REG - 3i Infrastructure - Results for the year to 31 March 2022
10/05/2022 07:00
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RNS Number : 8589K 3i Infrastructure PLC 10 May 2022
10 May 2022
Results for the year to 31 March 2022
3i Infrastructure plc (the 'Company') today announces a 17.2% return for the
year, delivery of the FY22 dividend of 10.45 pence and a 6.7% increase in the
target dividend for FY23 to 11.15 pence per share.
Richard Laing, Chair of 3i Infrastructure plc, said:
"I am delighted to report that we achieved a return of 17.2% in the year ended
31 March 2022, well ahead of our target and demonstrating the attractiveness
of our portfolio. This is the eighth consecutive year that we have met or
exceeded our return target; and we have increased the dividend per share in
every year of the Company's existence."
Phil White, Managing Partner, Infrastructure, 3i Investments plc, added:
"It was a very good year for the Company - a high level of new investment,
excellent realisations, and a strong portfolio performance."
Performance highlights
Portfolio consistently meeting or 17.2%
exceeding target returns
Total return on opening NAV
£404m
Total return for the year
303.3p
NAV per share
Strong level of new investments £980m
New investments or commitments
Successful realisation of Oystercatcher's European terminals and the European 14% IRR and 20% IRR
Projects portfolio
Delivered FY22 dividend target, fully covered 10.45p
Full year dividend per share for FY22
Setting target for FY23 dividend, up 6.7% year on year 11.15p
Target dividend per share for FY23
For further information, please contact:
Richard Laing, Chair, 3i Infrastructure plc Tel: 037 1664 0445
Thomas Fodor, investor enquiries Tel: 020 7975 3469
Kathryn van der Kroft, press enquiries Tel: 020 7975 3021
For further information regarding the announcement of the results for 3i
Infrastructure plc, including a live webcast of the results presentation at
10.00am, please visit www.3i-infrastructure.com. The analyst presentation will
be made available on this website during the day.
Notes to the preliminary announcement
Note 1
The statutory accounts for the year to 31 March 2022 have not yet been
delivered to the Jersey Financial Services Commission. The statutory accounts
for the year to 31 March 2021 have been delivered to the Jersey Financial
Services Commission. The auditor's reports on the statutory accounts for these
years are unqualified. This announcement does not constitute statutory
accounts. The preliminary announcement is prepared on the same basis as set
out in the statutory accounts for the year to 31 March 2021.
Note 2
Subject to shareholder approval, the proposed final dividend is expected to be
paid on 11 July 2022 to holders of ordinary shares on the register on 17 June
2022. The ex-dividend date for the final dividend will be on 16 June 2022.
Note 3
This report contains Alternative Performance Measures ('APMs'), which are
financial measures not defined in International Financial Reporting Standards
('IFRS'). More information relating to APMs, including why we use them and the
relevant definitions, can be found in the Company's 2022 Annual report and
accounts and in the Financial review section.
Note 4
The preliminary announcement has been extracted from the Annual report and
accounts 2022. The Annual report and accounts 2022 will be available on the
Company's website today. Printed copies of the Annual report and accounts 2022
will be distributed to shareholders who have elected to receive printed copy
communications on or soon after 23 May 2022.
Notes to editors
About 3i Infrastructure plc
3i Infrastructure plc is a Jersey-incorporated, closed-ended investment
company, an approved UK Investment Trust, listed on the London Stock Exchange
and regulated by the Jersey Financial Services Commission. The Company's
purpose is to deliver a long-term sustainable return to shareholders from
investing in infrastructure.
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 Annual report and accounts may contain
statements about the future, including certain statements about the future
outlook for 3i Infrastructure plc. These are not guarantees of future
performance and will not be updated. Although we believe our expectations are
based on reasonable assumptions, any statements about the future outlook are
subject to a number of risks and uncertainties and could change. Factors which
could cause or contribute to such differences include, but are not limited to,
general economic and market conditions and specific factors affecting the
financial prospects or performance of individual investments within the
portfolio of 3i Infrastructure plc.
This press release is not for distribution (directly or indirectly) in or to
the United States, Canada, Australia or Japan and is not an offer of
securities for sale in or into the United States, Canada, Australia or Japan.
Securities may not be offered or sold in the United States absent registration
under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or
an exemption from registration under the Securities Act. Any public offering
to be made in the United States will be made by means of a prospectus that may
be obtained from the issuer or selling security holder and will contain
detailed information about 3i Group plc, 3i Infrastructure plc, 3i India
Infrastructure Fund and management, as applicable, as well as financial
statements. No public offering in the United States is currently contemplated.
Our purpose
Our 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.
Chair's statement
3i Infrastructure continues to meet its strategic objectives and deliver its
purpose.
"This has been another excellent year, and we have confidence in the future of
our Company and portfolio."
Richard Laing
Chair, 3i Infrastructure plc
The Company aims to provide shareholders with a total return of 8% to 10% per
annum, to be achieved over the medium term. I am delighted to report that we
achieved a return of 17.2% in the year ended 31 March 2022, well ahead of our
target and demonstrating the attractiveness of our portfolio. This is the
eighth consecutive year that we have met or exceeded our return target; and we
have increased the dividend per share in every year of the Company's
existence.
Our portfolio companies have continued to demonstrate resilience throughout
the Covid-19 pandemic, keeping essential infrastructure operating and
supporting customers, suppliers, employees and their communities. None of our
portfolio companies has direct exposure to Russia or Ukraine.
We have made good progress against our sustainability objectives and are
pleased with the level of engagement and enthusiasm that we see across our
portfolio companies. Our report this year includes information on greenhouse
gas ('GHG') emissions for each company, which can be found in the
Sustainability report of the Annual report and accounts 2022.
I am grateful to shareholders and the Board of Directors for their support
during the year, as well as to the Investment Manager's team for their hard
work in a year when office life and business travel were again restricted. We
made good use of virtual means of communication, as well as meeting in person
where possible.
Our purpose
Our purpose, as set out above, 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. The key elements of
our purpose are used to structure our Strategic report.
Sustainability is central to our purpose and we create value for all
stakeholders by investing in, developing and actively managing essential
infrastructure which responds to public needs, fosters sustainable growth and
improves the lives of communities. We invest across a broad range of
infrastructure investment themes, and are highlighting two in particular in
this report: energy transition and digitalisation.
As the countries in which we invest increase their focus on climate change, we
see continued opportunities to invest in energy transition, putting our
capital to work to generate sustainable returns and to have a positive impact
through mitigating climate change. Similarly, increasing demand for digital
connectivity brings opportunities to invest in building the underlying
infrastructure required to meet that demand.
Performance
The Company generated a total return of £404 million in the year ended 31
March 2022, or 17.2% on opening NAV, ahead of our target of 8% to 10% per
annum to be achieved over the medium term.
2007 to 2022
In the 15 years since the initial public offering ('IPO')
the Company has delivered an annualised total
shareholder return of
13.1%
per annum
The NAV per share increased to 303.3 pence. We delivered a Total Shareholder
Return ('TSR') of 20.9% in the year (FTSE 250: 0.5%). Since IPO, the Company's
annualised TSR is 13.1%, comparing favourably with the broader market (FTSE
250: 7.1% annualised over the same period).
Investment activity
This was a busy year for new investments. In June 2021, we completed the
acquisition of a 60% stake in DNS:NET for £157 million. DNS:NET is a leading
independent telecommunications provider in Germany. In November 2021, we
agreed to invest c.$512 million to acquire 100% of Global Cloud Xchange
('GCX'). GCX is a leading global data communications service provider.
Additional acquisition debt was raised in March 2022, reducing the Company's
equity commitment to c.£300 million. The transaction is expected to complete
in summer 2022.
In December 2021, we invested £191 million, net of a subsequent debt raise,
in SRL Traffic Systems ('SRL'). SRL is the market leading traffic management
equipment rental company in the UK.
We bought out our co-investor, AMP Capital, purchasing their stake in ESVAGT
for £258 million in February 2022.
We have continued to support growth in our portfolio companies with an
aggregate £71 million investment into DNS:NET, Valorem, ESVAGT and Joulz to
fund further growth.
We completed the sale of Oystercatcher's four European terminals in October
2021. This resulted in a distribution of €55 million to the Company after
repaying all of Oystercatcher's debt facilities. Oystercatcher retains its
holding of a 45% stake in Oiltanking Singapore. At the end of the financial
year, in March 2022, we agreed to sell our European Projects portfolio to 3i
European Operational Projects Fund ('3i EOPF') for £103 million. This
transaction is expected to reach completion by June 2022.
Dividend
Following the payment of the interim dividend of 5.225 pence per share in
January 2022, the Board is recommending a final dividend for the year of 5.225
pence per share, meeting our target for the year of 10.45 pence per share,
6.6% above last year's total dividend. We expect the final dividend to be paid
on 11 July 2022. Consistent with our progressive dividend policy, we are
announcing a total dividend target for the year ending 31 March 2023 of 11.15
pence per share, representing an increase of 6.7%.
Changes to the Investment Manager's team
On 31 March 2022, the Investment Manager announced that Phil White is stepping
down from his role as Managing Partner and Head of Infrastructure, 3i
Investments plc, with effect from 1 July 2022. Scott Moseley and Bernardo
Sottomayor will be appointed as Co-Heads of European Infrastructure and will
take on Phil's role in relation to the Company.
Phil has contributed enormously to the Company's success over many years.
During his eight-year tenure as Managing Partner, the Company's returns have
been consistently ahead of the FTSE 250 benchmark and, under his leadership,
the capabilities of the management team have grown considerably. We have
appreciated Phil's experience, wisdom and commitment and are extremely
grateful for all that he has done for the Company.
We note that Phil will continue with the Investment Manager on a part-time
basis and will remain a member of the Investment Committee. We welcome the
appointment of Scott and Bernardo, knowing them well and having worked with
them over many years. The Board is confident that under their leadership the
team will continue to provide excellent management of the Company.
Corporate governance and Company domicile
The Company's Annual General Meeting ('AGM') was held on 8 July 2021 as a
purely functional meeting only conducting the formal business due to
Government guidance and continued restrictions related to the Covid-19
pandemic in place at the time.
All resolutions were approved by shareholders, including the re-election of
the existing Directors. I was pleased with the high level of shareholder
engagement via proxy voting at that meeting. We also held an interactive
online shareholder presentation two weeks before the AGM which enabled
shareholders to submit questions for Directors to answer.
This year's AGM will be held on 7 July 2022. Further details are provided in
the Notice of Meeting and on the Company's website, www.3i-infrastructure.com.
We very much look forward to seeing shareholders in person again at this
year's AGM.
In 2021, the UK government consulted on proposals to implement a simplified
corporate re-domiciliation regime that would allow overseas companies to
become UK domiciled. The Company responded supporting these proposals. If
implemented, the Company would be likely to take advantage of this route to
become a UK company. There would be no change in the Company's status as an
approved UK investment trust.
Directors' duties
The Directors have a duty to act honestly and in good faith with a view to the
best interests of the Company and to exercise the care, diligence and skill
that a reasonably prudent person would exercise in comparable circumstances.
In accordance with the AIC Code of Corporate Governance 2019 (the 'AIC Code'),
the Board does this through understanding the views of the Company's key
stakeholders and carefully considering how their interests and the matters set
out in section 172 Companies Act 2006 of England and Wales have been
considered in Board discussions and decision making. More detail can be found
in the Directors' duties and Section 172 Statement sections later in this
document.
Outlook
The Company has remained disciplined in its investment approach, and has
succeeded in making a number of new investments during the year. Our portfolio
consists of defensive businesses providing essential services to their
customers and the communities they serve, often benefitting from long-term
sustainable trends.
We remain confident in our business model. As our Company has grown, we have
increased the size of the investments we can hold in our portfolio and the
funding options we have available to us. We are well-placed to take advantage
of new investment opportunities and to continue to support and grow our
portfolio companies.
Richard Laing
Chair, 3i Infrastructure plc
9 May 2022
Our approach
We invest responsibly and have a positive impact
Responsible investing
We believe that a responsible approach to investment will add value to our
portfolio and that the effective assessment of Environmental, Social and
Governance ('ESG') risks and opportunities has a positive effect on the value
of our investee companies.
Since 2011, the Investment Manager has been a signatory to the UN Principles
for Responsible Investment and has embedded a clear and comprehensive
Responsible Investment policy into its investment and asset management
processes. This policy sets out the businesses in which the Company will not
invest, as well as minimum standards in relation to ESG matters which we
expect new portfolio companies to meet, or to commit to meeting over a
reasonable time period. The policy applies to all of our investments,
irrespective of their country or sector.
Our influence
We use our influence as owners and active managers to ensure that our investee
companies are run responsibly and that they have a positive impact on the
environment and on the communities in which they operate.
This includes supporting and empowering management teams to develop business
strategies that deliver value whilst mitigating adverse environmental and
social impacts. We create a culture where there is an ambition to improve our
businesses and where it is known that we value management teams spending time
and resources on sustainability initiatives.
We also seek to manage all material ESG risks and opportunities during the
period of the Company's investment. This includes enhancing portfolio
companies' corporate governance and their board reporting.
We seek to invest in opportunities that, where appropriate, will develop
solutions to sustainability challenges. We make a limited number of
investments each year, allowing us to be very selective in our approach to new
investment.
Positive impact
Examples of where we are making a positive impact on our portfolio companies
and their stakeholders:
· Encouraging each portfolio company to include in its sustainability
strategy a focus on its employees and local communities
· Investing in DNS:NET and GCX to increase digital connectivity both
locally and internationally
· Supporting ESVAGT in its transition to servicing the offshore wind sector
· Working with portfolio companies to develop plans for reducing greenhouse
gas emissions
· Supporting Joulz to evolve into an integrated energy transition solutions
provider - with solar, battery and EV charging technologies, and Infinis to
diversify its renewable platform into solar power and battery storage
· Providing management teams with support and access to a wide network of
advisers and industry experts
· Supporting TCR in its contract win with KLM Royal Dutch Airlines to
replace a diesel fleet of ground support equipment ('GSE') with a new
electrical fleet
RCF
Sustainability-linked revolving credit facility ('RCF')
During the year, we refinanced the Company's revolving credit facility as a
sustainability-linked RCF. The new facility includes stretching targets across
ESG themes aligned with our purpose.
The infrastructure market
Competitive landscape
Competition for infrastructure assets remained high with considerable capital
available in the market leading to another record year of infrastructure
assets under management. This year has seen the launch of several new UK
listed and private funds targeting economic infrastructure investment
opportunities. This includes a number of funds with narrow mandates focused on
specific sub-sectors of the infrastructure market.
Macro environment
Accelerating trends in the macro environment have also increased investor
appetite for the infrastructure asset class.
This year has seen rising inflation followed by expectations of rising
interest rates and a tightening of monetary policy from central banks.
In this environment, demand for infrastructure assets typically increases
since they can act as a hedge with revenues directly or indirectly linked to
inflation. These trends, and our response to them, are discussed in more
detail within the Risk report.
Megatrends
Megatrends are shaping the world around us, influencing decision making and
changing the demands placed on our economy and services. Identifying the
potential for change is a key driver of our investment decision making - from
the businesses, sectors and countries we invest in, to the way we go about
finding opportunities.
As the Company's portfolio continues to grow, we seek to diversify our
investments across a range of megatrends that will provide a supportive
environment for long-term sustainable business growth and returns to
shareholders. We also continually assess underlying risk factors, both when
considering new investment opportunities and in managing the existing
portfolio and its exposure to certain risks, such as commodity prices and
foreseeable technological disruptions.
A disciplined investor
Origination approach
We remain a disciplined investor and where possible seek opportunities to
transact off-market, only participating in competitive processes where we
believe we have a distinct advantage.
We have a large and focused investment team, with a broad network and access
across the geographies in which we invest. Our reputation, local presence and
the relationships we develop with management teams provide us with competitive
advantages and allowed us to be successful in signing our new investments this
year in DNS:NET, SRL and GCX on attractive terms.
Asset management
Throughout the year we maintained a significant focus on asset management
activities and investment stewardship. As social restrictions due to Covid-19
began to ease, we ensured that portfolio companies were able to continue
delivering essential services whilst focusing on the health and safety of
employees, and the needs of customers and suppliers.
We have increased our focus on sustainability. During the year we worked with
portfolio companies to implement processes to collect and analyse greenhouse
gas emissions data and are pleased to report the results in our Sustainability
report of the Annual report and accounts 2022. Portfolio companies are now
developing plans for reducing their emissions over time.
In the year we also performed a review of each portfolio company's cyber
security. Portfolio company management teams are now implementing bespoke
recommendations to enhance their cyber security positions.
Unique offering for shareholders
The Company remains unique, providing shareholders with access to private
infrastructure assets across a variety of megatrends, sectors and geographies.
Whilst listed and private funds compete against the Company for new
investments, other UK listed infrastructure funds typically target smaller
investments than the Company or investments in operational and greenfield
Public Private Partnership ('PPP') projects, which are outside our investment
focus.
Our primary investment focus remains mid-market economic infrastructure with
controlling majority or significant minority positions and strong governance
rights, whilst adhering to a set of core investment characteristics and risk
factors.
£100m-£400m
Typical equity investment
9%-14%
Typical range of returns per annum
Our business model
We invest responsibly in infrastructure to create long-term value for
stakeholders.
What enables us Characteristics we How we create value Value created in the year
to create value
look for in new investments
Financial Non-financial
Investment Asset intensive business Buy well 17.2% 4
Manager's team
Total return on opening Further investments in portfolio companies to fund growth
net asset value
Asset bases that are Strong governance
3i Group network
hard to replicate
4
10.45p
Define strategy
New Chair and non-executive Director appointments in portfolio companies
Engaged asset management Provide essential
Ordinary dividend
services
per share
Execute plan +5.5%
Reputation
and brand Established market 19% Increase in installed renewable energy capacity
position
Realisation Asset IRR
(since inception)
High ESG
10
standards Good visibility of future
cash flows Portfolio companies reporting on greenhouse gas emissions
Robust policies
and procedures An acceptable element of demand or market risk
Efficient balance Opportunities for
sheet
further growth
Sustainability
Our business model explained
What enables us to create value
Investment Manager's team
The Company is managed by an experienced and well-resourced team. The European
infrastructure team was established by 3i Group in 2005 and now comprises more
than 50 people, including over 30 investment professionals.
This is one of the largest and most experienced groups of infrastructure
investment professionals in Europe, supported by dedicated finance, tax,
legal, operations and strategy teams.
3i Group network
3i Group has a network of offices, advisers and business relationships across
Europe. The investment management team leverages this network to identify,
access and assess opportunities to invest in businesses, on a bilateral basis
where possible, and to position the Company favourably in auction processes.
Engaged asset management
We drive value from our investments through the Investment Manager's engaged
asset management approach. Through this approach, the Investment Manager
partners with our portfolio management teams to develop and execute a strategy
to create long-term value in a sustainable way. Examples of this partnership
include developing strategies that support investment in the portfolio
company's asset base over the long term; continued improvements in operational
performance; and establishing governance models that promote an alignment of
interests between management and stakeholders.
We develop and supplement management teams, often bringing in a non-executive
chair early in our ownership.
Examples of this engaged asset management approach can be found on our
website, www.3i-infrastructure.com (http://www.3i-infrastructure.com) .
Strength portfolio company management teams Invest in and develop companies to support a sustainable future Growing our platform businesses through acquisitions
Reputation and brand
The Investment Manager and the Company have built a strong reputation and
track record as investors by investing responsibly, managing their business
and portfolio sustainably and by carrying out activities according to high
standards of conduct and behaviour. This has been achieved through upholding
the highest standards of governance, at the Investment Manager, the Company
and in investee companies. This in turn has earned the trust of shareholders,
other investors and investee companies, and has enabled the Investment Manager
to recruit and develop employees who share those values and ambitions for the
future.
The Board seeks to maintain this strong reputation through a transparent
approach to corporate reporting, including on our progress on driving
sustainability through our operations and portfolio. We are committed to
communicating in a clear, open and comprehensive manner and to maintaining an
open dialogue with stakeholders.
High ESG standards
Sustainability and ESG standards are discussed throughout this report. Please
refer to Our approach section, the Sustainability report of the Annual report
and accounts 2022 and the Risk report.
"There is a strong link between companies that have high ESG standards and
those that are able to achieve long-term sustainable business growth."
Anna Dellis
Partner, 3i Investments plc
Robust policies and procedures
Established investment and asset management processes are supported by the
Investment Manager's comprehensive set of best practice policies, including
governance, conduct, cyber security and anti-bribery.
Efficient balance sheet
The Company's flexible funding model seeks to maintain an efficient balance
sheet with sufficient liquidity to make new investments. In order to
capitalise on emerging opportunities, during the year we extended our
borrowing facilities from £300 million to £1 billion.
Since FY15 the Company has raised equity twice and returned capital to
shareholders twice following successful realisations.
Characteristics we look for in new investments
We look to build and maintain a diversified portfolio of assets, across a
range of geographies and sectors, whilst adhering to a set of core investment
characteristics and risk factors.
The Investment Manager has a rigorous process for identifying, screening and
selecting investments to pursue. Although investments may be made into a range
of sectors, the Investment Manager typically focuses on identifying
investments that meet most or all of the following criteria:
Asset intensive business Good visibility of future cash flows
Owning or having exclusive access under long-term contracts to assets that are Long-term contracts or sustainable demand that allow us to forecast future
essential to deliver the service performance with a reasonable degree of confidence
Asset bases that are hard to replicate Provide essential services
Assets that require time and significant capital or technical expertise to Services that are an integral part of a customer's business or operating
develop, with low risk of technological disruption requirements, or are essential to everyday life
An acceptable element of demand or market risk Opportunities for further growth
Businesses that have downside protection, but the opportunity for
Opportunities to grow or to develop the business into new markets, either
outperformance organically or through targeted M&A
Established market position Sustainability
Businesses that have a long-standing position, reputation and relationship
Businesses that meet our Responsible Investing criteria, with opportunities to
with their customers - leading to high renewal and retention rates improve sustainability and ESG standards
How we create value
We have a rigorous approach to identify the best investment opportunities and
then work in close partnership with our portfolio companies to drive
sustainable growth.
