TIDM3IN
RNS Number : 2012O
3i Infrastructure PLC
03 November 2016
3 November 2016
Results for the six months to 30 September 2016
3i Infrastructure plc (the "Company") announces today its
results for the six months to 30 September 2016.
Performance highlights
5.0%
Good portfolio performance driving NAV growth Total return on opening NAV
A total return of GBP73.8 million for the half year, or 5.0% of opening Net Asset 165.7p
Value ("NAV"). NAV per share
This is a good result in the context of the Company's return target of 8% to 10% per
annum,
to be achieved over the medium term
The European portfolio continued to perform well both financially and operationally.
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Strong level of investment across target markets GBP287m
Invested in the period
Four new investments, for a total consideration of GBP287 million, were
completed during
the period: WIG, TCR, Valorem and the Hart van Zuid PPP Project. These
investments further
diversify the portfolio and have used a substantial part of the capital
raised in June 2016.
======================================================================================= =============================
GBP35.5m
Good income progression Total income
The portfolio generated income(1) in the period of GBP35.5 million, in line with
expectations.
In addition, non-income cash of GBP12.5m was received.
======================================================================================= =============================
GBP136m
Efficient balance sheet Cash balances
The Revolving Credit Facility (RCF) was extended to May 2019. During the period, the GBP275m
accordion Undrawn RCF balance
feature of the RCF was exercised and subsequently cancelled, utilising the Company's
flexible
funding model.
======================================================================================= =============================
3.775p
Interim dividend in line with full year target Interim dividend per share
Interim dividend of 3.775 pence per share will be distributed on 9 January 2017. On
track
to deliver the full year target distribution of 7.55 pence per share, representing
growth
of over 4% on FY2016.
======================================================================================= =============================
1. Portfolio income comprises aggregate dividends, interest
income and fees received during the period from portfolio assets
and is consistent with the measure used in previous periods.
Richard Laing, Chairman of 3i Infrastructure plc, said: "The
Company has had a productive first half. In a competitive market,
we completed four new investments for a total consideration of
GBP287 million and executed a successful capital raise. The
Company's portfolio continues to deliver income in line with
expectations. Supported by our outlook for the portfolio, including
the new investments completed in the period, we remain on track to
deliver a full year dividend for FY2017 of 7.55 pence per
share."
Ben Loomes and Phil White, Managing Partners and Co-heads,
Infrastructure,
3i Investments plc, said: "The portfolio has performed well in
the first half of FY17, with strong NAV growth and continuing good
progression in portfolio income. We have successfully converted
four of the opportunities that we had identified prior to raising
equity, meaning that the majority of the equity issue proceeds have
now been deployed. These investments will provide further income
and diversification to the portfolio, and underscore our ability to
secure attractive opportunities in this competitive market.
Whilst we continue to see a good flow of new investment
opportunities, we remain disciplined and focused on maintaining a
balanced and attractive portfolio for shareholders."
For further information, please contact:
Richard Laing, Chairman, 3i Infrastructure Tel: 01534 847 410
plc
Thomas Fodor, investor enquiries Tel: 020 7975 3469
Toby Bates, press enquiries Tel: 020 7975 3032
For further information regarding the announcement of results
for 3i Infrastructure plc please see www.3i-infrastructure.com. The
analyst presentation will be made available on this website during
the day.
Click here to access a pdf of our Half-yearly report 2016
http://www.rns-pdf.londonstockexchange.com/rns/2012O_-2016-11-2.pdf
Note
The interim dividend is expected to be paid on 9 January 2017 to
holders of ordinary shares on the register on
25 November 2016. The ex-dividend date will be 24 November
2016.
Notes to editors
3i Infrastructure plc is a Jersey-incorporated, closed-ended
investment company, listed on the London Stock Exchange and
regulated by the Jersey Financial Services Commission. The Company
is a long-term investor in infrastructure businesses and assets.
The Company's market focus is on economic infrastructure and
greenfield projects in developed economies, principally in Europe,
investing in operating businesses and projects which generate
long-term yield and capital growth.
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 Adviser to 3i Infrastructure
plc.
This statement has been prepared solely to provide information
to shareholders. It should not be relied on by any other party or
for any other purpose. It and the Company's Half-yearly report may
contain statements about the future, including certain statements
about the future outlook for 3i Infrastructure plc. These are not
guarantees of future performance and will not be updated. Although
we believe the expectations are based on reasonable assumptions,
any statements about the future outlook may be influenced by
factors that could cause actual outcomes and results to be
materially different.
This press release is not for distribution (directly or
indirectly) in or to the United States, Canada, Australia or Japan
and is not an offer of securities for sale in or into the United
States, Canada, Australia or Japan. Securities may not be offered
or sold in the United States absent registration under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), or an
exemption from registration under the Securities Act. Any public
offering to be made in the United States will be made by means of a
prospectus that may be obtained from the issuer or selling security
holder and will contain detailed information about 3i Group plc, 3i
Infrastructure plc, 3i India Infrastructure Fund and management, as
applicable, as well as financial statements. No public offering in
the United States is currently contemplated.
The Half-yearly report for 3i Infrastructure plc for the six
months to 30 September 2016 has been drawn up in reliance upon
applicable English and Jersey law and the liabilities of the
Company in connection with that report shall be subject to the
limitations and restrictions provided by such law. The Half-yearly
report may contain certain statements about the future outlook for
3i Infrastructure. Although the Directors believe their
expectations are based on reasonable assumptions, any statements
about the future outlook may be influenced by factors that could
cause actual outcomes and results to be materially different.
Performance highlights
For the six months to 30 September 2015
Good portfolio performance driving Strong level of investment across
growth our
in Net Asset Value target markets
Total return of GBP73.8m in the first Further progress made in diversifying
half of the year is in line with the portfolio.
expectations, driven by the continued
performance of the portfolio. GBP287m of investments completed
in the period:
Net Asset Value ("NAV") of GBP1,701m WIG, TCR, Valorem and the Hart van
(March 2016: GBP1,277m). Zuid PPP project.
Also committed to invest EUR6.5m
in the A27/A1 PPP project since the
end of the period.
5.0% 165.7p GBP287m
Total return on opening NAV per share Invested or committed in the period
NAV for first 6 months
----------------------------- ---------------- ----------------------------------------------
Good income progression Managing our balance sheet efficiently
while
maintaining a good level of liquidity
to invest
Portfolio continues to deliver planned Revolving Credit Facility ("RCF")
cash flows with newer investments was extended to May 2019. During
contributing as expected since acquisition. the period, the accordion feature
of the RCF was exercised and subsequently
Total income of GBP35.5m in the period, cancelled, demonstrating our flexible
in line with expectations. In addition, funding model.
non-income cash of GBP12.5m was received.
GBP35.5m GBP136m GBP275m
Total income Cash balances Undrawn RCF balance
----------------------------------------------- ------------------- -------------------------
Delivering on the increased dividend Raised new equity of GBP385m, substantially
target deployed during the period
On track to deliver on the total GBP385m of new equity raised from
dividend target for FY17 of 7.55p existing and new shareholders.
per share, representing growth of
over 4% on FY16. Most of the proceeds have been deployed
to fund the new investments in the
Interim dividend of 3.775p per share period.
will be distributed on 9 January
2017.
3.775p GBP385m
Interim dividend per share New equity raised in the period
----------------------------------------------- ----------------------------------------------
Chairman's statement
"The Company has had a productive first half. In a competitive
market, we completed four new investments for a total consideration
of GBP287 million and executed a successful capital raise. The
Company's portfolio continues to deliver income in line with
expectations. Supported by our outlook for the portfolio, including
the new investments completed in the period, we remain on track to
deliver a full year dividend for FY2017 of 7.55 pence per
share."
Richard Laing
Chairman, 3i Infrastructure plc
2 November 2016
Performance
The Company generated a total return of GBP74 million in the six
months to 30 September 2016, or 5.0% of opening NAV (adjusted on a
time weighted average basis for the capital raise), in line with
the target of 8% to 10% per annum to be achieved over the medium
term. Foreign exchange movements in the period, following the
depreciation of sterling, contributed 1.2% to the total return. The
NAV per share increased to 165.7 pence. The portfolio is performing
in line with expectation, both financially and operationally. We
delivered a Total Shareholder Return ("TSR") of 16.5% in the period
(FTSE 250 7.8%). Since IPO, the Company's annualised TSR was 12.3%,
comparing favourably with the broader market (FTSE 250: 7.6%
annualised over the same period). The Company has achieved this
outperformance with relatively low share price volatility.
Capital raise
We were delighted with the results of our capital raise, which
was significantly oversubscribed. The Board was very pleased with
the high take up from existing investors through the Open Offer and
from the strong interest received from new investors.
Interim dividend
We are on track to deliver the target dividend for FY2017 of
7.55 pence. We are announcing the payment of an interim dividend of
3.775 pence per share, scheduled to be paid on 9 January 2017.
Corporate governance
The Company's Annual General Meeting was held on 7 July 2016.
All resolutions were approved by shareholders, including the
election and re-election of all Directors to the Board.
Outlook
The broader infrastructure market remains competitive,
particularly in the large Core economic infrastructure space, but
continues to offer attractive investment opportunities in the key
markets identified by the Investment Adviser. With the Investment
Adviser's strong origination capabilities and track record, and
with good liquidity to invest, the Company is well placed to
continue to grow and to deliver attractive returns to its
shareholders.
Our portfolio
27 GBP1,660m
assets investment value including commitments
Economic infrastructure businesses
Dynamic businesses that own their asset base in perpetuity
- Elenia
Finland: regulated electricity distribution
- Anglian Water Group
UK: regulated water utility
- Oystercatcher
Belgium, the Netherlands, Malta and Singapore: oil product
storage terminals
- ESVAGT
Denmark, Norway and UK: emergency rescue and response
vessels
- Cross London Trains
UK: passenger train fleet for the Thameslink franchise
- TCR
Belgium: ground support equipment in airports (new investment in
the period)
- Wireless Infrastructure Group
UK: communication towers (new investment in the period)
- Valorem
France: onshore wind developer (new investment in the
period)
Economic infrastructure businesses - Breakdown by sector(1)
Utilities 51%
---------------- ----
Transport 35%
---------------- ----
Communications 5%
---------------- ----
Energy 9%
---------------- ----
Projects
Concession-based projects in construction ("primary") or in
operation
Primary projects:
- One road project in the Netherlands
- One educational facility project in France
- One bridge project in the UK
- Three Government and social accommodation projects in France
and the Netherlands
Operational projects:
Seven investments:
- A12 road project in the Netherlands (operational status in the
period)
- Ayrshire College, an educational facility project in the UK
(operational status in the period)
- Dalmore Capital Fund, an operational PFI portfolio in the
UK
- Elgin, a portfolio of 16 school and community health care
facilities in the UK
- NMM, a museum facilities project in the Netherlands
- Octagon, a healthcare facilities project in the UK
- West of Duddon Sands ("WODS") offshore electricity
transmission project in the UK
Projects - Breakdown by type(1)
Operational projects 72%
---------------------- ----
Primary projects 28%
---------------------- ----
Portfolio - Breakdown by geography(1)
UK and Ireland 36%
------------------------ ----
Continental Europe and
Singapore 61%
------------------------ ----
India 3%
------------------------ ----
Portfolio - Breakdown by currency(1)
GBP 36%
----- ----
DKK 8%
----- ----
INR 3%
----- ----
EUR 53%
----- ----
30 September 2016 31 March 2016
Valuation % of Valuation % of
(GBPm) portfolio (GBPm) portfolio
==================================== ========== =========== ========== ===========
Economic infrastructure businesses 1,418 85% 1,035 81%
Elenia 396 362
Anglian Water Group 261 255
Oystercatcher 208 187
TCR 162 -
ESVAGT 134 122
Cross London Trains ("XLT") 123 109
Wireless Infrastructure Group 75 -
Valorem(1) 59 -
Projects 201 12% 193 15%
Primary projects(1) 57 59
Operational projects 144 134
India Infrastructure Fund
(six investments) 41 3% 53 4%
Total investments and commitments 1,660 100% 1,281 100%
==================================== ========== =========== ========== ===========
Total cash balances 136 50
==================================== ========== =========== ========== ===========
1 Includes investment commitments.
Our objectives and strategic priorities
Our objective is to provide shareholders with a sustainable
total return of 8% to 10% per annum, to be achieved over the medium
term, with a progressive annual dividend per share.
We aim to achieve this by maintaining a balanced portfolio of
infrastructure investments delivering a mix of income yield and
capital growth.
We drive value by adding new investments selectively, through
our engaged asset management approach and by maintaining an
efficient balance sheet.
The Company generally invests with a long term hold perspective,
although it may realise investments when a sale would maximise
value for shareholders.
Clear strategic priorities
Maintaining a balanced portfolio Managing the portfolio intensively
Delivering an attractive mix of income Driving value from the Company's portfolio
yield and capital growth for our shareholders through our engaged asset management
Investing in developed markets, with approach
a focus on the UK and Europe
========================================================== ==========================================================
Disciplined approach to new investment Maintaining an efficient balance
* Focusing selectively on investments that are value sheet
enhancing to the Company's portfolio and consistent * Minimising return dilution to shareholders from
with its return objectives holding excessive cash, while retaining a good level
of liquidity for future investment
========================================================== ==========================================================
The infrastructure asset class
Infrastructure assets typically have a low correlation with
other asset classes, including listed equities, real estate and
fixed income.
The quality and predictability of their cash flows tend to
provide for stable returns to shareholders over time.
Investment characteristics that we typically target
Geographical Target Asset intensive Essential Acceptable Opportunities
focus sectors or long-term services element of to enhance
concessions market/usage value
risk
------------- ------------------- ------------------- ------------------- ------------------- -------------------
Developed For economic Businesses Businesses Downside Partnering
markets, infrastructure with a significant that provide protection with management
principally - focus on asset base essential from operating teams and/or
the UK and investments that they services to in partially operational
Europe within the own in perpetuity, the communities competitive partners to
core and adjacent or long-term in which they markets deliver
sectors outlined concessions operate or Potential enhancements
in the diagram backed by to other upside through to the current
above robust regulatory businesses, an acceptable business plan
For projects frameworks, operating level of demand or to develop
- focus on generating in markets risk appropriate
greenfield stable long-term with high growth
projects cash flows barriers to opportunities
entry and
providing
some downside
protection
------------- ------------------- ------------------- ------------------- ------------------- -------------------
Market conditions
In this highly competitive market environment, we remain
disciplined in our approach to new investment, focusing The
sustained low interest rate environment and macro-economic
uncertainty have continued to drive demand for long duration assets
with stable cash flows.
Over recent years, this has resulted in significantly increased
competition for infrastructure assets, where cash yields and the
relative insensitivity to economic cycles make the asset class
attractive for investors.
The infrastructure asset class continues to attract interest
from existing specialist financial investors, but also from large
pension funds, sovereign wealth funds and insurance companies, a
number of which have developed direct investment capabilities.
Underlying investors continue to increase their allocations to the
infrastructure sector and overall remain under-invested relative to
target allocations.
This increase in demand, combined with the availability of debt
finance for infrastructure investment on attractive terms, has
driven the price of some infrastructure assets materially higher
and therefore projected returns lower.
This trend has been most evident in the market for large Core
economic infrastructure assets. Over the recent past, this
compression in returns has had a materially positive impact on the
value of the Company's investments, many of which were purchased in
a more favourable projected returns environment.
Market conditions have shaped our investment activity to focus
on:
-- economic infrastructure businesses in core and adjacent sub-sectors;
-- economic infrastructure businesses with characteristics that
can be managed to enhance value over the period of ownership,
including for example some level of demand or market risk; and
-- greenfield projects.
Our target markets for new investment
Economic infrastructure businesses
--------------------------------------------------------------------------------------------------------------
Businesses generally: Our approach
* own their asset base in perpetuity We originate investments through
the Investment Adviser's dedicated
team based in London and Paris, as
well as drawing from its broader
* provide essential services European network of offices.
We generate returns during our ownership
through the Investment Adviser's
* have a strong market position engaged asset management approach.
The Investment Adviser represents
the Company on the boards of our
* generate stable cash flows investments, engaging with senior
management to support the development
and execution of their strategy.
