this growth market, and is considering
options to upgrade its fuel oil tanks to store gasoline, sustainable aviation
fuel or biofuels.
SRL performed broadly in line with expectations during the period. Its
management team completed a pricing strategy review which resulted in a rise
in average hire prices. Prices are expected to continue to rise with inflation
in the future.
DNS:NET experienced delays in the roll out of its network in the Berlin region
caused by slow authority approvals and a shortage of contractor capacity. This
timing impact is reflected in the revised valuation. Our medium-term roll-out
targets for DNS:NET are maintained.
Valorem performed ahead of expectations, benefitting from exiting feed-in
tariffs on some of its older French wind assets and replacing them with
short-term power purchase agreements at improved rates. The outlook in France
for renewable developers remains positive, particularly due to recent issues
experienced by the French nuclear power sector. New legislation in France
aimed at shortening the development cycle of projects and making new areas
eligible for development is expected to be introduced, which will benefit
Valorem.
Attero outperformed our expectations in the period due to inflation-linked
gate fees, new contracts signed with favourable gate fees, and renewable power
sales. Additionally, the company is currently updating its long-term business
plan and has identified a number of attractive potential growth opportunities,
including developing large solar farms on its extensive estate and expanding
its current operations in biogas and recycling.
Our newest asset, GCX, a leading global data communications service provider
and owner of the world's largest private subsea fibre optic network, is
performing well and in line with expectations.
The portfolio is analysed below.
Portfolio - Breakdown by value* Portfolio - Breakdown by megatrend
at 30 September 2022
at 30 September 2022
ESVAGT 14% Energy transition 42%
Infinis 11% Digitalisation 25%
GCX 10% Globalisation 18%
TCR 10% Renewing social infrastructure 7%
Tampnet 9% Demographic change 8%
Joulz 8%
Ionisos 8%
Oystercatcher 8%
SRL 7%
DNS:NET 6%
Valorem 5%
Attero 4%
*Excludes commitment to acquire the additional stake in TCR
Investment and divestment activity
In May 2022, the Company completed the syndication of c.17% of its stake in
ESVAGT to 3i Aura L.P., a newly-established vehicle managed by 3i Investments
plc and funded by three institutional investors.
In June 2022, the Company completed the sale of the European projects
portfolio for £106 million.
In September 2022, we completed the acquisition of c.100% stake in GCX for
£318 million.
In October 2022, we completed a further investment in TCR, acquiring the 48%
stake owned by funds managed by DWS for £338 million. This transaction was
announced on 14 June 2022. We expect to syndicate a portion of this investment
in TCR during the second half of the year.
Sustainability
Our portfolio companies continue to develop and implement their sustainability
strategies. We are making progress on actions identified in our Environmental,
Social and Governance assessments. As part of this, we are working with our
portfolio companies to identify the potential for reducing their greenhouse
gas emissions. We are also continuing to develop our approach to
climate-related scenario analysis.
In addition, the energy transition is the most prevalent megatrend in our
portfolio (42% of portfolio value) and remains an important investment theme
for the Company.
The sustainability section of our Annual report and accounts 2023 will include
a review of our progress on sustainability, including further progress in
implementing the recommendations of the TCFD.
Outlook
The market for infrastructure investments remains competitive, with
significant fund-raising activity amongst our private market competitors and
strong demand for quality infrastructure assets. Our strategy of identifying
resilient companies, positioned to benefit from structural megatrends,
provides a proven and solid foundation from which to continue to deliver value
growth in real terms across the economic cycle.
We are focused on continuing to deliver outstanding performance, and 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
7 November 2022
Financial review
The portfolio delivered another period of strong income growth and capital
returns. The Company deployed £318 million in its new investment in GCX and
committed to invest a further £338 million in TCR. The Company actively
manages its liquidity position through its £900 million RCF, and we extended
the maturity of this RCF to November 2025 providing liquidity to fund growth
in existing portfolio companies and invest in new assets.
The portfolio has the income-generating capacity to support the Company's
progressive dividend policy, and the interim dividend was well 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 increased to 11.3% (from 10.9% in March
2022) primarily due to the evolution of the portfolio mix following the
realisation of the European projects portfolio and the completion of the GCX
acquisition. 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 2022.
Portfolio and returns
The Company generated a total return for the six-month period of £247
million, representing a 9.3% return on opening NAV (September 2021: £250
million, 10.6%), significantly ahead of the target return of 8% to 10% per
annum.