Buy well Strong governance Define strategy
· Comprehensive due diligence · Make immediate improvements · Agree strategic direction
· Consistent with return/yield targets · Board representation · Develop action plan
· Fits risk appetite · Appropriate Board composition · Focus on ESG
· Incentivised management · Right capital structure
Execute plan Realisation What we do is framed
by our strategic priorities
· Ongoing support and advice · Long-term view but will sell to maximise shareholder value
· Monitor performance
· Review further investment
· Facilitate M&A
Our strategy
Our strategy is to maintain a balanced portfolio of infrastructure investments
delivering an attractive mix of income yield and capital appreciation for
shareholders.
Strategic priorities
Maintaining a balanced portfolio Delivering an attractive mix of income yield and capital appreciation for 17%
shareholders.
Largest single investment by value*
Investing in a diversified portfolio in developed markets, with a focus on the
UK and Europe.
Disciplined approach to new investment Focusing selectively on investments that are value enhancing to the Company's £980m
portfolio and with returns consistent with our objectives.
New investments or commitments
Managing the portfolio intensively Driving value from our portfolio through our engaged asset management 4
approach.
Follow-on investments in portfolio companies
Delivering growth through platform investments.
5
Portfolio companies refinanced*
Maintaining an efficient Minimising return dilution to shareholders from holding excessive cash, while £484m
balance sheet retaining a good level of liquidity for future investment.
Total liquidity less investment commitments*
Sustainability a key Ensuring that our investment decisions and asset management approach consider 898MW
driver of performance both the risks and opportunities presented by sustainability.
Installed renewable energy capacity
* Includes commitment to invest in GCX, net of debt financing, made on 17
November 2021.
Our objectives and KPIs
Our objectives are to provide shareholders with: Our KPIs Rationale and definition Performance over the year
· Total return is how we measure the overall financial performance of the · Total return of £404 million in the year, or 17.2% on opening NAV
Company
· The portfolio showed good resilience overall with strong performance in
· Total return comprises the investment return from the portfolio and particular from Oystercatcher, TCR and ESVAGT
income from any cash balances, net of management and performance fees and
operating and finance costs. It also includes foreign exchange movement and · The hedging programme continues to reduce the volatility in NAV from
movement in the fair value of derivatives and taxes exchange rate movements
· Total return, measured as a percentage, is calculated against the · Costs were managed in line with expectations
opening NAV, net of the final dividend for the previous year, and adjusted (on
a time-weighted average basis) to take into account any equity issued and
capital returned in the year
Total return % on opening NAV
a total return of 8% to 10% per annum, 2018 28.6%
to be achieved over the medium term
2019 15.4%
2020 11.4%
2021 9.2%
2022 17.2%
Target 8-10%
Target
To provide shareholders with a total return of 8% to 10% per annum, to be
achieved over the medium term.
Met or exceeded target for 2022 and every prior year shown
a progressive annual dividend per share Annual distribution Rationale and definition Performance over the year
pence per share
· This measure reflects the dividends distributed to shareholders each · Proposed total dividend of 10.45 pence per share, or £93 million, is
year in line with the target set at the beginning of the year
· The Company's business model is to generate returns from portfolio · Income generated from the portfolio and cash deposits, including
income and capital returns (through value growth and realised capital non-income cash distributions and other income from portfolio companies,
profits). Income, other portfolio company cash distributions and realised totalled £143 million for the year
capital profits generated are used to meet the operating costs of the Company
and to make distributions to shareholders · Operating costs and finance costs used to assess dividend coverage
totalled £50 million in the year
· The dividend is measured on a pence per share basis, and is targeted to
be progressive · The dividend was fully covered for the year
· Setting a total dividend target for FY23 of 11.15 pence per share, 6.7%
higher than for FY22
2018 7.85p+
2019 8.65p
2020 9.20p
2021 9.80p
2022 10.45p
2023 Target 11.15p
+ Special dividend (2018: 41.40p)
Target
Progressive dividend per share policy.
FY23 full year dividend target of 11.15 pence per share.
Dividend per share increased every year since IPO
Review from the Managing Partner
We have made attractive new investments, both in new businesses and companies
we already know well, and successfully realised Oystercatcher's European
terminals and our European projects portfolio.
The portfolio continued to be resilient, delivering strong operational and
financial performance ahead of the expectations we set a year ago. Competition
for new investments remains intense, leading to high pricing of assets, and we
remain disciplined to invest selectively.
"It was a very good year for the Company - a high level of new investment,
excellent realisations, and a strong portfolio performance."
Phil White
Managing Partner and Head of Infrastructure, 3i Investments plc
This was a very busy year of investment activity. Our new investments in SRL
and GCX are both in growth sectors with strong market positions. Increasing
our stake in ESVAGT to 100% and our injections of additional capital into
DNS:NET, Valorem and Joulz will benefit the Company from further growth in
those platforms. The Company has increased its credit facilities to ensure
that it continues to have ample liquidity to make further new investments.
The portfolio delivered strong performance during the year and met our income
expectations. As Europe emerges from the Covid-19 pandemic, we have seen a
pick-up in growth initiatives in a number of our portfolio companies and we
are working closely with our portfolio company management teams to execute on
these.
Our portfolio is not immune to the challenging current macro environment of
higher inflation, interest rate rises, tax rises, supply side disruptions and
heightened geopolitical risks from Russia's invasion of Ukraine. However, the
Company has a well-diversified portfolio, each business operating in its
established market position and, in the majority of cases, with predictable
income and some inflation protection. Over the past six months we have also
further reduced the portfolio's exposure to interest rates through extensive
financing activity. We supported five portfolio companies through refinancing
or additional debt raises, extending debt maturities and locking in fixed
rates on attractive terms.
Portfolio review
Most portfolio companies performed materially ahead of expectations.
The sale of Oystercatcher's 45% stakes in its four European terminals in
Amsterdam, Terneuzen, Ghent and Malta drove part of the outperformance in the
year. The majority of the net proceeds from the sale were used to prepay all
of Oystercatcher's debt.
The balance of the net proceeds to Oystercatcher, €55 million, was
distributed to the Company. Oystercatcher continues to own a 45% stake in
Oiltanking Singapore Limited alongside Oiltanking GmbH.
ESVAGT, in which we invested £258 million to acquire the 50% stake owned by
our co-investor, AMP, had a very good year, benefitting from higher contract
rates and utilisation levels returning to pre-Covid levels. It also won a
milestone contract to provide the world's first green Service Operation
Vessel, powered by batteries and renewable e-methanol, to the Hornsea 2 wind
farm in the UK.
Despite new travel restrictions imposed during the winter, TCR continued to
demonstrate the resilience of its business model and performed ahead of our
expectations for the year. The business continues to grow, increasing the
number of airports in which it operates and increasing the number of clients
it serves.
Infinis significantly exceeded its budget due to outperformance in its
captured landfill methane business, higher UK power prices and the frequent
power supply system imbalances in the UK that benefitted its power response
assets. Attero also benefitted from high power prices, which, together with
higher than forecast waste supply volumes and gate fees, helped it to
materially outperform expectations and the prior year. In March 2022, the
business closed an additional debt raise on favourable terms.
Our French-headquartered companies, Ionisos and Valorem, were strong
performers in the year. To sustain the growing demand from the healthcare and
pharma industries, Ionisos is looking at various expansion opportunities
beyond the construction of a new site at Kleve, Germany. Valorem is
progressing well with its construction activity with a total of 105MW of new
wind and solar projects entering into operation during the year. It also
successfully closed Viiatti, a landmark large-scale wind project in Finland.
Tampnet and Joulz performed well during the year. At Tampnet, customers
continued to upgrade their bandwidth requirements. Joulz's core businesses of
Infrastructure Services and Metering performed in line with expectations and
we saw continued healthy growth in the order book. This was offset by some
delays in completing new projects, mainly due to Covid-19 related staffing
issues. The Company invested £5 million of new equity into Joulz to support
further growth.
Our newest assets, DNS:NET and SRL, are performing broadly in line with our
investment cases. In February 2022 we invested a further £33 million in
DNS:NET to support its fibre network roll-out.
On 29 March 2022, the Company signed an agreement to sell its European
projects portfolio, comprising four Dutch and two French PPP projects across
transport and social infrastructure, to 3i EOPF, representing an uplift of £8
million on the value at September. Completion is expected by June 2022 and
proceeds are estimated at £103 million. This results in a 20% gross IRR and a
1.7x gross money multiple for the Company.
Finally, we were pleased with the significant progress made towards realising
the remaining assets in the 3i India Infrastructure Fund (the 'India Fund'),
with the sale of the India Fund's stake in KMC Roads and in GVK Energy at
uplifts to the carrying value.
Investment activity
During the year, the Company invested or committed £980 million into its
target markets. In November, we agreed to invest c.$512 million to acquire
100% of GCX. GCX is a leading global data communications service provider and
owns one of the world's largest private subsea fibre optic networks.
Completion is subject to certain regulatory approvals and is expected
mid-2022. In December, we completed the £191 million acquisition of a 92%
stake in SRL and invested a further £21 million into Valorem and £5 million
into Joulz to fund their growth. In February, we increased our stake in ESVAGT
from 50% to 100% for £258 million and invested a further £33 million into
DNS:NET to fund the next step of its fibre roll-out. These new investments
have added further diversification to the Company's portfolio, which is
well-balanced by size of investment and has exposure to a range of countries,
sectors and risk factors. This should strengthen the Company's ability to meet
its return and dividend objectives over the medium term.
Throughout the year, we saw an active investment pipeline that included a
broad range of potential new investment opportunities. Competition for new
investments was very high, and we are focused on achieving an appropriate
balance of risk and return.
Sustainability
We took a big step forward on sustainability during the year. We set several
sustainability-related objectives and are pleased to have met all of these.
This includes reporting Scope 1 and Scope 2 greenhouse gas emissions for our
portfolio companies for the first time as well as implementing policies and
entering into financial agreements that further embed sustainability
throughout our investment and asset management processes.
In the year ahead, we plan to build on this progress by working with portfolio
companies to consider potential opportunities to reduce their greenhouse gas
emissions over time and by assessing the results of climate scenario analysis.
We will also continue to develop our approach to sustainability as the
regulatory and commercial frameworks in which we and our portfolio companies
operate evolve.
Outlook
It was a very good year for the Company, with a high level of new investment,
excellent realisations, and a strong portfolio performance. The market for new
investments remains highly competitive but we remain very selective and, as we
have shown consistently over many years, are prepared to sell assets where
that generates exceptional returns for shareholders. The Company is in a
healthy position for the future.
Phil White
Managing Partner and Head of Infrastructure, 3i Investments plc
9 May 2022
New investments
SRL Traffic Systems
SRL is the UK's leading lessor of temporary traffic management equipment.
Invested
£191m
Equity stake
92%
Investment rationale
· Temporary Traffic Equipment ('TTE') is mission-critical for the safe use
of roads
· SRL fits with the Company's strategy of investing in companies with
leading market positions and barriers to entry, yet with operational levers to
achieve attractive returns for shareholders through active asset management
· SRL has sound market fundamentals through the increasing emphasis placed
on health and safety, and a growing propensity to rent rather than own TTE
· Outsourcing ownership of TTE makes economic sense for traffic management
companies, as it allows them to manage maintenance and utilisation more
efficiently
· SRL has a market leading reputation and is trusted by its customers
Characteristics
Asset intensive business that is hard to replicate
SRL rents a fleet of c.13,000 TTE under full service contracts. The fleet is
deployed from 30 strategically located depots throughout the UK.
Good visibility on future cash flows
There is broad political and regulatory support for increased investment in UK
infrastructure and TTE will be needed to support this.
Provides essential services
TTE is safety critical equipment needed to protect highway workers and
segregate traffic, cyclists and pedestrians.
Acceptable element of demand risk
Primary competition for SRL is from customers with owned assets who often use
their own fleets to serve a baseload of work and then top up with rented TTE.
Established market position
SRL is the only large rental company of TTE in the UK. It benefits from
economies of scale through being able to provide access to TTE nationally and
24/7.
Opportunities for further growth
The rental model is expected to increase penetration and gain market share
from the ownership model over time.
Sustainability
TTE, and in particular SRL's smarter products, allow for greater control of
traffic flows, which in turn reduces congestion around roadworks and improves
safety.
GLOBAL CLOUD XCHANGE
GCX owns one of the most comprehensive subsea cable networks globally.
Expected equity commitment
c.£300m
Equity stake
100%
Investment rationale
· GCX owns one of the most comprehensive subsea cable networks globally,
serving customers in over 180 countries
· Benefits from the rapidly expanding data market with data usage forecast
to grow exponentially
· Operates in a market with high barriers to entry whilst providing an
essential service
· Supported by a highly experienced management team with a strong track
record in the sector
· Attractive entry valuation following a bilateral process
Characteristics
Asset intensive business that is hard to replicate
GCX's 66,000km of cables, spanning from North America to Asia, would require
large upfront investments and a multi-year lead time to replicate.
Good visibility on future cash flows
GCX's core network benefits from high margins and low maintenance capex
requirements, resulting in an attractive yield profile for 3i Infrastructure.
Provides essential services
GCX is a key infrastructure provider in the rapidly expanding data market, in
particular in high growth markets in Asia and the Middle East.
Acceptable element of demand risk
Over 90% of GCX's revenue is recurring in nature, underpinned by a mixture of
medium-term (1-3 years) and long-term (10 years+) contracts.
Established market position
GCX owns one of the few networks with significant spare capacity to serve the
exponentially growing demand for data traffic on the Europe-Asia and
inter-Asia routes.
Opportunities for further growth
In a relatively fragmented market, M&A is an upside opportunity to either
accelerate growth or to further strengthen GCX's network footprint.
Our portfolio
The portfolio comprises a diversified, defensive set of businesses providing
essential services. We are confident that the portfolio is well positioned to
deliver our target returns.
The Company's portfolio was valued at £2,873 million at 31 March 2022 (2021:
£1,804 million) and delivered a
total portfolio return in the year of £509 million, including income and
allocated foreign exchange hedging
(2021: £232 million).
Table 1 summarises the valuations and movements in the portfolio, as well as
the return for each investment, for
the year. In accordance with accounting standards, 'Investments at fair value
through profit or loss' as reported in
the Balance sheet include, in addition to the portfolio asset valuation, the
cash and other net assets held within intermediate unconsolidated holding
companies. Due to the change in basis of accounting described in the Financial
review, there is no longer any difference between Table 1 and the amounts
reported in the Financial statements.
Table 1: Portfolio summary (31 March 2022, £m)
Portfolio
Directors' Directors' Allocated Underlying total
valuation Accrued Foreign valuation foreign portfolio return
31 March Investment Divestment income Value exchange 31 March exchange income in the
Portfolio assets 2021 in the year in the year movement movement translation 2022 hedging in the year year¹
ESVAGT 189 294(2,3) - 3 57 5 548 (5) 28 85
Infinis 300 - - 2 30 - 332 - 17 47
TCR 199 14(2,4) - - 67 (1) 279 1 13 80
Tampnet 230 5(2) - - - 6 241 (2) 22 26
Joulz 219 10(2,4) - - 14 (2) 241 2 6 20
Ionisos 202 5(2) - 4 28 (2) 237 2 9 37
Oystercatcher 157 - (56)(5) 1 121 7 230 (5) 5 128
DNS:NET - 193(2,3) - 2 9 (2) 202 2 4 13
SRL - 274 (83)(5) 5 4 - 200 - 7 11
Valorem 107 21(4) - - 17 (1) 144 1 4 21
Attero 105 - - - 12 (1) 116 1 5 17
Economic infrastructure portfolio 1,708 816 (139) 17 359 9 2,770 (3) 120 485
Projects 93 - (1)(5) - 12 (1) 103 1 7 19
India Fund 3 - (8) - 4 1 - - - 5
Total portfolio reported in the Financial statements(6) 1,804 816 (148) 17 375 9 2,873 (2) 127 509
1 This comprises the aggregate of value movement, foreign exchange translation,
allocated foreign exchange hedging and underlying portfolio income in the
year.
2 Capitalised interest totalling £55 million.
3 New investment in ESVAGT of £258 million plus £12 million of follow-on
investment and DNS:NET of £157 million plus £33 million of follow-on
investment.
4 Follow-on investment in TCR of £1 million, Joulz of £5 million and Valorem
of £21 million.
5 Shareholder loan repaid. The SRL divestment amount relates to the repayment of
a bridge loan following the raising of a third-party acquisition debt
facility.
6 Cash and other net assets held in unconsolidated subsidiaries of £2 million
were distributed to the Company during the year. Due to these distributions
and the change in basis of accounting described in the Financial review, there
is no longer any difference between Table 1 and the amounts reported in the
Financial statements.
The total portfolio return in the year of £509 million is 19.8% (2021: £232
million, 13.7%) of the aggregate of the opening value of the portfolio and
investments in the year (excluding capitalised interest), which total £2,565
million.
Performance was strong across the portfolio, driven principally by the
realisation of the European storage terminals held by Oystercatcher for a
price above their opening valuation and by outperformance from a number of
portfolio companies but particularly TCR and ESVAGT.
Table 2 below shows the portfolio return in the year for each asset as a
percentage of the aggregate of the opening value of the asset and investments
in the asset in the year (excluding capitalised interest). Note that this
measure does not time-weight for investments in the year.
Table 2: Portfolio return by asset (year to 31 March 2022)
Total portfolio return 19.8%
ESVAGT 18.5%
Infinis 15.7%
TCR 40.0%
Tampnet 11.3%
Joulz 8.9%
Ionisos 18.3%
Oystercatcher 81.5%
DNS:NET* 6.7%
SRL* 4.0%
Valorem 16.4%
Attero 16.2%
Projects 20.4%
* Acquired during the year and portfolio return not annualised.
Movements in portfolio value
The movements in portfolio value were driven principally by the delivery of
planned cash flows and other asset outperformance as well as new and follow-on
investments made during the year. A reconciliation of the movement in
portfolio value is shown in Table 3 below. The portfolio summary shown in
Table 1 details the analysis of these movements by asset. Changes to portfolio
valuations arise due to several factors, as shown in Table 4.
Economic infrastructure portfolio
The economic infrastructure portfolio generated a value gain of £359 million
in the year, alongside income of £120 million.
The £121 million value increase in Oystercatcher reflects: the uplift
achieved from the sale of the European terminals; the prepayment of
Oystercatcher's debt; and a reduced discount rate to reflect higher quality
cash flows from Singapore and low leverage.
The value increase in TCR of £67 million reflects: the outperformance of the
business during the year; cost savings delivered and expected from its cost
optimisation programme; and a reduction in the discount rate to remove the
Covid-19 premium previously applied. This increased valuation is further
supported by increased interest in TCR's full service rental model and our
confidence in the long-term value of its asset base and market opportunity.
ESVAGT increased in value by £57 million, as we revised our investment case
following the completion of the acquisition of our co-investor's 50% stake in
ESVAGT. We revised our growth assumptions for the business and made a small
reduction in the discount rate to reflect the reduction in risk following the
signing of significant new contracts and the completion of the newbuild
programme for three new MHI Vestas Service Operation Vessels. In March 2022 we
completed a refinancing on improved terms to support future growth.
Infinis generated a value gain of £30 million in the year and contributed
£15 million of cash distributions. This was due to a combination of business
outperformance, the continued progress of its solar development programme and
changes in forecast future power prices.
Ionisos experienced a £28 million gain due to significant outperformance,
particularly from strong demand in the medical devices and pharmaceuticals
sectors.
Table 3: Reconciliation of the movement in portfolio value (year to 31 March
2022, £m)
Opening portfolio value at 1 April 2021 1,804
Investment(1) 816
Divestment/capital repaid (148)
Value movement 375
Exchange movement(2) 9
Accrued income movement 17
Closing portfolio value at 31 March 2022 2,873
1 Includes capitalised interest.
2 Excludes movement in the foreign exchange hedging programme (see Table 10 in
the Financial review).
Table 4: Components of value movement (year to 31 March 2022, £m)
Value movement component Value movement Description
in the year
Planned growth 109 Net value movement resulting from the passage of time, consistent with the
discount rate and cash flow assumptions at the beginning of the year less
distributions received and capitalised interest in the year.
Other asset performance 188 Net value movement arising from actual performance in the year and changes to
future cash flow projections, including financing assumptions and changes to
regulatory assumptions. Includes the uplift on the sale of Oystercatcher's
European terminals and the Projects portfolio.
Discount rate movement 43 Value movement relating to changes in the discount rate applied to the
portfolio cash flows.
Macroeconomic assumptions 35 Value movement relating to changes to macroeconomic out-turn or assumptions,
eg power prices, inflation, interest rates and taxation rates. This includes
changes to regulatory returns that are directly linked to macroeconomic
variables.
Total value movement before exchange 375
Foreign exchange retranslation 9 Movement in value due to currency translation to year end date.
Total value movement 384
Projects portfolio
The value gain in the Projects portfolio of £12 million reflects the proceeds
expected from the agreement to sell the holdings to 3i EOPF which is expected
to complete by June 2022.
India Fund
During the year we divested KMC Roads and GVK Energy at an uplift to the
carrying value.
Summary of portfolio valuation methodology
Investment valuations are calculated at the half-year and at the financial
year end by the Investment Manager and then reviewed by the Board. Investments
are reported at the Directors' estimate of fair value at the relevant
reporting date.
The valuation principles used are based on International Private Equity and
Venture Capital ('IPEV') valuation guidelines, generally using a discounted
cash flow ('DCF') methodology (except where a market quote is available),
which the Investment Manager considers to be the most appropriate valuation
methodology for unquoted infrastructure equity investments.