Some businesses may have some characteristics We will sell investments when a sale
which, through the Investment Adviser's would maximise value for our shareholders.
engaged asset management approach,
can enhance returns, including:
* growth opportunities
* demand/market dynamics
* greater operational complexity
Equity investments typically in the
range
of GBP50m-GBP250m
Returns typically in the range
of 9%-14% per annum
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Greenfield projects
--------------------------------------------------------------------------------------------------------------
PPPs to build, commission Low-risk energy Our approach
and operate infrastructure projects, other Our approach is to originate attractive
such as government means of energy opportunities through the Investment
buildings, social generation, transmission Adviser's relationships with project
infrastructure and and storage, telecommunications, developers, including construction
roads accommodation and companies.
transportation projects
We also leverage the Investment Adviser's
expertise in the assessment and management
of construction risk.
We generate returns by managing greenfield
projects through their construction
phase and operational ramp-up.
Once projects become operational,
they can be held for yield or sold
to crystallise value as part of our
broader portfolio management approach.
--------------------------------------------
Equity investments typically in the
range
of GBP5m-GBP50m
Returns typically in the range
of 9%-12% per annum
---------------------------------------------------------------- --------------------------------------------
Key performance indicators
Total return Annual distribution Portfolio balance(1)
% on opening Net Asset Value pence per share (pps) % of portfolio
---------------------------------------------------------------- --------------------------------------------------------------- -------------------------------------------------------------------
PPP and
Economic low-risk
infrastructure energy India Fund
businesses projects
---------------------------------------------------------------- --------------------------------------------------------------- ------------ -------------------- -------------- ---------------
HY2017 5.0% HY2017 3.775pps HY2017 88% 9% 3%
----------------------------- --------------------------------- ------------------------ ------------------------------------- ------------ -------------------- -------------- ---------------
HY2016 6.5% HY2016 3.625pps HY2016 83% 12% 5%
----------------------------- --------------------------------- ------------------------ ------------------------------------- ------------ -------------------- -------------- ---------------
Target
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To provide shareholders with a total return of 8% to 10% per Progressive dividend per share policy. Targeting a full year At least 75% of the portfolio invested in economic infrastructure
annum, to be achieved over the dividend for FY17 of 7.55 pence businesses
medium term per share
---------------------------------------------------------------- --------------------------------------------------------------- -------------------------------------------------------------------
Outcome for the first half of the year
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total return of 5.0% for the six months to 30 September 2016 Interim dividend of 3.775 pence per share declared 88%(1) of the portfolio invested in economic infrastructure
businesses at 30 September 2016
---------------------------------------------------------------- --------------------------------------------------------------- -------------------------------------------------------------------
Rationale and definition
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Total return is how we measure the overall financial * This measure reflects the dividends distributed to * The Company's strategy is to deliver differentiated
performance of the Company shareholders each year access to the infrastructure asset class by investing
in a portfolio weighted strongly towards economic
infrastructure businesses, owning their asset base in
* Total return comprises the investment return from the * The Company's business model is to generate returns perpetuity
portfolio and income from any cash balances, net of from portfolio income and capital returns (through
advisory and performance fees and operating and value growth and realised capital profits). Income,
finance costs. It also includes movements in the fair other portfolio company cash distributions and * This provides shareholders with a differentiated
value of derivatives and taxes realised capital profits generated are used to meet investment proposition compared with other UK-listed
the operational costs of the Company and infrastructure investment vehicles
distributions to shareholders
* Total return, measured as a percentage, is calculated
against the opening net asset value, net of the final * The India Fund portfolio is being managed by the
dividend for the previous year, and adjusted (on a * The dividend is measured on a pence per share basis, Investment Adviser with a view to realisation over
time weighted average basis) to take into account any and is targeted to be progressive the next few years
equity issued and capital returned in the period
---------------------------------------------------------------- --------------------------------------------------------------- -------------------------------------------------------------------
Performance in the first half of the year
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Total return of GBP74 million in the first six months * Declared interim dividend of 3.755 pence per share, * 88%(1) of the portfolio invested in economic
of the year, or 5.0% on opening net asset value, or GBP39 million, in line with the target set out at infrastructure businesses
adjusted for the new equity raised the beginning of the year
* Portfolio balance reflects new investment activity in
* The return was driven by the good performance of the * Income generated from the portfolio and cash deposits, the period
portfolio, including strong distributions from Elenia including non-income cash distributions from
and a valuation uplift from XLT where 14 trains have portfolio companies, totalled GBP49 million for the
been accepted by the franchise holder period. Operational costs and finance costs used to * Further portfolio diversification achieved during the
assess dividend coverage totalled GBP14 million in year through new investment activity
the period. The resulting dividend coverage shortfall
* The decline in sterling against the euro has of GBP4 million is covered by accumulated realised
benefited the Company, net of the impact of the profits * Further progress in realising the India Fund's
hedging programme which continues to reduce the portfolio through the sale of the majority of the
volatility in net asset value from exchange rates remaining investment in Adani Power in the period,
* On track to deliver the total dividend target for alongside the receipt of proceeds from the sale of
FY17 of 7.55 pence per share Ind-Barath Energy
* Costs were managed in line with expectations
---------------------------------------------------------------- --------------------------------------------------------------- -------------------------------------------------------------------
1 For the purpose of this analysis, the portfolio is measured as the underlying portfolio
asset value for each asset and does not include investment commitments until they are drawn.
Including investment commitments, the percentage for economic infrastructure is 85%.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Investment Adviser's review
"The portfolio has performed well in the first half of FY17,
with strong NAV growth and continuing good progression in portfolio
income. We have successfully converted four of the opportunities
that we had identified prior to raising equity, meaning that the
majority of the equity issue proceeds have now been deployed. These
investments will provide further income and diversification to the
portfolio, and underscore our ability to secure attractive
opportunities in this competitive market.
Whilst we continue to see a good flow of new investment
opportunities, we remain disciplined and focused on maintaining a
balanced and attractive portfolio for shareholders."
Phil White and Ben Loomes
Managing Partners and Co-heads, Infrastructure, 3i Investments
plc
2 November 2016
About the Investment Adviser
3i Investments plc ("3i Investments"), a wholly-owned subsidiary
of 3i Group plc ("3i Group"), acts as the investment adviser (the
"Investment Adviser") to the Company through its infrastructure
investment team (the "investment advisory team"). The investment
advisory team provides advice to the Company on the origination and
execution of new investments, on the management of the portfolio
and on realisations, as well as on funding requirements. 3i Group
was among the subscribers to the Company's Initial Public Offering
in 2007 and subsequent offer in 2008 and, most recently, the
GBP385m capital raise completed on 8 June 2016. 3i Group owns
approximately 34% of the equity in the Company.
The investment advisory team is managed as a separate business
line within 3i Group and operates from offices across 3i Group's
European network, focusing on both origination and portfolio
management. The Investment Adviser also has a dedicated team in
Mumbai to manage the assets in the India Fund. The team of
investment professionals has significant experience of investing
in, and managing, infrastructure assets. The investment advisory
team can also draw on 3i Group's broader network of investment
professionals and relationships to originate infrastructure
investment opportunities.
Our investment approach
The Investment Adviser aims to provide the Company with access
to attractive investment opportunities focusing selectively on
transactions that are value enhancing to the portfolio. We
implement our investment approach through the Investment Adviser's
team of approximately 25 dedicated investment professionals based
in London and Paris, as well as through its broader European
network of offices.
This platform provides us with a comprehensive coverage of our
target markets, as well as the asset management skills to drive
value from our investment portfolio.
The Investment Adviser will:
-- engage with portfolio company management at board level to
define the strategic direction and business plan;
-- access its network of industry specialists and senior
management to bring in expertise and/or bolster management
teams;
-- invest in the underlying asset base to support profitable growth over the longer term;
-- assess acquisitions if suitable opportunities arise;
-- implement an efficient and prudent capital structure to
optimise funding costs and which is appropriate for the business's
risk profile;
-- drive operational performance and disciplined cash management
to support both income yield and capital growth; and
-- apply a clear and comprehensive Responsible Investment policy
which is embedded into its investment and portfolio monitoring
processes.
Changes to the Investment Adviser's team
During the first half of the year the Investment Adviser
announced the promotions of John Cavill to Partner and Antoine
Matton to Director, and the appointment of Daniel von der
Schulenburg as Director in its Infrastructure business. John has
responsibility for the asset management of greenfield and
operational infrastructure projects. Antoine and Daniel have
responsibility for origination and execution of investments across
projects and economic infrastructure businesses, with Antoine
focusing on social infrastructure and France, Benelux and southern
Europe and Daniel having a focus on the energy sector and German
speaking region. Daniel was most recently a Principal at Hudson
Clean Energy Partners.
The profiles of the key members of the investment advisory team
are included further on in this document.
Case study: Valorem
Valorem and its market
On 12 September 2016, the Company invested EUR57 million in
Valorem, acquiring an economic interest of 28.5% from Omnes Capital
and other minority shareholders. Joining the founders and the
existing management team as cornerstone shareholder, the Company
committed to provide EUR12 million of further capital to support
Valorem in its growth strategy.
Founded in 1994 and headquartered in Bègles, France, Valorem is
a leading independent renewable energy development and operating
company. It is one of the largest onshore wind developers in
France, having developed over 480MW of capacity over the last 10
years.
The French power market is experiencing a major transition as it
looks to reduce its reliance on nuclear generation and to increase
generation from renewable sources of energy such as wind and solar.
The energy transition has been continuously supported by the French
governments over the past decade. With in-house capabilities across
the entire project cycle (development, construction and operation)
combined with a significant development pipeline and a strong local
footprint, Valorem is well positioned to benefit from this shift in
energy mix.
Platform for further growth
Valorem has a significant pipeline of onshore wind and solar
projects at an advanced stage of development that it expects to
convert into operating assets, with further projects at earlier
stages to bring through the development process.
3i Infrastructure is well positioned to support Valorem's growth
strategy through its long term capital model and the Investment
Adviser's engaged asset management approach.
A strong investment case
This investment diversifies the Company's portfolio with
exposure to a growing renewables business in one of the most
attractive European markets, and access to recurring,
inflation-linked cash flows underpinned by a robust regulatory
regime:
-- the French wind power generation market offers strong
attractions, with abundant wind resources, low population density,
continuous political support and ambitious objectives set out for
renewable energy generation, the French national plan forecasting
total capacity of 19 GW in 2020 and 26 GW in 2023;
-- the regulatory regime in place offers an attractive and
stable framework to invest in, with long term indexed
feed-in-tariffs embedded in offtake agreements with EDF, offering
stable inflation-linked cash flows with low correlation to market
power prices;
-- led by its experienced management team, Valorem is a
best-in-class developer, being the fourth largest French wind
developer and the largest independent one; and
-- Valorem has a significant operating asset base which enables
the investment to deliver an immediate yield to the Company,
combined with an attractive pipeline to deliver further growth.
Implementation of our investment approach
In highly competitive markets, and in line with the Company's
strategic priorities, the Board and the Investment Adviser focused
on:
Broadening the Company's portfolio with complementary
investments in the Company's key target markets, investing the
majority of the proceeds from the recent capital raise
Competition for large Core economic infrastructure businesses
remains strong. In response to this competition the Investment
Adviser has continued to target more attractive risk-adjusted
returns in other areas of the infrastructure market, such as
mid-market economic infrastructure businesses as well as greenfield
projects, consistent with the Company's investment focus. Where
possible the Investment Adviser seeks to secure investments on a
bilateral basis, minimising the transaction costs for the
Company.
During the six months to 30 September 2016 the Company invested
or committed GBP287 million of the proceeds from the capital raise
into the previously identified pipeline. The majority of the
investment in the period was into mid-market economic
infrastructure including GBP75 million into the independent
communications infrastructure provider Wireless Infrastructure
Group ("WIG"), EUR204 million into Europe's largest independent
owner of airport ground support equipment TCR and EUR57 million
into the renewable energy development and operating company
Valorem. The Company has committed a further EUR12 million of
funding to support future growth in Valorem.
The Company also announced that it has committed to invest
approximately EUR5 million to acquire a significant majority stake
in Coeur du Sud B.V., a vehicle created for the Hart van Zuid
greenfield project in Rotterdam, Netherlands.
On 29 June 2016, 3Angle, a consortium comprising the Company,
Fluor and Heijmans, was named as the preferred bidder for the
design, build, management, maintenance and financing of the
existing and new infrastructure of the A27 and A1 roads in the
Netherlands. The transaction reached commercial close in September
2016, with the Company announcing its commitment to invest EUR7
million in the project shortly after the period end on 5 October
2016.
Most recently, on 31 October 2016, the Company announced that it
has signed an agreement to invest approximately GBP185 million to
acquire the whole of Infinis, the leading generator of electricity
from landfill gas in the UK. On completion of this acquisition, the
Company will have invested all of the cash from the recent capital
raise. Completion of the investment is anticipated to take place by
the end of November 2016.
Driving value from the economic infrastructure portfolio
The Company's portfolio continues to perform in line with
expectations. Consistent with the strategic priorities outlined in
the "Clear and strategic priorities" section above, the Investment
Adviser has continued to engage with portfolio company management
teams to deliver against a range of opportunities to enhance the
portfolio's value.
In June 2016, ESVAGT, a leading provider of offshore safety and
support at sea, signed a binding agreement with Hess, a prominent
independent energy company, to provide safety and support services
at the South Arne field in the Danish sector of the North Sea for a
period of 12 years, continuing a successful 17 year partnership at
the field. ESVAGT's services will be performed by a new,
purpose-built vessel, scheduled for delivery in 2018. The 'ESVAGT
Connector' vessel will provide support to Hess until the new vessel
is delivered.
On XLT the Investment Adviser has continued to work closely with
XLT management, Siemens and GTR to overcome the initial delays in
the acceptance programme. The acceptance of units by GTR has
continued throughout the period, reaching a significant milestone
of 14 trains accepted by the franchise holder by the end of
September 2016. The delivery programme is scheduled to complete in
2018.
The Investment Adviser continues to work with the Company's
portfolio companies to assess new investment and capital
expenditure programmes, as well as value accretive
acquisitions.
Building the investment advisory team's capabilities to broaden
the Company's access to attractive investment opportunities
The investment advisory team was expanded during the period
through the recruitment of a number of investment professionals,
focused principally on the origination and execution of investment
opportunities. The new hires include a new Director, as well as an
additional hire at the Senior Associate level, to expand the
coverage of the Company's key target markets.
Continuing to manage the assets in the India Fund
The Investment Adviser aims to realise value from the assets in
the India Fund over the next few years and is making progress
towards that objective. Proceeds were received from the sale of
Ind-Barath Energy in the period. The majority of the remaining
holding in Adani Power has been sold in the period, at an average
price of 31 rupees per share compared to a value of 34 rupees per
share on 31 March 2016. Since the period end, the rest of the Adani
Power shares have been realised.
Outlook
The Company delivered a good return over the first half of the
year, underpinned by the performance of the portfolio and
favourable exchange rate movements.
Although the full implications of the result of the EU
Referendum are unclear, increased market uncertainty is driving
capital towards investments in both UK and Continental European
infrastructure assets. With interest rates remaining at all-time
lows, demand for large Core economic infrastructure investments, in
Europe particularly, continues to be very strong with recent
transactions providing further evidence of low projected returns.
This has continued to benefit the valuation of the Company's
existing portfolio of economic infrastructure investments. At the
same time, these market dynamics have shaped our investment focus
towards areas of the infrastructure market which offer more
attractive risk-adjusted returns, such as mid-market economic
infrastructure businesses, as well as primary PPP and low-risk
energy projects.
The new investments completed by the Company in the period
demonstrate our ability to continue to access attractive
investments in our target markets. By successfully investing the
majority of the proceeds from the recent capital raise, the Company
has increased its geographical and sector diversification. These
new investments are expected to contribute to portfolio income from
the second half of the financial year.
Whilst we continue to see a good flow of new investment
opportunities, we remain disciplined and focused on maintaining a
balanced and attractive portfolio for shareholders.
Profiles of senior members of the investment advisory
infrastructure team
Ben Loomes Phil White James Dawes
Managing Partner and Co-head Managing Partner and Co-head CFO
Ben is Managing Partner Phil joined 3i in 2007 James is Chief Financial
and Co-head of 3i's Infrastructure and is Managing Partner Officer for
business. Ben is a member and Co-head of 3i's Infrastructure 3i Group's Infrastructure
of 3i's Executive Committee business and a member business and joined in
and Investment Committee of 3i's Executive Committee January 2016. He manages
and has experience across and Investment Committee. the operational, financial
all of 3i's business lines. Prior to joining 3i, he and reporting requirements
Ben is responsible for was Division Director for the Infrastructure
leading the management in Macquarie's Infrastructure business within 3i Group,
of origination and the Funds business where he as well as performing
strategic development managed investments in CFO duties for 3i Infrastructure
of 3i's Infrastructure the transport sector. plc. Prior to joining
business and leads the Phil has over 20 years 3i, James was with Legal
relationship with the of infrastructure investment, & General Investment Management
Board of 3i Infrastructure advisory and finance experience where he held a number
plc. Ben led the sale from earlier roles at of senior finance roles,
of Eversholt Rail and Barclays and WestLB. Phil including Finance Director
is currently a board director leads asset management of LGV Capital from 2007
of ESVAGT, TCR and WIG. for 3i's Infrastructure to 2015.