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 2022, £m)
Directors' Directors' Allocated Underlying Portfolio
valuation Investment Divestment Accrued Foreign valuation foreign portfolio total
31 March in the in the income Value exchange 30 September exchange income in return in
Portfolio assets 2022 period period movement movement translation 2022 hedging the period the period(1)
ESVAGT 548 21(2) (87)(4) (1) 11 (12) 480 3 23 25
Infinis 332 - - - 38 - 370 - 8 46
TCR 279 - - 7 50 6 342 (7) 7 56
GCX - 318 - 2 (2) 19 337 (20) 3 0
Tampnet 241 - - 3 39 9 292 2 3 53
Joulz 241 3(2) - - 17 9 270 (10) 3 19
Ionisos 237 - - 4 20 9 270 (10) 5 24
Oystercatcher 230 - (2)(3) - 6 26 260 (18) 2 16
SRL 200 - (1)(3) 9 5 - 213 - 9 14
DNS:NET 202 - - 4 (20) 8 194 (9) 3 (18)
Valorem 144 - - - 14 6 164 (6) 2 16
Attero 116 - (23)(3) - 32 4 129 (5) 1 32
Economic infrastructure portfolio 2,770 342 (113) 28 210 84 3,321 (80) 69 283
Projects 103 - (104) (1) - 2 - (1) 1 2
Total portfolio reported in the Financial statements 2,873 342 (217) 27 210 86 3,321 (81) 70 285
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 / share premium repayment (non-income cash).
4 ESVAGT syndication.
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 investments
in, and syndication of, 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 2022, not
annualised)
Portfolio assets
ESVAGT(1) 5.4%
Infinis 13.8%
TCR 20.1%
GCX(2) -%
Tampnet 21.8%
Joulz 7.9%
Ionisos 10.2%
Oystercatcher 6.9%
SRL 7.0%
DNS:NET (8.9)%
Valorem 11.2%
Attero 27.7%
Projects(3) 1.9%
Total portfolio return(4) 9.2%
1 ESVAGT return of 6.9% excluding hedge ineffectiveness over the period end.
2 GCX completed in September 2022.
3 Sold in June 2022.
4 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 £37 million. We do not expect to
change our long-term assumptions, however, we estimate that a 1% increase in
inflation assumptions across our full projection periods would increase the
portfolio value by £259 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 £306 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 £134 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.
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 total return of £247 million, or 9.3% return on opening
NAV, is greater than the portfolio return described above due to the gearing
effect of being drawn into the RCF.
Table 3: Summary total return (six months to 30 September, £m)
2022 2021
Capital return (excluding exchange) 210 226
Foreign exchange movement in portfolio 86 12
Capital return (including exchange) 296 238
Movement in fair value of derivatives (81) (8)
Net capital return 215 230
Total income(1) 72 56
Costs including exchange movements (40) (36)
Total return 247 250
1 Includes interest receivable on vendor loan notes and cash balances of £2
million (September 2021: £3 million).
The capital return is the largest element of the total return. The portfolio
generated a value gain of £210 million in the period to 30 September 2022
(September 2021: £226 million), driven principally by outperformance from a
number of portfolio companies but particularly TCR, Tampnet, Infinis and
Attero.
The value increase in TCR of £50 million reflects the outperformance of the
business during the period including new contracts signed, the positive
correlation to inflation and the prospects and market opportunity we are
seeing in the post Covid-19 environment. Acquiring full control of the
business gives us increased confidence and agility to deliver on those
opportunities, and this valuation reflects the price paid in that transaction.
Tampnet's value gain of £39 million is driven by higher forecast revenues due
to increasing demand for bandwidth and success with digital initiatives
including private networks, as well as identified new potential growth
opportunities.
The value gain of £38 million in Infinis reflects the momentum in its
development pipeline, as well as higher power price forecasts. Its power
response assets have experienced higher running hours driven by the UK's power
generation capacity constraints.
Attero has sold its power output at increased prices and recontracted several
waste supply contracts at increased gate fees and for longer periods,
resulting in a value increase of £32 million.
DNS:NET experienced a value reduction of £20 million due to delays in the
projected build-out of its fibre network.
The movement in foreign exchange rates generated an £86 million gain in the
period (September 2021: £12 million). This was partially offset by a loss on
the movement in the value of derivatives of £81 million (September 2021: loss
of £8 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 £72 million (September 2021: £56 million), comprising
portfolio income of £70 million and interest receivable on vendor loan notes
and cash balances of £2 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 £26 million during the period
(September 2021: less than £0.5 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)
2022 2021
Total income 72 56
Non-income cash 26 -
Total 98 56
Costs
Management and performance fees
During the period to 30 September 2022, the Company incurred management fees
of £22 million (September 2021: £16 million), including a one-off £2
million transaction fee relating to the commitment to the additional
investment in TCR (September 2021: £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 exceeded in the first half of the
year, resulting in an accrual for a performance fee payable of £9 million
(September 2021: £15 million).
Fees payable
Fees payable on investment activities include costs for transactions that did
not reach, or have yet to reach, completion and the reversal of costs that
have successfully reached completion and were subsequently borne by the
portfolio company. For the period to 30 September 2022, fees payable totalled
less than £1 million (September 2021: £2 million).
Other operating and finance costs
Operating expenses, comprising Directors' fees, service provider costs and
other professional fees, totalled £2 million in the period (September 2021:
£2 million).
Finance costs of £5 million in the period (September 2021: £1 million)
comprised interest and arrangement and commitment fees for the Company's £900
million RCF. Finance costs were higher than in the prior period as the size of
the RCF was increased and funds were drawn in the period. The maturity of the
RCF was extended by one year in September, incurring an arrangement fee.
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
Association of Investment Companies ('AIC') recommended methodology and was
1.58% for the period to 30 September 2022 (September 2021: 1.28%).