Where the DCF methodology is used, the resulting valuation is checked against
other valuation benchmarks relevant to the particular investment, including,
for example:
· earnings multiples;
· recent transactions; and
· quoted market comparables.
In determining a DCF valuation, we consider and reflect changes to the two
principal inputs, being forecast cash flows from the investment and discount
rates. We consider both the macroeconomic environment and investment-specific
value drivers when deriving a balanced base case of cash flows and selecting
an appropriate discount rate.
A prevalent theme this year has been inflationary pressures on supply chain
costs and employee costs. The ability to pass cost inflation to customers
varies by portfolio company so we took a granular approach to modelling the
effects of inflation.
The current impact on the portfolio of the war in Ukraine is, in our
assessment, not material.
The volatility in power prices has positively affected our energy generating
portfolio companies, although the majority of our power price exposure was
hedged in the short to medium term. Future power price projections are taken
from independent forecasters and changes in these assumptions will affect the
future value of these investments.
TCR operates in the aviation sector, which has been severely affected by
travel restrictions. The value of TCR assumes a full recovery in air traffic
to pre-Covid-19 levels in 2024, consistent with the assumptions made in the
prior year.
As a 'through the cycle' investor with a strong balance sheet we consider
valuations in the context of the longer-term value of the investments. This
includes consideration of climate change risk and stranded asset risk. Factors
considered include physical risk, litigation risk linked to climate change and
transition risk (for example, assumptions on the timing and extent of
decommissioning of North Sea oil fields, which affects Tampnet and ESVAGT). We
take a granular approach to these risks, for example each relevant offshore
oil and gas field has been assessed individually to forecast the market over
the long term and a low terminal value has been assumed at the end of the
forecast period.
In the case of stranded asset risk, we consider long-term threats that may
impact value materially over our investment horizon, for example,
technological evolution, climate change, or societal change.
For ESVAGT, which operates Emergency Rescue and Response Vessels ('ERRVs') in
the North Sea servicing sectors including the oil and gas market, we do not
assume any new vessels or replacement vessels in our valuation for that
segment of the business.
However, a number of our portfolio companies are set to benefit from these
changes. Digitalisation in the offshore oil and gas sector in order to reduce
costs is benefitting Tampnet. The energy transition in the Netherlands, with a
focus on electrification, is benefitting Joulz. The base case for each of our
valuations takes a balanced view of potential factors that we estimate are as
likely to result in underperformance as outperformance.
Discount rate
Table 5 shows the movement in the weighted average discount rate applied to
the portfolio at the end of each year since the Company's inception and the
position as at March 2022. During the year, the weighted average discount rate
increased modestly as the introduction of the new investments in SRL and
DNS:NET to the portfolio at a higher than average discount rate was mostly
offset by small reductions in discount rates for Oystercatcher, TCR, ESVAGT
and Valorem.
During the year, we witnessed an increase in risk-free rates across Europe as
central banks started to take action in response to higher inflation. The
increase in risk-free rates was offset by reductions in equity risk premia,
the implied excess return over a risk-free rate of return, in the countries in
which we invest. We are not yet seeing any upward pressure on discount rates
as a result of higher interest rates.
Table 5: Portfolio weighted average discount rate (31 March, %)
March 08 12.4
March 09 13.8
March 10 12.5
March 11 13.2
March 12 12.6
March 13 12.0
March 14 11.8
March 15 10.2
March 16 9.9
March 17 10.0
March 18 10.5
March 19 10.8
March 20 11.3
March 21 10.8
March 22 10.9
Investment track record
As shown in Table 6, since its launch in 2007, 3i Infrastructure has built a
portfolio that has provided:
· significant income, supporting the delivery of a progressive annual
dividend;
· consistent capital growth; and
· strong capital profits from realisations.
These have contributed to a 19% annualised asset Internal Rate of Return
('IRR') since the Company's inception. The European portfolio has generated
strong returns, in line with, or in many cases ahead of, expectations.
These returns were underpinned by substantial cash generation in the form of
income or capital profits.
The value created through this robust investment performance has been
crystallised in a number of instances through well-managed realisations, shown
as 'Realised assets' in Table 6. While the Company is structured to hold
investments over the long term, it has sold assets where compelling offers
will generate additional shareholder value.
This was the case with WIG in 2019 which generated an IRR of 27%, Eversholt
Rail in 2015 and XLT in 2019 which both generated IRRs in excess of 40% and
Elenia and AWG in 2018, which generated IRRs of 31% and 16% respectively.
Portfolio asset returns in Table 6 include an allocation of FX hedging where
applicable.
Table 6: Portfolio asset returns throughout holding period (since inception,
£m)
Value Proceeds on
including disposals/
Total accrued capital Cash
Multiple IRR cost income returns income
Existing portfolio (Total return)
ESVAGT 1.3x 417 548 - -
Infinis 1.5x 322 332 80 85
TCR 1.9x 156 279 4 22
Tampnet 1.4x 187 241 - 13
Joulz 1.3x 195 241 2 20
Ionisos 1.3x 186 237 - 6
Oystercatcher 3.1x 139 230 47 157
DNS:NET 1.1x 190 202 - 3
SRL 1.1x 191 200 - 2
Valorem 2.0x 80 144 - 16
Attero 1.6x 88 116 1 25
Projects 1.7x 75 103 2 25
Realised assets (Total return)
WIG (realised December 2019) 1.7x 27% 265 431 21
XLT (realised March 2019) 5.9x 40% 63 332 38
Elenia (realised February 2018) 4.5x 31% 195 766 106
AWG (realised February 2018) 3.3x 16% 173 410 154
Eversholt (realised April 2015) 3.3x 41% 151 391 114
Projects (realised assets) 1.9x 22% 289 446 103
Others(1) 1.2x 8% 138 145 24
India Fund 0.6x (6%) 108 61 -
19% Asset IRR since inception to 31 March 2022
Portfolio asset returns include allocation of FX hedging where applicable.
Dates of asset realisations refer to completion dates.
(1)Others includes junior debt portfolio, T2C and Novera.
Financial review
The Company delivered another year of outperformance.
Key financial measures(1) (year to 31 March) 2022 2021
Total return(2) £404m £206m
NAV £2,704m £2,390m
NAV per share 303.3p 268.1p
Total income £133m £110m
Total income and non-income cash £143m £117m
Portfolio asset value £2,873m £1,802m
Cash balances £17m £463m
Total liquidity(3) £786m £763m
1 Prior year figures contain non-material adjustments to the Financial
statements as reported in the prior year Annual report and accounts. These
adjustments are no longer required as explained below.
2 IFRS Total comprehensive income for the year.
3 Includes cash balances of £17 million (2021: £463 million) and £769 million
(2021: £300 million) undrawn balances available under the Company's revolving
credit facility including additional committed facilities which total £1
billion.
"The Company has continued to grow income and NAV per share alongside managing
liquidity to fund new investments."
James Dawes
CFO, Infrastructure
The Company delivered another year of outperformance which was underpinned by
strong income and capital returns from the portfolio. A total of £980 million
of new investments and commitments were made and the Company actively managed
its liquidity position through its RCF and an additional £600 million of
committed facilities.
The portfolio has the income-generating capacity to support the progressive
dividend policy, and the dividend was covered by net income this year despite
some drag from uninvested cash earlier in the year. The target dividend for
FY23 of 11.15 pence per share is an increase of 6.7% over FY22.
Returns
Total return
The Company generated a total return for the year of £404 million,
representing a 17.2% return on opening NAV net of the prior year final
dividend (2021: £206 million, 9.2%). This performance is significantly ahead
of the target return of 8% to 10% per annum to be achieved over the medium
term.
This outperformance was driven by the strong return from the sale of
Oystercatcher's four European terminals and good performance across the
economic infrastructure portfolio, particularly from TCR and ESVAGT. Changes
in the valuation of the Company's portfolio assets are described in the
Movements in portfolio value section of the Investment Manager's review.
Total income and non-income cash of £143 million in the year was higher than
last year, due to income from new investments and some portfolio companies
resuming distributions after preserving liquidity in the previous year due to
Covid-19 risks (2021: £117 million).
Non-income cash receipts reflect distributions from underlying portfolio
companies, which would usually be income to the Company, but which are
distributed as a repayment of investment for a variety of reasons. Whilst
non-income cash does not form part of the total return shown in Table 7, it is
included when considering dividend coverage.
An analysis of the elements of the total return for the year is shown in Table
7.
The Financial statements' classification of these components of total return
includes transactions within unconsolidated subsidiaries as the Company adopts
the Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) basis for
its reporting. In previous years we have shown the non-material adjustments
required to reconcile this analysis to the Financial statements.
Following the partial divestment of the Oystercatcher investment and a
restructure of some investments previously held through Luxembourg-based
subsidiaries but now held directly by the Company, we have aligned the basis
of reporting in this section to the Financial statements and will no longer
report on an adjusted basis.
Table 7: Summary total return (year to 31 March, £m)
2022 2021
Capital return (excluding exchange) 375 135
Foreign exchange movement in portfolio 9 (24)
Capital return (including exchange) 384 111
Movement in fair value of derivatives (2) 22
Net capital return 382 133
Total income 133 110
Costs (111) (37)
Total return 404 206
Capital return
The capital return is the largest element of the total return. The portfolio
generated a value gain of £375 million in the year to 31 March 2022 (2021:
£135 million), as shown in Table 8. There was a positive contribution across
the majority of the portfolio and the largest contributor was Oystercatcher
which generated £121 million. These value movements are described in the
Movements in portfolio value section.
Table 8: Reconciliation of the movement in NAV (year to 31 March 2022, £m)
Opening NAV at 1 April 2021(1) 2,346
Capital return 375
Net foreign exchange movement(2) 7
Total income 133
Net costs including management fees(3) (111)
NAV before distributions 2,750
Distribution to shareholders (46)
Closing NAV at 31 March 2022 2,704
1 Opening NAV of £2,390 million net of final dividend of £44 million for the
prior year.
2 Foreign exchange movements are described in Table 11.
3 Includes non-portfolio related exchange movements of £3 million.
Foreign exchange impact
The portfolio is diversified by currency as shown in Table 9. We aim to
deliver steady NAV growth for shareholders, and the foreign exchange hedging
programme helps us to do this by reducing our exposure to fluctuations in the
foreign exchange markets.
Portfolio foreign exchange movements, after accounting for the hedging
programme, increased the net capital return by £7 million (2021: reduced by
£2 million).
As shown in Table 10, the reported foreign exchange gain on investments of £9
million (2021: loss of £24 million) included a gain of £1 million from the
Company's exposure to the Indian rupee, which is not hedged. This was
partially offset by a £2 million loss on the hedging programme (2021: gain of
£22 million).
Table 9: Portfolio value by currency (at 31 March 2022)
EUR 54%
DKK 19%
GBP 19%
NOK 8%
Table 10: Impact of foreign exchange ('FX') movements on portfolio value (year
to 31 March 2022, £m)
Hedged assets Unhedged assets
€/SGD/DKK/NOK
£/rupee
FX gain before hedging 8 1
FX gain after hedging 6 1
Income
The portfolio generated income of £127 million in the year (2021: £99
million). Of this amount, £24 million was through dividends (2021: £20
million) and £103 million through interest on shareholder loans (2021: £79
million). An additional £6 million of interest was accrued on the vendor loan
notes issued in lieu of WIG proceeds (2021: £10 million) together with a
further £0.1 million of interest receivable on deposits (2021: £0.4
million). Total income and non-income cash is shown in Table 12.
A strong income contribution from Tampnet and higher non-income cash receipts
offset the reduction in income from Oystercatcher following divestment of the
European terminals. A breakdown of portfolio income is provided in Table 11,
together with an explanation of the change from prior year.
Interest income from the portfolio was significantly higher than prior year
due to the new investments in SRL, DNS:NET and ESVAGT.
Dividend and non-income cash distributions increased this year as liquidity
preserved for risks associated with the Covid-19 pandemic in the prior year
was released.
Table 11: Breakdown of portfolio income (year to 31 March, £m)
Dividend Interest Dividends Interest Comments
(2022) (2022) (2021) (2021)
ESVAGT - 28 - 22 Further investment in February 2022
Tampnet 17 5 - 5 Liquidity retained in prior year
Infinis - 17 - 17
TCR - 13 - 13
Ionisos - 9 - 9
SRL - 7 - - New investment in FY22
Joulz - 6 - 5
Oystercatcher - 5 13 - Divestment of European terminals
Attero 4 1 5 1
DNS:NET - 4 - - New investment in FY22
Valorem 1 3 - 3 Liquidity retained in prior year
Projects Portfolio 2 5 2 4
Table 12: Total income and non-income cash (year to 31 March, £m)
2022 2021
Total income 133 110
Non-income cash 10 7
Total 143 117
Costs
Management and performance fees
During the year to 31 March 2022, the Company incurred management fees,
including transaction fees of £10 million, of £43 million (2021: £24
million). The fees, payable to 3i plc, consist of a tiered management fee, and
a one-off transaction fee of 1.2% payable in respect of new investments. The
management fee tiers range from 1.4%, reducing to 1.2% for any proportion of
gross investment value above £2.25 billion.
An annual performance fee is also payable by the Company, amounting to 20% of
returns above a hurdle of 8% of the total return. This performance fee is
payable in three equal annual instalments, with the second and third
instalments only payable if certain future performance conditions are met.
This hurdle was exceeded for the year ended 31 March 2022 resulting in a
performance fee payable to 3i plc in respect of the year ended 31 March 2022
of £54 million (2021: £7 million).
The first instalment, of £18 million, will be paid in May 2022 along with the
second instalment of £2 million relating to the previous year's performance
fee and the third instalment of £6 million relating to the FY20 performance
fee.
For a more detailed explanation of how management and performance fees are
calculated, please refer to Note 18 to the accounts.
Fees payable
Fees payable on investment activities include costs for transactions that did
not reach, or have yet to reach, completion and the reversal of costs for
transactions that have successfully reached completion and were subsequently
borne by the portfolio company. For the year to 31 March 2022, fees payable
totalled £3 million (2021: less than £1 million).
Other operating and finance costs
Operating expenses, comprising Directors' fees, service provider costs and
other professional fees, totalled £3 million in the year (2021: £3 million).
Finance costs of £5 million (2021: £2 million) in the year comprised
arrangement and commitment fees for the Company's RCF. Finance costs were
higher than in FY21 as the size of the RCF was increased and drawn in the
year.
Ongoing charges ratio
The ongoing charges ratio measures annual operating costs, as disclosed in
Table 13 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
1.41% for the year to 31 March 2022 (2021: 1.16%). The ongoing charges ratio
is higher in periods where new investment levels are high and new equity is
raised or capital is returned to shareholders. Realisation of assets reduces
the ongoing charges ratio. The cost items that contributed to the ongoing
charges ratio are shown below.
The AIC methodology does not include transaction fees, performance fees or
finance costs. However, the AIC recommends that the impact of performance fees
on the ongoing charges ratio is noted, where performance fees are payable. The
ratio including the performance fee was 3.52% (2021: 1.45%). The total return
of 17.2% for the year is after deducting this performance fee and ongoing
charges.
Table 13: Ongoing charges (year to 31 March, £m)
2022 2021
Investment Manager's fee 32.6 23.7
Auditor's fee 0.6 0.5
Directors' fees and expenses 0.5 0.5
Other ongoing costs 2.4 2.2
Total ongoing charges 36.1 26.9
Ongoing charges ratio 1.41% 1.16%
Balance sheet
The NAV at 31 March 2022 was £2,704 million (2021: £2,390 million). The
principal components of the NAV are the portfolio assets, cash holdings and
borrowings under the RCF, the vendor loan notes from the sale of WIG, the fair
value of derivative financial instruments and other net assets and
liabilities. A summary balance sheet is shown in Table 14.
At 31 March 2022, the Company's net assets after the deduction of the final
dividend were £2,657 million (2021: £2,346 million).
Cash and other assets
Cash balances at 31 March 2022 totalled £17 million (2021: £463 million).
Cash on deposit was managed actively by the Investment Manager and there are
regular reviews of counterparties and their limits. Cash is principally held
in AAA-rated money market funds.
The decrease in Other net assets is due to an increase in the performance fee
payable.
Borrowings
The Company has a £400 million RCF in order to maintain a good level of
liquidity for further investment whilst minimising returns dilution from
holding excessive cash balances. This is a three-year facility, with a
maturity date of November 2024. In December 2021, the Company increased its
existing facility by £200 million to £600 million and in January 2022 an
additional one-year credit facility of £400 million was agreed. Aggregate
credit facilities totalled £1 billion at 31 March 2022. At 31 March 2022 the
total amount drawn was £231 million.
NAV per share
The total NAV per share at 31 March 2022 was 303.3 pence (2021: 268.1 pence).
This reduces to 298.1 pence (2021: 263.2 pence) after the payment of the final
dividend of 5.225 pence (2021: 4.9 pence). There are no dilutive securities in
issue.
Dividend and dividend cover
The Board has proposed a dividend for the year of 10.45 pence per share, or
£93 million in aggregate (2021: 9.8 pence; £87 million). This is in line
with the Company's target announced in May last year.
When considering the coverage of the proposed dividend, the Board assesses the
income earned from the portfolio, interest received on cash balances and any
additional non-income cash distributions from portfolio assets which do not
follow from a disposal of the underlying assets, as well as the level of
ongoing operational costs incurred in the year. The Board also takes into
account any surpluses retained from previous years, and net capital profits
generated through asset realisations, which it considers available as dividend
reserves for distribution.
Table 14: Summary balance sheet (year to 31 March, £m)
2022 2021
Portfolio assets 2,873 1,802
Cash balances 17 463
Derivative financial instruments 8 37
Borrowings (231) -
Other net assets (including vendor loan notes) 37 88
NAV 2,704 2,390
Table 15 shows the calculation of dividend coverage and dividend reserves. The
dividend was fully covered for the year with no surplus (2021: no surplus).
The retained amount available for distribution, following the payment of the
final dividend, the realised loss over cost relating to the India Fund that
was previously unrealised and the performance fee will be £794 million (2021:
£868 million). This is a substantial surplus, which is available to support
the Company's progressive dividend policy, particularly should dividends not
be fully covered by income in a future year. A shortfall could arise, for
example, due to holding substantial uninvested cash or through lower
distributions being received from portfolio companies in order to preserve
liquidity.
Table 16 shows that the Company has consistently covered the dividend over the
last five years.
Table 15: Dividend cover (year to 31 March, £m)
2022 2021
Total income, other income and non-income cash 143 117
Operating costs including management fees (50) (30)
Dividends paid and proposed (93) (87)
Dividend surplus for the year - -
Dividend reserves brought forward from prior year 868 876
Realised loss over cost on disposed assets (20) (1)
Performance fees (54) (7)
Dividend reserves carried forward 794 868
Table 16: Dividend cover (five years to 31 March 2022, £m)
Net Dividend
income(1)
Mar 2018(2) 116 72
Mar 2019 165 70
Mar 2020 105 82
Mar 2021 87 87
Mar 2022 93 93
1 Net income is Total income, other income and non-income cash less operating
costs.
2 A return of capital to shareholders in 2018 reduced the FY18 final dividend
payment.
Sensitivities
The sensitivity of the portfolio to key inputs to our valuations is shown in
Table 17 and described in more detail in Note 7 to the accounts. The portfolio
valuations are positively correlated to inflation. The longer-term inflation
assumptions beyond two years remain consistent with central bank targets, eg
UK CPI at 2%.
The sensitivities shown in Table 17 are indicative and are considered in
isolation holding all other assumptions constant. Timing and quantum of price
increases will vary across the portfolio and the sensitivity may differ from
that modelled. Changing the inflation rate assumption may necessitate
consequential changes to other assumptions used in the valuation of each
asset.
Table 17: Portfolio sensitivities (year to 31 March 2022)
-1% +1%
Discount rate £297m/10.3% £(258m)/9.0%
Inflation (for two years) £(46m)/1.6% £43m/1.5%
Interest rate £156m/5.4% £(158m)/5.5%
Alternative Performance Measures ('APMs')
We assess our performance using a variety of measures that are not
specifically defined under IFRS and are therefore termed APMs. The APMs that
we use may not be directly comparable with those used by other companies.
These APMs provide additional information of how the Company has performed
over the year and are all financial measures of historical performance.
The APMs are consistent with those disclosed in prior years.
· Total return on opening NAV reflects the performance of the capital
deployed by the Company during the year. This measure is not influenced by
movements in share price or ordinary dividends to shareholders. This is a
common APM used by investment companies.
· The NAV per share is a measure of the underlying asset base attributable
to each ordinary share of the Company and is a useful comparator to the share
price. This is a common APM used by investment companies.
· Total income and non-income cash is used to assess dividend coverage
based on distributions received and accrued from the investment portfolio.
· Investment value including commitments measures the total value of
shareholders' capital deployed by the Company.
· Total portfolio return percentage reflects the performance of the
portfolio assets during the year.
The definition and reconciliation to IFRS of the APMs is shown below.
The table below defines our APMs.
APM Purpose Calculation Reconciliation to IFRS
Total return on A measure of the overall financial performance of the Company. It is calculated as the total return of £404 million, as shown in the The calculation uses IFRS measures.
opening NAV
Statement of comprehensive income, as a percentage of the opening NAV of
£2,390 million net of the final dividend for the previous year of £44
million.
For further information see the KPI section.
NAV per share A measure of the NAV per share in the Company. It is calculated as the NAV divided by the total number of shares in issue at The calculation uses IFRS measures and is set out in Note 14 to the accounts.
the balance sheet date.
Total income and 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 not The non-income cash, being the proceeds from partial realisations of
resulting from the disposal of an underlying portfolio asset. investments are shown in the Cash flow statement. The realisation proceeds
which result from a partial sale of an underlying portfolio asset are not
non-income cash included within non-income cash.