Ben has over 15 years business and holds board
of experience in investment, positions at Anglian Water
advisory and finance, Group, Elenia and the
including from earlier Oiltanking companies.
roles at Goldman Sachs,
Greenhill and Morgan Stanley.
John Cavill Stéphane Grandguillaume Nigel Middleton
Partner Partner Partner
John joined 3i in November Stéphane is a Partner Nigel is a Partner in
2013, following 3i's acquisition in 3i's Infrastructure 3i's Infrastructure team
of BIFM. He joined BIFM team in Paris and joined in London and joined 3i
in 2009. He leads the 3i in November 2013, in November 2013, following
portfolio management activity following 3i's acquisition 3i's acquisition of Barclays
for 3i infrastructure's of Barclays Infrastructure Infrastructure Funds Management
projects and is responsible Funds Management Limited, Limited. He joined that
for: setting the strategy which he joined in 2006. business in 2002, having
for asset management activities; Stéphane leads 3i's previously been head of
overseeing implementation Infrastructure team in PFI/PPP Advisory Services
of value protection and Paris and is involved at PwC. Nigel led the
enhancement activities; in the origination and involvement of that business
and overseeing fund performance execution of investment in the formation and management
reporting. He works closely opportunities in PPP and of Infrastructure Investors
with investee company low-risk energy projects (I(2) ), a pioneering
non-executive directors across Europe. Stéphane secondary market infrastructure
and Infrastructure Managers led the recent investment fund, in which Barclays
Limited, the business' in Valorem. Previously, Infrastructure Funds Management
main SPV management services Stéphane was head had a joint venture interest
provider. Previously John of Egis Investment Partners. alongside Société
was a Director at St Modwen Générale and
Properties PLC, Land Securities 3i. He was also instrumental
Trillium and Vinci Investments in establishing, and continues
where he led PPP/PFI bidding to manage, BIIF, a long-term
activity. "buy and hold" PPP fund
which acquired I(2) in
2009.
Scott Moseley Bernardo Sottomayor
Partner Partner
Scott joined 3i in 2007 Bernardo is a Partner
and is a Partner in the in 3i's Infrastructure
Infrastructure team, with team in London and joined
co-management responsibility 3i in October 2015, with
for the team's new investment a focus on originating
origination and execution and executing investments
platform. He has 15 years in economic infrastructure.
experience in European He was a senior deal team
Infrastructure, spanning member on the recent investment
utilities, transportation by 3i Infrastructure in
and social infrastructure. TCR. Bernardo was most
Whilst at 3i, Scott has recently a Partner at
led the investments in Antin Infrastructure,
ESVAGT, Elenia and Cross which manages funds investing
London Trains, as well in infrastructure opportunities
as being a senior deal across Europe. Prior to
team member on Eversholt. Antin, Bernardo was Managing
He was also responsible Director, Head of Acquisitions
for the successfully exited for Deutsche Bank's European
junior debt investments infrastructure fund. His
in Arqiva, Associated prior experience was in
British Ports, Telediffusion utilities, as Head of
de France, Thames Water M&A at Energias de Portugal,
and Viridian. He is currently and in infrastructure
a Director on the board advisory with UBS and
of ESVAGT and Cross London Citigroup.
Trains.
Portfolio
Table 1 summarises the valuation and movements in the portfolio,
as well as the return for each investment, for the period. In
accordance with accounting standards, "Investments at fair value
through profit or loss" as reported in the Consolidated balance
sheet includes, in addition to the portfolio asset valuation, the
cash and other net assets held within intermediate unconsolidated
holding companies. These amounts are set out at the foot of the
table below, to provide a reconciliation between the Directors'
valuation of the portfolio assets and "Investments at fair value
through profit or loss" reported in the Consolidated financial
statements. The basis of the portfolio information set out below is
consistent with analyses in previous periods.
Table 1: Portfolio summary (30 September 2016, GBPm)
Directors' Directors' Underlying Allocated Asset
valuation Investment Divestment Foreign valuation Profit/ portfolio foreign total
31 March in the in the Value exchange 30 (loss) income in exchange return
September on in
Portfolio assets 2016 period period movement translation 2016 disposal the period hedging the
period
================== =========== =========== =========== ========= ============ =========== ========= =========== ========== =======
Economic infrastructure businesses
============================================================================================================================================
Elenia 362.4 - (13.5) (1) 15.6 31.8 396.3 - 9.8 (29.8) 27.4
Anglian Water
Group 255.0 - - 5.6 - 260.6 - 3.5 - 9.1
Oystercatcher 186.9 - - 3.9 17.7 208.5 - 6.5 (16.6) 11.5
TCR - 150.9 - (1.1) 12.3 162.1 - 1.9 (7.3) 5.8
ESVAGT 121.6 - - 1.1 11.1 133.8 - 5.4 (10.5) 7.1
XLT 108.7 - - 14.0 - 122.7 - 2.4 - 16.4
WIG - 74.7 - 0.5 - 75.2 - 1.6 - 2.1
Valorem - 47.9 - 0.2 0.8 48.9 - 0.1 (0.8) 0.3
================== =========== =========== =========== ========= ============ =========== ========= =========== ========== =======
1,034.6 273.5 (13.5) 39.8 73.7 1,408.1 - 31.2 (65.0) 79.7
================== =========== =========== =========== ========= ============ =========== ========= =========== ========== =======
Projects
Primary
projects(2) 0.1 - - - - 0.1 - - - -
Operational
projects
Elgin 45.7 - - 0.8 - 46.5 - 1.0 - 1.8
Octagon 42.0 - - (1.5) - 40.5 - 1.6 - 0.1
WODS 22.4 - (0.9)(1) - - 21.5 - 0.7 - 0.7
Dalmore 18.3 - - (0.3) - 18.0 - 0.5 - 0.2
NMM 6.1 - - 1.4 0.6 8.1 - 0.1 (0.5) 1.6
Ayrshire College - 4.6(4) - - - 4.6 - - - -
A12 - 4.5(4) - - 0.1 4.6 - 0.1 - 0.2
================= =========== =========== =========== ========= ============ =========== ========= =========== ========== =======
134.6 9.1 (0.9) 0.4 0.7 143.9 - 4.0 (0.5) 4.6
================= =========== =========== =========== ========= ============ =========== ========= =========== ========== =======
India Fund
3i India
Infrastructure
Fund 52.9 - (12.0) (4.3) 4.1 40.7 (0.5) - - (0.7)
================== =========== =========== =========== ========= ============ =========== ========= =========== ========== =======
Total portfolio 1,222.1 282.6 (26.4) 35.9 78.5 1,592.7 (0.5) 35.2 (65.5) 83.6
================== =========== =========== =========== ========= ============ =========== ========= =========== ========== =======
Balance sheet
adjustments
related to
unconsolidated
subsidiaries(3) 6.7 - - 1.5 - 8.2 - - - -
================== =========== =========== =========== ========= ============ =========== ========= =========== ========== =======
Income statement
adjustments
related to
unconsolidated
subsidiaries(3) - - - - - - - (2.3) (1.2) (2.0)
================== =========== =========== =========== ========= ============ =========== ========= =========== ========== =======
Reported in the
Consolidated
financial
statements 1,228.8 282.6 (26.4) 115.9 - 1,600.9 (0.5) 32.9 (66.7) 81.6
================== =========== =========== =========== ========= ============ =========== ========= =========== ========== =======
1 Capitalised income and shareholder loan repaid in the period.
2 Investments in the Mersey Gateway Bridge, A9, La Santé, RIVM,
Condorcet Campus and Hart van Zuid primary projects.
3 Income statement adjustments explained in Table 12 and Balance sheet
adjustments explained in Table 13 in the Financial review.
4 Drawdown of commitment.
Investment and realisation activity
The Company invested GBP273.5 million during the period in three
mid-market economic infrastructure businesses. In a market which
remains competitive, the investments are a strong endorsement of
the Company's investment strategy and the Investment Adviser's
ability to source investment opportunities that are capable of
delivering attractive risk-adjusted returns, in line with the
Company's objectives.
During the period, the 3i India Infrastructure Fund sold the
majority of the remaining investment in Adani Power, and received
the proceeds from the sale of Ind-Barath Energy in the previous
year. These transactions generated proceeds of GBP11.5 million to
the Company, slightly below the carrying value at 31 March 2016 of
GBP12.0 million.
Economic infrastructure businesses
On 9 June 2016, the Company completed the acquisition of a 36%
economic interest in WIG, investing approximately GBP75 million.
WIG is an independent communications infrastructure provider
headquartered in Scotland. The business builds and operates
communication towers and other wireless infrastructure to enable
the connection between networks and the communities that rely on
their services. For more information on this investment, please
refer to the investment review.
On 27 July 2016, the Company completed an investment of
approximately EUR200 million in TCR. Headquartered in Brussels, TCR
is Europe's largest independent owner of airport ground support
equipment and operates in over 100 airports. The equipment that TCR
provides to its clients is critical infrastructure, without which
some of Europe's busiest airports could not operate. For more
information on this investment, please refer to the investment
review.
On 12 September 2016, the Company completed a EUR57 million
investment in the renewable development and operating company
Valorem. Headquartered in Bègles, France, Valorem is a leading
independent renewable energy development and operating company,
having developed over 480MW of capacity over the last 10 years.
Valorem benefits from a critical mass of operating assets and a
strong pipeline of further projects at a well advanced development
stage. The Company has committed to provide EUR12 million of
further capital to support Valorem's growth strategy. For more
information on this investment, please refer to the new investment
case study on Valorem above.
Greenfield projects
The Company announced on 29 April 2016 that it has committed to
invest approximately EUR5 million to acquire a significant majority
stake in Coeur du Sud B.V., a vehicle created for the Hart van Zuid
greenfield project in Rotterdam, Netherlands. The EUR200 million
project involves the renewal and revitalisation of the area
surrounding the Zuidplein and Ahoy centres in Rotterdam.
Since the period end, the Company announced on 5 October 2016
that it has committed to invest approximately EUR7 million in the
A27/A1 primary PPP project in the Netherlands. This is a EUR220
million project for the reconstruction of the A27 motorway between
Utrecht North and the Eemnes junction, as well as of the A1
motorway between the Eemnes junction and the Bunschoten-Spakenburg
interchange.
Movements in portfolio value
As set out in Table 2, the portfolio assets were valued at
GBP1,592.7 million at 30 September 2016, compared to GBP1,222.1
million at the beginning of the financial year. The movement in
portfolio value was driven principally by investments during the
period, as well as by good value growth in the portfolio and by
foreign exchange retranslation, offset in part by realisations in
the India Fund.
Investment
The Company invested a total of GBP282.6 million in the period,
comprising GBP273.5 million in three mid-market economic
infrastructure businesses, described in "Investment and realisation
activity" above, and GBP9.1 million in two projects, Ayrshire
College and A12, which became operational in the period.
Divestment proceeds/capital repayments
The Company divested a total amount of GBP26.4 million during
the period. GBP13.5 million was received from Elenia and GBP0.9
million from WODS in respect of previously capitalised income and
loan repayments. These proceeds arose from cash generated in the
underlying companies, rather than the sale of assets. A further
GBP11.5 million of proceeds were received from the India fund
during the first half of the year, following the sale of the
majority of the holding in Adani Power in the period and the sale
of Ind-Barath Energy in the previous financial year, GBP0.5 million
below the opening carrying value.
Table 2: Reconciliation of the movement in portfolio value (six months to 30 September 2016,
GBPm)
===============================================================================================
Opening portfolio value at 1 April 2016 1,222.1
Investment 282.6
Divestment/capital repayments (26.4)
Unrealised value movement 35.9
Exchange movement(1) 78.5
Closing portfolio value at 30 September 2016 1,592.7
================================================================================= ============
1 Excludes movement in the foreign exchange hedging programme
(see Table 4).
Unrealised value movement
The unrealised value movement in the period, before exchange,
totalled GBP35.9 million (September 2015: GBP66.7 million).
Unrealised value movement represents the change in the portfolio
valuation within a measurement period. Changes to portfolio
valuations arise due to several factors as shown in Table 3
below.
The key drivers of the increase in portfolio value during the
first half of the year were planned value growth and asset
performance, principally from the economic infrastructure portfolio
described below. Macro-economic assumption changes, particularly in
relation to the risk free rate in Finland, had an adverse impact on
value. Discount rate movements represent the smallest component of
the total value movement in the period.
Economic infrastructure portfolio
The economic infrastructure portfolio was valued at GBP1,408.1
million at 30 September 2016 (March 2016: GBP1,034.6 million) and
generated an unrealised value gain of GBP39.8 million in the period
(or GBP113.5 million including exchange movements). This was driven
by the good operational performance of the underlying investments,
including good valuation increases from Elenia and XLT.
Elenia was valued at GBP396.3 million at September 2016 (March
2016: GBP362.4 million), including foreign exchange gains of
GBP31.8 million. The business has performed strongly in the period,
delivering planned cash flows and distributions to the Company. The
impact of a reduction in the period in the 10 year Finnish
Government bond yield, to which the allowed return is linked, was
partially offset by a corresponding reduction in the cost of
debt.
AWG was valued at GBP260.6 million at September 2016 (March
2016: GBP255.0 million). The business performed well during the
period, with operational performance and income levels in line with
expectations. The business has good visibility over the 2015-2020
regulatory period, or AMP6, after completing the first full year of
that period.
Oystercatcher was valued at GBP208.5 million at September 2016
(March 2016: GBP186.9 million), including foreign exchange gains of
GBP17.7 million. The five terminals continue to perform well both
operationally and financially, with capacity substantially let and
a good level of throughput. The valuation of Oystercatcher is
exposed to the euro and Singapore dollar exchange rate, and the
underlying value gain was enhanced by the impact of currency
movements in the period. The euro and Singapore dollar exposures
are partially hedged, as described in Table 4.
TCR was valued at GBP162.1 million at September 2016. The value
has increased since the investment of GBP150.9 million in July 2016
because of currency movements, which are partially offset by the
currency hedging programme.
Table 3: Components of value movement (six months to 30
September 2016, GBPm)
Value movement Value movement Description
component in the period
(GBPm)
====================== =============== =====================================================
Planned value 29.4 Net value movement resulting from the passage
growth of time, consistent with the discount rate
and cash flow assumptions at the beginning
of the period less distributions received
in the period.
====================== =============== =====================================================
Asset performance 28.7 Net movement arising from actual performance
in the period and changes to future cash
flow projections, including financing assumptions
and changes to regulatory determination
assumptions.
====================== =============== =====================================================
Discount rate 16.9 Value movement relating to changes in the
movement discount rate applied to the portfolio
cash flows.
====================== =============== =====================================================
Macro-economic (39.1) Value movement relating to changes to macro-economic
assumptions out-turn or assumptions, e.g. inflation,
interest rates on deposit accounts and
taxation rates. This includes changes to
regulatory returns that are directly linked
to macro-economic variables.
====================== =============== =====================================================
Total value movement
before exchange 35.9
====================== =============== =====================================================
Foreign exchange 78.5 Movement in value due to currency retranslation
retranslation to period-end rate.
====================== =============== =====================================================
Total value movement 114.4
====================== =============== =====================================================
ESVAGT was valued at GBP133.8 million at September 2016 (March
2016: GBP121.6 million). New contract wins, including the contract
with Hess to provide safety and support services to the South Arne
field in the North Sea, and cost savings have offset pressure on
day rates in contract renewals. Currency movements have contributed
a substantial element of the value growth in the period. These are
partially offset by the currency hedging programme.
XLT was valued at GBP122.7 million at September 2016 (March
2016: GBP108.7 million). The discount rate has been reduced
following the delivery and acceptance of 14 trains, a significant
milestone, and the corresponding reduction in risk in the
project.
WIG was valued at GBP75.2 million at September 2016, broadly in
line with the investment of GBP74.7 million in June 2016.
Valorem was valued at GBP48.9 million at September 2016,
increased from the investment of GBP47.9 million in September 2016
mainly through currency movements.
Projects portfolio
The projects portfolio was valued at GBP143.9 million at
September 2016, compared to GBP134.6 million six months earlier.