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. The ratio
including the performance fee accrual was 1.89% (September 2021: 1.90%).
Table 5: Ongoing charges (six months to 30 September, annualised £m)
2022 2021
Investment Manager's fee 40.9 28.6
Auditor's fee 0.6 0.5
Directors' fees and expenses 0.4 0.4
Other ongoing costs 2.4 2.3
Total ongoing charges 44.3 31.8
Ongoing charges ratio 1.58% 1.28%
Balance sheet
The NAV at 30 September 2022 was £2,905 million (March 2022: £2,704
million). The principal components of the NAV are the portfolio assets, cash
holdings, the fair value of derivative financial instruments, borrowings and
other net assets and liabilities. A summary balance sheet is shown in Table 6.
Table 6: Summary balance sheet (£m)
As at 30 September 2022 As at 31 March 2022
Portfolio assets 3,321 2,873
Cash balances 29 17
Derivative financial instruments (70) 8
Borrowings (330) (231)
Other net assets (including vendor loan notes) and liabilities (45) 37
NAV 2,905 2,704
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 2022, £330 million of the facility was drawn,
leaving £570 million available in the facility. Following completion of the
further investment in TCR for £338 million, £232 million remains available.
In September, the RCF maturity date was extended by a year to November 2025.
Derivative financial instruments reflects the foreign exchange hedging
programme described previously.
Other net assets and liabilities predominantly comprise a performance fee
accrual of £47 million (March 2022:£64 million), including amounts relating
to prior year fees. The movement from March 2022 is due to an increase in the
performance fee payable of £9 million, following the outperformance in the
period. £26 million of prior year performance fees were paid during the
period. The vendor loan note of £98 million included as an asset within other
net assets at March 2022 was redeemed in July 2022.
NAV per share
The total NAV per share at 30 September 2022 was 325.8 pence (March 2022:
303.3 pence). This reduces to 320.2 pence (March 2022: 298.1 pence) after the
payment of the interim dividend of 5.575 pence (March 2022: final dividend of
5.225 pence).
Dividend
The Board has announced an interim dividend for the period of 5.575 pence per
share, or £50 million in aggregate (September 2021: 5.225 pence; £47
million). This is half of the Company's target full-year dividend for FY23 of
11.15 pence per share. The Board is designating 5.4 pence of the 5.575 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 2022.
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 £247 million, as shown in the The calculation uses IFRS measures.
Statement of comprehensive income, as a percentage of the opening NAV of
£2,704 million net of the final dividend for the previous year of £46
million.
NAV per share A measure of the NAV per share in the Company. It is calculated as the NAV of £2,905 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 891.4 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 The non-income cash, being the proceeds from partial realisations of
not resulting from the disposal of an underlying portfolio asset. This is investments are shown in the Cash flow statement. The realisation proceeds
shown in Table 4. which result from a partial sale of an underlying portfolio asset are not
included within non-income cash.
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 £285 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 £3,104 million. shown in Table 1 including in the footnotes.
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 2022,
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 72 to 74 of the Annual report and
accounts 2022. Developments in relation to these principal risks during the
period are outlined below.
External risks - market and competition
The recent macro environment has been volatile but, as we saw through the
Covid-19 pandemic, the portfolio has proven to be resilient. This volatility
has been more pronounced in the UK, where the UK companies Infinis and SRL
represent c.18% of the portfolio.
During the period we have seen a rise in interest rates and risk-free rates as
central banks responded to higher inflation. At this point we are not seeing
any upward pressure on discount rates for core-plus infrastructure investments
as these tend to have greater discount rate headroom to risk-free rates and
strong inflation protection features. The European infrastructure market
continues to experience strong demand for new investments. Private funds with
a core-plus infrastructure focused mandate have significant amounts of dry
powder and these are the Company's primary competition for new investment.
Fundraising has increased at a faster pace than the number of funds raised,
resulting in larger fund sizes creating intense competition for suitable
infrastructure targets. There remains a risk that pricing does change for
core-plus infrastructure in the medium term.
Inflation in the UK and Europe has risen sharply in the period, driven by
rising energy costs, supply chain bottlenecks, labour and raw material
shortages and the reopening of economies from pandemic-related lockdowns. The
portfolio is positively correlated to inflation as most portfolio companies
have revenues at least partially linked to inflation, although higher
inflation may also result in increased costs and supply chain disruption and,
should it persist, is generally bad for the economy as a whole. Sensitivities
to macroeconomic assumptions are discussed in the Financial review and in Note
4 to the accounts.
Interest rates have increased materially in the period. There are no material
refinancing requirements in the portfolio until 2026 and over 85% 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. The recent investment in
GCX, which closed in September, is exposed to US dollars. During the period,
the euro appreciated c.4% against sterling. The Company operates a hedging
programme which substantially offsets any foreign exchange movements.
Medium-term power prices have increased considerably since March 2022 driven
by gas supply concerns, record carbon prices, low wind levels and higher
commodity prices, particularly for gas. This will benefit those portfolio
companies that generate electricity and typically sell it on a forward basis
in order to avoid spot market volatility: Infinis, Attero and Valorem.