Investment 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 uses IFRS measures. The value of future commitments
further contracted future investments committed by the Company. contracted commitment. is set out in Note 16 to the accounts.
value including
commitments
Total portfolio A measure of the financial performance of the portfolio. It is calculated as the total portfolio return in the year of £509 million, The calculation uses capital return (including exchange), movement in fair
return percentage 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 the year (excluding capitalised interest) of investment in the year. The reconciliation of all these items to IFRS is shown
£2,565 million. in Table 1 including in the footnotes.
Risk report
"Effective risk management is at the heart of everything we do as a Board."
Wendy Dorman
Chair, Audit and Risk Committee
Introduction
At the start of the year, the Audit and Risk Committee (the 'Committee'),
alongside the Investment Manager, began a new three-year cycle of risk reviews
to identify and consider the impact and likelihood of the key, principal and
emerging risks facing the Company today. A number of risks were reassessed to
reflect developments in the year, and the list of emerging risks was
refreshed. The Committee updated the risk register and risk matrix as a result
of the analysis conducted during the year, and considered the alignment of the
principal risks identified to the Company's strategic objectives.
The following sections explain how we identify and manage risks to the
Company. We outline the key risks, our assessment of their potential impact on
the Company and our portfolio in the context of the current environment and
how we seek to mitigate them.
Approach to risk governance
The Board is ultimately responsible for the risk management of the Company. It
seeks to achieve an appropriate balance between mitigating risk and generating
long-term sustainable risk-adjusted returns for shareholders. Integrity,
objectivity and accountability are embedded in the Company's approach to risk
management.
The Board exercises oversight of the risk framework, methodology and process
through the Committee. The risk framework is designed to provide a structured
and consistent process for identifying, assessing and responding to risks. The
Committee ensures that there is a consistent approach to risk across the
Company's strategy, business objectives, policies and procedures.
The Company is also reliant on the risk management frameworks of the
Investment Manager and other key service providers, as well as on the risk
management operations of each portfolio company.
The Board manages risks through reports from the Investment Manager and other
service providers and through representation on portfolio companies' boards by
the Investment Manager's team members.
Risk framework
Risk related reporting
Internal External - Annual report
· Monthly management accounts · Risk appetite
· Internal and external audit reports · Viability statement
· Service provider control reports · Internal controls
· Risk logs · Going concern
· Compliance reports · Statutory/accounting disclosures
· Risk related reporting
Risk appetite
During the year, the Committee discussed the Company's risk appetite and
concluded that it remained broadly stable. As an investment company, the
Company seeks to take investment risk. The appetite for investment risk is
described previously in the Our approach section, and in the Investment policy
towards the end of this document. Investments are made subject to the
Investment Manager's Responsible Investment policy, which addresses an
important element of our appetite for investment risk. Given the strong
competition for new investments, investment discipline remains a key
consideration. The target risk-adjusted objective of delivering 8% to 10%
return per annum over the medium term remains consistent with our current
portfolio investment cases, including our recent new investments. It is
expected that as the portfolio expands, the range of expected returns in
individual investment cases may also expand to include higher risk/return
'value add' cases and lower risk/return 'core' investments. We recognise that
this has the potential to result in greater volatility in returns on an
individual asset basis.
The benefits of diversification across sectors, countries and types of
underlying economic risk will mitigate this volatility, and the Company has
sought to build a diverse portfolio while considering carefully the underlying
risks to which our portfolio companies are exposed. The Committee concluded
that the risk appetite of the Company for economic infrastructure investments
has not changed, and remains appropriate for our investment mandate and target
returns. The Covid-19 pandemic provided a severe test of the appropriateness
of the Company's risk appetite, and its attractiveness to investors. The
portfolio overall has been resilient, and benefitted from diversification
across infrastructure subsectors and types of underlying risks.
The key tools used by the Committee to define the Company's risk appetite and
to determine the appetite for key risks are the risk register and the risk
matrix. The process of creating and reviewing the risk register and risk
matrix is described below, together with a discussion of the Company's
appetite for each of the key risks. Beyond the appetite for investment risk
discussed above, the Company seeks to limit or manage exposure to other risks
to acceptable levels.
Risk review process
The Company's risk review process includes the monitoring of key strategic and
financial metrics considered to be indicators of potential changes in its risk
profile. The review includes, but is not limited to, the following:
· infrastructure and broader market overviews;
· key macroeconomic indicators and their impact on the performance
and valuation of portfolio companies;
· regular updates on the operational and financial performance of
portfolio companies;
· experience of investment and divestment processes;
· compliance with regulatory obligations, including climate-related
regulation;
· analysis of new and emerging regulatory initiatives;
· liquidity management;
· assessment of climate risks to the portfolio, including physical,
transition and litigation risks;
· consideration of scenarios that may impact the viability of the
Company;
· assessment of emerging risks; and
· review of the Company's risk log.
Risk register review process
October 2021
Directors identify and score the principal, key and emerging risks facing 3iN
December 2021
Analysis and interpretation of responses
April 2022
Risk register and risk matrix updated
January 2022
Impact and likelihood of the identified risks considered
The Committee uses the risk framework to identify emerging and key risks, and
to evaluate changes in risks over time. Developments during the year in the
more significant key risks or 'principal risks' are discussed later in this
document. These are risks that the Committee considers to have the potential
to materially impact the delivery of our strategic objectives.
The Committee evaluates the probability of each identified risk materialising
and the impact it may have, with reference to the Company's strategy and
business model.
The review process was updated this year to assess the likelihood and impact
of each risk over two timeframes, within three years and beyond three years.
The evaluation of these key risks is then presented on a risk matrix.
Mitigating controls have been developed for each risk and the adequacy of the
mitigation is then assessed and, if necessary, additional controls are
implemented and reviewed by the Committee at a subsequent meeting.
The Committee considers the identified principal risks in greater detail in
the assessment of the Company's viability.
A number of scenarios have been developed to reflect plausible outcomes should
the principal risks be experienced, as well as consideration of stressed
scenarios that could result in the Company ceasing to be viable.
As the Company is an investment company, the stressed scenarios reflect
reduced cash flows from the Company's investment portfolio, such that debt
covenants are breached and liabilities not met. Following the invasion of
Ukraine, a scenario was developed this year for a new emerging risk of an
escalation of this conflict in Europe.
The Investment Manager models the impact of these scenarios on the Company and
reports the results to the Committee. The resulting assessment of viability is
included in this Risk report.
Review during the year
Early in the financial year, the Committee engaged EY to benchmark the
Company's risk review process and to facilitate a workshop with the Committee
to consider improvements to the process. Presentation of the results of the
benchmarking exercise and the workshop took place in September 2021. The risk
review process was subsequently updated to consider the likelihood and impact
of the key risks over two timeframes. The 'blank sheet of paper' element of
the risk review process, conducted at the start of each three-year cycle of
reviews, was considered to be best practice against the benchmarking
undertaken.
Risk categorisation
The Committee uses the following categorisation to describe risks that are
identified during the risk review process.
Emerging risks Key risks Principal risks
An emerging risk is one that may A key risk is considered currently to pose the risk of a material impact on The Committee maintains a risk matrix, onto which the key risks are mapped by
in future be likely to have a material impact on the performance of the the Company. Risks may be identified as emerging risks and subsequently impact and likelihood. The principal risks are identified on the risk matrix
Company and the achievement of our long-term objectives, but that is not yet become key risks. Identified key risks may cease to be considered key over as those with the highest combination of impact and likelihood scores.
considered to be a key risk. time.
In October 2021, the Committee instigated a process designed to identify and
score the key risks and update the list of emerging risks currently facing the
Company. This started with the 'blank sheet of paper' exercise where each
Director, and several members of the Investment Manager's team, identified the
top risks facing the Company. In December 2021, the Committee analysed the
data collected and identified the principal risks facing the Company, scoring
each for impact and likelihood (within a three year period and beyond a three
year period). In January 2022, the results of the principal risk scoring were
considered and assessed and additional changes made.
In March and April 2022, the Committee reviewed the updated risk register and
risk matrix and the Company's appetite for each of the key risks.
We have a relatively diverse spread of assets in the portfolio and it is
important that risk diversity is maintained as we evolve the portfolio through
new investments and realisations.
Future realisations may continue the evolution of risk in the portfolio in
line with our strategy and allow the Company to manage its exposure to more
sensitive assets, or to take account of where the risk profile of an asset has
changed over time.
We are confident that the portfolio remains defensive and resilient, and in a
position to benefit from asymmetric returns in rising or declining markets
(taking more of the upside in a rising market, and benefitting from protection
in a downside). We believe the current appetite for risk is appropriate.
Emerging risks
The Company is a long-term investor and therefore needs to consider the impact
of both identified key risks, as detailed below, and risks that are considered
emerging or longer-term. Risk categorisation, including the definition of
emerging risk, is shown above.
The Board and the Investment Manager consider these factors when reviewing the
performance of the portfolio and when evaluating new investments, seeking to
identify which factors present a potential risk and can either be mitigated or
converted into opportunities.
As part of the ongoing risk identification and management of the Company, the
Committee considers whether these emerging risks should be added to the
Company's risk register. The risk register is a 'live' document that is
reviewed and updated regularly by the Committee as new risks emerge and
existing risks change. Examples of emerging risks that were considered during
the year include the impact of changes in technology on our portfolio
companies, a future pandemic, divergence between the UK and the EU regulation
increasing friction over trade in goods and services, and escalating
regulatory reporting requirements. The risk of an escalation of the war in
Ukraine was added to the list of emerging risks this year.
Key risks
Key risks are mapped by impact and likelihood on a risk matrix. During the
year, the Committee considered the development of all the key risks in detail.
Within the category of key risks, the principal risks identified by the
Committee in the financial year are set out in the Principal risks and
mitigation table below, alongside how the Company seeks to mitigate these
risks.
Market and economic risk was considered the top risk facing the Company. This
includes the consequences of sanctions on Russia and Russian companies, the
recovery from the Covid-19 pandemic, increased commodity and energy prices,
rising inflation and interest rates, supply chain constraints and a heightened
risk of recession.
The risk review showed a high level of consistency with the prior year, with a
small number of changes in the key risks identified. The assessment of
likelihood and impact of the key risks resulted in some changes to the
principal risks facing the Company.
The risk of having an unbalanced portfolio is considered to have decreased
following the new investments made in the year which have increased the
diversity of the portfolio. Following that high level of new investment, the
management of liquidity risk is considered to have increased and become a
principal risk.
The risk of poor investment performance is considered to have increased such
that it is now a principal risk, reflecting the risk at individual portfolio
company level of increased market and economic risk alongside the evolution of
underlying risks in our portfolio consistent with our investment strategy to
focus on economic infrastructure assets. The risk of an inappropriate rate of
investment is considered to have decreased this year, with a good flow of new
investment opportunities through the pipeline which converted into a good
number of new and follow-on investments.
Exposure to competition risk is considered to have increased further
reflecting the level of fund raising by other asset managers including several
new listed funds.
These changes are reflected in the table of Principal risks and mitigations
table below.
Covid-19
The Covid-19 pandemic was a major test of the business models of all
companies. The resilient response of our portfolio companies was consistent
with our strategy and with the characteristics that we look for in
infrastructure investments. We are encouraged by the strength of the
performance of our portfolio this year as Europe recovers from the pandemic
and restrictions are eased in the countries in which we invest. More detail
can be found in the Investment Manager's review and elsewhere in this Risk
report.
Climate risk
There is an increased focus on sustainability and ESG amongst our shareholders
and in the wider market. Although there is still much uncertainty around the
extent and timing of the impact of climate change, government and societal
action, and future regulations, we recognise that climate-related risk is a
key risk as well as an investment theme for the Company. In our review this
year, we decided to separate climate-related risk into two distinct but
related risks.
Climate regulation risk has been added to the risk register, to address the
regulatory risk to the Company and the portfolio associated with the
transition to a low-carbon economy. The existing climate risk was amended to
address the physical and transition risks from climate change on the
portfolio.
We have increased our disclosures and reporting on climate risk and our
Investment Manager has evolved its proprietary ESG tool to allow us to assess
this and other risks in more detail across the portfolio. This year, the
Investment Manager added consideration of ESG risks, including climate risks,
earlier in the investment process.
Our progress in TCFD reporting is described in the Sustainability report of
the Annual report and accounts 2022, and this now includes GHG emissions
reporting for scopes 1 and 2 for our portfolio companies.
All of the companies in our portfolio recognise the importance of considering
climate change and of evolving a sustainable business model. As discussed in
the Sustainability report of the Annual report and accounts 2022, the physical
and transition climate-related risks are also seen as opportunities for all
companies in our portfolio.
There are no acute physical nor transition risks identified in the portfolio
that would suggest that climate risk is a principal risk, although an example
of the impact of a transition risk is the introduction of a tax on imported
waste or a carbon tax in the Netherlands, which impacts Attero, and the risk
of early decommissioning of oil and gas assets which impacts some customers of
Tampnet and ESVAGT. We consider that the mitigating controls at the Company
and the Investment Manager over climate regulation risk prevent this from
being a principal risk at the moment.
Principal risks and mitigations
External
Principal risk Risk description Risk mitigation
Market/economic · Macroeconomic or market volatility, such as may arise from the · Resources and experience of the Investment Manager on deal-making,
consequences of the invasion of Ukraine and from the effects on economies of asset management and hedging solutions to market volatility
Risk exposure the Covid-19 pandemic, flows through to pricing, valuations and portfolio
movement in the year performance · Periodic legal and regulatory updates on the Company's markets and
Increased
in-depth market and sector research from the Investment Manager and other
· Fiscal tightening impacts market environment advisers
Link to Strategic
priorities · Risk of sovereign default lowers market sentiment and increases · Portfolio diversification to mitigate the impact of a downturn in
volatility any geography or sector or portfolio company-specific effects
Manage portfolio intensively
· Misjudgement of inflation and/or interest rate outlook · The permanent capital nature of an investment trust allows us to look
through market volatility and the economic cycle
Competition · Increased competition for the acquisition of · Continual review of market data and review of Company return target
assets in the Company's strategic focus areas compared to market returns
Risk exposure
movement in the year · Deal processes become more competitive and prices increase · Origination experience and disciplined approach of Investment Manager
Increased
· New entrants compete with a lower cost · Strong track record and strength of 3i Infrastructure brand
Link to Strategic
of capital
priorities
Disciplined approach
Debt markets · Debt becomes increasingly expensive, eroding returns · The Investment Manager maintains close relationships with a number of
deteriorate
banks and monitors the market through transactions and advice
· Debt availability is restricted
Risk exposure
· Regular reporting of Company liquidity and portfolio company
movement in the year · The Company's RCF or portfolio company debt cannot be refinanced due refinancing requirements
No significant change to lack of appetite from banks
· Investment Manager has extensive experience in raising debt finance for
Link to Strategic priorities portfolio companies, alongside an in-house Treasury team to provide advice on
treasury issues
Manage portfolio intensively
· Active management of portfolio company debt facilities, with fixed
rates and long duration of debt
Operational
Principal risk Risk description Risk mitigation
Loss of senior Investment · Members of the deal team at the Investment Manager leave and · Benchmarked compensation packages and deferred remuneration
Manager staff 'deal-doing' and portfolio management capability in the short to medium term
is restricted · Notice periods within employment contracts
Risk exposure
movement in the year · Strength and depth of the senior team and strength of the 3i Group
No significant change brand
Link to Strategic · Careful management of senior management transition
priorities
Invest responsibly
Sustainability key driver
Strategic
Principal risk Risk description Risk mitigation
Management of liquidity · Failure to manage the Company's liquidity, including cash and available · Regular reporting of current and projected liquidity
credit facilities
Risk exposure
· Investment and planning processes consider sources of liquidity
movement in the year · Insufficient liquidity to pay dividends and operating expenses or to
Increased make new investments · Flexible funding model, where liquidity can be sought from available
cash balances including reinvestment of proceeds from realisations, committed
Link to Strategic · Hold excessive cash balances, introducing cash drag on the Company's credit facilities which can be increased with approval from our lenders, and
priorities returns the issue of new share capital
Disciplined approach
Deliverability of · Failure to ensure the investment strategy can deliver the return target · Market returns are reviewed regularly
return target and dividend policy of the Company
· The Investment Manager and other advisers to the Company report on
Risk exposure · Failure to adapt the strategy of the Company to changing market market positioning
movement in the year conditions
No significant change · Investment process addresses expected return on new investments and the
impact on the portfolio
Link to Strategic
priorities · Consideration of risks, including ESG and climate risks, in the
Invest responsibly investment process
Sustainability key driver
Investment
Principal risk Risk description Risk mitigation
Security of assets · An incident, such as a cyber or terrorist attack · Regular review of the Company and key service providers
Risk exposure · Unauthorised access of information and operating systems · Regular review and update of cyber due diligence for potential
movement in the year
investments
No significant change · Regulatory and legal risks from failure to comply with cyber related
laws and regulations, including data protection · Review of portfolio companies for cyber risk management and incident
Link to Strategic readiness
priorities
Invest responsibly
Sustainability key driver
Poor investment performance · Misjudgement of the risk and return attributes of a new investment · Robust investment process with thorough challenge of the investment
case supported by detailed due diligence
Risk exposure · Material issues at a portfolio company
movement in the year
· Investment Manager's active asset management approach including
Increased · Poor judgement in the realisation of an asset proactive management of issues arising at portfolio company level
· Experience of the Investment Manager's team in preparing for and
executing realisations of investments
Link to Strategic
priorities
Invest responsibly
Sustainability key driver
Development of significant key risks in the year
The disclosures in the Risk report are not an exhaustive list of risks and
uncertainties faced by the Company, but rather a summary of significant key
risks which are under active review by the Board. These significant key risks
have the potential to affect materially the achievement of the Company's
strategic objectives and impact its financial performance. This disclosure
shows developments in these significant key risks for the year. The risks that
have been identified as principal risks are described in more detail in the
Principal risks and mitigations table.
External risks - market and competition
The markets in which the Company seeks to invest, and in particular the
European economic infrastructure market, are more competitive than ever, with
strong demand for new investments. Competition continued to increase as the
infrastructure sector has demonstrated its resilience during the pandemic.
In this environment, the Investment Manager continues to leverage its network
and skills to look for investments that can deliver attractive and sustainable
risk-adjusted returns to the Company's shareholders.
The Company achieved a high level of new investment in the year, while
avoiding the most heavily competed processes in the market.
Inflation in the UK and Europe has risen sharply in the year, driven by rising
energy costs, supply chain bottlenecks, labour and raw material shortages and
the reopening of economies from pandemic-related lockdowns. Higher inflation
is generally positive for the Company, particularly for assets which have
revenues at least partially linked to inflation, although higher inflation may
also result in increased costs.
Central bank base rates increased during the year, and these increases are
likely to continue in the coming year. This would increase debt financing
costs for our portfolio companies and could also lead to increases in required
rates of return on equity, both of which would decrease portfolio company
valuations. Long-term fixed rate debt is in place across the majority of our
portfolio which mitigates the risk from interest rate changes in the shorter
term. The increase in competition noted above has led to required rates of
return on equity remaining at historic low levels.
The Company is exposed to movements in sterling exchange rates against a
number of currencies, most significantly the euro. The Company operates a
hedging programme which substantially offsets volatility in returns from
exchange rate movements. The Board monitors the effectiveness of the Company's
hedging policy on a regular basis.
There are actual and potential indirect effects on portfolio companies of the
Russian invasion of Ukraine and the imposition of sanctions on Russia and
Russian businesses, including increasing cost and wage inflation, availability
of resources and disruptions to normal market activities. However, the impact
to date on portfolio companies has been limited.
The valuation of our portfolio companies that generate electricity, Infinis,
Valorem and Attero, is affected by the evolution of long-term power price
forecasts and by fluctuations in the spot power price. Volatility in prices is
expected to continue as thermal and nuclear plants are retired, there is
growth in intermittent renewables and increasing demand due to the
electrification of transport and heating, and due to the the war in Ukraine.
Infinis's electricity offtake arrangements include contracts with Gazprom
Marketing & Trading Ltd, a large supplier in the UK non-domestic energy
market. Whilst these contracts are not currently affected by sanctions,
Infinis is actively replacing contracts where permitted and others will run
off over time.
We do not expect Infinis to be adversely affected by any extension of
sanctions or an insolvency process for Gazprom Marketing & Trading Ltd.
Sanctions on Russia and Russian companies, together with the recovery from the
Covid-19 pandemic, has led to an increase in oil prices. For Oystercatcher,
the increase in oil prices has led to a backwardation market structure which,
together with recent market volatility, may maintain some short-term downward
pressure on pricing of contract renewals.
Ionisos is a provider of cold sterilisation and ionising radiation treatment
services to the medical, pharmaceutical, plastics and cosmetics industries.
Gamma radiation, one of the three methods of cold sterilisation used, relies
on the radioactive decay of Cobalt-60, a scarce resource. Ionisos's Estonian
business has in the past sourced Cobalt-60 from a Russian-owned company, JSC.
Whilst JSC is not currently subject to sanctions, Ionisos will not source new
Cobalt-60 from JSC for the foreseeable future and is seeking alternative
sources of supply. The capacity of the Estonian business would reduce over
time until new Cobalt-60 is sourced.
Air traffic movements and passenger numbers remain substantially below the
levels seen before the Covid-19 pandemic, although they are now showing signs
of recovery. The timing and extent of future recovery remains uncertain. This
affects TCR more than other companies in our portfolio, although we are
pleased with the performance of TCR over the duration of the pandemic and the
strong performance this year as the industry starts to recover. We have
maintained our assumption of a longer-term return to pre-pandemic levels of
air travel by 2024.
External risks - regulatory and tax
The Company's investment in Infinis is exposed to electricity market
regulation risk around the future of network access and charging arrangements.