This reflects the investment of GBP9.1 million in Ayrshire College
and A12 which have reached operational status, and the good
operational performance of the portfolio. We have slightly reduced
the discount rate for valuing UK operational projects at September
2016, which has been offset by the impact of planned UK corporation
tax changes in relation to interest deductibility.
3i India Infrastructure Fund
The India Fund was valued at GBP40.7 million at September 2016,
compared to GBP52.9 million six months earlier, after exchange
gains of GBP4.1 million as the Indian rupee strengthened against
sterling in the period, as shown in Table 4. Continued delays in
project execution and funding constraints for the road projects,
and the pricing and availability of fuel for the investments in the
power sector, have resulted in a fall in value of GBP4.3 million in
the period. The sale of the majority of the holding in Adani Power
gave rise to a small loss on disposal of GBP0.5 million.
Foreign exchange impact
As shown in Table 4, the reported net foreign exchange gain on
investments of GBP13.0 million included a gain of GBP4.1 million
from the Company's exposure to the Indian rupee, which is not
hedged and gained in value by 10% against sterling in the
period.
There was a GBP74.4 million foreign exchange gain as sterling
weakened against other currencies in the period. This was partially
offset by a GBP65.5 million loss on the hedging programme. The
hedging programme has been designed to reduce the volatility in the
net asset value of the Company from currency movements.
During the first half of the year, the Company's hedging
programme was expanded to include the new investments in TCR and
Valorem. The target hedge ratio of the investment in TCR, a euro
investment, has been set to reflect a proportion of underlying cash
flows which are in sterling.
Table 4: Impact of foreign exchange movements on portfolio value (six months to 30 September
2016, GBPm)
GBP/rupee GBP/EUR/SGD/DKK Net impact
================================================================ ========== ================ ===========
Translation of unhedged assets (GBP/rupee) 4.1 - 4.1
================================================================ ========== ================ ===========
Translation of partially hedged assets (GBP/EUR/SGD/DKK) - 74.4 74.4
================================================================ ========== ================ ===========
Reported foreign exchange gains on investments 4.1 74.4 78.5
================================================================ ========== ================ ===========
Movement in the fair value of derivative financial instruments
(EUR/SGD/DKK hedging) - (65.5) (65.5)
================================================================ ========== ================ ===========
Net foreign exchange gains 4.1 8.9 13.0
================================================================ ========== ================ ===========
Summary of portfolio valuation methodology
Investment valuations are calculated at the half year and at the
financial year end by the Investment Adviser and then reviewed and
approved by the Board. Investments are reported at the Directors'
estimate of fair value at the reporting date.
The valuation principles used are based on International Private
Equity and Venture Capital valuation guidelines, generally using a
discounted cash flow ("DCF") methodology (except where a market
quote is available), which the Board 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;
-- quoted market comparables; and
-- regulated asset base multiples.
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 current position as at September 2016.
During the period, the weighted average discount rate was updated
to reflect the addition of the investments in WIG, TCR and Valorem
in the portfolio. As noted previously, the discount rate used to
value UK operational projects was decreased in the period. The
impact of the new investments increased the weighted average
discount rate to 10.1%.
3i India Infrastructure Fund and Dalmore Capital Fund
The Company's investments in the India Fund and in the Dalmore
Capital Fund were valued as the Company's share of net assets held
by those funds.
Within the India Fund valuation, Adani Power, which has been a
listed company since August 2009, was valued on a mark-to-market
basis using closing bid prices, and Krishnapatnam Port was valued
on the basis of consideration due under a put option. All other
investments were valued on an underlying DCF basis.
All of Dalmore Capital Fund's underlying investments were valued
on a DCF basis.
Table 5: Portfolio weighted average discount rate (30 September
2016, %)
March 2008 12.4
March 2009 13.8
March 2010 12.5
March 2011 13.2
March 2012 12.6
March 2013 12.0
March 2014 11.8
March 2015 10.2
March 2016 9.9
September 2016 10.1
================ =====
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 consistent delivery of the
Company's annual dividend objective;
-- strong capital profits from realisations; and
-- consistent capital growth.
These have underpinned an 18% annualised IRR since the Company's
inception. The economic infrastructure and project portfolios, in
particular, have 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. Indeed, most investments
have returned a significant proportion of their cost through income
in a relatively short time.
The value created through this robust investment performance was
crystallised in a number of instances through well managed
realisations, shown as "Realised assets" in Table 6 below. While
the Company is structured to hold investments over the long term,
it has sold assets where compelling offers have generated
additional shareholder value. This was the case with Eversholt Rail
in 2015, which generated an IRR in excess of 40%, as well as
through the realisations of Alma Mater in 2008, I(2) in 2009, the
junior debt portfolio in 2011-12 and Alpha Schools in 2013,
generating an aggregate IRR of 26.8%.
The valuation of the India Fund has, however, been volatile, and
has continued to be affected by currency and macro- economic
issues, as well as a number of issues related to specific
investments.
Table 6: Portfolio asset returns throughout holding period
(since inception, GBPm)
Value Proceeds on
Total including disposals/ Cash
cost accrued income capital returns income
======================== ====== =============== ================ =======
Existing portfolio
Elenia 195 397 12 104
AWG 173 264 12 139
Oystercatcher 137 208 - 93
TCR 151 164 - -
ESVAGT 111 146 - -
Cross London Trains 62 124 - 16
WIG 75 77 - -
Valorem 48 49 - -
Existing PPP portfolio 112 145 3 51
3i IIF 107 41 22 -
Realised assets
Eversholt Rail 151 - 391 114
Realised PPP assets 173 - 250 22
Junior debt portfolio 120 - 135 24
T2C and Novera 18 - 10 -
======================== ====== =============== ================ =======
Financial review
"The Company has proven its flexible funding model during the
half year. We have also been successful in building income during
the period, and the Company maintains an efficient balance
sheet."
James Dawes
CFO, Infrastructure
2 November 2016
Key financial measures
Six months to Six months to
30 September 2016 30 September 2015
=========================== ================== ==================
Total return(1) GBP73.8m GBP80.7m
Net asset value per share 165.7p 153.8p
Total income(1) GBP35.5m GBP27.7m
Portfolio asset value(1) GBP1,592.7m GBP1,112.6m
Cash balances(1) GBP135.9m GBP51.2m
Total liquidity(2) GBP411.0m GBP335.2m
=========================== ================== ==================
1 Reconciliation of measures to the financial statement balances is set
out in Tables 8 and 9.
2 Includes cash balances of GBP135.9 million and GBP275.1 million undrawn
balances available under the GBP300 million revolving credit facility.
Returns
The Company's performance is assessed by the Board based on the
following measures:
-- capital return: unrealised value movements due to changes to
the carrying valuation of assets across the period (or since
acquisition, if shorter) including the impact of foreign exchange
movements relating to portfolio assets; or realised capital profits
or losses generated from the sale or partial sale of portfolio
assets above or below their carrying valuation;
-- movement in fair value of derivatives for foreign currency hedging;
-- total income: interest and dividends from underlying
portfolio assets, interest on cash holdings and transaction fees
receivable;
-- costs: advisory and performance fees, Board and other
operating costs, transaction fees payable and finance costs
relating to the Company's revolving credit facility; and
-- other net income/costs: includes other income and foreign
exchange movements principally relating to euro balances held on
deposit in relation to future commitments to fund investment.
Table 7 shows the underlying aggregate returns from portfolio
assets for each of these elements of returns and costs. 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) for its reporting. The non-material adjustments
required to reconcile this analysis to the financial statements are
shown in Table 12.
Total return
3i Infrastructure generated a total return for the period of
GBP73.8 million, representing a 5.0% return on opening
shareholders' equity, adjusted on a time weighted average basis for
the capital raise of GBP379 million net of costs on 10 June 2016
(September 2015: GBP80.7 million, 6.5%).
The return was underpinned by the good performance of the
portfolio and enhanced by the net impact of foreign exchange
movements, which were substantially offset by the Company's hedging
programme.
Table 7: Summary total return
Six months to 30 September
2016 Six months to 30 September 2015
GBPm GBPm
======================================================= =========================== ================================
Capital return 113.9 64.9
Movement in fair value of derivatives (65.5) (0.4)
Net capital return 48.4 64.5
Total income 35.5 27.7
Costs (14.7) (11.9)
Other net income/(costs) including exchange movements 4.6 0.4
======================================================= =========================== ================================
Total return 73.8 80.7
======================================================= =========================== ================================
Capital return
Total capital return for the period was GBP113.9 million
(September 2015: GBP64.9 million) of which GBP114.4 million was an
unrealised value gain (September 2015: GBP64.9 million) offset by a
realised loss on disposal of GBP0.5 million from the partial sale
of Adani Power.
Unrealised value movement, including foreign exchange
movements
The portfolio generated an unrealised value gain of GBP114.4
million in the six months to 30 September 2016 (September 2015:
GBP64.9 million). This comprised a GBP35.9 million value increase
(September 2015: GBP66.7 million) and a GBP78.5 million foreign
exchange gain (September 2015: loss of GBP1.8 million).
The portfolio achieved good returns, driven by the valuation
uplift for the Company's holding in XLT where the discount rate was
reduced and valuation gains in Elenia, AWG, Oystercatcher, ESVAGT,
and the projects portfolio. There was a small valuation reduction
of GBP0.2 million for the India Fund, including foreign exchange
movements. These value movements are described in Tables 2 and
3.
Realised return
3i Infrastructure generated a realised capital loss of GBP0.5
million over the carrying value in the period (September 2015: nil)
from the disposal of shares in Adani Power held through the India
Infrastructure Fund.
Net capital return
Net capital return, including the loss of GBP65.5 million in the
fair value of foreign currency hedging derivatives, was GBP48.4
million (September 2015: GBP64.5 million), as shown in Table 8
below.
Movements in the fair value of derivatives represents a loss of
GBP65.5 million (September 2015: loss of GBP0.4 million) in the
fair value of the euro, Singapore dollar and Danish krona hedging
programme. This substantially offsets the foreign exchange gain in
the European portfolio of GBP74.4 million (September 2015: GBP2.6
million).
Table 8: Reconciliation of the movement in net asset value (six
months to 30 September 2016, GBPm)
Opening NAV at 1 April 2016(1) 1,248.3
Equity raise 378.8
Adjusted opening NAV 1,627.1
Capital return 35.4
Net foreign exchange movement(2) 13.0
Total income 35.5
Net costs including advisory fees(3) (10.1)
NAV before distributions 1,700.9
Interim dividend (38.8)
Closing NAV at 30 September 2016 1,662.1
====================================== ========
1 Net of final dividend for the prior year.
2 Foreign exchange movements are described in Table 4.
3 Includes non-portfolio exchange.
Income
Total income
Total income of GBP35.5 million comprises portfolio income of
GBP35.2 million (September 2015: GBP27.1 million) and interest
receivable on cash balances of GBP0.3 million (September 2015:
GBP0.6 million).
Portfolio income
The portfolio generated income of GBP35.2 million in the period
(September 2015: GBP27.1 million). Of this amount, GBP9.0 million
was through dividends (September 2015: GBP9.8 million) and GBP26.2
million through interest on shareholder loans (September 2015:
GBP17.3 million).
The Company accrued interest of GBP9.8 million from Elenia in
the period (September 2015: GBP9.4 million). The small
period-on-period increase is due to the impact of foreign exchange
movements as the EUR denominated loan has actually declined due to
the partial repayment of the loan in the intervening period.
AWG paid a dividend of GBP1.1 million in the period; the Company
also accrued interest of GBP2.4 million (September 2015: GBP3.2
million, GBP2.4 million). The dividend was lower than the dividend
received in the comparable period last year due to a refined
dividend timing profile to optimise debt covenant levels. Overall
dividends planned over the current regulatory period ("AMP6")
remain unchanged.
The Company received a dividend of GBP6.5 million from
Oystercatcher in the period (September 2015: GBP4.4 million). The
uplift is partly attributable to income received from the new
investments in the OTT and OTG terminals that were not received in
the comparative period.
Interest income of GBP5.4 million was accrued from ESVAGT in the
period (September 2015: GBP0.4 million), following a full period of
income from this investment. The new investments in WIG, TCR and
Valorem contributed GBP3.6 million to accrued income.
The Company received interest payments of GBP2.4 million from
XLT, in line with the corresponding period last year.
The Projects portfolio generated income of GBP4.0 million
(September 2015: GBP4.2 million). Of this amount, GBP1.4 million
was through dividends (September 2015: GBP2.2 million) and GBP2.6
million was through interest (September 2015:
GBP2.0 million).
Looking ahead, portfolio income is expected to increase from the
second half of FY2017, as income is earned from the new investments
completed in the period.
Interest receivable on cash balances
Interest income from cash and cash equivalents totalled GBP0.3
million (September 2015: GBP0.6 million), reflecting a decrease in
the average cash balances held during the period compared to the
first six months of last year. The Company's cash balances
generated interest at an average rate of 0.2% in the period
(September 2015: 0.5%). At
30 September 2016, the Company's cash balance was GBP135.9
million.
Table 9: Breakdown of portfolio income (six months to 30
September, GBPm)
2016 2015
Dividends Interest Dividends Interest Comments
==================== ========== ========= ========== ========= ==================================================
Eversholt Rail - - - 0.7 Sold in April 2015
Elenia - 9.8 - 9.4 Higher due to exchange movements in the period
AWG 1.1 2.4 3.2 2.4 Overall dividends planned across AMP6 remain
unchanged, but with timing differences
Oystercatcher 6.5 - 4.4 - Addition of two new terminals to the portfolio
TCR - 1.9 - - New investment in the period
ESVAGT - 5.4 - 0.4 New investment in Sept 2015
XLT - 2.4 - 2.4
WIG - 1.6 - - New investment in the period
Valorem - 0.1 - - New investment in the period
Projects portfolio 1.4 2.6 2.2 2.0 Higher interest income following the investment
in WODS in August 2015
==================== ========== ========= ========== ========= ==================================================
Total 9.0 26.2 9.8 17.3
==================== ========== ========= ========== ========= ==================================================
Costs
Advisory fees and performance fees
During the six months to 30 September 2016, the Company and its
unconsolidated subsidiaries incurred advisory fees of GBP11.1
million (September 2015: GBP7.5 million). The increase is due to
new investment activity in the period. The advisory fee, payable to
3i plc, is calculated as 1.5% of the Gross Investment Value, which
is based on the opening portfolio value and the cost of any new
investments or commitments made during the period. The advisory fee
for new projects transactions is 1.0%. For non-projects
transactions the advisory fee reduces from 1.5% to 1.25% for any
proportion of an asset held for more than five years. As several of
the Company's investments have been held for more than five years,
the advisory fee rate chargeable for those investments (e.g. AWG,
three of the five terminal investments held within Oystercatcher,
Octagon, Elgin and various assets within the 3i India Fund) is
1.25%.
An annual performance fee is also payable by the Company,
amounting to 20% of returns above a hurdle of 8% of the growth in
net asset value per annum, adjusting for the impact of share
capital raised. This hurdle was not achieved in the first half of
the year, as the total return for the period was 5.0%. For a more
detailed explanation of how advisory and performance fees are
calculated and of the high water mark definition, please refer to
Note 9.
Fees payable
Fees payable for costs in relation to transactions that did not
reach, or have yet to reach completion, totalled GBP0.2 million.
Potential abort costs for on-going deals which were accrued in the
last financial year, were capitalised following the successful
completion of those transactions during the course of this
financial period. The transaction costs relating to investments,
excluding those that were subsequently capitalised following
completion of the investment, totalled GBP0.6 million at 30
September 2016. The comparable figure at the end of September last
year stood at GBP0.9 million.
Other operating and finance costs
Operating expenses, comprising Directors' fees, service provider
costs and other professional fees, totalled GBP1.2 million in the
period (September 2015: GBP1.4 million). The decrease reflects an
ongoing focus on costs, and timing differences in some areas of
spend.
Finance costs of GBP2.2 million (September 2015: GBP3.1 million)
in the period comprise GBP1.8 million of arrangement, commitment
and utilisation fees for the Company's GBP300 million revolving
credit facility, together with GBP0.4 million in relation to the
arrangement and commitment fees for the additional GBP200 million
accordion increase in the facility which was arranged and
subsequently cancelled during the period. The prior period costs
included GBP1.5 million associated with cancelling the previous
credit facilities.
Ongoing charges ratio
The ongoing charges ratio measures annual operating costs, as
disclosed in the table below, against the average net asset value
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 1.68% for the period on an annualised basis
(September 2015: 1.41%). The ongoing charges ratio is higher in
periods where new investment levels are high and new equity is
raised.