External risks - regulatory and tax
The Company's investments in Infinis, Attero and Valorem are exposed to
electricity market regulation risk.
The UK government is proposing to introduce a price cap for renewable
electricity generators, similar to proposals already announced by the European
Union. We do not expect the strike price of the Government's proposed
temporary price cap on low carbon generators to be at a level that would
materially impact Infinis given its currently hedged position. There is also a
potential risk that political pressure could mount for an extension of the
windfall tax on oil and gas companies announced in May 2022 to include
electricity generators, but we would expect the impact on Infinis to be
largely mitigated by allowances for investment in new renewable generation
capacity.
Based on the limited information currently in the public domain, the €180
per MWh price cap proposed by the European Union is not expected to have a
material impact on either Attero or Valorem.
Strategic risks
The Company manages its balance sheet and liquidity position, actively seeking
to maintain adequate liquidity to pursue investment opportunities, without
diluting shareholder returns by holding surplus cash. At 30 September 2022,
there was £29 million available in cash, with drawings of £330 million under
the RCF. During the period the Company extended the maturity of its facility
to November 2025. In October 2022, the Company completed a further investment
in TCR of £338 million, funded by additional drawings on the RCF. We expect
to syndicate a portion of this further investment in TCR in the second half of
the financial year.
Statement of comprehensive income
for the six months to 30 September
Six months to Six months to
30 September 2022 30 September 2021
Notes (unaudited) (unaudited)
£m £m
Net gains on investments 4 296 244
Investment income 70 47
Fees payable on investment activities - (2)
Interest receivable 2 3
Investment return 368 292
Movement in the fair value of derivative financial instruments (81) (8)
Management and performance fees payable 2 (31) (31)
Operating expenses (2) (2)
Finance costs (5) (1)
Exchange movements (2) -
Profit before tax 247 250
Income taxes 3 - -
Profit after tax and profit for the period 247 250
Total comprehensive income for the period 247 250
Earnings per share
Basic and diluted (pence) 7 27.7 28.0
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 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
Stated Total
capital Retained Capital Revenue shareholders'
For the six months to 30 September 2021 account reserves reserve reserve equity
(unaudited) Notes £m £m £m £m £m
Opening balance at 1 April 2021 779 1,282 330 (1) 2,390
Total comprehensive income for the period - - 219 31 250
Dividends paid to shareholders of the Company during the period 8 - - (14) (30) (44)
Closing balance at 30 September 2021 779 1,282 535 - 2,596
Balance sheet
as at 30 September
30 September 2022 31 March 2022
(unaudited) (audited)
Notes £m £m
Assets
Non-current assets
Investments at fair value through profit or loss 4 3,321 2,873
Derivative financial instruments 4 1 6
Total non-current assets 3,322 2,879
Current assets
Derivative financial instruments 4 11 20
Trade and other receivables 4 104
Cash and cash equivalents 29 17
Total current assets 44 141
Total assets 3,366 3,020
Liabilities
Non-current liabilities
Derivative financial instruments 4 (54) (6)
Trade and other payables (24) (38)
Loans and borrowings (330) (231)
Total non-current liabilities (408) (275)
Current liabilities
Derivative financial instruments 4 (28) (12)
Trade and other payables (25) (29)
Total current liabilities (53) (41)
Total liabilities (461) (316)
Net assets 2,905 2,704
Equity
Stated capital account 6 779 779
Retained reserves 1,282 1,282
Capital reserve 844 643
Revenue reserve - -
Total equity 2,905 2,704
Net asset value per share
Basic and diluted (pence) 7 325.8 303.3
The Financial statements and related Notes were approved and authorised for
issue by the Board of Directors on 7 November 2022 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 2022 30 September 2021
(unaudited) (unaudited)
£m £m
Cash flow from operating activities
Purchase of investments (318) (169)
Proceeds from other financial assets 98 -
Proceeds from partial realisations of investments 118 8
Proceeds from full realisation of investments 105 -
Investment income(1) 18 15
Fees rebated / (paid) on investment activities 2 (1)
Operating expenses paid (2) (1)
Management and performance fees paid (50) (23)
Amounts (paid) / received on the settlement of derivative contracts (3) 6
Net cash flow from operations (32) (165)
Cash flow from financing activities
Fees and interest paid on financing activities (5) (1)
Dividends paid (46) (44)
Repayment of revolving credit facility (1,827) -
Drawdown of revolving credit facility 1,924 -
Net cash flow from financing activities 46 (45)
Change in cash and cash equivalents 14 (210)
Cash and cash equivalents at the beginning of the period 17 462
Effect of exchange rate movement (2) -
Cash and cash equivalents at the end of the period 29 252
1 Investment income includes dividends of £1 million (September 2021: £2
million) and interest of £17 million (September 2021: £13 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 2022.