It is possible that this could affect the valuation of Infinis, and we are
closely monitoring the position. The direction of network access charging
reform is for more location-based charging which in principle should benefit
generators such as Infinis with sites predominantly in demand-dominated areas.
Ofgem is progressing a series of reviews and consultations following its
recent Significant Code Review, resulting in a degree of regulatory
uncertainty for the foreseeable future.
The unprecedented fiscal stimulus that we have seen during the Covid-19
pandemic has increased sovereign debt levels and a consequence of this is
likely to be higher taxes to balance the deficit. The increase in the UK
corporation tax rate from April 2023 is reflected in the valuations of
Infinis, SRL and Tampnet and the increase in the Dutch corporation tax rate
from April 2022 is reflected in the valuations of Joulz and Attero.
Strategic risks
The Company manages its balance sheet and liquidity position actively, seeking
to maintain adequate liquidity to pursue new investment opportunities, while
not diluting shareholder returns by holding surplus cash balances. At 31 March
2022 there was £17 million available in cash, with drawings of £231 million
under the RCF. The Company increased the size of the committed credit
facilities during the year, with aggregate facilities of £1 billion at the
date of this report.
The portfolio is diversified across sector and geography with no investment
above 17% of portfolio value.
Investment risks
Portfolio companies continue to experience fraud attempts, some of which are
successful, but none of which has had a material impact on any of our
companies. In the year the Investment Manager commissioned a review of cyber
controls by an independent IT security provider, building upon a previous
review by the same company. No significant weaknesses in cyber security were
identified and the majority of more minor issues noted in the review have been
addressed. We remain vigilant and continue to focus on effective operations of
controls against possible cyber-attack, particularly as this risk continues to
increase following the outbreak of war in Ukraine.
Further to the announcement in March 2021 that the facilities of Steril
Milano, a subsidiary of Ionisos, had been closed, Steril Milano was placed
into voluntary liquidation during the period. This was fully provided for in
the March 2021 valuation of Ionisos. Steril Milano represented c.3% of
Ionisos's 2020 EBITDA.
Operational risks
The key areas of operational risk include attracting and retaining key
personnel at the Investment Manager, and whether the Investment Manager's team
can continue to support the delivery of the Company's objectives. The team has
strength and depth and the transition in senior management has been carefully
managed. The Board monitors the performance of the Investment Manager through
the Management Engagement Committee. It also monitors the performance of key
service providers, receiving reports of any significant control breaches.
Resilience statement
Our resilience comes from the effective implementation of our business model.
Key elements of our business model relating to resilience include the
Investment Manager's disciplined approach to new investment and engaged asset
management, the defensive characteristics of our portfolio of investments,
high ESG standards, our flexible funding model and efficient balance sheet,
and the capability of the Investment Manager's team.
This is underpinned by the strong institutional culture and values of our
Investment Manager, high standards of corporate governance, and effective risk
management.
Over the life of the Company, the Investment Manager has built a resilient and
diversified portfolio with good growth potential and downside protection that
delivers an attractive mix of income yield and capital appreciation for
shareholders. This has been achieved through consistent delivery of our
strategic priorities.
Short-term resilience
The Directors assess the Company's short-term resilience through monitoring
portfolio, pipeline and finance reports. These are prepared monthly, and
discussed at quarterly scheduled Board meetings and Board update calls held
between scheduled meetings. Six-monthly detailed investment reviews are
prepared by the Investment Manager and discussed with the Board, as part of
the half-yearly and annual valuation and reporting processes. These reviews
describe sources of risk at portfolio company level, and mitigating actions
being taken or considered.
The resilience of key suppliers, including the Investment Manager, is
considered annually or more frequently if appropriate. The Audit and Risk
Committee is provided with relevant extracts of reports from the Investment
Manager's internal audit team, which includes an annual report on the European
infrastructure investment team. Further detail is included in the Governance
section in the Annual report and accounts.
The Directors manage the Company's liquidity actively, reviewing reports on
current and forecast liquidity from the Investment Manager, alongside
recommendations for seeking additional liquidity when appropriate. Further
discussion on the RCF can be found in the Financial review section.
The identification of material uncertainties that could cast significant doubt
over the ability of the Company to continue as a going concern forms the basis
of the Going concern statement below.
Going concern
The Company's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Strategic
report and in the Financial statements and related Notes to our Annual report
and accounts to 31 March 2022. The financial position of the Company, its
cash flows, liquidity position and borrowing facilities are described in the
Financial statements and related Notes to the accounts. In addition, Note 9 to
the accounts includes the Company's objectives, policies and processes for
managing its capital, its financial risk management objectives, details of
its financial instruments and hedging activities, and its exposures to credit
risk and liquidity risk.
The Directors have made an assessment of going concern, taking into account
the Company's cash and liquidity position, current performance and outlook,
which considered the impact of the Covid-19 pandemic and the war in Ukraine,
using the information available up to the date of issue of these Financial
statements.
The Company has liquid financial resources and a strong investment portfolio
providing a predictable income yield and an expectation of medium-term capital
growth. The Company manages and monitors liquidity regularly, ensuring that it
is sufficient.
At 31 March 2022, liquidity remained strong at £786 million (2021: £763
million). Liquidity comprised cash and deposits of £17 million (2021: £463
million) and undrawn facilities of £769 million (2021: £300 million). The
£200 million accordion and £400 million additional facility both mature
within 12 months of the date of this report. In addition, the Company is able
to call the second tranche of the deferred consideration from the realisation
of WIG, £98 million with six weeks' notice and, in June 2022, is expecting to
receive £103 million from the sale of its Projects portfolio.
The Company had an expected investment commitment of c.£300 million at 31
March 2022, relating to the equity cost for the acquisition of GCX expected to
close in the summer. The Company expects to receive the WIG deferred
consideration and the proceeds from the sale of the Projects portfolio prior
to the completion of this investment.
The Company had ongoing charges of £36 million in the year to 31 March 2022,
detailed in Table 13 in the Financial review, which are indicative of the
ongoing run rate in the short term. In addition, the FY22 performance fee of
£54 million (2021: £7 million) is due in three equal instalments with the
first instalment payable in the next 12 months along with the second
instalment of FY21's performance fee and the third instalment of FY20's
performance fee, and a proposed final dividend for FY22 of £47 million which
is expected to be paid in July.
Although not a commitment, the Company has announced a dividend target for
FY23 of 11.15 pence per share. Income and non-income cash is expected to be
received from the portfolio investments during the coming year, some of which
will be required to support the payment of this dividend target and the
Company's other financial commitments.
The Directors have acknowledged their responsibilities in relation to the
Financial statements for the year to 31 March 2022. After making the
assessment on going concern, the Directors considered it appropriate to
prepare the Financial statements of the Company on a going concern basis.
The Company has sufficient financial resources and liquidity and is
well-positioned to manage business risks in the current economic environment
and can continue operations for a period of at least 12 months from the date
of this report. This is supported by the scenario analysis and stress testing
described in the medium-term resilience section and the viability statement.
Accordingly, the Directors continue to adopt the going concern basis in
preparing the Annual report and accounts.
Medium-term resilience
The assessment of medium-term resilience, which includes modelling of stressed
scenarios and reverse stress tests, considers the viability and performance of
the Company in the event of specific stressed scenarios which are assumed to
occur over a three-year horizon. This stress testing forms the basis of the
Viability statement below.
The Directors consider that a three-year period to March 2025 is an
appropriate period to review for assessing the Company's viability. This
reflects greater predictability of the Company's cash flows over that time
period and increased uncertainty surrounding economic, political and
regulatory changes over the longer term.
The stress testing focuses on the principal risks, but also reflects those new
and emerging risks that are considered to be of sufficient importance to
require active monitoring by the Audit and Risk Committee. The scenarios used
are described in the Viability statement below. The medium-term resilience of
the Company is assessed through analysing the impact of these scenarios on key
metrics such as total return, income yield, net asset value, covenants on the
RCF and available liquidity.
Viability statement
The Directors consider the medium-term prospects of the Company to be
favourable. The Company has a diverse portfolio of infrastructure investments,
producing good and reasonably predictable levels of income which cover the
dividend and costs. The defensive nature of the portfolio and of the essential
services that the businesses in which we invest provide to their customers are
being demonstrated in the current climate. The Investment Manager has a strong
track record of investing in carefully selected businesses and projects and of
driving value through an engaged asset management approach. The Directors
consider that this portfolio can continue to meet the Company's objectives.
The Directors have assessed the viability of the Company over a three-year
period to March 2025. The Directors have taken account of the current position
of the Company, including its strong liquidity position with £17 million of
cash and £769 million of undrawn credit facilities, its commitment of c.£300
million to the new investment in GCX described in the Going concern section
above, and the principal risks it faces which are documented in this Risk
report.
The Directors have considered the potential impact on the Company of a number
of scenarios in addition to the Company's business plan and recent forecasts,
which quantify the financial impact of the principal risks occurring. These
scenarios represent severe yet plausible circumstances that the Company could
experience, including a significant impairment in the value of the portfolio
and a reduction in the cash flows available from portfolio companies from a
variety of causes.
The assessment was conducted over several months, during which the proposed
scenarios were evaluated by the Board, the assumptions set, and the analysis
produced and reviewed. Analysis included the impact of an escalation of the
war in Ukraine on our portfolio companies and the impact of a resulting
economic downturn. Other considerations included the possible impact of
climate-related events and transition risks, widespread economic turmoil, a
reduction in cash distributions from portfolio companies to the Company, a
tightening of debt markets and the failure of a large investment.
The assumptions used to model these scenarios included a fall in value of some
or all of the portfolio companies, a reduction in cash flows from portfolio
companies, a reduction in the level of new investment, the imposition of
additional taxes on distributions from, or transactions in, the portfolio
companies, an increase in the cost of debt and restriction in debt
availability, and an inability for the Company to raise equity. The
implications of changes in the inflation, interest rate and foreign exchange
environment were also considered, separately and in combination.
The results of this stress testing showed that the Company would be able to
withstand the impact of these scenarios occurring over the three-year period.
The Directors also considered scenarios that would represent a serious threat
to its liquidity and viability in that time period. These scenarios were
considered to be remote, such as a fall in equity value of the portfolio of
materially more than 50% whilst being fully drawn on the RCF including the
accordion, or an equivalent fall in income.
Based on this assessment, the Directors have a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due over the three-year period to March 2025.
Long-term resilience
As described above, the long-term resilience of the Company, beyond the
Viability statement period, comes from the effective implementation of our
business model and consistent delivery of our strategic objectives.
Our approach to origination and portfolio construction, focus on price
discipline and engaged asset management approach enable us to adapt in
response to new and emerging risks and challenges including climate change and
developments in megatrends.
The characteristics that we look for in infrastructure investments, support
the long-term resilience of the Company. The performance of the portfolio
through the Covid-19 pandemic provided good evidence of this. The underlying
megatrends supporting the longer-term resilience of each portfolio company are
identified in the Our approach section.
We have a long-term investment time horizon made possible by our permanent
capital base that is unconstrained by the fixed investment period and
fundraising cycle seen in private limited partnership funds.
Although the scenarios and stress testing to support the viability statement
are modelled over a three-year time horizon, the resilience shown by the
Company, and its ability to recover from these stressed situations, supports
the assessment of our resilience over a longer term than three years.
Directors' duties
Section 172 statement
The Directors are obliged to act honestly and in good faith with a view to the
best interests of the Company; and to exercise the care, diligence and skill
that a reasonably prudent person would exercise in comparable circumstances.
The Directors fulfil their duties through the Company's governance framework
and through their delegation of discretionary investment management authority
to the Investment Manager.
The Company adheres to the AIC Code and it is the intention of the AIC Code
that the matters set out in section 172 Companies Act 2006 ('s172') are
reported on to the extent they do not conflict with Jersey law. The Directors
exercise their duties by understanding the views of the Company's key
stakeholders and considering all of the matters set out in s172 in both their
discussions and in decision making.
Board decisions are guided by the Company's purpose. The Board acknowledges
that not every decision made will necessarily result in a positive outcome for
every stakeholder group. Board decisions often involve complex interactions of
factors and require Directors to understand and have regard to a range of
stakeholder interests and concerns. By considering the Company's purpose
together with its strategic priorities and having a clear process in place for
decision making, we can ensure that Board discussion has regard to the
potential impact of our decisions on each stakeholder group in accordance with
s172.
Under s172 a director of a company must act in a way they consider in good
faith would be most likely to promote the success of the company for the
benefit of its members as a whole, and in doing so have regard to:
The likely consequences of any decision in the long term
Our purpose and strategy combined with the responsible investment approach of
the Investment Manager focuses on sustainable returns and outcomes.
The impact of the Company's operations on the community and the environment
We use our influence to promote a commitment in our portfolio companies to
mitigate any adverse environmental and social impacts, and to enhance positive
effects on their communities and the environment.
The interests of the Company's employees
Whilst we do not have any employees, our purpose includes the intention to
have a positive impact on our portfolio companies and their stakeholders,
which includes the employees of those portfolio companies.
The desirability of maintaining a reputation for high standards of business
conduct
Our success relies on maintaining a strong reputation and our values and
ethics are aligned to our purpose, our strategy and our ways of working.
The need to foster the Company's business relationships with suppliers,
customers and others
We engage with all our stakeholders either directly or through the Investment
Manager.
The need to act fairly towards all members of the Company
The Board actively engages with its shareholders and balances their interests
when implementing our strategy.
Read more in our Annual report and accounts 2022, available on our website
Accounts and other information
Statement of comprehensive income
For the year to 31 March
Year to Year to
31 March 31 March
2022 2021
Notes £m £m
Net gains on investments 7 384 118
Investment income 7 127 92
Fees payable on investment activities (3) (1)
Interest receivable 6 11
Investment return 514 220
Movement in the fair value of derivative financial instruments 5 (2) 22
Management and performance fees payable 2 (97) (31)
Operating expenses 3 (3) (3)
Finance costs 4 (5) (2)
Exchange movements (3) -
Profit before tax 404 206
Income taxes 6 - -
Profit after tax and profit for the year 404 206
Total comprehensive income for the year 404 206
Earnings per share
Basic and diluted (pence) 14 45.3 23.1
Statement of changes in equity
For the year to 31 March
Stated Total
capital Retained Capital Revenue shareholders'
account reserves(1) reserve(1) reserve(1) equity
For the year to 31 March 2022 Notes £m £m £m £m £m
Opening balance at 1 April 2021 779 1,282 330 (1) 2,390
Total comprehensive income for the year - - 324 80 404
Dividends paid to shareholders of the Company during the year 15 - - (11) (79) (90)
Closing balance at 31 March 2022 779 1,282 643 - 2,704
Stated Total
capital Retained Capital Revenue shareholders'
account reserves(1) reserve(1) reserve(1) equity
For the year to 31 March 2021 Notes £m £m £m £m £m
Opening balance at 1 April 2020 779 1,282 196 12 2,269
Total comprehensive income for the year - - 134 72 206
Dividends paid to shareholders of the Company during the year - - - (85) (85)
15
Closing balance at 31 March 2021 779 1,282 330 (1) 2,390
1 The Retained reserves, Capital reserve and Revenue reserve are distributable
reserves. Retained reserves relate to the period prior to 15 October 2018.
Further information can be found in Accounting policy H.
Balance sheet
As at 31 March
2022 2021
Notes £m £m
Assets
Non-current assets
Investments at fair value through profit or loss 7 2,873 1,804
Derivative financial instruments 10 6 18
Total non-current assets 2,879 1,822
Current assets
Derivative financial instruments 10 20 25
Trade and other receivables 8 104 106
Cash and cash equivalents 17 462
Total current assets 141 593
Total assets 3,020 2,415
Liabilities
Non-current liabilities
Derivative financial instruments 10 (6) (2)
Trade and other payables 12 (38) (10)
Loans and borrowings 11 (231) -
Total non-current liabilities (275) (12)
Current liabilities
Derivative financial instruments 10 (12) (4)
Trade and other payables 12 (29) (9)
Total current liabilities (41) (13)
Total liabilities (316) (25)
Net assets 2,704 2,390
Equity
Stated capital account 13 779 779
Retained reserves 1,282 1,282
Capital reserve 643 330
Revenue reserve - (1)
Total equity 2,704 2,390
Net asset value per share
Basic and diluted (pence) 14 303.3 268.1
The Financial statements and related Notes were approved and authorised for
issue by the Board of Directors on 9 May 2022 and signed on its behalf by:
Richard Laing
Chair
Cash flow statement
For the year to 31 March
Year to Year to
31 March 31 March
2022 2021
£m £m
Cash flow from operating activities
Purchase of investments (761) (43)
Proceeds from other financial assets 12 104
Proceeds from partial realisations of investments 140 14
Proceeds from full realisations of investments 8 30
Investment income(1) 54 51
Fees paid on investment activities (4) -
Operating expenses paid (4) (3)
Interest received - 1
Management and performance fees paid (50) (29)
Amounts received on the settlement of derivative contracts 27 6
Distributions from transfer of investments from unconsolidated subsidiaries(2) - 5
Net cash flow from operating activities (578) 136
Cash flow from financing activities
Fees and interest paid on financing activities (6) (2)
Dividends paid (90) (85)
Drawdown of revolving credit facility 955 -
Repayment of revolving credit facility (724) -
Net cash flow from financing activities 135 (87)
Change in cash and cash equivalents (443) 49
Cash and cash equivalents at the beginning of the year 462 413
Effect of exchange rate movement (2) -
Cash and cash equivalents at the end of the year 17 462
1 Investment income includes dividends of £24 million (2021: £6 million),
interest of £30 million (2021: £43 million) and no distributions (2021: £2
million) received from unconsolidated subsidiaries.
2 Following the change of tax residence of the Company from Jersey to the UK,
several of the investments held in unconsolidated subsidiaries domiciled
outside the UK have been transferred to be held directly by the Company.
Reconciliation of net cash flow to movement in net debt
For the year to 31 March
Year to Year to
31 March 31 March
2022 2021
Notes £m £m
Change in cash and cash equivalents (443) 49
Drawdown of revolving credit facility 11 (955) -
Repayment of revolving credit facility 11 724 -
Change in net (debt) / cash resulting from cash flows (674) 49
Movement in net (debt) / cash (674) 49
Net cash at the beginning of the year 462 413
Effect of exchange rate movement (2) -
Net (debt) / cash at the end of the year (214) 462
In the above reconciliation there were no non-cash movements.
Significant accounting policies
Corporate information
3i Infrastructure plc (the 'Company') is a company incorporated in Jersey,
Channel Islands. The Financial statements for the year to 31 March 2022
comprise the Financial statements of the Company as defined in IFRS 10
Consolidated Financial Statements.
The preliminary results for the year ended 31 March 2022 have been extracted
from audited accounts which have not yet been delivered to the Jersey
Financial Services Commission. The Financial statements set out in this
announcement do not constitute statutory accounts for the year ended 31 March
2022 or 31 March 2021. The financial information for the year ended 31 March
2021 is derived from the statutory accounts from that year. The reports of the
auditors on the statutory accounts for the year ended 31 March 2022 and the
year ended 31 March 2021 were unqualified.
The Financial statements included in this announcement were authorised for
issue by the Board of Directors on 9 May 2022.
Statement of compliance
These Financial statements have been prepared in accordance with United
Kingdom adopted International Financial Reporting Standards ('IFRS') and
International Accounting Standards.
These Financial statements have also been prepared in accordance with and in
compliance with the Companies (Jersey) Law 1991.
Basis of preparation
In accordance with IFRS 10 (as amended), entities that meet the definition of
an investment entity are required to fair value certain subsidiaries through
profit or loss in accordance with IFRS 9 Financial Instruments, rather than
consolidate their results. The Company does not have any consolidated
subsidiaries, which would include subsidiaries that are not themselves
investment entities and provide investment-related services to the Company.
The Financial statements of the Company are presented in sterling, the
functional currency of the Company, rounded to the nearest million except
where otherwise indicated.
The preparation of financial statements in conformity with IFRS requires the
Board to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on experience
and other factors that are believed to be reasonable under the circumstances,
the results of which form the basis of determining the carrying values of
assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
Going concern
The Financial statements are prepared on a going concern basis as disclosed in
the Risk report, as the Directors are satisfied that the Company has the
resources to continue in business for the foreseeable future. The Directors
have made an assessment of going concern, taking into account a wide range of
information relating to present and future conditions, including the Company's
cash and liquidity position, current performance and outlook, which has
considered the impact of the recovery from the Covid-19 pandemic, ongoing
geopolitical uncertainties and current and expected financial commitments
using information available to the date of issue of these Financial
statements. As part of this assessment the Directors considered:
· the analysis of the adequacy of the Company's liquidity, solvency
and capital position. The Company manages and monitors liquidity regularly
ensuring it is adequate and sufficient. At 31 March 2022, liquidity remained
strong at £786 million (2021: £763 million). Liquidity comprised cash and
deposits of £17 million (2021: £463 million) and undrawn facilities of £769
million (2021: £300 million). The £200 million accordion and £400 million
additional facility both mature within 12 months of the date of this report.
In addition, the Company is able to call the second tranche of the deferred
consideration from the realisation of WIG of £98 million with six weeks'
notice and, in June 2022, is expecting to receive £103 million from the sale
of its Projects portfolio. Income and non-income cash is expected to be
received from the portfolio investments during the coming year, a portion of
which will be required to support the payment of the dividend target and the
Company's other financial commitments;
· uncertainty around the valuation of the Company's assets as set
out in the Key estimation uncertainties section. The valuation policy and
process was consistent with prior years. This year a key focus of the
portfolio valuations at 31 March 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, recovery from
the Covid-19 pandemic and ongoing geopolitical uncertainties. We have
incorporated into our cash flow forecasts a balanced view of future income
receipts and expenses; and
· the Company's financial commitments. The Company had one
investment commitment at 31 March 2022 totalling c.£300 million in GCX, a
global data communications service provider. The Company had ongoing charges
of £36 million in the year to 31 March 2022, detailed in Table 5 in the
Financial review, which are indicative of the ongoing run rate in the short
term. The Company has a FY22 performance fee accrual of £54 million, a third
of which is payable within the next 12 months. The Company has a FY21
performance fee accrual of £4 million relating to the second and third
instalments of the FY21 fee, the second instalment being due within the next
12 months, an accrual of £12 million relating to the third instalment of the
FY20 fee due within the next 12 months and a proposed final dividend for FY22
of £47 million. In addition, while not a commitment at 31 March 2022, the
Company has a dividend target for FY23 of 11.15 pence per share. In order to
meet the commitment to invest in GCX, the Company expects to receipt the WIG
deferred consideration and the proceeds from the sale of the Projects
portfolio prior to the completion of this investment.