The AIC methodology does not include performance fees or finance
costs. However, the AIC recommends that the impact of performance
fees on the ongoing charges ratio is noted, where performance fees
are payable. The cost items that contributed to the ongoing charges
ratio are shown below. As no performance fee was accrued in the
period, no additional disclosure is required.
Table 10: Ongoing charges (six month to 30 September, GBPm)
2016 2015
GBPm (annualised) GBPm (annualised)
============================== ================== ==================
Investment Adviser's fee 22.2 15.0
Auditor's fee 0.3 0.3
Directors' fees and expenses 0.5 0.5
Other ongoing costs 2.0 2.1
============================== ================== ==================
Total ongoing charges 25.0 17.9
============================== ================== ==================
Ongoing charges ratio 1.68% 1.41%
============================== ================== ==================
Balance sheet
The net asset value at 30 September 2016 was GBP1,700.9 million
(March 2016: GBP1,277.0 million). The principal components of the
net asset value are the portfolio assets, cash holdings, other
financial assets, the fair value of derivative financial
instruments and other net assets and liabilities, principally
relating to accrued interest.
The financial statements require cash or other net
assets/liabilities held within intermediate holding companies to be
presented as part of the fair value of the investments. The
Directors consider that it is helpful for users of the accounts to
be able to consider the valuation of the Company's portfolio assets
and total aggregate cash and net assets/liabilities within the
Company and its unconsolidated subsidiaries. The non-material
adjustments required to provide this analysis are shown in Table
13.
At 30 September 2016, the Company's net assets after the
deduction of the interim dividend were GBP1,662.1 million (March
2016: GBP1,248.3 million after the deduction of the final
dividend). A summary balance sheet is included in Table 11.
Table 11: Summary balance sheet
----------------------------------------------------------------------------------
As at 30 September 2016 As at 31 March 2016
GBPm GBPm
================================== ======================== ====================
Portfolio assets 1,592.7 1,222.1
Cash balances 135.9 49.9
Financial assets 33.8 36.7
Derivative financial instruments (85.3) (24.4)
Other net assets 23.8 (7.3)
================================== ======================== ====================
Net asset value 1,700.9 1,277.0
================================== ======================== ====================
Cash and other financial assets
Cash balances at 30 September 2016 totalled GBP135.9 million
(March 2016: GBP49.9 million), including GBP9.1 million (March
2016: GBP2.4 million) of unrestricted cash balances held within
intermediate unconsolidated holding companies. In addition, an
amount of GBP33.8 million (March 2016: GBP36.7 million), held on
the balance sheet as "Other financial assets", comprises
predominantly cash held on deposit in third-party bank accounts on
behalf of the Mersey Gateway Bridge and A9 projects. The balance
has reduced in the period following the Company's investment in the
Ayrshire College project.
Cash on deposit was managed actively by the Investment Adviser
and there are regular reviews of counterparties and their limits by
the Board. Cash is principally held in AAA-rated money market
funds.
Revolving credit facility
The Company has a GBP300 million revolving credit facility
("RCF" or "the Facility") in order to maintain a good level of
liquidity for further investment whilst minimising returns dilution
from holding excessive cash balances. The Facility is a three year
facility, and the maturity date was extended during the period by
one year to May 2019. The Company has the right to increase the
size of the Facility by up to a further GBP200 million, provided
that existing lenders have a right of first refusal, and the
Company has the right to request a further one year extension to
the maturity date of the Facility, which may be granted at the
discretion of each lender individually.
In April 2016, the Company increased the size of the Facility
from GBP300 million to GBP500 million on a temporary basis to
December 2016. This increase was cancelled in July 2016 following
receipt of the capital raise proceeds.
At 30 September 2016, the RCF had been used to issue letters of
credit for undrawn commitments to projects comprising EUR4.8
million (GBP4.2 million) for the RIVM project, EUR11.7 million
(GBP10.0 million) for the La Santé project, EUR7.9 million (GBP6.8
million) for the Condorcet project and EUR4.5 million (GBP3.9
million) for the Hart van Zuid primary project. During the period
the letter of credit relating to the A12 project was cancelled
following the Company's investment in the project.
Capital raising
The Company successfully completed a substantial capital raise
during the period, with gross proceeds of GBP385 million by way of
an open offer, placing and intermediaries offer at 165 pence per
share. This was increased from the original target size of GBP350
million. The offer was significantly oversubscribed and the final
size was set so as to ensure that the Company continues to maintain
an efficient balance sheet whilst at the same time having
sufficient liquidity to bid for new investment opportunities.
233,333,333 new ordinary shares were admitted to trading on the
London Stock Exchange main market for listed securities on 10 June
2016. The Company now has a total of 1,026,549,746 shares in
issue.
All applications made by existing shareholders under open offer
entitlements were met in full, and the Company was able to admit a
number of new shareholders to the register.
Net asset value per share
The total net asset value per share at 30 September 2016 was
165.7p (March 2016: 161.0p). This reduces to 161.9p (March 2016:
157.4p) after the payment of the interim dividend of 3.775p. There
are no dilutive securities in issue.
The movement in NAV per share in the period includes a 1.1 pence
per share increase resulting from raising capital in June 2016 at a
premium to the NAV per share at the time of the capital raise.
Dividend and dividend cover
The Board has proposed a dividend for the period of 3.775 pence
per share, or GBP38.8 million in aggregate (September 2015: 3.625
pence; GBP28.8 million). This is in line with the Company's target
of paying a full year dividend for FY2017 of 7.55 pence per
share.
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 period. The Board also takes into
account any surpluses retained from previous years, and net capital
profits generated through asset realisations, which it considers
available for distribution as dividend.
For the period to 30 September 2016, total income and other
income, including non-income cash distributions from portfolio
companies, amounted to GBP48.9 million (September 2015: GBP28.6
million). For dividend cover, operational costs relating to
advisory fees, operating expenses and financing costs, totalled
GBP14.5 million for the period (September 2015: GBP12.0 million).
The interim dividend cover shortfall of GBP4.4 million, which was
expected following the capital raise and accommodated in the
Company's cash flow planning, is covered from the amounts available
for distribution as detailed above. The Board is therefore
proposing that the interim dividend payment is made in line with
the Company's FY2017 full year dividend target. The retained amount
available for distribution, following the payment of the interim
dividend, will be GBP46.2 million.
Reconciliation of summary total return and summary balance
sheet
Table 12: Summary total return (six months to 30 September 2016,
GBPm)
Adjustments for
Underlying portfolio transactions in
asset aggregate returns unconsolidated Financial
and costs subsidiaries statements
======================================= ======================== ================ ===========
Capital return 113.9(1) 1.5(2,3) 115.4
Movement in fair value of derivatives (65.5) (1.2)(2) (66.7)
Net capital return 48.4 0.3 48.7
Total income 35.5 (2.3)(3) 33.2
Costs (14.7) 2.7(3) (12.0)
Other net income/(costs) 4.6 (0.7) 3.9
======================================= ======================== ================ ===========
Total return 73.8 - 73.8
======================================= ======================== ================ ===========
1 Capital return includes a GBP78.5 million foreign exchange gain.
2 Movement in fair value of derivatives relating to hedging specific
to the Oystercatcher subsidiary, reclassified as capital return, as
it is monitored by the Board as part of the unrealised value movement
in Oystercatcher.
3 Costs of GBP2.7 million were incurred within unconsolidated subsidiaries,
comprising predominantly fees paid directly to 3i Group (GBP2.2 million),
operating expenses (GBP0.1 million) and transaction fees (GBP0.4 million).
These are reflected in capital returns or income as they have reduced
either the carrying value, or the income distributed from these subsidiaries.
Table 13: Reconciliation of summary balance sheet (as at 30 September 2016, GBPm)
---------------------------------------------------------------------------------------------------
Adjustments for
Underlying aggregate transactions in
portfolio amounts and unconsolidated
other balances subsidiaries(1) Financial statements
================================== ====================== ================ =====================
Portfolio assets 1,592.7 8.2 1,600.9(2)
Cash balances 135.9 (9.1) (3) 126.8
Financial assets 33.8 - 33.8
Derivative financial instruments (85.3) (3.6) (4) (88.9)
Other net assets 23.8 4.5 28.3
================================== ====================== ================ =====================
Net asset value 1,700.9 - 1,700.9
================================== ====================== ================ =====================
1 "Investments at fair value through profit and loss" in the financial
statements includes GBP9.1 million of unrestricted cash balances and
GBP4.5 million of other net liabilities with or within intermediate
unconsolidated holding companies and a GBP3.6 million reclassification
of derivative liabilities relating to the Oystercatcher subsidiary.
These adjustments reclassify these balances to show the underlying value
of the portfolio assets, the total cash holdings and other net assets/(liabilities)
position, as monitored by the Board.
2 Described as "Investments at fair value through profit and loss" in
the financial statements.
3 Cash balances held in unconsolidated subsidiaries totalled GBP9.1 million.
4 A GBP3.6 million derivative liability relating to hedging specific to
the Oystercatcher subsidiary is reclassified as Portfolio assets, as
it is monitored by the Board as part of the valuation of Oystercatcher.
Risk review
Risk appetite
As an investment company, the Company seeks to take investment
risk. The Company seeks to limit or manage exposure to other risks
to acceptable levels.
Review of significant key risks
The Company was affected by a number of significant key risks
during the period, which have potential to affect materially the
achievement of the Company's strategic objectives and impact its
financial performance. This disclosure shows the developments in
these significant key risks during the period, it is not an
exhaustive list of risks and uncertainties faced by the
Company.
The Company's risk profile and appetite remains broadly
stable.
External risks - market and competition
The period has seen significant macro-economic uncertainty with
the UK's decision to leave the EU. It is expected that the UK will
cease to be a member of the EU by April 2019 and so the longer term
macro impact remains uncertain. There are wide-ranging legal and
regulatory implications from Brexit, but none are immediately
applicable, since the UK has not yet started the process to leave
the EU and much will depend upon the terms of the eventual deal
between the UK and EU. The Company is monitoring the situation
closely.
The markets in which the Company seeks to invest, and in
particular the European economic infrastructure markets, are
competitive, with strong demand for large core assets. This is
being reflected in higher asset prices. While this has supported
value gains for existing assets in the portfolio, it has made
securing new investments at total returns and yield consistent with
the Company's targets more challenging. Despite the more
challenging market environment the Investment Adviser continues to
leverage its network and skills to make investments that can
continue to deliver attractive risk-adjusted returns to the
Company's shareholders.
Interest rates remained low throughout the period. Elenia's
regulatory allowed return is currently determined with reference to
the 10-year Finnish government bond yield. During the period, the
Finnish 10-year government bond yield reduced by approximately 0.5%
from an average of 0.8% for the six month period to 31 March 2016.
As at 30 September 2016, the Finnish 10-year government bond yield
was 0.4%. This has had a negative impact on the valuation of the
Company's holding in Elenia. However, this has been offset by
Elenia continuing to take advantage of the favourable credit market
conditions and, since March 2016, Elenia has issued EUR82 million
of new bonds with maturities between 2030 and 2034.
Inflation remained low in the period, continuing to impact the
assets with inflation-linked revenues. However, cost inflation has
also been low across the portfolio. The Company monitors the
outlook for inflation closely.
There was significant currency volatility in the period, with
sterling depreciating 9.1% against the euro and 9.3% against the
Indian rupee in the six months to the end of September. The
Company's objective is to hedge the significant majority of its
euro exposure and the Singapore dollar exposure (associated with
the investment in Oiltanking Singapore within the Oystercatcher
valuation). The revaluation of the hedging programme for the euro,
Singapore dollar and Danish krona is impacted by movements in
forward exchange rates which are not necessarily matched exactly by
an equivalent change in the spot exchange rate at which the assets
are translated.
The exposure to the Indian rupee remains unhedged and resulted
in a foreign exchange gain in the period. In relation to this
exposure, the Board's assessment remains that the cost of hedging
the exposure would considerably outweigh the potential benefits,
given the lack of liquidity, and therefore high execution costs,
but also due to the significant interest rate differential between
sterling and rupee which impact the forward currency rates and
hedging derivative valuation. The Board monitors the effectiveness
of the Company's hedging policy on a regular basis.
External risks - regulatory
Following on from the December 2015 publication of the final
guidelines for the 2016-19 and 2020-23 regulatory periods by the
Finnish Energy Authority, on 3 June 2016 the Ministry of Employment
and Economy issued a draft government bill which, if enacted, would
amend the Electricity Market Act by implementing certain
restrictions on price increases by Distribution Service Operators
("DSOs"). According to the draft bill, DSOs, including Elenia,
would be restricted from increasing their electricity distribution
tariffs by more than an aggregate 15% (on tariffs after taxes) over
any rolling 12-month period. The new regulation would apply with
respect to both consumer and corporate customers. The proposed
amendment is expected to be submitted to the Finnish Parliament in
late 2016 and is expected to become law during 2017. Elenia's
business plan is not expected to be impacted materially by this new
legislation.
During the period Ofwat announced the key proposals from the
'Water 2020' reform programme for the next regulatory period which
will have an impact on Anglian Water Group. The proposals include a
change in revenue indexation to CPI (or CPIH) from RPI from 2020,
promoting competitive markets for sludge and water resources
through the regulatory framework and encouraging companies to
tender the construction, finance and, where appropriate, operation
of high value projects rather than delivery in-house.
In September 2016, Ofwat presented its report on the costs and
benefits of introducing household competition, highlighting that
there are potential benefits available and that customers would
welcome having greater choice. Customer bill reductions could be
limited. The Government is considering the report.
External risks - taxation
During October 2015, the OECD's Base Erosion and Profit Shifting
("BEPS") project announced a set of proposals for changes designed
to tighten international tax regimes and prevent tax planning
strategies used by multinational businesses to artificially shift
profits to low tax jurisdictions. The Company and the Investment
Adviser have been monitoring the progress of the BEPS project since
its inception in 2013 and this has included the Investment Adviser
contributing to representations made by infrastructure bodies on
certain of the proposals, notably those concerning the limiting of
tax deductions for interest expenses of companies, BEPS Action
4.
The Company and the Investment Adviser will continue to, monitor
further developments as different jurisdictions now consider the
questions of which proposals they will implement when and to what
extent. The BEPS proposals are extremely wide ranging and, subject
to their adoption and implementation by jurisdictions, are likely
to affect all multinational businesses to some extent. At this
stage it is not possible to determine the precise impact of the
proposals on the Company and its investments, but the impact of
BEPS Action 4 interest deductibility in the UK, based on the
current proposals, has been reflected in the valuation of its UK
investments as at September 2016.
Strategic risks
During the period, the Company balanced the funding requirements
of its pipeline of investments with the objective of running its
balance sheet efficiently. The Board assessed the Company's
liquidity requirements regularly including the liquidity impact
from the foreign exchange hedging programme. The Company proved its
flexible funding model by holding a low cash balance throughout the
period and it took advantage of the accordion feature of its
revolving credit facility which added a further GBP200m of
temporary funding, to position itself to make commitments for
potential new investments.
Investment risks
The Company made four new investments during the period, in WIG,
TCR, Valorem, and the Hart van Zuid social infrastructure primary
PPP project. These new investments have increased the geographical
and sector diversification of the Company's portfolio.
Operational
The key areas of operational risk include the loss of key
personnel at the Investment Adviser, and whether the Investment
Adviser's team can continue to support the delivery of the
Company's objectives. The Board monitors the performance of the
Investment Adviser through the Management Engagement Committee. It
also monitors the performance of key service providers, receiving
reports on any significant control breaches.
Review of investments
Elenia
Performance in the period
Equity interest 39.3%
Cost GBP183.2m
Opening value GBP362.4m
Income in the period GBP9.8m
Divestment in the period(1) GBP(13.5)m
Value movement in the period GBP15.6m
Net exchange movement in the period(2) GBP2.0m
Closing value GBP396.3m
Asset total return in the period GBP27.4m
Valuation basis DCF
---------------------------------------- -----------
1 Capitalised income of GBP1.9 million and shareholder loan repaid of
GBP11.6 million in the period. Opening cost was GBP194.8 million.
2 Exchange movement of GBP31.8 million and allocated foreign exchange
hedging movements of GBP(29.8) million.
Description
Elenia owns the second largest electricity distribution network
in Finland. Headquartered in Tampere, it serves around 417,000
customers in the south west of the country and has a market share
of approximately 12%. The business is regulated on a four-year
cycle, delivering a set return on its regulated asset base. The
electricity distribution business accounts for approximately 90% of
Elenia's overall value.