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 2022 and those which we expect to adopt for the Annual report and
accounts 2023, 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 2022, 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 2022. 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 2022, the Company's
liquidity totalled £599 million (March 2022: £786 million). Liquidity
comprised cash and deposits of £29 million (March 2022: £17 million) and
undrawn facilities of £570 million (March 2022: £769 million) with a
maturity date of November 2025. Income and non-income cash is expected to be
received from the portfolio investments during the coming year, a portion of
which will be required to support the payment of the dividend target and the
Company's other financial commitments, including the acquisition of the
remaining stake in TCR.
The Half-yearly Financial Statements were authorised for issue by the
Directors on 7 November 2022.
The Half-yearly Financial Statements do not constitute statutory accounts. The
Financial Statements for the year to 31 March 2022, 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 2022.
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 2022 was an assessment of the impact of the
macroeconomic environment on the operational and financial performance of each
portfolio company. In particular this focused on increasing inflationary
pressures, tightening debt markets, volatility in power prices and ongoing
geopolitical uncertainties. We have incorporated into our cash flow forecasts
a balanced view of future income receipts and expenses.
Notes to the accounts
1 Operating segments
The Directors review information on a regular basis that is analysed by
portfolio segment: being Economic Infrastructure businesses, the Projects
portfolio and the India fund, and by geography. These segments are reviewed
for the purpose of resource allocation and the assessment of their
performance. In accordance with IFRS 8, the segmental information provided
below uses these segments for the analysis of results as it is the most
closely aligned with IFRS reporting requirements. The Company is an investment
holding company and does not consider itself to have any customers.
The following is an analysis of the Company's investment return, profit before
tax, assets, liabilities and net assets by portfolio segment for the six
months to 30 September 2022:
Economic
Infrastructure Projects India
For the six months to 30 September 2022 businesses portfolio Fund Unallocated (1) Total
(unaudited) £m £m £m £m £m
Investment return 363 3 - 2 368
Profit/(loss) before tax 283 2 - (38) 247
Economic
Infrastructure Projects India
For the six months to 30 September 2021 businesses portfolio Fund Unallocated (1) Total
(unaudited) £m £m £m £m £m
Investment return 280 6 3 3 292
Profit/(loss) before tax 272 6 3 (31) 250
As at 30 September 2022
(unaudited)
Assets 3,333 - - 33 3,366
Liabilities (82) - - (379) (461)
Net assets/(liabilities) 3,251 - - (346) 2,905
As at 31 March 2022 (audited)
Assets 2,796 105 - 119 3,020
Liabilities (18) (1) - (297) (316)
Net assets/(liabilities) 2,778 104 - (178) 2,704
1 Unallocated includes cash, management and performance fees payable and other
payables and receivables (including drawings on the RCF) which are not
directly attributable to the investment portfolio.
The following is an analysis of the Company's investment return, profit before
tax, assets, liabilities and net assets by geography for the six months to 30
September 2022:
For the six months to 30 September 2022 UK and Ireland(1) Europe(2) Asia Total
(unaudited) £m £m £m £m
Investment return 82 286 - 368
Profit/(loss) before tax 24 223 - 247
For the six months to 30 September 2021 UK and Ireland(1) Europe(2) Asia Total
(unaudited) £m £m £m £m
Investment return 15 274 3 292
Profit/(loss) before tax (19) 266 3 250
As at 30 September 2022
(unaudited)
Assets 953 2,413 - 3,366
Liabilities (379) (82) - (461)
Net assets 574 2,331 - 2,905
As at 31 March 2022 (audited)
Assets 653 2,367 - 3,020
Liabilities (298) (18) - (316)
Net assets 355 2,349 - 2,704
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 Company's investment in Oystercatcher,
including those derived from its underlying business in Singapore.
The Company generated 22% (September 2021: 5%) of its investment return in the
period from investments held in the UK and Ireland, 78% (September 2021: 94%)
from investments held in continental Europe and none from investments held in
India (September 2021: 1%). During the period, the Company generated 99%
(September 2021: 97%) of its investment return from investments in Economic
Infrastructure businesses, 1% (September 2021: 2%) from investments in
Projects and none (September 2021: 1%) from its investment in the India Fund.
Given the nature of the Company's operations, the Company is not considered to
be exposed to any operational seasonality or cyclicality that would impact the
financial results of the Company during the period or the financial position
of the Company at 30 September 2022.
2 Management and performance fees payable
Six months to Six months to
30 September 2022 30 September 2021
(unaudited) (unaudited)
£m £m
Management fee 22 16
Performance fee 9 15
31 31
Total management and performance fees payable by the Company for the period to
30 September 2022 were £31 million (September 2021: £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 2022 30 September 2021
(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 19% (2021: 19%), and the differences are explained below:
Six months to Six months to
30 September 30 September
2022 2021
£m £m
Profit before tax 247 250
Profit before tax multiplied by rate of corporation tax in the UK of 19% 47 47
(2021: 19%)
Effects of:
Non-taxable capital profits due to UK approved investment trust company status (40) (44)
Dividends designated as interest distribution (9) (3)
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
market either directly (ie. as prices) or indirectly (ie. derived from prices)
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 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 2022. For all other assets
and liabilities, their carrying value approximates to fair value. During the
period ended 30 September 2022, there were no transfers of financial
instruments between levels of the fair value hierarchy (March 2022: none).