In addition to the considerations listed above there are a number of
mitigating actions within management control to enhance available liquidity.
These include seeking to extend the maturity of available credit facilities,
the timing of certain income receipts from the portfolio and the level and
timing of new investments or realisations.
Having performed the assessment of going concern, the Directors considered it
appropriate to prepare the Financial statements of the Company on a going
concern basis. The Company has sufficient financial resources and liquidity
and is well placed to manage business risks in the current economic
environment and can continue operations for a period of at least 12 months
from the date of these Financial statements.
Key judgements
The preparation of financial statements in accordance with IFRS requires the
Directors to exercise judgement in the process of applying the accounting
policies defined below. The following policies are areas where a higher degree
of judgement has been applied in the preparation of the Financial statements.
(i) Assessment as investment entity - Entities that meet the definition of an
investment entity within IFRS 10 are required to measure their subsidiaries at
fair value through profit or loss rather than consolidate them unless they
provided investment-related services to the Company. To determine that the
Company continues to meet the definition of an investment entity, the Company
is required to satisfy the following three criteria:
(a) the Company obtains funds from one or more investors for the purpose of
providing those investor(s) with investment management services;
(b) the Company commits to its investor(s) that its business purpose is to
invest funds solely for returns from capital appreciation, investment income,
or both; and
(c) the Company measures and evaluates the performance of substantially all of
its investments on a fair value basis.
The Company meets the criteria as follows:
· the stated strategy of the Company is to deliver stable returns
to shareholders through a mix of income yield and capital appreciation;
· the Company provides investment management services and has
several investors who pool their funds to gain access to infrastructure
related investment opportunities that they might not have had access to
individually; and
· the Company has elected to measure and evaluate the performance
of all of its investments on a fair value basis. The fair value method is used
to represent the Company's performance in its communication to the market,
including investor presentations. In addition, the Company reports fair value
information internally to Directors, who use fair value as the primary
measurement attribute to evaluate performance.
The Directors are of the opinion that the Company has all the typical
characteristics of an investment entity and continues to meet the definition
in the standard. This conclusion will be reassessed on an annual basis.
(ii) Assessment of investments as structured entities - A structured entity is
an entity that has been designed so that voting or similar rights are not the
dominant factor in deciding who controls the entity. Additional disclosures
are required by IFRS 12 for interests in structured entities, whether they are
consolidated or not. The Directors have assessed whether the entities in which
the Company invests should be classified as structured entities and have
concluded that none of the entities should be classified as structured
entities as voting rights are the dominant factor in deciding who controls
these entities.
(iii) Assessment of consolidation requirements - The Company holds significant
stakes in the majority of its investee companies and must exercise judgement
in the level of control of the underlying investee company that is obtained in
order to assess whether the Company should be classified as a subsidiary.
The Company must also exercise judgement in whether a subsidiary provides
investment-related services or activities and therefore should be consolidated
or held at fair value through profit or loss. Further details are shown in
significant accounting policy 'A Classification' below.
During the year, the Company set up seven wholly owned subsidiary entities for
new investments in SRL and GCX. The Directors have assessed whether any of
these entities provide investment-related services and have concluded that
they should not be consolidated and that they should all be held at fair value
through profit or loss.
The adoption of certain accounting policies by the Company also requires the
use of certain critical accounting estimates in determining the information to
be disclosed in the Financial statements.
Key estimation uncertainties
Valuation of the investment portfolio
The key area where estimates are significant to the Financial statements and
have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year is in the
valuation of the investment portfolio. The portfolio is well-diversified by
sector, geography and underlying risk exposures. The key risks to the
portfolio are discussed in further detail in the Risk report.
The majority of assets in the investment portfolio are valued on a discounted
cash flow basis which requires assumptions to be made regarding future cash
flows, terminal value and the discount rate to be applied to these cash flows.
The methodology for deriving the fair value of the investment portfolio,
including the key estimates, is set out in the Portfolio valuation methodology
section. Refer to Note 7 for further details of the valuation techniques,
significant inputs to those techniques and sensitivity of the fair value of
these investments to the assumptions that have been made.
The discount rate applied to the cash flows in each investment portfolio
company is a key source of estimation uncertainty. The acquisition discount
rate is adjusted to reflect changes in company-specific risks to the
deliverability of future cash flows and is calibrated against secondary market
information and other available data points, including comparable
transactions. The discount rates applied to the investment portfolio at 31
March 2022 range from 10.0% to 13.2% (2021: 7% to 12%) and the weighted
average discount rate applied to the investment portfolio is 10.9% (2021:
10.8%). The increase in the year is due to the introduction of the new
investments in SRL and DNS:NET to the portfolio at a higher than average
discount rate, mostly offset by small reductions in discount rates for
Oystercatcher, TCR, ESVAGT and Valorem. The Projects portfolio is now valued
on a sales basis and therefore this investment has been removed from the
discount rate range.
The cash flows on which the discounted cash flow valuation is based are
derived from detailed financial models. These incorporate a number of
assumptions with respect to individual portfolio companies, including:
forecast new business wins or new orders; cost-cutting initiatives; liquidity
and timing of debtor payments; timing of non-committed capital expenditure and
construction activity; the terms of future debt refinancing; and macroeconomic
assumptions such as inflation and oil and power prices. Future power price
projections are taken from independent forecasters and changes in these
assumptions will affect the future value of our energy generating portfolio
companies. The Summary of portfolio valuation methodology section provides
further details on some of the assumptions that have been made in deriving a
balanced base case of cash flows.
The terminal value attributes a residual value to the portfolio company at the
end of the projected discrete cash flow period based on market comparables.
The terminal value assumptions consider climate change risk and stranded asset
risk. The valuation of each asset has significant estimation in relation to
asset specific items but there is also consideration given to the impact of
wider megatrends such as the transition to a lower-carbon economy and climate
change. The effects of climate change, including extreme weather patterns or
rising sea levels in the longer term could impact the valuation of the assets
in the portfolio in different ways. The Summary of portfolio valuation
methodology section earlier in this document provides further details on some
of the assumptions that have been made in deriving terminal values and some of
the risk factors considered in the cash flow forecasts, for example in
relation to the inflationary headwinds currently being experienced.
New and amended standards adopted for the current year
Standards and amendments to standards applicable to the Company that became
effective during the year and were adopted by the Company on 1 April 2021 are
listed below.
Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS
7, IFRS 4 and IFRS 16) (1 January 2021)
This amendment has not had a material impact on the Financial statements.
Standards and amendments issued but not yet effective
As at 31 March 2022, the following new or amended standards, which have not
been applied in these Financial statements, had been issued by the
International Accounting Standards Board ('IASB') but are yet to become
effective.
Amendments to IAS 1 Classification of Liabilities as Current or Non-current (1
January 2023)
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors (1 January 2023)
Amendments to IAS 16 Property, Plant and Equipment - Proceeds before Intended
Use (1 January 2022)
Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets
- Onerous Contracts (1 January 2022)
Amendments to IFRS 3 Business Combinations (1 January 2022)
Amendments to IFRS 17 Insurance contracts (1 January 2022)
Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 resulting from Annual
Improvements to IFRS 2018-2020 Cycle
(1 January 2022)
The Company intends to adopt these standards when they become effective,
however does not currently anticipate the standards will have a significant
impact on the Company's financial statements. Current assumptions regarding
the impact of future standards will remain under consideration in light of
interpretation notes as and when they are issued.
A Classification
(i) Subsidiaries - Subsidiaries are entities controlled by the
Company. Control exists when the Company is exposed, or has rights, to
variable returns from its involvement with the subsidiary entity and has the
ability to affect those returns through its power over the subsidiary entity.
In accordance with the exception under IFRS 10 Consolidated Financial
Statements, the Company only consolidates subsidiaries in the Financial
statements if they are deemed to perform investment-related services and do
not meet the definition of an investment entity. Investments in subsidiaries
that do not meet this definition are accounted for as Investments at fair
value through profit or loss with changes in fair value recognised in the
Statement of comprehensive income in the year. The Directors have assessed all
entities within the structure and concluded that there are no subsidiaries of
the Company that provide investment-related services or activities.
(ii) Associates - Associates are those entities in which the Company
has significant influence, but not control, over the financial and operating
policies. Investments that are held as part of the Company's investment
portfolio are carried in the Balance sheet at fair value even though the
Company may have significant influence over those entities.
(iii) Joint ventures - Interests in joint ventures that are held as part
of the Company's investment portfolio are carried in the Balance sheet at fair
value. This treatment is permitted by IFRS 11 and IAS 28, which allows
interests held by venture capital organisations where those investments are
designated, upon initial recognition, as at fair value through profit or loss
and accounted for in accordance with IFRS 9 with changes in fair value
recognised in the Statement of comprehensive income in the year.
B Exchange differences
Transactions entered into by the Company in a currency other than its
functional currency are recorded at the rates ruling when the transactions
occur. Foreign currency monetary assets and liabilities are translated to the
functional currency at the exchange rate ruling at the balance sheet date.
Foreign exchange differences arising on translation to the functional currency
are recognised in the Statement of comprehensive income. Foreign exchange
differences relating to investments held at fair value through profit or loss
are shown within the line Net gains on investments. Foreign exchange
differences relating to other assets and liabilities are shown within the line
Exchange movements.
Non-monetary assets and liabilities that are measured in terms of historical
cost in a foreign currency are translated using the exchange rate at the date
of the transactions. Non-monetary assets and liabilities denominated in
foreign currencies that are stated at fair value are translated to the
functional currency using exchange rates ruling at the date the fair value was
determined with the associated foreign exchange difference being recognised
within the unrealised gain or loss on revaluation of the asset or liability.
C Investment portfolio
Recognition and measurement - Investments are recognised and de-recognised on
a date where the purchase or sale of an investment is under a contract whose
terms require the delivery or settlement of the investment. The Company
manages its investments with a view to profiting from the receipt of
investment income and obtaining capital appreciation from changes in the fair
value of investments. Therefore, all quoted investments and unquoted
investments are measured at fair value through profit or loss upon initial
recognition and subsequently carried in the Balance sheet at fair value,
applying the Company's valuation policy. Acquisition related costs are
accounted for as expenses when incurred.
Net gains or losses on investments are the movement in the fair value of
investments between the start and end of the accounting period, or investment
disposal date, or the investment acquisition date and the end of the
accounting period, including divestment related costs where applicable,
converted into sterling using the exchange rates in force at the end of the
period; and are recognised in the Statement of comprehensive income.
Income
Investment income is that portion of income that is directly related to the
return from individual investments. It is recognised to the extent that it is
probable that there will be an economic benefit and the income can be reliably
measured.
The following specific recognition criteria must be met before the income is
recognised:
· dividends from equity investments are recognised in the Statement
of comprehensive income when the Company's rights to receive payment have been
established. Special dividends are credited to capital or revenue according to
their circumstances;
· interest income from loans that are measured at fair value
through profit or loss is recognised as it accrues by reference to the
principal outstanding and the effective interest rate applicable, which is the
rate that exactly discounts the estimated future cash flows through the
expected life of the financial asset to the asset's carrying value or
principal amount. The remaining changes in the fair value movement of the
loans are recognised separately in the line Net gains on investments in the
Statement of comprehensive income;
· distributions from investments in Limited Partnerships are
recognised in the Statement of comprehensive income when the Company's rights
as a Limited Partner to receive payment have been established; and
· fees receivable represent amounts earned from investee companies
on completion of underlying investment transactions and are recognised on an
accruals basis once entitlement to the revenue has been established.
D Fees
(i) Fees - Fees payable represent fees incurred in the process of
acquiring an investment and are measured on the accruals basis.
(ii) Management fees - A management fee is payable to 3i plc,
calculated as a tiered fee based on the Gross Investment Value of the Company
and is accrued in the period it is incurred. Further details on how this fee
is calculated are provided in Note 18.
(iii) Performance fee - The Investment Manager is entitled to a
performance fee based on the total return generated in the period in excess of
a performance hurdle of 8%. The fee is payable in three equal annual
instalments and is accrued in full in the period it is incurred. Further
details are provided in Note 18.
(iv) Finance costs - Finance costs associated with loans and borrowings
are recognised on an accruals basis using the effective interest method.
E Treasury assets and liabilities
Short-term treasury assets and short- and long-term treasury liabilities are
used to manage cash flows and the overall costs of borrowing. Financial assets
and liabilities are recognised in the Balance sheet when the relevant company
entity becomes a party to the contractual provisions of the instrument.
(i) Cash and cash equivalents - Cash and cash equivalents in the Balance sheet
and Cash flow statement comprise cash at bank, short-term deposits with an
original maturity of three months or less and AAA rated money market funds.
Money market funds are accounted for at amortised cost under IFRS 9. However
due to their short-term and liquid nature, this is the same as fair value.
Interest receivable or payable on cash and cash equivalents is recognised on
an accruals basis.
(ii) Bank loans, loan notes and borrowings - Loans and borrowings are
initially recognised at the fair value of the consideration received, net of
issue costs associated with the borrowings. Where issue costs are incurred in
relation to arranging debt finance facilities these are capitalised and
disclosed within Trade and other receivables and amortised over the life of
the loan. After initial recognition, loans and borrowings are subsequently
measured at amortised cost using the effective interest method, which is the
rate that exactly discounts the estimated future cash flows through the
expected life of the liabilities. Amortised cost is calculated by taking into
account any issue costs and any discount or premium on settlement.
(iii) Derivative financial instruments - Derivative financial instruments are
used to manage the risk associated with foreign currency fluctuations in the
valuation of the investment portfolio. This is achieved by the use of forward
foreign currency contracts. Such instruments are used for the sole purpose of
efficient portfolio management. All derivative financial instruments are held
at fair value through profit or loss.
Derivative financial instruments are recognised initially at fair value on the
contract date and subsequently remeasured to the fair value at each reporting
date. All changes in the fair value of derivative financial instruments are
taken to the Statement of comprehensive income. The maturity profile of
derivative contracts is measured relative to the financial contract settlement
date of each contract and the derivative contracts are disclosed in the
Financial statements as either current or non-current accordingly.
F Other assets
Assets, other than those specifically accounted for under a separate policy,
are stated at their consideration receivable less impairment losses. Such
assets are short-term in nature and the carrying value of these assets is
considered to be approximate to their fair value. Assets are reviewed for
recoverability and impairment using the expected credit loss model simplified
approach. The Company will recognise the asset's lifetime expected credit
losses at each reporting period where applicable in the Statement of
comprehensive income. An impairment loss is reversed at subsequent financial
reporting dates to the extent that the asset's carrying amount does not exceed
its carrying value, had no impairment been recognised.
Assets with maturities less than 12 months are included in current assets,
assets with maturities greater than 12 months after the Balance sheet date are
classified as non-current assets.
G Other liabilities
Liabilities, other than those specifically accounted for under a separate
policy, are stated based on the amounts which are considered to be payable in
respect of goods or services received up to the financial reporting date. Such
liabilities are short-term in nature, the carrying value of these liabilities
is considered to be approximate to their fair value.
H Equity and reserves
(i) Share capital - Share capital issued by the Company is recognised at the
fair value of proceeds received and is credited to the Stated capital account.
Direct issue costs net of tax are deducted from the fair value of the proceeds
received.
(ii) Equity and reserves - The Stated capital account of the Company
represents the cumulative proceeds recognised from share issues or new equity
issued on the conversion of warrants made by the Company net of issue costs
and reduced by any amount that has been transferred to Retained reserves, in
accordance with Jersey Company Law, in previous years. Share capital is
treated as an equity instrument, on the basis that no contractual obligation
exists for the Company to deliver cash or other financial assets to the holder
of the instrument.
On 15 October 2018, the Company became UK tax domiciled and, with effect from
that date, was granted UK approved investment trust status. Financial
statements prepared under IFRS are not strictly required to apply the
provisions of the Statements of Recommended Practice issued by the UK
Association of Investment Companies for the financial statements of Investment
Trust Companies (the 'AIC SORP'). However, where relevant and appropriate, the
Directors have looked to follow the recommendations of the SORP. From this
date, the retained profits of the Company have been applied to two new
reserves being the Capital reserve and the Revenue reserve. These are in
addition to the existing Retained reserves which incorporate the cumulative
retained profits of the Company (after the payment of dividends) plus any
amounts that have been transferred from the Stated capital account of the
Company to 15 October 2018.
The Directors have exercised their judgement in applying the AIC SORP and a
summary of these judgements are as follows:
· Net gains on investments are applied wholly to the Capital
reserve as they relate to the revaluation or disposal of investments.
· Dividends are applied to the Revenue reserve except under
specific circumstances where a dividend arises from a return of capital or
proceeds from a refinancing, when they are applied to the Capital reserve.
· Fees payable are applied to the Capital reserve where the service
provided is, in substance, an intrinsic part of an intention to acquire or
dispose of an investment.
· Movement in the fair value of derivative financial instruments is
applied to the Capital reserve as the derivative hedging programme is
specifically designed to reduce the volatility of sterling valuations of the
non-sterling denominated investments.
· Management fees are applied to the Revenue reserve as they
reflect ongoing asset management. Where a transaction fee element is due on
the acquisition of an investment it is applied to the Capital reserve.
· Performance fees are applied wholly to the Capital reserve as
they arise mainly from capital returns on the investment portfolio.
· Operating costs are applied wholly to the Revenue reserve as
there is no clear connection between the operating expenses of the Company and
the purchase and sale of an investment.
· Finance costs are applied wholly to the Revenue reserve as the
existing borrowing is not directly linked to an investment.
· Exchange movements are applied to the Revenue reserve where they
relate to exchange on non-portfolio assets.
(iii) Dividends payable - Dividends on ordinary shares are recognised in the
period in which the Company's obligation to make the dividend payment arises
and are deducted from Retained reserves for the period to 15 October 2018 and
from the Revenue reserve for subsequent periods.
I Income taxes
Income taxes represent the sum of the tax currently payable, withholding taxes
suffered and deferred tax. Tax is charged or credited in the Statement of
comprehensive income, except where it relates to items charged or credited
directly to equity, in which case the tax is also dealt with in equity.
The tax currently payable is based on the taxable profit for the year. This
may differ from the profit included in the Statement of comprehensive income
because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or
deductible.
To enable the tax charge to be based on the profit for the year, deferred tax
is provided in full on temporary timing differences, at the rates of tax
expected to apply when these differences crystallise. Deferred tax assets are
recognised only to the extent that it is probable that sufficient taxable
profits will be available against which temporary differences can be set off.
In practice, some assets that are likely to give rise to timing differences
will be treated as capital for tax purposes. Given capital items are exempt
from tax under the Investment Trust Company rules, deferred tax is not
expected to be recognised on these balances. All deferred tax liabilities are
offset against deferred tax assets, where appropriate, in accordance with the
provisions of IAS 12.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Notes to the accounts
1 Operating segments
The Directors review information on a regular basis that is analysed by
portfolio segment; being Economic infrastructure businesses, the Projects
portfolio and the India Fund, 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 year to
31 March 2022:
Economic
infrastructure Projects India
businesses portfolio Fund Unallocated(1) Total
For the year to 31 March 2022 £m £m £m £m £m
Investment return 486 18 5 5 514
Profit/(loss) before tax 483 19 5 (103) 404
For the year to 31 March 2021
Investment return 196 8 5 11 220
Profit/(loss) before tax 215 11 5 (25) 206
As at 31 March 2022
Assets 2,796 105 - 119 3,020
Liabilities (18) (1) - (297) (316)
Net assets/(liabilities) 2,778 104 - (178) 2,704
As at 31 March 2021
Assets 1,748 96 3 568 2,415
Liabilities (6) - - (19) (25)
Net assets 1,742 96 3 549 2,390
1 Unallocated includes cash, management and performance fees payable, RCF drawn
and other payables and receivables (including vendor loan notes) which are not
directly attributable to the investment portfolio.
The following is an analysis of the Company's investment return, profit before
tax, assets, liabilities and net assets by geography for the year to 31 March
2022:
UK and Continental
Ireland(1) Europe(2) Asia Total
For the year to 31 March 2022 £m £m £m £m
Investment return 63 446 5 514
(Loss)/profit before tax (45) 444 5 404
For the year to 31 March 2021
Investment return 53 162 5 220
Profit before tax 17 184 5 206
As at 31 March 2022
Assets 653 2,367 - 3,020
Liabilities (298) (18) - (316)
Net assets 355 2,349 - 2,704
As at 31 March 2021
Assets 868 1,544 3 2,415
Liabilities (19) (6) - (25)
Net assets 849 1,538 3 2,390
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 investments in Oystercatcher,
including those derived from its underlying business in Singapore.
The Company generated 12% (2021: 24%) of its investment return in the year
from investments held in the UK and Ireland and 87% (2021: 74%) of its
investment return from investments held in continental Europe. During the
year, the Company generated 95% (2021: 94%) of its investment return from
investments in Economic infrastructure businesses, 4% (2021: 4%) from
investments in Projects and 1% (2021: 2%) from its investment in the India
Fund. Given the nature of the Company's operations, the Company is not
considered to be exposed to any operational seasonality or cyclicality that
would impact the financial results of the Company during the year or the
financial position of the Company at 31 March 2022.