Elenia Lämpö owns and operates 16 local district heating
networks, each with strong market shares in their local areas.
District heating, which involves the pumping of hot water directly
into homes and businesses from central hubs, is not regulated in
Finland. This business accounts for approximately 10% of Elenia's
overall value.
Investment rationale
Elenia has strong infrastructure characteristics and operates in
an attractive market:
-- the electricity distribution business operates in a stable
and transparent regulatory environment, with regulatory incentives
providing opportunities for value-accretive growth;
-- the businesses are profitable and provide inflation linkage.
This is likely to support a robust yield to 3i Infrastructure over
the long term; and
-- Finland is an attractive market, providing opportunities for
consolidation over the medium term.
Achievements in the period of ownership
The businesses were rebranded with the "Elenia" name in May
2012, reinforcing the separation from Vattenfall to domestic
audiences.
The business successfully completed the post-acquisition
corporate reorganisation in early January 2013. This allowed Elenia
to begin distributing dividends to shareholders. In December 2013,
Elenia's original acquisition debt was fully refinanced through a
Whole Business Securitisation, the first of its kind to be applied
to a non-UK European utility. This was an important milestone for
the business, with positive implications for value, as it provided
a platform for access to the long-term capital markets and reduced
the ongoing cost of debt. Elenia's governance was enhanced through
the appointment of new independent chairmen to the boards of each
business, as well as through a number of management appointments to
further strengthen the executive teams. In addition, management
incentives were put in place to align management incentivisation to
the objectives of the shareholders. On 1 August 2015, Tommi
Valento, formerly Group Treasurer at Pohjolan Voima Oy, was
appointed as CFO of the business, replacing Aapo Nikunen.
Since acquisition in January 2012, Elenia has invested more than
EUR400 million in developing its electricity network, with a
particular emphasis on improving service reliability and weather
proofing.
Throughout the period of ownership, the consortium has supported
the management team in its dialogue with the regulator. In December
2015, the Finnish Energy Authority, which regulates electricity
distribution in Finland, published its final determination for the
2016-2019 and 2020-2023 regulatory periods. The new guidelines
include several changes to address the issue of the low allowed
return on capital experienced by all distribution companies over
recent years, with the objective of incentivising distribution
companies to improve the security of supply.
Developments in the period
Overall, both businesses continued to perform well operationally
and financially.
Elenia has continued the roll-out of its long-term investment
plan which is designed to improve the security of supply. In the
first half of 2016, network investments were EUR59 million,
totalling EUR118 million on a rolling twelve month basis. The
underground cabling rate increased as planned to approximately
35%.
Elenia has continued to take advantage of the favourable credit
market conditions and, since March 2016, has issued EUR82 million
of new bonds with maturities between 2029 and 2034. The proceeds
were used to fund capital expenditure.
Following a request from the Energy Authority, the Ministry of
Employment and Economy has proposed new legislation to restrict the
Distribution Service Operators from increasing their electricity
distribution tariffs by more than an aggregate 15% (on tariffs
after taxes) over any rolling 12-month period. We do not expect
this new legislation to impact materially the value of the
Company's holding in Elenia, which has increased prices by 9.4%
with effect from
1 April 2016.
Elenia, supported by the consortium, continues to monitor
potential acquisition opportunities in the fragmented electricity
distribution market. Consolidation of the existing network would
allow Elenia to leverage its operational expertise.
As announced on 15 January 2016, and further to the announcement
by Elenia Finance Oyj on the same date, the shareholders in Elenia
are undertaking a strategic review of their interests in the
business. The shareholders continue to explore their options, and
no decisions have been made.
Anglian Water Group ("AWG")
Performance in the period
Equity interest 10.3%
Cost GBP161.9m
Opening value GBP255.0m
Income in the period GBP3.5m
Value movement in the period GBP5.6m
Closing value GBP260.6m
Asset total return in the period GBP9.1m
Valuation basis DCF
---------------------------------- ----------
Description
Anglian Water Group Limited is the parent company of Anglian
Water, the largest water and water recycling company in England and
Wales by geographical area and the fourth largest as measured by
regulatory capital value. The majority of the group's revenue is
earned through tariffs regulated by Ofwat and linked to RPI.
The investment is held through 3i Osprey LP, an intermediary
limited partnership whose partners comprise other third parties
(including 3i Group, which has a small interest) and which is
managed by the Investment Adviser.
Investment rationale
AWG was taken private in 2006 by a group of investors, including
3i Group, which "seeded" part of its AWG holding into 3i
Infrastructure when the Company was set up in 2007. The business
has strong infrastructure characteristics:
-- a regulated near-monopoly position in its geographical area
for the provision of water and water recycling services;
-- stable and predictable earnings and cash flows through RPI-linked tariffs; and
-- largely predictable operating costs.
In addition, AWG has attractive fundamentals:
-- a strong and well-established management team;
-- a well maintained asset base;
-- operations in a geographic region with high population growth
and relatively low industrial exposure, limiting cyclical
correlation; and
-- a track record of strong operational performance.
Achievements in the period of ownership
AWG has flourished under private ownership. It has refocused on
its core business, selling Morrison Utilities Services, Morrison
Facilities Services and much of its property portfolio. The company
has been able to optimise its capital structure compared to listed
peers and to distribute a higher proportion of cash flows to
shareholders, resulting in a strong yield. The regulated capital
value has grown steadily, underpinned by a comprehensive capital
expenditure programme, which will be maintained for the 2015-2020
regulatory period ("AMP6"), which began on 1 April 2015. In order
to preserve greater financial flexibility, the board of AWG has
decided to manage gearing downwards slightly through to the end of
AMP6. This will reduce dividends to the Company from those
previously anticipated, as announced previously.
A new management incentive scheme was put in place post
investment, aligning compensation with long-term value growth,
asset quality and customer service rather than short-term earnings
and share price performance. The management team now balances
long-term planning, for example, to respond to the challenges of
climate change, with a clear focus on operational efficiency and
customer service.
In FY2016, AWG completed its IRIS programme, which involved
upgrading the telemetry system across its entire asset base. The
new system gives AWG a much greater level of oversight of its asset
base and operations, which assists it in planning and implementing
its asset maintenance programme.
AWG ranked second among the Water and Sewerage Companies in
Ofwat's Customer Service Survey for the financial year to March
2016, the first to be measured under the new regime.
Developments in the period
AWG continues to perform well, with operational performance and
income levels in line with expectations.
The business is currently focused on implementing its cost
efficiency and capital spending programmes to drive value through
AMP6 and has so far achieved its targeted savings. As part of the
regulatory settlement, AWG also has a set of 32 Outcome Delivery
Incentives ("ODIs"). These are key operational performance
parameters against which AWG is judged and which carry material
financial incentives and penalties. During the first year of the
regulatory period, all of AWG's ODIs met at least their base
targets, with three achieving near maximum rewards.
The core water business continues to perform well operationally.
There were no major operational incidents and water resource levels
are normal for this point in the year. During FY2016, AWG achieved
its best ever performance in minimising interruptions to supply,
leakage and pollution incidents.
AWG continues to make good progress in preparing for the
non-household retail market opening in April 2017. During the
period, Ofwat continued to consult on its Water 2020 plan, which
sets out its proposals for the regulatory framework for wholesale
markets and the 2019 price review, including opening up of the
sludge and water resources markets and the introduction of CPI
indexation. AWG, along with the rest of the industry, continues to
engage proactively in this consultation. In September 2016 Ofwat
published its report into the costs and benefits of introducing
competition to residential customers in England.
Oystercatcher
Performance in the period
Equity interest 45%
Cost GBP137.1m
Opening value GBP186.9m
Income in the period GBP6.5m
Value movement in the period GBP3.9m
Net exchange movement in the period(1) GBP1.1m
Closing value GBP208.5m
Asset total return in the period GBP11.5m
Valuation basis DCF
---------------------------------------- ----------
1 Exchange movement of GBP17.7 million and allocated foreign exchange
hedging movements of GBP(16.6) million.
Description
Oystercatcher Luxco 2 S.Ã r.l. ("Oystercatcher") is the holding
company through which the Company holds 45% interests in five
subsidiaries of Oiltanking GmbH ("Oiltanking"), located in Belgium,
Malta, the Netherlands and Singapore. These businesses provide over
five million cubic metres of oil, petroleum and other oil-related
storage facilities and associated services to a broad range of
clients, including private and state oil companies, refiners,
petrochemical companies and traders.
Oiltanking is one of the world's leading independent storage
partners for oils, chemicals and gases, operating 73 terminals in
22 countries with a total storage capacity of 19 million cubic
metres.
Investment rationale
The investment in the Amsterdam, Malta and Singapore terminals
was completed in August 2007, while the investment in the Ghent
(Belgium) and Terneuzen (Netherlands) terminals was completed in
June 2015.
The key elements of the investment case for the terminals
are:
-- there is strong projected demand for oil and oil-related products;
-- storage capacity remains scarce and is a key component of the
oil and oil product supply chain, resulting in high occupancy;
-- the businesses provide essential services and the terminals
benefit from facilities and operational capabilities that make them
attractive to existing and potential clients;
-- the terminals are defensively located in key trading hubs and
continue to benefit from high utilisation levels;
-- contracts are let on a use-or-pay basis with fixed terms of
up to 10 years, often with tariffs linked to local inflation rates,
resulting in reliable cash flows; and
-- the transactions allowed 3i Infrastructure to partner with a
leading player in the oil storage market, with a strong operational
reputation.
Achievements in the period of ownership
The investment case has largely been confirmed, with the
investments performing well. Storage capacity has been
substantially let throughout the period of investment, and
throughput levels have been high.
The Investment Adviser was actively involved in the assessment
of a range of capital expenditure project proposals that have
delivered long-term value accretion. In Singapore, a 160,000 cubic
metre expansion project was completed in June 2009 to accommodate
increasing demand from adjacent refineries and petrochemical
industries. In Amsterdam, a 42,000 cubic metre expansion project to
provide dedicated storage for biodiesel products for a new
production facility adjacent to the site was completed in June
2011. This capacity was pre-let on a use-or-pay basis. In Malta,
investment in a new 13,000 cubic metre tank was completed in
February 2012, and let on a use-or-pay basis to an existing
customer. Since investment, total capacity at these three terminals
has increased by 28%.
Oystercatcher's portfolio of investments was diversified further
in June 2015 through the acquisition of 45% stakes in the
Oiltanking Ghent and Oiltanking Terneuzen terminals, located in the
strategically important Amsterdam-Rotterdam-Antwerp region.
Oystercatcher completed a refinancing of its acquisition debt
facilities in March 2013, and a further refinancing in October
2014. Both achieved good terms, extending the maturity date and
lowering debt servicing costs.
Developments in the period
The market conditions for trading customers remained supportive,
with periods of contango (when the spot or cash price of a
commodity is lower than the forward price) in key product markets.
This continues to be partially offset by a reduction in demand for
storage of certain products in parts of Europe, and by additional
storage capacity in the Singapore region. The strong market
position of the five terminals continues to ensure that capacity at
each terminal remains substantially let and that contract renewals
continue to be agreed on good terms. Overall, the terminals
performed well during the period and faced no significant
operational issues.
A number of capital investment projects, to expand capacity
and/or to improve further the operational capabilities of the
terminals are currently being explored, as well as a potential
refinancing of part of the existing bank debt into longer term
finance.
ESVAGT
Performance in the period
Equity interest 50%
Cost GBP111.1m
Opening value GBP121.6m
Income in the period GBP5.4m
Value movement in the period GBP1.1m
Net exchange movement in the period(1) GBP0.6m
Closing value GBP133.8m
Asset total return in the period GBP7.1m
Valuation basis DCF
---------------------------------------- ----------
1 Exchange movement of GBP11.1 million and allocated foreign exchange
hedging movements of GBP(10.5) million.
Description
Headquartered in Esbjerg, Denmark, ESVAGT is a leading provider
of emergency rescue and response vessels ("ERRV") and related
services to the offshore energy industry in and around the North
Sea and the Barents Sea. ESVAGT has been operating since 1981,
employs over 900 people and owns a fleet of 43 vessels. Its
services mainly involve the rescue and recovery of personnel, but
also include the dispersion and recovery of oil spills, crew
transfers, towing, and the warning of vessels that approach
platforms too closely. It has an established position as a leading
provider of emergency response and rescue services in offshore
Denmark and Norway, with market shares of approximately 100% and
50% respectively, as well as a growing presence in the UK and high
growth offshore wind services segments. Approximately 80% of
ESVAGT's ERRV revenues are associated with North Sea oil and gas
production support, with the balance associated with North Sea oil
and gas exploration expenditure and offshore wind services.
Investment rationale
3i Infrastructure acquired ESVAGT from AP Møller-Maersk and
other minority shareholders in September 2015, in a consortium with
AMP Capital.
ESVAGT has strong infrastructure characteristics and operates in
an attractive market:
-- it is a market leader in Denmark and Norway, and has a small
but growing presence in the UK offshore oil and gas market and in
the expanding North Sea offshore wind sector;
-- it is an asset intensive business, with a modern
state-of-the-art fleet of purpose-built vessels;
-- a high proportion of its revenues are contracted over the
medium term with a diverse customer base featuring limited customer
concentration, underpinning stable and predictable cash flows;
-- it provides an essential service for the offshore energy
industry in light of regulatory health and safety requirements,
which constitutes a small component of the overall production cost,
resulting in lower price sensitivity;
-- it operates in a market with high barriers to entry, as
customers require bespoke vessels, manned by experienced crews with
a strong safety track record. The harsh weather conditions and
language barriers also inhibit new market entrants based outside
the region; and
-- with its leading market position, strong safety track record
and state-of-the-art fleet, ESVAGT is optimally positioned to
exploit growth opportunities in the UK and potentially further
afield, as well as in the offshore wind energy market.
Achievements in the period of ownership
The Investment Adviser has developed a strong working
relationship with members of the management team and is working
closely with them to drive the business forward. As part of this
process, the Investment Adviser assisted with the appointment of a
new Chairman, Jesper Lok, who took office on 1 November 2015.
Jesper is a strong addition to the Board and brings over 25 years
of experience from A.P. Møller-Maersk, having worked in Japan,
Taiwan, Pakistan and Nigeria before heading SVITZER, the Maersk
subsidiary that was formerly ESVAGT's parent company, as CEO. In
2012, he joined DSB, the Danish railroads, as CEO and led the
company's turnaround. Most recently, he was CEO of Falck's
Emergency division.
ESVAGT is well placed to leverage its strong market position to
capitalise on growth opportunities in the UK market as well as the
offshore wind energy support market. In December 2015, it announced
that it had signed an agreement with MHI Vestas to provide a
bespoke service operation vessel in support of the Belwind 1 and
Nobelwind Belgian offshore wind power developments. Under the terms
of the agreement, ESVAGT will operate the vessel for the exclusive
use of MHI Vestas' on-site wind park engineering team for a period
of 10 years from vessel delivery, which is expected in mid-2017.
This agreement builds on an existing five-year partnership with MHI
Vestas and demonstrates the company's strong customer
relationships, its best in class operations and its partnership
approach.
Developments in the period
ESVAGT performed in line with our investment case during the
period despite the low oil price environment.
In June 2016, ESVAGT signed a binding agreement with Hess, a
leading independent energy company, in relation to the Danish
sector of the North Sea. Under the terms of the agreement, ESVAGT
will provide safety and support services to Hess at the South Arne
field for a period of 12 years, continuing a successful 17 year
partnership at the field. ESVAGT's duties will be performed by a
new, purpose-built vessel, scheduled for delivery in 2018. In the
interim period, the 'ESVAGT Connector' vessel will provide support
to Hess until the new vessel is delivered.
Wireless Infrastructure Group ("WIG")
Performance in the period
Equity interest 36%
Cost GBP74.7m
Opening value -
Investment in the period GBP74.7m
Income in the period GBP1.6m
Value movement in the period GBP0.5m
Closing value GBP75.2m
Asset total return in the period GBP2.1m
Valuation basis DCF
---------------------------------- ---------
Description
WIG is an independent communications infrastructure provider
headquartered in Bellshill, Scotland. The business builds and
operates communication towers (masts) in rural and suburban areas,
together with fibre based networks, to improve mobile coverage in
large buildings and on city streets. WIG is independent of any
network operator and invests in shareable infrastructure that is
made available to all networks to access.
Following its inception in 2006, WIG has invested in over 2,000
shared communications towers and other wireless infrastructure
across the UK and its high quality infrastructure enables industry
leading levels of mobile and other wireless connectivity. The
business has recently expanded into the Netherlands and
Ireland.