Trade and other receivables on the Balance sheet includes £3 million of
deferred finance costs relating to the arrangement fee for the revolving
credit facility (March 2022: £2 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 2022
(unaudited)
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial assets
Investments at fair value through profit or loss - - 3,321 3,321
Trade and other receivables - 1 - 1
Derivative financial instruments - 12 - 12
- 13 3,321 3,334
Financial liabilities
Derivative financial instruments - (82) - (82)
- (82) - (82)
As at 31 March 2022
(audited)
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial assets
Investments at fair value through profit or loss - - 2,873 2,873
Trade and other receivables - 102 - 102
Derivative financial instruments - 26 - 26
128 2,873 3,001
Financial liabilities
Derivative financial instruments - (18) - (18)
- (18) - (18)
Reconciliation of financial instruments categorised within Level 3 of fair
value hierarchy
As at 30 September 2022
(unaudited)
Level 3 fair value reconciliation £m
Opening fair value 2,873
Additions 342
Disposal proceeds and repayment (217)
Movement in accrued income 27
Fair value movement (including exchange movements) 296
Closing fair value 3,321
As at 31 March 2022
(audited)
Level 3 fair value reconciliation £m
Opening fair value 1,804
Additions 816
Disposal proceeds and repayment (148)
Movement in accrued income 17
Fair value movement (including exchange movements) 384
Closing fair value 2,873
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.
Investment income of £70 million (September 2021: £47 million) comprises
dividend income of £1 million (September 2021: £2 million) and interest
income of £69 million (September 2021: £45 million).
Unquoted investments
The Company invests in private companies which are not quoted on an active
market. These are measured in accordance with the International Private Equity
Valuation guidelines with reference to the most appropriate information
available at the time of measurement. Further information regarding the
valuation of unquoted investments can be found in the Portfolio valuation
methodology section.
The Company's policy is to fair value both the equity and shareholder debt
investments in infrastructure assets together where they will be managed and
valued as a single investment, were invested at the same time and cannot be
realised separately. The Directors consider that equity and debt share the
same characteristics and risks and they are therefore treated as a single unit
of account for valuation purposes and a single class for disclosure purposes.
As at 30 September 2022, the fair value of unquoted investments was £3,321
million (March 2022: £2,873 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 rates 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 £306 million (March 2022: £258
million). Decreasing the discount rate used in the valuation of each asset by
1% would increase the value of the portfolio by £352 million (March 2022:
£297 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% (March 2022: 2.0%). The long-term RPI assumption for UK assets is 2.5%
(March 2022: 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 £37 million
(March 2022: £43 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 £37 million (March 2022: £46 million). The impact
of increasing the inflation rate assumption by 1% across our full projection
periods would be to increase the value of the portfolio by £259 million.
Decreasing the inflation rate assumption used in the valuation of each asset
by 1% across our full projection periods would decrease the value of the
portfolio by £235 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 £134 million (March
2022: £158 million). Decreasing the interest rate assumption used in the
valuation of each asset by 1% would increase the value of the portfolio by
£141 million (March 2022: £156 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 2022,
the fair value of the other assets and liabilities within these intermediate
holding companies was less than £1 million (March 2022: 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 2022. In September 2022, the maturity of the RCF was extended to 3
November 2025. The Company has the right to extend the RCF by a further year
provided that existing lenders consent.
The RCF is secured by a floating charge over the bank accounts of the Company.
Interest is payable at SONIA plus a fixed margin on the drawn amount. As at 30
September 2022, the Company had £330 million of drawings under the RCF (March
2022: £231 million). The RCF has certain loan covenants, including 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 2022 As at 31 March 2022
(unaudited) (audited)
Number £m Number £m
Authorised, issued and fully paid
Opening balance 891,434,010 1,496 891,434,010 1,496
Closing balance 891,434,010 1,496 891,434,010 1,496
Aggregate issue costs of £24 million arising from IPO and subsequent share
issues have been 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 million transferred to a new,
distributable reserve which has been combined with retained reserves in these
accounts. Therefore, as at 30 September 2022, the residual value on the stated
capital account was £779 million.
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 2022 30 September 2021
(unaudited) (unaudited)
Earnings per share (pence)
Basic and diluted 27.7 28.0
Earnings (£m)
Profit after tax for the period 247 250
Number of shares (million)
Weighted average number of shares in issue 891.4 891.4
As at As at
30 September 31 March
2022 2022
(unaudited) (audited)
Net assets per share (pence)
Basic and diluted 325.8 303.3
Net assets (£m)
Net assets 2,905 2,704
8 Dividends
As at 30 September 2022 As at 30 September 2021
(unaudited) (unaudited)
Declared and paid during the period pence per share £m pence per share £m
Prior year final dividend paid on ordinary shares 5.225 46 4.9 44
The Company proposes paying an interim dividend of 5.575 pence per share
(September 2021: 5.225 pence) which will be payable to those shareholders that
are on the register on 25 November 2022. On the basis of the shares in issue
at 30 September 2022, this would equate to a total interim dividend of £50
million (September 2021: £46 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 30.2% (March 2022: 30.2%) of the ordinary
shares of the Company. This classifies
3i Group as a 'substantial shareholder' of the Company as defined by the
Listing Rules. During the period, 3i Group received dividends of £14 million
(September 2021: £13 million) from the Company.