2 Management and performance fees payable
Year to Year to
31 March 31 March
2022 2021
£m £m
Management fee 43 24
Performance fee 54 7
97 31
Total management and performance fees payable by the Company for the year to
31 March 2022 were £97 million (2021: £31 million). Note 18 provides further
details on the calculation of the management fee and performance fee.
3 Operating expenses
Operating expenses include the following amounts:
Year to Year to
31 March 31 March
2022 2021
£m £m
Audit fees 0.6 0.4
Directors' fees and expenses 0.5 0.5
In addition to the fees described above, audit fees of £0.05 million (2021:
£0.07 million) were paid by unconsolidated subsidiary entities for the year
to 31 March 2022 to the Company's auditor.
Services provided by the Company's auditor
During the year, the Company obtained the following services from the
Company's auditor, Deloitte LLP.
Year to Year to
31 March 31 March
2022 2021
Audit services £m £m
Statutory audit(1) Company 0.40 0.30
UK unconsolidated subsidiaries(2) 0.05 0.04
Overseas unconsolidated subsidiaries(2) - 0.03
0.45 0.37
1 Amounts exclude VAT.
2 These amounts were paid from unconsolidated subsidiary entities and do not
form part of operating expenses but are included in the net gains on
investments.
Non-audit services
Deloitte LLP and their associates provided non-audit services for fees
totalling £104,635 for the year to 31 March 2022 (2021: £52,700). This
related to agreed-upon procedures work in respect of the management and
performance fees (£7,560), agreed-upon procedures work in respect of
Sustainability KPIs for the RCF reporting (£27,000), the review of the
interim financial statements (£55,575) and reporting accountant work
(£14,500). In line with the Company's policy, Deloitte LLP provided non-audit
services to certain investee companies. The fees for these services are
ordinarily borne by the underlying investee companies or unconsolidated
subsidiaries, and therefore are not included in the expenses of the Company.
Details on how such non-audit services are monitored and approved can be found
in the Governance section of the Annual report and accounts.
4 Finance costs
Year to Year to
31 March 31 March
2022 2021
£m £m
Finance costs associated with the debt facilities 3 2
Professional fees payable associated with the arrangement of debt financing 2 -
5 2
The finance costs associated with the debt facilities have increased in the
year ended 31 March 2022 as a result of higher average drawings and increases
in the total available facilities. The average monthly drawn position during
the year was £80 million (2021: nil) and the average monthly total available
facilities was £508 million (2021: £300 million).
5 Movement in the fair value of derivative financial instruments
Year to Year to
31 March 31 March
2022 2021
£m £m
Movement in the fair value of forward foreign exchange contracts (2) 22
The movement in the fair value of derivative financial instruments is included
within profit before tax but not included within investment return.
6 Income taxes
Year to Year to
31 March 31 March
2022 2021
£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 tax charge for the year is different from the standard rate of corporation
tax in the UK, currently 19% (2021: 19%), and the differences are explained
below:
Year to Year to
31 March 31 March
2022 2021
£m £m
Profit before tax 404 206
Profit before tax multiplied by rate of corporation tax in the UK of 19% 77 39
(2021: 19%)
Effects of:
Non-taxable capital profits due to UK approved investment trust company status (70) (26)
Non-taxable dividend income (5) (1)
Dividends designated as interest distributions (3) (12)
Temporary differences on which deferred tax is not recognised 1 -
Total income tax charge in the Statement of comprehensive income - -
The Company's affairs are directed so as to allow it to meet the requisite
conditions to continue to operate as an approved investment trust company for
UK tax purposes. The approved investment trust status allows certain capital
profits of the Company to be exempt from tax in the UK and also permits the
Company to designate the dividends it pays, wholly or partly, as interest
distributions. These features enable approved investment trust companies to
ensure that their investors do not ultimately suffer double taxation of
their investment returns, ie once at the level of the investment fund vehicle
and then again in the hands of the investors.
Under the UK Finance Act 2021, the UK corporation tax rate will increase for
large companies from the current rate of 19% to 25% with effect from 1 April
2023. Should the Company recognise any deferred tax assets and liabilities, a
rate of 19% or 25% would be used depending on when the assets and liabilities
are expected to be crystallised.
7 Investments at fair value through profit or loss and financial instruments
All financial instruments for which fair value is recognised or disclosed are
categorised within the fair value hierarchy, described as follows, based on
the lowest level input that is significant to the fair value measurement as a
whole:
Level Fair value input description Financial instruments
Level 1 Quoted prices (unadjusted and in active markets) Quoted equity investments
Level 2 Inputs other than quoted prices included in Level 1 that 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 31 March 2022. For all other assets and
liabilities, their carrying value approximates to fair value. During the year
ended 31 March 2022, there were no transfers of financial instruments between
levels of the fair value hierarchy (2021: none).
Trade and other receivables in the Balance sheet includes £2 million of
deferred finance costs relating to the arrangement fee for the revolving
credit facility and additional facilities (2021: £1 million). This has been
excluded from the table below as it is not categorised as a financial
instrument.
Financial instruments classification
As at 31 March 2022
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)
As at 31 March 2021
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial assets
Investments at fair value through profit or loss - - 1,804 1,804
Trade and other receivables - 105 - 105
Derivative financial instruments - 43 - 43
- 148 1,804 1,952
Financial liabilities
Derivative financial instruments - (6) - (6)
- (6) - (6)
Reconciliation of financial instruments categorised within Level 3 of fair
value hierarchy
As at
31 March
2022
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
As at
31 March
2021
Level 3 fair value reconciliation £m
Opening fair value 1,652
Additions 91
Disposal proceeds and repayment (48)
Movement in accrued income (9)
Fair value movement (including exchange movements) 118
Closing fair value 1,804
The fair value movement (including exchange movements) is equal to the Net
gains on investments showing in the Statement of comprehensive income. All
unrealised movements on investments and foreign exchange movements are
recognised in profit or loss in the Statement of comprehensive income during
the year and are attributable to investments held at the end of the year.
The holding period of the investments in the portfolio is expected to be
greater than one year. Therefore, investments are classified as non-current
unless there is an agreement to dispose of the investment within one year and
all relevant regulatory or other third-party approvals have been received. It
is not possible to identify with certainty whether any investments may be sold
within one year.
Investment income of £127 million (2021: £92 million) comprises dividend
income of £24 million (2021: £6 million), interest of £103 million (2021:
£83 million) and no distributions (2021: £3 million) from unconsolidated
subsidiaries.
Unquoted investments
The Company invests in private companies which are not quoted on an active
market. These are measured in accordance with the International Private Equity
Valuation guidelines with reference to the most appropriate information
available at the time of measurement. Further information regarding the
valuation of unquoted investments can be found in the Portfolio valuation
methodology section.
The Company's policy is to fair value both the equity and shareholder debt
investments in infrastructure assets together where they will be managed and
valued as a single investment, were invested at the same time and cannot be
realised separately. The Directors consider that equity and debt share the
same characteristics and risks and they are therefore treated as a single unit
of account for valuation purposes and a single class for disclosure purposes.
As at 31 March 2022, the fair value of unquoted investments was £2,873
million (2021: £1,802 million). Individual portfolio asset valuations are
shown in the Portfolio summary.
The fair value of the investments is sensitive to changes in the macroeconomic
assumptions used as part of the portfolio valuation process. As part of its
analysis, the Board has considered the potential impact of a change in a
number of the macroeconomic assumptions used in the valuation process. By
considering these potential scenarios, the Board is well positioned to assess
how the Company is likely to perform if affected by variables and events that
are inherently outside of the control of the Board and the Investment Manager.
The majority of the assets held within Level 3 are valued on a discounted cash
flow basis, hence, the valuations are sensitive to the discount rate assumed
in the valuation of each asset. Other significant unobservable inputs include
the inflation rate assumption, the interest rates assumption used to project
the future cash flows and the forecast cash flows themselves. The sensitivity
to the inflation rate and interest rates is described below and the
sensitivity to the forecast cash flows is captured in the Market risk section
in Note 9.
A discussion of discount rates applied can be found in the Summary of
portfolio valuation methodology section. Increasing the discount rate used in
the valuation of each asset by 1% would reduce the value of the portfolio by
£258 million (2021: £152 million). Decreasing the discount rate used in the
valuation of each asset by 1% would increase the value of the portfolio by
£297 million (2021: £176 million).
The majority of assets held within Level 3 have revenues that are linked,
partially linked or in some way correlated to inflation. The long-term
inflation rate assumptions for the country of domicile of the investments in
the portfolio range from 5.0% (India) (2021: 5.0%) to 2.0% (the Netherlands)
(2021: 2.0%). The long-term RPI assumption for the UK is 2.5% (2021: 2.5%).
The impact of increasing the inflation rate assumption by 1% for the next two
years would increase the value of the portfolio by £43 million (2021: £25
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 £46 million (2021: £25 million). The timing and quantum of
price increases will vary across the portfolio and the sensitivity may differ
from that modelled. Changing the inflation rate assumption may result in
consequential changes to other assumptions used in the valuation of each
asset.
The valuations are sensitive to changes in interest rates, which may result
from: (i) unhedged existing borrowings within portfolio companies; (ii)
interest rates on uncommitted future borrowings assumed within the asset
valuations; and (iii) cash deposits held by portfolio companies. These
comprise a wide range of interest rates from short-term deposit rates to
longer-term borrowing rates across a broad range of debt products. Increasing
the cost of borrowing assumption for unhedged borrowings and any future
uncommitted borrowing and the cash deposit rates used in the valuation of each
asset by 1% would reduce the value of the portfolio by £158 million (2021:
£88 million). Decreasing the interest rate assumption for unhedged borrowings
used in the valuation of each asset by 1% would increase the value of the
portfolio by £156 million (2021: £82 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 a reasonable approximation to fair value. The fair value of
these intermediate holding companies therefore approximates to their NAV and
the Company classifies the fair value as Level 3. As at 31 March 2022, the
fair value of the other assets and liabilities within these intermediate
holding companies was £nil (2021: £2 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.
8 Trade and other receivables
Year to Year to
31 March 31 March
2022 2021
£m £m
Current assets
Vendor loan notes 100 105
Other receivables including prepayments 2 -
Capitalised finance costs 2 1
104 106
Vendor loan notes ('VLNs') of £98 million plus interest are due from the
purchaser following the sale of WIG in December 2019. These can be called on
by giving notice and carry an interest rate of 6%. These are measured at
amortised cost using the effective interest method. Accrued interest on the
VLNs is included in the table above.
9 Financial risk management
A full review of the Company's objectives, policies and processes for managing
and monitoring risk is set out in the Risk report. This Note provides further
detail on financial risk management, cross-referring to the Risk report where
applicable and providing further quantitative data on specific financial
risks.
Each investment made by the Company is subject to a full risk assessment
through a consistent investment approval process. The Board's Management
Engagement Committee, Audit and Risk Committee and the Investment Manager's
investment process are part of the overall risk management framework of the
Company.
The funding objective of the Company is that each category of investment ought
to be broadly matched with liabilities and shareholders' funds according to
the risk and maturity characteristics of the assets, and that funding needs
are to be met ahead of planned investment.
Capital structure
The Company has a continuing commitment to capital efficiency. The capital
structure of the Company consists of cash held on deposit and in AAA rated
money market funds, borrowing facilities and shareholders' equity. The
Company's Articles require its outstanding borrowings, including any financial
guarantees to support subsequent obligations, to be limited to 50% of the
gross assets of the Company. The type and maturity of the Company's borrowings
are analysed in Note 11 and the Company's equity is analysed into its various
components in the Statement of changes in equity. Capital is managed so as to
maximise the return to shareholders, while maintaining a strong capital base
that ensures that the Company can operate effectively in the marketplace and
sustain future development of the business. The Board is responsible for
regularly monitoring capital requirements to ensure that the Company is
maintaining sufficient capital to meet its future investment needs.
The Company is regulated by the Jersey Financial Services Commission under the
provisions of the Collective Investment Funds (Jersey) Law 1988 as a listed
closed-ended collective investment fund and is not required as a result of
such regulation to maintain a minimum level of capital.
Capital is allocated for investment in infrastructure across the UK and
continental Europe. As set out in the Company's investment policy, the maximum
exposure to any one investment is 25% of gross assets (including cash
holdings) at the time of investment.
Credit risk
The Company is subject to credit risk on the debt component of its unquoted
investments, cash, deposits, derivative contracts and receivables. The maximum
exposure to credit risk as a result of counterparty default equates to the
current carrying value of these financial assets. Throughout the year and the
prior year, the Company's cash and deposits were held with a variety of
counterparties, principally in AAA rated money market funds, as well as in
short-term bank deposits and notice accounts with a minimum of a A credit
rating. The counterparties selected for the derivative financial instruments
were all banks with a minimum of a BBB+ credit rating with at least one major
rating agency. Following the sale of WIG in December 2019, the Company
received VLNs from the purchaser, Brookfield Infrastructure Fund IV, that are
reported within Trade receivables. The credit risk on these VLNs has been
assessed through calculating an expected credit loss using the credit ratings
of underlying investors in the Brookfield fund and the amount of undrawn
commitments to the fund to calculate a probability of default.
The credit quality of unquoted investments, which are held at fair value and
include debt and equity elements, is based on the financial performance of the
individual portfolio companies. The credit risk relating to these assets is
based on their enterprise value and is reflected through fair value movements.
This incorporates the impact of the recovery from the Covid-19 pandemic, the
volatility in the oil prices and power prices and other macroeconomic factors
such as inflation and interest rate rises. The performance of underlying
investments is monitored by the Board to assess future recoverability.
For those assets and income entitlements that are not past due, it is believed
that the risk of default is small and capital repayments and interest payments
will be made in accordance with the agreed terms and conditions of the
investment. If the portfolio company has failed and there is no expectation to
recover any residual value from the investment, the Company's policy is to
record an impairment for the full amount of the loan. When the net present
value of the future cash flows predicted to arise from the asset, discounted
using the effective interest rate method, implies non-recovery of all or part
of the Company's investment a fair value movement is recorded equal to the
valuation shortfall.
As at 31 March 2022, the Company had no loans or receivables or debt
investments considered past due (2021: nil).
The Company actively manages counterparty risk. Counterparty limits are set
and closely monitored by the Board and a regular review of counterparties is
undertaken by the Investment Manager and reported to the Board. As at 31 March
2022, the Company did not consider itself to have a significant exposure to
any one counterparty and held deposits and derivative contracts with a number
of different counterparties to reduce counterparty risk (2021: same).
Due to the size and nature of the investment portfolio there is the potential
for concentration risk. This risk is managed by diversifying the portfolio by
sector and geography.
Liquidity risk
Further information on how liquidity risk is managed is provided in the Risk
report. The table below analyses the maturity of the Company's contractual
liabilities.
Payable Due within Due between Due between
on demand 1 year 1 and 2 years 2 and 5 years Total
2022 £m £m £m £m £m
Liabilities
Loans and borrowings(1) - (7) (5) (234) (246)
Trade and other payables (4) (26) (20) (18) (68)
Derivative contracts - (12) (3) (3) (18)
Financial commitments(2) (302) - - - (302)
Total undiscounted financial liabilities (306) (45) (28) (255) (634)
1 Loans and borrowings relate to undrawn commitment fees and interest payable on
the RCF referred to in Note 11.
2 Financial commitments are described in Note 16 and are not recognised in the
Balance sheet.
Payable Due within Due between Due between
on demand 1 year 1 and 2 years 2 and 5 years Total
2021 £m £m £m £m £m
Liabilities
Loans and borrowings(1) - (2) (2) - (4)
Trade and other payables (9) - (8) (2) (19)
Derivative contracts - (4) (2) - (6)
Financial commitments(2) (38) - - - (38)
Total undiscounted financial liabilities (47) (6) (12) (2) (67)
1 Loans and borrowings relate to undrawn commitment fees and interest payable on
the RCF and additional facilities referred to in Note 11.
2 Financial commitments are described in Note 16 and are not recognised in the
Balance sheet.
The derivative contracts liability shown is the net cash flow expected to be
paid on settlement.
In order to manage the contractual liquidity risk the Company has free cash
and debt facilities in place, is able to call the VLNs referred to in Note 8
with six weeks' notice and, in June 2022, is expecting to receive £103
million from the sale of its Projects portfolio.
Market risk
The valuation of the Company's investment portfolio is largely dependent on
the underlying trading performance of the companies within the portfolio, but
the valuation of the portfolio and the carrying value of other items in the
Financial statements can also be affected by interest rate, currency and
market price fluctuations. The Company's sensitivities to these fluctuations
are set out below.
(i) Interest rate risk
Further information on how interest rate risk is managed is provided in the
Risk report.
An increase of 100 basis points in interest rates over 12 months (2021: 100
basis points) would lead to an approximate decrease in net assets and net
profit of the Company of £2 million (2021: increase of £5 million). This
exposure relates principally to changes in interest payable on the drawn RCF
balance at the year end (2021: in interest receivable on cash on deposit held
at the year end). The average cash balance of the Company, which is more
representative of the cash balance during the year, was £269 million (2021:
£405 million) and the weighted-average interest earned was 0.04% (2021:
0.1%).
In addition, the Company has indirect exposure to interest rates through
changes to the financial performance of portfolio companies caused by interest
rate fluctuations as disclosed in Note 7. This risk is considered a component
of market risk described in section (iii). The Company does not hold any fixed
rate debt investments or borrowings and is therefore not exposed to fair value
interest rate risk.
(ii) Currency risk
Further information on how currency risk is managed is provided in the Risk
report. The currency denominations of the Company's net assets are shown in
the table below. The sensitivity analysis demonstrates the exposure of the
Company's net assets to movements in foreign currency exchange rates. The
hedging strategy is discussed in the Financial review.
As at 31 March 2022
Sterling(1) Euro NOK DKK US dollar Total
£m £m £m £m £m £m
Net assets 456 1,457 243 548 - 2,704
Sensitivity analysis
Assuming a 10% appreciation in sterling against the euro, NOK, DKK and US
dollar exchange rates:
Impact of exchange movements on net profit and net assets 139 (132) (22) (50) - (65)
1 Sterling impact relates to the impact of fair value movement in derivatives
held by the Company to hedge foreign currency fluctuations in the valuation of
the investment portfolio. The notional amount of the derivatives is disclosed
in Note 10.
As at 31 March 2021
Sterling(1) Euro NOK DKK US dollar Total
£m £m £m £m £m £m
Net assets 848 1,116 234 189 3 2,390
Sensitivity analysis
Assuming a 10% appreciation in sterling against the euro, NOK, DKK and US
dollar exchange rates:
Impact of exchange movements on net profit and net assets 109 (101) (21) (17) - (30)
1 Sterling impact relates to the impact of fair value movement in derivatives
held by the Company to hedge foreign currency fluctuations in the valuation of
the investment portfolio. The notional amount of the derivatives is disclosed
in Note 10.
The impact of an equivalent depreciation in sterling against the euro, NOK,
DKK and US dollar exchange rates has the inverse impact on net profit and net
assets from that shown above. There is an indirect exposure to the rupee
through the investment in the India Fund which is denominated in US dollars
but it is only the direct exposure that is considered here. The risk exposure
at the year end is considered to be representative of this year as a whole.
(iii) Market risk
Further information about the management of external market risk and its
impact on price or valuation, which arises principally from unquoted
investments, is provided in the Risk report. A 10% increase in the fair value
of those investments would have the following direct impact on net profit and
net assets. The impact of a change in all cash flows has an equivalent impact
on the fair value, as set out below.
As at As at
31 March 31 March
2022 2021
Investments Investments
at fair value at fair value
£m £m
Increase in net profit and net assets 287 180
The impact of a 10% decrease in the fair value of those investments would have
the inverse impact on net profit and net assets from that shown above. The
risk exposure at the year end is considered to be representative of this year
as a whole.
By the nature of the Company's activities, it has large exposures to
individual assets that are susceptible to movements in price. This risk
concentration is managed within the Company's investment strategy as discussed
in the Risk report.
(iv) Fair values
The fair value of the investment portfolio is described in detail in the
Portfolio valuation methodology section and in Note 7. The fair values of the
remaining financial assets and liabilities approximate to their carrying
values (2021: same).
The sensitivity analysis in respect of the interest rate, currency and market
price risks is considered to be representative of the Company's exposure to
financial risks throughout the period to which they relate (2021: same).
10 Derivative financial instruments
As at As at
31 March 31 March
2022 2021
£m £m
Non-current assets
Forward foreign exchange contracts 6 18
Current assets
Forward foreign exchange contracts 20 25
Non-current liabilities
Forward foreign exchange contracts (6) (2)
Current liabilities
Forward foreign exchange contracts (12) (4)
Forward foreign exchange contracts
The Company uses forward foreign exchange contracts to minimise the effect of
fluctuations in the investment portfolio from movements in exchange rates and
also to fix the value of certain expected future cash flows arising from
distributions made by investee companies.
The fair value of these contracts is recorded in the Balance sheet. No
contracts are designated as hedging instruments and consequently all changes
in fair value are taken through profit or loss.
As at 31 March 2022, the notional amount of the forward foreign exchange
contracts held by the Company was £1,555 million (2021: £1,090 million).
11 Loans and borrowings
On 3 November 2021, the Company refinanced its £300 million RCF as a new
£400 million sustainability-linked RCF with a maturity date of November 2024
and two one-year extension options. The Company has the right to increase the
size of the new RCF by a further £200 million, provided that existing lenders
have a right of first refusal. This right was exercised on 16 December 2021
for a one-year period. On 31 January 2022 an additional £400 million facility
was agreed for a one-year period. Total available debt facilities at 31 March
2022 were £1 billion (2021: £300 million).
The new RCF is secured by a floating charge over the bank accounts of the
Company. Interest is payable at SONIA or EURIBOR plus a fixed margin on the
drawn amount. This fixed margin is subject to a small adjustment annually
based upon performance against agreed sustainability metrics. As at 31 March
2022, the Company had drawn cash of £231 million from the RCF (2021: nil).