Investment rationale
3i Infrastructure acquired a 36% economic interest in WIG
investing approximately GBP75 million and joining existing majority
shareholder Barings Alternative Investments (formerly known as Wood
Creek Capital Management) and the management team as
shareholders.
This investment diversifies the Company's portfolio with
exposure to a growing communications infrastructure business:
-- wireless broadband data usage in the UK is forecast to
increase significantly over the coming years as 4G becomes the
standard technology in mobile video and other data intensive
services continues to rise. As usage grows, increased coverage and
densification of the mobile network is required, creating demand
for further infrastructure;
-- communication towers are critical pieces of infrastructure
that are largely agnostic to technological change. Independent
ownership and operation of towers enables higher level of
connectivity than infrastructure owned by mobile and other wireless
networks.
-- the cash flows of the business are inflation-linked and are
underpinned by long-term contracts; and
-- with its scalable platform and track record of building new
infrastructure and making accretive acquisitions, WIG is well
placed to target further growth in the UK and across Europe.
Developments in the period
Since investment, WIG is performing in line with our investment
case.
Together with the management team and our co-shareholders, we
are actively reviewing growth opportunities, including
acquisitions. WIG remains focused on building out towers as well as
new small cell networks in large buildings and in densely populated
areas.
TCR
Performance in the period
Equity interest 50%
Cost GBP150.9m
Opening value -
Investment in the period GBP150.9m
Income in the period GBP1.9m
Value movement in the period GBP(1.1)m
Net exchange movement in the period(1) GBP5.0m
Closing value GBP162.1m
Asset total return in the period GBP5.8m
Valuation basis DCF
---------------------------------------- ----------
1 Exchange movement of GBP12.3 million and allocated foreign exchange
hedging movements of GBP(7.3) million.
Description
Headquartered in Brussels, Belgium, TCR is Europe's largest
independent asset manager of airport ground support equipment
("GSE") and operates at over 100 airports. Since inception, TCR has
defined the market for leased GSE, providing high quality assets
and a full service leasing, maintenance and fleet management
offering to its clients, which are predominantly independent ground
handling companies, airlines and airports. This enables GSE
operators to concentrate on their core business of ground handling.
The GSE that TCR provides is critical infrastructure, without which
some of Europe's busiest airports could not operate.
Investment rationale
TCR fits with the Company's strategy of investing in companies
with good asset backing, strong market positions and barriers to
entry, yet with operational levers to achieve attractive returns
for shareholders through active asset management:
-- GSE is a scarce resource that is critical to the functioning
of an airport; through first mover advantage, TCR has benefited
from securing the largest independent GSE fleet in Europe. TCR has
access to maintenance workshops in prime locations at airports,
many of which are located airside. This means that a high quality
maintenance and asset management service can be provided, resulting
in high availability of TCR's fleet;
-- TCR is able to offer full-service rentals on a pan-European
basis. This creates competitive advantages against competitors,
which tend to offer either dry leases or only repair and
maintenance services. TCR's network means it can offer pan-European
solutions at multiple locations, matching the footprints of its
customers;
-- outsourcing ownership of GSE equipment makes economic sense
for independent ground handlers, as it allows them to manage the
mismatch between short-term handling contracts and the typically
10-15 year useful life of equipment;
-- TCR's rental contracts are aligned with the ground handlers'
contracts with the airlines and are typically 3-5 years in
duration. TCR has experienced a high level of contract renewal;
-- the business has a diversified portfolio and is present at
over 100 airports across 12 countries with a diverse contract and
customer base meaning the revenues of the business are not
materially reliant on a single client or geography; and
-- the investment will provide exposure to the long-term growth
in the aviation market, which is fundamentally GDP driven, yet it
is expected to be insulated from short-term shocks to demand due to
its exposure to aircraft movements rather than passenger
numbers.
Developments in the period
Since the completion of the transaction in July, the revenues
and EBITDA of TCR have been in line with our investment case.
TCR has made good progress on its international expansion in the
period, in particular in the United States and in Malaysia. TCR has
also won new contracts in Germany, Spain, Norway and the UK. The
acquisition debt facilities have been successfully syndicated and a
management incentive plan has been put in place.
Cross London Trains ("XLT")
Performance in the period
Equity interest 33.3%
Cost GBP61.8m
Opening value GBP108.7m
Income in the period GBP2.4m
Value movement in the period GBP14.0m
Closing value GBP122.7m
Asset total return in the period GBP16.4m
Valuation basis DCF
---------------------------------- ----------
Description
Cross London Trains is a company established to procure and
lease the rolling stock for use on the Thameslink passenger rail
franchise. As part of a wider upgrade of the Thameslink rail
network, XLT is investing GBP1.6 billion in a fleet of new Siemens
Desiro City commuter rail carriages to be leased to the Thameslink
rail franchise operator, with the continued leasing of the trains
underpinned by the Department for Transport ("DfT") for a period of
20 years (the "s54 period").
Siemens is manufacturing and will deliver the trains over a
period of five years, with the first delivery into service in 2016.
The fleet will comprise 1,140 Desiro City commuter rail carriages,
capable of running on both overhead and third rail lines.
The fleet will be maintained by Siemens under a long-term
service agreement. Following the initial 20-year s54 period, XLT
will retain the ownership of the fleet and will be free to lease
the trains for the remainder of their useful life. The Company owns
33.3% of the equity in XLT, in consortium with Siemens Project
Ventures GmbH and Innisfree Limited.
Investment rationale
The investment has strong infrastructure characteristics and
fits well within 3i Infrastructure's investment mandate as:
-- it is a strategic asset, operating in the capacity-constrained London commuter market;
-- it will generate high quality, low-risk cash flows, with
rentals due on a "hell or high water" basis and lease revenues
underpinned for 20 years by the DfT;
-- it will retain ownership of the trains following this initial
20-year period, with their residual value supported by favourable
market dynamics; and
-- it allows the Company to partner with Siemens, a market
leader in UK rolling stock manufacture and maintenance.
Achievements in the period of ownership
A senior management team was installed at XLT, comprising an
executive chairman and a managing director with relevant industry
experience. Andy Pitt, executive chairman, was previously managing
director of South West Trains. Charles Doyle, managing director,
was previously a commercial principal at Transport for London. They
have successfully set up all necessary business functions and built
a strong working relationship with Eversholt Rail, which provides
technical engineering and administrative services to the business
under a long-term management services contract.
XLT, supported by its shareholders, has engaged proactively with
a number of stakeholders, including Siemens, the DfT, Network Rail
and the franchise holder, Govia Thameslink Railway ("GTR"). GTR has
been the holder of the Thameslink franchise since September 2014
and XLT has built a good working relationship with its management
team.
The Company and the Investment Adviser have built a strong
working relationship with Siemens and Innisfree, the other
shareholders in XLT.
Developments in the period
During the period, Siemens made good progress with the
manufacturing of the trains. In total, 54 trains have been
manufactured of which 31 trains have been delivered for testing in
the UK. The focus remains on the acceptance of trains for passenger
service in the UK. The acceptance process involves running on the
UK network without fault and relies on acceptance from the train
operator (GTR). GTR is ultimately responsible for the safe
operation of the trains. Conditional acceptance of the fourteenth
train, which was a significant milestone in the programme, was
achieved on 30 September 2016. The delivery programme is scheduled
to complete in 2018.
Projects portfolio
Performance in the period
Opening value GBP134.6m
Cost GBP108.9m
Investment in the period GBP9.1m
Divestment in the period(1) GBP(0.9)m
Income in the period GBP4.0m
Value movement in the period GBP0.4m
Net exchange movement in the period(2) GBP0.2m
Closing value GBP143.9m
Asset total return in the period GBP4.6m
Valuation basis DCF and LP share of funds for
Dalmore
--------------------------------------- ------------------------------
Notes: In addition to the value of the investments shown above (Elgin,
Octagon, WODS, Dalmore, NMM, Ayrshire College and A12), the Company
also has undrawn commitments to primary PPP projects totalling GBP57.2
million. The total invested and committed portfolio value at 30 September
2016 was GBP201.1 million.
1 Partial shareholder loan repaid in the period. Opening cost was GBP100.7
million.
2 Exchange movement of GBP0.7 million and allocated foreign exchange
hedging movements of GBP(0.5) million.
Description
Projects in construction
Mersey Gateway Bridge, a project involving the design, build,
finance, operation and maintenance of a 1km tolled bridge across
the river Mersey in Liverpool, as well as 9km of approach roads,
against availability based payments commencing from 2017.
Construction commenced in April 2014, with completion expected in
September 2017. 3i Infrastructure, alongside partner FCC, a Spanish
construction company, is invested in a vehicle that holds a 25%
interest in the project.
RIVM, a project to build the new premises of the National
Institute for Public Health and the Environment and the Dutch
Medicines Evaluation Board in Utrecht, the Netherlands. The project
scope involves the design, build, finance, maintenance and
operation of 70,000m(2) facility comprising an office building and
laboratories on the site of Utrecht Science Park. 3i Infrastructure
has a 28% interest in this project through Heijmans Capital BV, a
joint venture in which 3i Infrastructure has an 80% interest, with
the balance held by Heijmans NV, the Dutch construction group.
A9, a project involving the design, build, management,
maintenance and financing of the existing and new infrastructure of
the A9 motorway between Diemen and Holendrecht in the Netherlands.
The project will reconstruct and expand the A9 motorway between
these junctions, including a bridge over the river Gaasp. It will
also include the construction of an approximately 3km overground
tunnel. 3i Infrastructure has a 45% interest in the project, with
the balance held by Heijmans NV, Ballast Nedam and Fluor
Infrastructure BV.
La Santé, a project involving the design, build, refurbishment,
finance and maintenance of various buildings for La Santé prison in
Paris. The project will also include the provision of facilities
management services once construction is complete, which is
expected to be by the end of 2018. 3i Infrastructure has an 80%
interest in the project, with the balance held by subsidiaries of
Vinci Construction France and GDF-Suez.
Condorcet Campus, a project involving the design, build and
finance of new buildings for the Condorcet Campus, as well as the
provision of facilities management services, in Aubervilliers,
France. The project will also include classrooms, student housing,
a faculty club, cafeterias and other student living facilities to
be built for the use of social sciences students, faculty and
research staff. Construction is expected to be completed by the
summer of 2019. 3i Infrastructure has an 80% interest in the
project, with the balance held by entities of the Vinci
Construction France and ENGIE groups.
Hart van Zuid, a project involving the renewal and
revitalisation of the area surrounding the Zuidplein and Ahoy
centres in a PPP project with the Municipality of Rotterdam. During
the multi-year project, the Ahoy convention centre will be expanded
to include an international conference centre, a music hall, a
cinema and a hotel. An art building with a library and theatre will
be constructed on the new Plein op Zuid square. In addition, the
Zuidplein shopping centre will be renovated and expanded and the
new Charlois swimming pool will be incorporated into the current
city hall. Furthermore, the metro and bus transportation hubs will
be renewed. Construction work commenced in the second quarter of
2016.
Operational projects
Elgin, a portfolio of PFI project investments, comprising five
schools projects and 11 community healthcare schemes, all of which
are fully operational, under concessions of up to 32 years. The
portfolio companies receive inflation linked payments to cover
services and buildings maintenance, which are subject to
performance deductions for service failures and unavailability.
Facilities services are sub-contracted to Robertson Facilities
Management (in 15 projects) and Carillion Facilities Management (in
one project).
Octagon, a concession company under a 35-year PFI contract to
build, operate and maintain the Norfolk and Norwich University
Hospital. Construction of the hospital was completed in August
2001. Octagon receives RPI-linked payments from the NHS Trust to
cover services and buildings maintenance, which are subject to
performance deductions for service failures and unavailability.
Octagon sub-contracts the provision of facilities services to
Serco.
WODS OFTO is a project involves the acquisition, financing and
operation of power transmission cables and associated electrical
equipment connecting the WODS offshore wind farm in the Irish Sea
to the onshore grid. The OFTO assets include one offshore
substation platform, two 40km long subsea cables, two 3km land
cables and a new onshore substation. The project operates under a
licence awarded by Ofgem, with a 20-year revenue entitlement
period. The project was fully commissioned at acquisition and is
generating good levels of income.
Dalmore Capital Fund, a 25-year LP fund managed by Dalmore
Capital Limited, investing in equity and subordinated debt in
secondary PFI transactions which are operational and do not have
volume--based payment regimes. The fund can invest across the
social infrastructure sector and targets gross returns of 10% for
its investors. The fund was fully drawn at 31 March 2015 with total
commitments of GBP249 million.
National Military Museum, a project procured by the Dutch
Ministry of Defence comprising the design, build, finance and
maintenance of a museum facility on the site of the former
Soesterberg Airbase, located approximately 60km south east of
Amsterdam.
Ayrshire College, a project to build a new campus for Ayrshire
College in Kilmarnock, Scotland. The project involves the design,
build, finance, operation and maintenance of a new college campus,
against availability-based payments over a concession period of 25
years. 3i Infrastructure has a 100% interest in the project, which
became operational during the period.
A12, a project involving the refurbishment, widening and
maintenance of an 11km section of the A12 motorway in the
Netherlands, as well as the maintenance of an additional 8km
section. 3i Infrastructure has an 80% interest in the project,
through Heijmans Capital BV. Construction was completed during the
period.
Investment rationale
Exposure to PPP and low-risk energy projects provides the
Company's portfolio with low risk, index-linked cash flows.
Investments in primary PPP projects tend to generate capital
uplifts as the investments are managed from the construction phase
through ramp--up.
Achievements in the period of ownership
All operational assets in the projects portfolio have performed
well through their period of ownership, in line with, or ahead of,
expectations, providing a good return to the Company since
inception. This has been due principally to engaged portfolio
management on the part of the Investment Adviser and other
shareholders. The Investment Adviser has a strong track record in
managing the development and construction risks for the primary PPP
portfolio.
The Investment Adviser generated significant value through the
sale of the Company's holdings in Alma Mater, I(2) and Alpha
Schools at material uplifts over cost in 2008, 2009 and 2013
respectively, generating an aggregate IRR of 30%.
Developments in the year
All assets in the operational PPP portfolio performed well
operationally during the period, delivering good levels of
income:
-- Overall, the projects in the Elgin portfolio are performing
in line with expectations. There is a construction defect in one of
the schools which is being rectified by the original
contractor.
-- Octagon continues to perform in line with expectations.
-- Ayrshire College and the A12 road projects completed
construction during the period and became operational.
-- The Dalmore Capital Fund is performing to plan.
-- The commencement of construction of the RIVM project is
significantly delayed and there is risk of termination. The
authority, SPV and contractor are working together to address the
issues causing delay, which relate to the suitability of the
building design to meet the specification.
The Investment Adviser continues to be successful in sourcing
and making investments in greenfield projects on behalf of the
Company. In October 2016, the Company committed to invest a total
of EUR6.5 million in the A27/A1 motorway PPP in the
Netherlands.
3i India Infrastructure Fund
Performance in the period
Partnership interest 20.9%
Cost GBP71.5m
Opening value GBP52.9m
Divestment in period GBP(12.0)m
Value movement in the period GBP(4.3)m
Exchange movement in the period GBP4.1m
Loss on disposal GBP(0.5)m
Closing value GBP40.7m
Asset total return in the
period GBP(0.7)m
Valuation basis LP share of funds
--------------------------------- ------------------
Description
The 3i India Infrastructure Fund (the "India Fund") is a US$1.2
billion fund which closed in 2008, investing in a diversified
portfolio of equity (or equivalent) investments in India, focusing
on the port, road and power sectors. 3i Infrastructure committed
US$250 million to this fund.
The investment period for the India Fund ended on 30 November
2012 and the Board expects that the Company's remaining commitment
of US$37.5 million will not be substantially drawn. As at 30
September 2016, the India Fund was invested in a portfolio of six
assets in the power and transportation sectors. This portfolio is
being managed for realisation over the next few years.
Portfolio
Krishnapatnam Port has a concession to develop, operate and
maintain the port of Krishnapatnam in the state of Andhra
Pradesh.
KMC Roads has a portfolio of "build-operate transfer" ("BOT")
road projects, comprising projects which are both operating and
under construction, among the largest portfolios of its kind in
India.
Supreme Roads is building a portfolio of BOT road projects.
Soma Enterprise is an infrastructure developer in India, which
focuses mainly on BOT road projects, but also on projects in the
hydro power, irrigation, railways, power transmission and urban
infrastructure sectors.
Adani Power focuses on the development and operation of power
plants and the sale of power generated.