In 2007 the Company committed US$250 million to the 3i India Infrastructure
Fund (the 'India Fund') to invest in the Indian infrastructure market. 3i
Group also committed US$250 million to the India Fund. The India Fund has
reached the end of its life and moved into liquidation and the outstanding
commitment is no longer callable. Therefore, no commitments were drawn down by
the India Fund from the Company during the period (September 2021: nil).
3i Investments plc, a subsidiary of 3i Group, is the Company's Alternative
Investment Fund Manager and provides its services under an Investment
Management Agreement ('IMA'). 3i Investments plc also acts as the investment
manager of the India Fund. 3i plc, another subsidiary of 3i Group, together
with 3i Investments plc, provides support services to the Company (which are
ancillary and related to the investment management service) which it is doing
pursuant to the terms of the IMA.
Fees under the IMA consist of a tiered management fee and time weighting of
the management fee calculation and a one-off transaction fee of 1.2% payable
in respect of new investments. The applicable tiered rates are shown in the
table below. The management fee is payable quarterly in advance.
Gross investment value Applicable tier rate
Up to £1.25bn 1.4%
£1.25bn to £2.25bn 1.3%
Above £2.25bn 1.2%
For the period to 30 September 2022, £22 million (September 2021: £16
million) was payable and advance payments of £22 million were made resulting
in no amount due to 3i plc at 30 September 2022 (March 2022: £1 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 of £1 million. The
cost for the support services incurred for the period to 30 September 2022 was
£0.5 million (September 2021: £0.5 million). There was no outstanding
balance payable as at 30 September 2022 (March 2022: nil).
Under the IMA, a performance fee is payable to the Investment Manager equal to
20% of the Company's total return in excess of 8%, payable in three equal
annual instalments. The second and third instalments will only be payable if
either (a) the Company's performance in the year in which that instalment is
paid also triggers payment of a performance fee in respect of that year, or
(b) if the Company's performance over the three years starting with the year
in which the performance fee is earned exceeds the 8% hurdle on an annual
basis.
The performance hurdle requirement was exceeded for the period to 30 September
2022 and therefore a performance fee accrual of £9 million was recognised
(September 2021: £15 million). The outstanding balance payable as at 30
September 2022 was £47 million (March 2022: £64 million), which includes the
second and third instalments of the FY22 fee and the third instalment of the
FY21 fee.
Year Performance fee (£m) Outstanding balance at 30 September 2022 (£m) Payable for FY23 (£m)
FY23 9 9 3
FY22 54 36 18
FY21 7 2 2
Under the IMA, the Investment Manager's appointment may be terminated by
either the Company or the Investment Manager giving the other not less than 12
months' notice in writing, 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 2022 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 2022 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: 7 November 2022
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
7 November 2022
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.
Stephanie Hazell
Independent Non-executive Director.
Samantha Hoe-Richardson
Independent Non-executive Director.
Ian Lobley
Non-executive Director.
Paul Masterton
Senior Independent Director and chair of the Remuneration Committee.
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 Manager, that that
is the most appropriate and effective means of investing), which may be
advised or managed either by the Investment Manager or a third party. If the
Company invests in another fund advised or managed by 3i Group, the relevant
proportion of any advisory or management fees payable by the investee fund to
3i plc will be deducted from the annual management fee payable under the
Investment Management Agreement and the relevant proportion of any performance
fee will be deducted from the annual performance fee, if payable, under the
Investment Management Agreement. For the avoidance of doubt, there will be no
similar set-off arrangement where any such fund is advised or managed by a
third party.
For most investments, the Company seeks to obtain representation on the board
of directors of the investee company (or equivalent governing body) and in
cases where it acquires a majority equity interest in a business, that
interest may also be a controlling interest.
No investment made by the Company will represent more than 25% of the
Company's gross assets, including cash holdings, at the time of the making of
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. Depending
on the size of the relevant investment and the identity of the relevant
co-investor, such a co-investment arrangement may be subject to the related
party transaction provisions contained in the Listing Rules and may therefore
require shareholder consent.
The Company's Articles require its outstanding borrowings, including any
financial guarantees to support subsequent obligations, to be limited to 50%
of the gross assets of the Company (valuing investments on the basis included
in the Company's accounts).
In accordance with Listing Rules requirements, the Company will only make a
material change to its investment policy with the approval of shareholders.
Portfolio valuation methodology
A description of the methodology used to value the investment portfolio of the
Company is set out below in order to provide more detailed information than is
included within the accounting policies and the Financial review for the
valuation of the portfolio. The methodology complies in all material aspects
with the 'International Private Equity and Venture Capital valuation
guidelines' which are endorsed by the British Private Equity and Venture
Capital Association and Invest Europe.
Basis of valuation
Investments are reported at the Directors' estimate of fair value at the
reporting date in compliance with IFRS 13 Fair Value Measurement. Fair value
is defined as 'the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date'.