The new RCF has certain loan covenants, including a loan to value ratio.
12 Trade and other payables
As at As at
31 March 31 March
2022 2021
£m £m
Non-current liabilities
Performance fee 38 10
Current liabilities
Management and performance fees 27 8
Accruals and other creditors 2 1
67 19
The carrying value of all liabilities is representative of fair value (2021:
same).
13 Issued capital
As at 31 March 2022 As at 31 March 2021
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 31 March 2022, the residual value on the stated
capital account was £779 million.
14 Per share information
The earnings and net assets per share attributable to the equity holders of
the Company are based on the following data:
Year to Year to
31 March 31 March
2022 2021
Earnings per share (pence)
Basic and diluted 45.3 23.1
Earnings (£m)
Profit after tax for the year 404 206
Number of shares (million)
Weighted average number of shares in issue 891.4 891.4
Number of shares at the end of the year 891.4 891.4
As at As at
31 March 31 March
2022 2021
Net assets per share (pence)
Basic and diluted 303.3 268.1
Net assets (£m)
Net assets 2,704 2,390
15 Dividends
Declared and paid during the year Year to 31 March 2022 Year to 31 March 2021
Pence per share £m Pence per £m
share
Interim dividend paid on ordinary shares 5.225 46 4.900 44
Prior year final dividend paid on ordinary shares 4.900 44 4.600 41
10.125 90 9.500 85
The Company proposes paying a final dividend of 5.225 pence per share (2021:
4.9 pence) which will be payable to those shareholders that are on the
register on 17 June 2022. On the basis of the shares in issue at year end,
this would equate to a total final dividend of £47 million (2021: £44
million).
The final dividend is subject to approval by shareholders at the AGM in July
2022 and has therefore not been accrued in these Financial statements
16 Commitments
As at As at
31 March 31 March
2022 2021
£m £m
Unquoted investments 302 38
As at 31 March 2022, the Company was committed to invest $398 million (£302
million) in GCX. Following the end of the 3i India Infrastructure Fund (the
'India Fund') life at the end of March 2022, the India Fund has now moved into
liquidation and the outstanding US$38 million (£27 million) commitment is no
longer callable. During the year, the Company invested in ESVAGT and as a
result, the prior year commitment of DKK 100 million (£11 million) was
extinguished.
17 Contingent liabilities
As at 31 March 2022, the Company had no contingent liabilities (2021: nil).
18 Related parties
Transactions between 3i Infrastructure and 3i Group
3i Group plc ('3i Group') holds 30.2% (2021: 30.2%) of the ordinary shares of
the Company. This classifies 3i Group as a 'substantial shareholder' of the
Company as defined by the Listing Rules. During the year, 3i Group received
dividends of £27 million (2021: £26 million) from the Company.
In 2007 the Company committed US$250 million to the India Fund to invest in
the Indian infrastructure market. 3i Group also committed US$250 million to
the India Fund. No commitments (2021: nil) were drawn down by the India Fund
from the Company during the year. In total, commitments of US$184 million or
£140 million re-translated (2021: US$184 million or £133 million) had been
drawn down at 31 March 2022 by the India Fund from the Company. As the India
Fund has reached the end of its life and has moved into liquidation, the
outstanding commitment at 31 March 2022 is no longer callable (2021: US$38
million or £27 million).
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 year to 31 March 2022, £43 million (2021: £25 million) was payable,
including one-off transaction fees payable in respect of new investments and
advance payments of £42 million were made resulting in an amount due to 3i
plc of £1 million at 31 March 2022 (2021: less than £1 million due from 3i
plc). In consideration of the provision of support services under the IMA, the
Company pays the Investment Manager an annual fixed fee. The cost for the
support services incurred for the year to 31 March 2022 was £1 million (2021:
£1 million). There was no outstanding balance payable as at 31 March 2022
(2021: nil).
Under the IMA, a performance fee is payable to the Investment Manager equal to
20% of the Company's total return in excess of 8%, payable in three equal
annual instalments. The second and third instalments will only be payable if
either (a) the Company's performance in the year in which that instalment is
paid also triggers payment of a performance fee in respect of that year, or
(b) if the Company's performance over the three years starting with the year
in which the performance fee is earned exceeds the 8% hurdle on an annual
basis. There is no high water mark requirement.
The performance hurdle requirement was exceeded for the year to 31 March 2022
and therefore a performance fee of £54 million was recognised (2021: £7
million). The outstanding balance payable as at 31 March 2022 was £64 million
(2021: £18 million), which includes the second and third instalments of the
prior year fee and the third instalment of the FY20 fee.
Outstanding balance at
Year Performance fee (£m) 31 March (£m) Payable in FY23 (£m)
FY22 54 54 18
FY21 7 4 2
FY20 17 6 6
Under the IMA, the Investment Manager's appointment may be terminated by
either the Company or the Investment Manager giving the other not less than 12
months' notice in writing, but subject to a minimum term of four years from 15
October 2018, unless 3i Investments plc has previously ceased to be a member
of 3i Group, or with immediate effect by either party giving the other written
notice in the event of insolvency or material or persistent breach by the
other party. The Investment Manager may also terminate the agreement on two
months' notice given within two months of a change of control of the Company.
Regulatory information relating to fees
3i Investments plc acts as the Alternative Investment Fund Manager ('AIFM') to
the Company. In performing the activities and functions of the AIFM, the AIFM
or another 3i company may pay or receive fees, commissions or non-monetary
benefits to or from third parties of the following nature:
· Payments for third-party services: The Company may retain the
services of third-party consultants; typically this is for an independent
director or other investment management specialist expertise. The amount paid
varies in accordance with the nature of the service and the length of the
service period and is usually, but not always, paid or reimbursed by the
portfolio companies. The payment may involve a flat fee, retainer or success
fee. Such payments, where borne by the Company, are included within Operating
expenses. In some circumstances, the AIFM may retain the services of
third-party consultants which are paid for by the AIFM and not recharged to
the Company.
· Payments for services from 3i companies: Other 3i companies may
provide investment advisory and other services to the AIFM or other 3i
companies and receive payment for such service.
19 Unconsolidated subsidiaries and related undertakings
Name Place of incorporation and operation Ownership interest
3i Infrastructure (Luxembourg) S.à r.l. Luxembourg 100%
3i Infrastructure (Luxembourg) Holdings S.à r.l. Luxembourg 100%
Oystercatcher Luxco 1 S.à r.l. Luxembourg 100%
Oystercatcher Luxco 2 S.à r.l. Luxembourg 100%
Oystercatcher Holdco Limited UK 100%
3i Osprey LP UK 69%
3i India Infrastructure Fund A LP UK 100%
BIF WIP LP (dissolved during the year) UK 100%
BIF WIP Dutch Holdco B.V. (dissolved during the year) The Netherlands 100%
3i Infrastructure (Netherlands) B.V. (formerly Heijmans Capital B.V.) The Netherlands 100%
(dissolved during the year)
NMM Company B.V. The Netherlands 100%
Heijmans A12 B.V. The Netherlands 100%
3i ERRV Denmark Limited Jersey 100%
ERRV Luxembourg Holdings S.à r.l. Luxembourg 100%
3i WIG Limited Jersey 100%
3i Envol Limited Jersey 100%
3i Tampnet Holdings Limited UK 100%
3iN Attero Holdco Limited UK 100%
3i Amalthea Topco Limited UK 100%
Reef Topco Limited UK 100%
Reef Midco Limited UK 100%
Reef Bidco Limited UK 100%
Joulz Group:
Joulz Holdco B.V. The Netherlands 99%
Joulz Bidco B.V. The Netherlands 99%
Joulz Diensten B.V. The Netherlands 99%
Joulz Meetbedrijf B.V. The Netherlands 99%
Joulz Infradiensten B.V. The Netherlands 99%
Joulz Laadoplossingen B.V. The Netherlands 99%
Ionisos Group:
Epione Holdco SAS France 96%
Epione Bidco SAS France 96%
Ionisos Mutual Services SAS France 96%
Ionisos SAS France 96%
Ionisos GmbH Germany 96%
Ionmed Esterilizacion SA Spain 96%
Scandinavian Clinics Estonia OÜ Estonia 96%
Steril Milano Srl Italy 96%
Infinis Group:
3i LFG Topco Limited Jersey 100%
Infinis Energy Group Holdings Limited UK 100%
Infinis Energy Management Limited UK 100%
Infinis Limited UK 100%
Infinis (Re-Gen) Limited UK 100%
Novera Energy (Holdings 2) Limited UK 100%
Novera Energy Generation No. 1 Limited UK 100%
Novera Energy Operating Services Limited UK 100%
Gengas Limited UK 100%
Novera Energy Generation No. 2 Limited UK 100%
Renewable Power Generation Limited UK 100%
Novera Energy Generation No. 3 Limited UK 100%
Costessey Energy Limited UK 100%
Mayton Wood Energy Limited UK 100%
Infinis Alternative Energies Limited UK 100%
Infinis Energy Services Limited UK 100%
Novera Energy Services UK Limited UK 100%
Infinis China (Investments) Limited UK 100%
Infinis (COE) Limited UK 100%
Infinis Energy Storage Limited UK 100%
Novera Energy Pty Limited UK 100%
Barbican Holdco Limited UK 100%
Barbican Bidco Limited UK 100%
Alkane Energy Limited UK 100%
Alkane Biogas Limited UK 100%
Alkane Energy UK Limited UK 100%
Alkane Services Limited UK 100%
Seven Star Natural Gas Limited UK 100%
Regent Park Energy Limited UK 100%
Leven Power Limited UK 100%
Rhymney Power Limited UK 100%
Alkane Energy CM Holdings Limited UK 100%
Alkane Energy CM Limited UK 100%
Infinis Solar Holdings Limited UK 100%
Infinis Solar Developments Limited UK 100%
Infinis Solar Limited UK 100%
ND Solar Enterprises Limited UK 100%
Aura Power Solar UK6 Limited UK 100%
DNS:NET Group:
DNS Holdings GmbH Germany 64%
DNS Bidco GmbH Germany 64%
DNS:NET Internet Service GmbH Germany 64%
SRL Traffic Systems Group:
Amalthea Holdco Limited UK 92%
Amalthea Midco Limited UK 92%
Amalthea Bidco Limited UK 92%
Jupiter Bidco Limited UK 92%
SRL Traffic Systems Limited UK 92%
SRL GmbH Germany 92%
SRL Traffic Systems Limited Ireland 92%
ESVAGT Group:
ERRV Holdings ApS Denmark 100%
ERRV ApS Denmark 100%
ESVAGT Holdings Inc US 100%
ESVAGT A/S Denmark 100%
ESVAGT Norge AS Norway 100%
ESVAGT Holdings Ltd UK 100%
P/F ESVAGT-Thor Faroe Islands 51%
ESVAGT UK Ltd UK 100%
The list above comprises the unconsolidated subsidiary undertakings of the
Company as at 31 March 2022.
There are no current commitments or intentions to provide financial or other
support to any of the unconsolidated subsidiaries, including commitments or
intentions to assist the subsidiaries in obtaining financial support except
for those disclosed in Note 16 (2021: none). No such financial or other
support was provided during the year (2021: none).
Investment policy (unaudited)
The Company aims to build a diversified portfolio of equity investments in
entities owning infrastructure businesses and assets. The Company seeks
investment opportunities globally, but with a focus on Europe, North America
and Asia.
The Company's equity investments will often comprise share capital and related
shareholder loans (or other financial instruments that are not shares but
that, in combination with shares, are similar in substance). The Company may
also invest in junior or mezzanine debt in infrastructure businesses or
assets.
Most of the Company's investments are in unquoted companies. However, the
Company may also invest in entities owning infrastructure businesses and
assets whose shares or other instruments are listed on any stock exchange,
irrespective of whether they cease to be listed after completion of the
investment, if the Directors judge that such an investment is consistent with
the Company's investment objectives. The Company will, in any case, invest no
more than 15% of its total gross assets in other investment companies or
investment trusts which are listed on the Official List.
The Company may also consider investing in other fund structures (in the event
that it considers, on receipt of advice from the Investment Manager, that that
is the most appropriate and effective means of investing), which may be
advised or managed either by the Investment Manager or a third party. If the
Company invests in another fund advised or managed by 3i Group, the relevant
proportion of any advisory or management fees payable by the investee fund to
3i plc will be deducted from the annual management fee payable under the
Investment Management Agreement and the relevant proportion of any performance
fee will be deducted from the annual performance fee, if payable, under the
Investment Management Agreement.
For the avoidance of doubt, there will be no similar set-off arrangement where
any such fund is advised or managed by a third party.
For most investments, the Company seeks to obtain representation on the board
of directors of the investee company (or equivalent governing body) and in
cases where it acquires a majority equity interest in a business, that
interest may also be a controlling interest.
No investment made by the Company will represent more than 25% of the
Company's gross assets, including cash holdings, at the time of making the
investment. It is expected that most individual investments will exceed £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.
Statement of Directors' responsibilities
In accordance with the FCA's Disclosure Guidance and Transparency Rules, the
Directors confirm to the best of their knowledge that:
a) the Financial statements, prepared in accordance with applicable
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company taken as a whole; and
b) the Annual report and accounts include a fair review of the
development and performance of the business and the position of the Company
taken as a whole, together with a description of the principal risks and
uncertainties faced by the Company.
The Directors of the Company and their functions are listed below. The
Directors have acknowledged their responsibilities in relation to the
Financial statements for the year to 31 March 2022.
Richard Laing
Chair
9 May 2022
Board of Directors and their functions
Richard Laing
Non-executive Chair and Chair of the Nominations Committee and the Management
Engagement Committee.
Doug Bannister
Non-executive Director.
Wendy Dorman
Non-executive Director and Chair of the Audit and Risk Committee.
Samantha Hoe-Richardson
Non-executive Director.
Ian Lobley
Non-executive Director.
Paul Masterton
Senior Independent Director and Chair of the Remuneration Committee.
Portfolio valuation methodology (unaudited)
A description of the methodology used to value the investment portfolio of the
Company is set out below in order to provide more detailed information than is
included within the accounting policies and the Investment Manager's review
for the valuation of the portfolio. The methodology complies in all material
aspects with the International Private Equity and Venture Capital valuation
guidelines which are endorsed by the British Private Equity and Venture
Capital Association and Invest Europe.
Basis of valuation
Investments are reported at the Directors' estimate of fair value at the
reporting date in compliance with IFRS 13 Fair Value Measurement. Fair value
is defined as 'the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date'.
General
In estimating fair value, the Directors seek to use a methodology that is
appropriate in light of the nature, facts and circumstances of the investment
and its materiality in the context of the overall portfolio. The methodology
that is the most appropriate may consequently include adjustments based on
informed and experience-based judgements, and will also consider the nature of
the industry and market practice. Methodologies are applied consistently from
period to period except where a change would result in a better estimation of
fair value. Given the uncertainties inherent in estimating fair value, a
degree of caution is applied in exercising judgements and making necessary
estimates.
Investments may include portfolio assets and other net assets/liabilities
balances. The methodology for valuing portfolio assets is set out below. Any
net assets/liabilities within intermediate holding companies are valued in
line with the Company accounting policy and held at fair value or approximate
to fair value.
Quoted investments
Quoted equity investments are valued at the closing bid price at the reporting
date. In accordance with International Financial Reporting Standards, no
discount is applied for liquidity of the stock or any dealing restrictions.
Quoted debt investments will be valued using quoted prices provided by
third-party broker information where reliable or will be held at cost less
fair value adjustments.
Unquoted investments
* Unquoted investments are valued using one of the following methodologies:
* Discounted Cash Flow ('DCF');
* Proportionate share of net assets;
* Sales basis; and
* Cost less any fair value adjustments required.
DCF
DCF is the primary basis for valuation. In using the DCF basis, fair value is
estimated by deriving the present value of the investment using reasonable
assumptions and estimation of expected future cash flows, including contracted
and uncontracted revenues, expenses, capital expenditure, financing and
taxation, and the terminal value and date, and the appropriate risk-adjusted
discount rate that quantifies the risk inherent to the investment. The
terminal value attributes a residual value to the investee company at the end
of the projected discrete cash flow period. The discount rate will be
estimated for each investment derived from the market risk-free rate, a
risk-adjusted premium and information specific to the investment or market
sector.
Proportionate share of net assets
Where the Company has made investments into other infrastructure funds, the
value of the investment will be derived from the Company's share of net assets
of the fund based on the most recent reliable financial information available
from the fund. Where the underlying investments within a fund are valued on a
DCF basis, the discount rate applied may be adjusted by the Company to reflect
its assessment of the most appropriate discount rate for the nature of assets
held in the fund. In measuring the fair value, the net asset value of the fund
is adjusted, as necessary, to reflect restrictions on redemptions, future
commitments, illiquid nature of the investments and other specific factors of
the fund.
Sales basis
The expected sale proceeds will be used to assign a fair value to an asset in
cases where offers have been received as part of an investment sales process.
This may either support the value derived from another methodology or may be
used as the primary valuation basis. A marketability discount is applied to
the expected sale proceeds to derive the valuation where appropriate.
Cost less fair value adjustment
Any investment in a company that has failed or, in the view of the Board, is
expected to fail within the next 12 months, has the equity shares valued at
nil and the fixed income shares and loan instruments valued at the lower of
cost and net recoverable amount.
Glossary
Alternative Investment Fund ('AIF')
3i Infrastructure plc is an AIF managed by 3i Investments plc.
Alternative Investment Fund Manager ('AIFM') is the regulated manager of an
AIF. For 3i Infrastructure plc, this is 3i Investments plc.
Approved Investment Trust Company This is a particular UK tax status
maintained by 3i Infrastructure plc. An approved Investment Trust company is a
UK tax resident company which meets certain conditions set out in the UK tax
rules which include a requirement for the company to undertake portfolio
investment activity that aims to spread investment risk and for the company's
shares to be listed on an approved exchange. The 'approved' status for an
investment trust must be agreed by the UK tax authorities and its benefit is
that certain profits of the company, principally its capital profits, are not
taxable in the UK.
Association of Investment Companies ('AIC') The Association of Investment
Companies is a UK trade body for
closed-ended investment companies.
Board The Board of Directors of the Company.
Capital reserve recognises all profits that are capital in nature or have been
allocated to capital. These profits are distributable by way of a dividend.
Company 3i Infrastructure plc.
Discounting The reduction in present value at a given date of a future cash
transaction at an assumed rate, using a discount factor reflecting the time
value of money.
External auditor The independent auditor, Deloitte LLP.
Fair value through profit or loss ('FVTPL') is an IFRS measurement basis
permitted for assets and liabilities which meet certain criteria. Gains and
losses on assets and liabilities measured as FVTPL are recognised directly in
the Statement of comprehensive income.
FY15, FY20, FY21, FY22, FY23 refers to the financial years to 31 March 2015,
31 March 2020, 31 March 2021, 31 March 2022 and 31 March 2023 respectively.
Initial Public Offering ('IPO') is the mechanism by which a company admits its
stock to trading on a public stock exchange. 3i Infrastructure plc completed
its IPO in March 2007.
International Financial Reporting Standards ('IFRS') are accounting standards
issued by the International Accounting Standards Board ('IASB'). The Company's
financial statements are required to be prepared in accordance with IFRS, as
adopted by the UK.
Investment income is that portion of income that is directly related to the
return from individual investments and is recognised as it accrues. It is
comprised of dividend income, income from loans and receivables and fee
income. It is recognised to the extent that it is probable that there will be
an economic benefit and the income can be reliably measured.
Key Performance Indicator ('KPI') is a measure by reference to which the
development, performance or position of the Company can be measured
effectively.
Money multiple is calculated as the cumulative distributions or realisation
proceeds plus any residual value divided by invested or paid-in capital.
Net asset value ('NAV') is a measure of the fair value of all the Company's
assets less liabilities.
Net assets per share ('NAV per share') is the NAV divided by the total number
of shares in issue.
Net gains on investments is the movement in the fair value of investments
between the start and end of the accounting period, or investment disposal
date, or the investment acquisition date and the end of the accounting period,
including divestment related costs where applicable, converted into sterling
using the exchange rates in force at the end of the period.
Ongoing charges A measure of the annual recurring operating costs of the
Company, expressed as a percentage of average NAV over the reporting period.
Public Private Partnership ('PPP') is a government service or private business
venture which is funded and operated through a partnership of government and
one or more private sector companies.
Retained reserves recognise the cumulative profits to 15 October 2018,
together with amounts transferred from the Stated capital account.
Revenue reserve recognises all profits that are revenue in nature or have been
allocated to revenue.
Revolving credit facility ('RCF') A £400 million facility provided by the
Company's lenders with a maturity date in November 2024, together with a
further £200 million of commitments maturing in December 2022 and £400
million of commitments maturing in January 2023.
SORP means the Statement of Recommended Practice: Financial Statements of
Investment Trust Companies and Venture Capital Trusts.
Stated capital account The Stated capital account of the Company represents
the cumulative proceeds recognised from share issues or new equity issued on
the conversion of warrants made by the Company net of issue costs and reduced
by any amount that has been transferred to Retained reserves, in accordance
with Jersey Company Law, in previous years.
Sustainability KPIs Sustainability metrics in relation to the
Sustainability-linked revolving credit facility. The facility includes targets
across ESG themes aligned with our purpose.
TCFD is the Task Force on Climate-related Financial Disclosures.
Total return measured as a percentage, is calculated against the opening NAV,
net of the final dividend for the previous year, and adjusted (on a time
weighted average basis) to take into account any equity issued and capital
returned in the year.
Total shareholder return ('TSR') is the measure of the overall return to
shareholders and includes the movement in the share price and any dividends
paid, assuming that all dividends are reinvested on their ex-dividend date.
For further information see our website
www.3i-infrastructure.com
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