General
In estimating fair value, the Directors seek to use a methodology that is
appropriate in light of the nature, facts and circumstances of the investment
and its materiality in the context of the overall portfolio. The methodology
that is the most appropriate may consequently include adjustments based on
informed and experience-based judgements and will also consider the nature of
the industry and market practice. Methodologies are applied consistently from
period to period except where a change would result in a better estimation of
fair value. Given the uncertainties inherent in estimating fair value, a
degree of caution is applied in exercising judgements and making necessary
estimates.
Investments may include portfolio assets and other net assets/liabilities
balances. The methodology for valuing portfolio assets is set out below. Any
net assets/liabilities within intermediate holding companies are valued in
line with the Company accounting policy and held at fair value or approximate
to fair value.
Quoted investments
Quoted equity investments are valued at the closing bid price at the reporting
date. In accordance with International Financial Reporting Standards, no
discount is applied for liquidity of the stock or any dealing restrictions.
Quoted debt investments will be valued using quoted prices provided by
third-party broker information where reliable or will be held at cost less
fair value adjustments.
Unquoted investments
Unquoted investments are valued using one of the following methodologies:
- Discounted Cash Flow ('DCF')
- Proportionate share of net assets
- Sales basis
- Cost less any fair value adjustments required
DCF
DCF is the primary basis for valuation. In using the DCF basis, fair value is
estimated by deriving the present value of the investment using reasonable
assumptions and estimation of expected future cash flows, including contracted
and uncontracted revenues, expenses, capital expenditure, financing and
taxation, and the terminal value and date, and the appropriate risk-adjusted
discount rate that quantifies the risk inherent to the investment. The
terminal value attributes a residual value to the investee company at the end
of the projected discrete cash flow period. The discount rate will be
estimated for each investment derived from the market risk-free rate, a
risk-adjusted premium and information specific to the investment or market
sector.
Proportionate share of net assets
Where the Company has made investments into other infrastructure funds, the
value of the investment will be derived from the Company's share of net assets
of the fund based on the most recent reliable financial information available
from the fund. Where the underlying investments within a fund are valued on a
DCF basis, the discount rate applied may be adjusted by the Company to reflect
its assessment of the most appropriate discount rate for the nature of assets
held in the fund. In measuring the fair value, the net asset value of the fund
is adjusted, as necessary, to reflect restrictions on redemptions, future
commitments, illiquid nature of the investments and other specific factors of
the fund.
Sales basis
The expected sale proceeds will be used to assign a fair value to an asset in
cases where offers have been received as part of an investment sales process.
This may either support the value derived from another methodology or may be
used as the primary valuation basis. A marketability discount is applied to
the expected sale proceeds to derive the valuation where appropriate.
Cost less fair value adjustment
Any investment in a company that has failed or, in the view of the Board, is
expected to fail within the next 12 months, has the equity shares valued at
nil and the fixed income shares and loan instruments valued at the lower of
cost and net recoverable amount.
Information for shareholders
Financial calendar
Ex-dividend date for interim dividend 24 November 2022
Record date for interim dividend 25 November 2022
Interim dividend expected to be paid 12 January 2023
Full year results expected date 9 May 2023
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 5.4 pence of the 5.575 pence interim
dividend payable in respect of the period as an interest distribution.
Registrars
For shareholder services, including notifying changes of address, the
Registrars' details are as follows:
Link Market Services (Jersey) Limited
PO Box 532
St. Helier
Jersey JE4 5UW
Channel Islands
Shareholder helpline: 0371 664 0300
Calls are charged at the standard geographic rate and will vary by provider.
Calls outside the United Kingdom will be charged at the applicable
international rate. Lines are open between 08:30 - 17:30, Monday to Friday
excluding public holidays in England and Wales. Please note that calls may be
monitored or recorded for training and quality purposes.
Email: shareholderenquiries@linkgroup.co.uk
(mailto:shareholderenquiries@linkgroup.co.uk)
Investor relations and general enquiries
For all investor relations and general enquiries about 3i Infrastructure plc,
please contact:
Thomas Fodor
Investor Relations
3i Infrastructure plc
16 Palace Street
London, SW1E 5JD
email: thomas.fodor@3i.com (mailto:thomas.fodor@3i.com)
Telephone +44 (0)20 7975 3469
or for full up-to-date investor relations information including the latest
share price, recent reports, results presentations and financial news, please
visit our investor relations website www.3i-infrastructure.com
(http://www.3i-infrastructure.com) .
If you would prefer to receive shareholder communications electronically,
including your annual reports and notices of meetings, please go to
www.3i-infrastructure.com/investors/shareholder-centre
(http://www.3i-infrastructure.com/investors/shareholder-centre) for details of
how to register.
Frequently used Registrars' forms can be found on our website at
www.3i-infrastructure.com/investors/shareholder-centre
(http://www.3i-infrastructure.com/investors/shareholder-centre)
3i Infrastructure plc
Registered office
12 Castle Street
St. Helier
Jersey JE2 3RT
Channel Islands
www.3i-infrastructure.com (http://www.3i-infrastructure.com)
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