GVK Energy is developing a portfolio of power generation
projects (4,047MW), diversified by fuel type, stage of development
and geography.
Further progress has been made in realising the India Fund's
portfolio in the first half of the year through the sale of the
majority of the remaining investment in Adani Power, alongside the
receipt of proceeds from the sale of Ind-Barath Energy in the
previous financial year. The remainder of the holding in Adani
Power was sold in October 2016.
Financials and other information
Consolidated statement of comprehensive income
for the six months to 30 September 2016
Six months to Six months to
30 September 30 September
2016 2015
Notes (unaudited) (unaudited)
GBPm GBPm
================================================================= ====== ============== ==============
Realised losses over fair value on the disposal of investments (0.5) (0.1)
Net gains on investments at fair value through profit or loss 4 115.9 62.0
================================================================= ====== ============== ==============
115.4 61.9
================================================================= ====== ============== ==============
Investment income 32.9 24.9
Fees payable on investment activities 0.2 0.1
Fees receivable on investment activities - -
Interest receivable 0.3 0.6
================================================================= ====== ============== ==============
Investment return 148.8 87.5
Advisory and performance fees payable 2 (8.9) (5.4)
Operating expenses (1.1) (1.4)
Finance costs (2.2) (3.1)
Movement in the fair value of derivative financial instruments (66.7) 2.6
Other income 0.8 0.7
Exchange movements 3.1 (0.2)
Profit before tax 73.8 80.7
================================================================= ====== ============== ==============
Income taxes 3 - -
================================================================= ====== ============== ==============
Profit after tax and profit for the period 73.8 80.7
================================================================= ====== ============== ==============
Total comprehensive income for the period 73.8 80.7
================================================================= ====== ============== ==============
Earnings per share
Basic and diluted (pence) 6 7.9 9.6
================================================================ ====== ============== ==============
Consolidated statement of changes in equity
for the six months to 30 September 2016
Stated
capital Retained Total
Notes account reserves equity
For the six months to 30 September 2016 (unaudited) GBPm GBPm GBPm
================================================================= ====== ======== ========= ========
Opening balance at 1 April 2016 181.6 1,095.4 1,277.0
Issue of shares 5 378.8 - 378.8
Total comprehensive income for the period - 73.8 73.8
Dividends paid to shareholders of the Company during the period 7 - (28.7) (28.7)
================================================================= ====== ======== ========= ========
Closing balance at 30 September 2016 560.4 1,140.5 1,700.9
================================================================= ====== ======== ========= ========
Stated
capital Retained Total
account reserves equity
For the six months to 30 September 2015 (unaudited) GBPm GBPm GBPm
================================================================= ======== ========= ========
Opening balance at 1 April 2015 181.6 1,139.7 1,321.3
Total comprehensive income for the period - 80.7 80.7
Dividends paid to shareholders of the Company during the period 7 - (181.7) (181.7)
================================================================= ======== ========= ========
Closing balance at 30 September 2015 181.6 1,038.7 1,220.3
================================================================= ======== ========= ========
Consolidated balance sheet
as at 30 September 2016
30 September 31 March
2016 2016
(unaudited) (audited)
Notes GBPm GBPm
=================================================== ====== ============= ==========
Assets
Non-current assets
Investments at fair value through profit or loss 4 1,600.9 1,228.8
=================================================== ====== ============= ==========
Investment portfolio 1,600.9 1,228.8
Derivative financial instruments 4 0.2 6.4
=================================================== ====== ============= ==========
Total non-current assets 1,601.1 1,235.2
=================================================== ====== ============= ==========
Current assets
Derivative financial instruments 4 1.3 4.1
Trade and other receivables 33.9 16.6
Other financial assets 33.8 36.7
Cash and cash equivalents 126.8 47.5
=================================================== ====== ============= ==========
Total current assets 195.8 104.9
=================================================== ====== ============= ==========
Total assets 1,796.9 1,340.1
=================================================== ====== ============= ==========
Liabilities
Non-current liabilities
Derivative financial instruments 4 (56.0) (28.2)
Trade and other payables (3.0) (2.0)
=================================================== ====== ============= ==========
Total non-current liabilities (59.0) (30.2)
=================================================== ====== ============= ==========
Current liabilities
Trade and other payables (2.6) (22.8)
Derivative financial instruments 4 (34.4) (10.1)
Total current liabilities (37.0) (32.9)
=================================================== ====== ============= ==========
Total liabilities (96.0) (63.1)
=================================================== ====== ============= ==========
Net assets 1,700.9 1,277.0
=================================================== ====== ============= ==========
Equity
Stated capital account 5 560.4 181.6
Retained reserves 1,140.5 1,095.4
Total equity 1,700.9 1,277.0
=================================================== ====== ============= ==========
Net asset value per share
=================================================== ====== ============= ==========
Basic and diluted (pence) 6 165.7 161.0
================================================== ====== ============= ==========
The financial statements and related Notes were approved and
authorised for issue by the Board of Directors on 2 November 2016
and signed on its behalf by:
Steven Wilderspin
Director
Consolidated cash flow statement
for the six months to 30 September 2016
Six months to Six months to
30 September 30 September
2016 2015
(unaudited) (unaudited)
GBPm GBPm
============================================================ ============== ==============
Cash flow from operating activities
Purchase of investments (278.0) (187.2)
Proceeds from partial realisations of investments 18.9 5.7
Proceeds from full realisations of investments 7.2 360.6
Investment income(1) 18.2 29.8
Fees received on investment activities 0.2 -
Fees paid on investment activities (0.9) (4.2)
Operating expenses paid (1.1) (1.6)
Interest received 0.3 0.6
Advisory and performance fees paid (27.9) (51.2)
Amounts received on the settlement of derivative contracts 7.6 14.3
Amounts paid on the settlement of derivative contracts (12.3) (3.0)
Temporary loan to unconsolidated subsidiaries (2.0) -
Other income received 0.7 0.7
============================================================ ============== ==============
Net cash flow from operations (269.1) 164.5
============================================================ ============== ==============
Cash flow from financing activities
Proceeds from issue of share capital 385.0 -
Transaction costs for issue of share capital (6.2) -
Fees paid on financing activities (2.3) (4.3)
Dividends paid (28.7) (181.7)
Net cash flow from financing activities 347.8 (186.0)
============================================================ ============== ==============
Change in cash and cash equivalents 78.7 (21.5)
============================================================ ============== ==============
Cash and cash equivalents at the beginning of the period 47.5 72.5
Effect of exchange rate movement 0.6 (0.6)
============================================================ ============== ==============
Cash and cash equivalents at the end of the period 126.8 50.4
============================================================ ============== ==============
1 Investment income includes dividends of GBP0.5 million (September 2015: GBP1.0 million) and
interest of GBP3.3 million (September 2015: GBP7.0 million) received from portfolio assets
held directly by the Company and distributions of GBP14.4 million (September 2015: GBP21.8
million) received from unconsolidated subsidiaries.
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 Group is an
investment holding company and does not consider itself to have any
customers.
The following is an analysis of the Group's investment return,
profit before tax, assets, liabilities and net assets by portfolio
segment for the six months to 30 September 2016.
Economic Projects India Unallocated
Infrastructure portfolio Fund Total
For the six months to 30 September 2016 businesses
(unaudited) GBPm GBPm GBPm GBPm GBPm
------------------------------------------ --------------- ---------- ------- ------------ --------
Investment return 142.3 5.4 (0.7) 1.8 148.8
========================================== =============== ========== ======= ============ ========
Profit/(loss) before tax 77.3 4.9 (0.7) (7.7) 73.8
========================================== =============== ========== ======= ============ ========
For the six months to 30 September 2015
(unaudited)
------------------------------------------ --------------- ---------- ------- ------------ --------
Investment return 93.8 6.2 (10.2) (2.3) 87.5
========================================== =============== ========== ======= ============ ========
Profit/(loss) before tax 93.5 6.1 (10.2) (8.7) 80.7
========================================== =============== ========== ======= ============ ========
As at 30 September 2016 (unaudited)
------------------------------------------ --------------- ---------- ------- ------------ --------
Assets 1,447.1 179.4 41.0 129.4 1,796.9
========================================== =============== ========== ======= ============ ========
Liabilities (94.1) (0.7) - (1.2) (96.0)
========================================== =============== ========== ======= ============ ========
Net assets 1,353.0 178.7 41.0 128.2 1,700.9
========================================== =============== ========== ======= ============ ========
As at 31 March 2016 (unaudited)
------------------------------------------ --------------- ---------- ------- ------------ --------
Assets 1,064.0 173.1 53.2 49.8 1,340.1
========================================== =============== ========== ======= ============ ========
Liabilities (42.4) (0.4) - (20.3) (63.1)
========================================== =============== ========== ======= ============ ========
Net assets 1,021.6 172.7 53.2 29.5 1,277.0
========================================== =============== ========== ======= ============ ========
The following is an analysis of the Group's investment return,
profit before tax, assets, liabilities and net assets by geography
for the six months to 30 September 2016.
UK and Continental
For the six months to 30 September 2016 Ireland(1) Europe(2) Asia Total
(unaudited) GBPm GBPm GBPm GBPm
------------------------------------------------------ ----------- ------------ ------- --------
Investment return 28.7 120.8 (0.7) 148.8
======================================================= =========== ============ ======= ========
Profit/(loss) before tax 17.3 57.2 (0.7) 73.8
======================================================= =========== ============ ======= ========
For the six months to 30 September 2015 (unaudited)
------------------------------------------------------ ----------- ------------ ------- --------
Investment return 28.9 68.8 (10.2) 87.5
Profit/(loss) before tax 19.7 71.2 (10.2) 80.7
======================================================= =========== ============ ======= ========
As at 30 September 2016 (unaudited)
------------------------------------------------------ ----------- ------------ ------- --------
Assets 739.0 1,016.9 41.0 1,796.9
======================================================= =========== ============ ======= ========
Liabilities (2.6) (93.4) - (96.0)
======================================================= =========== ============ ======= ========
Net assets 736.4 923.5 41.0 1,700.9
======================================================= =========== ============ ======= ========
As at 31 March 2016 (unaudited)
------------------------------------------------------ ----------- ------------ ------- --------
Assets 562.8 724.1 53.2 1,340.1
======================================================= =========== ============ ======= ========
Liabilities (22.8) (40.3) - (63.1)
======================================================= =========== ============ ======= ========
Net assets 540.0 683.8 53.2 1,277.0
======================================================= =========== ============ ======= ========
1 Including Channel Islands.
2 Continental Europe includes all returns generated from and investment portfolio value relating
to the Group's investments in Oiltanking, including those derived from its underlying business
in Singapore.
The operating segments have been presented for the first time to
provide additional information on the portfolio segments as well as
the geographical areas in which the Group operates. Under this
revised presentation, the geographical analysis of assets and
liabilities for March 2016 has been restated mainly to allocate all
derivative instruments against Continental Europe to better reflect
the purpose of the hedging programme.
The Group generated 19% (September 2015: 33%) of its investment
return in the period from investments held in the UK and Ireland
and 81% (September 2015: 79%) of its investment return from
investments held in continental Europe. During the period, the
Group generated 96% (September 2015: 107%) of its investment return
from investments in Economic Infrastructure businesses, 4%
(September 2015: 7%) from investments in Projects and 0% (September
2015: -12%) from its investment in the India Fund. Given the nature
of the Group's operations, the Group is not considered to be
exposed to any operational seasonality or cyclicality that would
impact the financial results of the Group during the period or the
financial position of the Group at 30 September 2016.
2 Advisory and performance fees payable
Six months to Six months to
30 September 30 September
2016 2015
(unaudited) (unaudited)
GBPm GBPm
================================================ ============== ==============
Advisory fee payable directly from the Company 8.9 5.4
Performance fee - -
8.9 5.4
================================================ ============== ==============
Total advisory and performance fees payable by the Company for
the period to 30 September 2016 were GBP8.9 million (September
2015: GBP5.4 million). In addition to the fees described above,
management fees of GBP2.2 million (September 2015: GBP2.1 million)
were paid to 3i plc from unconsolidated subsidiary entities. Note 9
provides further details on the calculation of the advisory fee,
performance fee and management fees.
3 Income taxes
Profits arising from the operations of the Company are subject
to tax at the standard corporate income tax rate in Jersey of 0%
(September 2015: 0%). Subsidiaries of the Company have provided for
taxation at the appropriate rates that are applicable in the
countries in which each subsidiary operates. The returns of these
subsidiaries are largely not subject to tax, in each of these
relevant countries.
4 Investments at fair value through profit or loss and financial
instruments
All financial instruments for which fair value is recognised or
disclosed are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
Level Fair value input description Financial instruments
======== ================================================================== ========================================
Level 1 Quoted prices (unadjusted and in active markets) Quoted equity investments
Level 2 Inputs other than quoted prices included in Level 1 that are Derivative financial instruments
observable in the market either
directly (i.e. as prices) or indirectly (i.e. 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 Group determines whether
transfers have occurred between levels in the hierarchy by
re-assessing the categorisation (based on the lowest level input
that is significant to the fair value measurement as a whole) for
each reporting period.
At 30 September 2016, the Group held the following classes of
financial instruments that are measured at fair value. For all
other assets and liabilities their carrying value approximates to
fair value. During the period ended 30 September 2016, there were
no transfers of financial instruments between levels of the fair
value hierarchy (March 2016: none). There were no non-recurring
fair value measurements.
Financial instruments classification
As at 30 September 2016
(unaudited)
================================================== =======================================
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
================================================== ========= ======== ======== ========
Financial assets
Investments at fair value through profit or loss - - 1,600.9 1,600.9
Derivative financial instruments - 1.5 - 1.5
================================================== ========= ======== ======== ========
- 1.5 1,600.9 1,602.4
============================================================ ======== ======== ========
Financial liabilities
Derivative financial instruments - (90.4) - (90.4)
================================================== ========= ======== ======== ========
As at 31 March 2016
(audited)
================================================== =======================================
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
================================================== ========= ======== ======== ========
Financial assets
Investments at fair value through profit or loss - - 1,228.8 1,228.8
Derivative financial instruments - 10.5 - 10.5
================================================== ========= ======== ======== ========
- 10.5 1,228,8 1,239.3
============================================================ ======== ======== ========
Financial liabilities
Derivative financial instruments - (38.3) - (38.3)
================================================== ========= ======== ======== ========
Reconciliation of financial instruments categorised within Level
3 of fair value hierarchy
As at 30 September 2016
(unaudited)
Level 3 fair value reconciliation GBPm
==================================================== ========================
Opening fair value 1,228.8
Additions 282.6
Disposal proceeds and repayment (26.4)
Fair value movement (including exchange movements) 115.9
==================================================== ========================
Closing fair value 1,600.9
==================================================== ========================
As at 31 March 2016
(audited)
Level 3 fair value reconciliation GBPm
==================================================== ====================
Opening fair value 1,231.5
Additions 187.2
Disposal proceeds and repayment (376.9)
Fair value movement (including exchange movements) 187.0
==================================================== ====================
Closing fair value 1,228.8
==================================================== ====================
All unrealised movements on investments and foreign exchange
movements are recognised in profit or loss in the consolidated
statement of comprehensive income during the period and are
attributable to investments held at the end of the period.
The holding period of the investments in the portfolio is
expected to be greater than one year. Therefore investments are
classified as non-current unless there is an agreement to dispose
of the investment within one year and all relevant regulatory
approvals have been received. It is not possible to identify with
certainty where any investments may be sold within one year.
Unquoted investments
The Group invests in private companies which are not quoted on
an active market. These are measured in accordance with the
International Private Equity Valuation guidelines with reference to
the most appropriate information available at the time of
measurement. Further information regarding the valuation of
unquoted investments can be found in the section called Summary of
portfolio valuation methodology.
The Group's policy is to fair value both the equity and debt
investments in infrastructure assets together where they will be
managed and valued as a single investment, were invested at the
same time and cannot be realised separately. As at 30 September
2016, the fair value of unquoted investments was GBP1,574.7 million
(March 2016: GBP1,203.8 million). Individual portfolio asset
valuations are shown within the Portfolio summary.
The majority of the assets held within Level 3 are valued on a
discounted cash flow basis, hence, the valuations are sensitive to
the discount rate assumed in the valuation of each asset. Other
significant unobservable inputs include the long-term inflation
rate assumption and interest rates assumption used to project the
future cash flows.
A discussion of discount rates applied can be found in the
"Summary of portfolio valuation methodology" above. Increasing the
discount rate used in the valuation of each asset by 1% would
reduce the value of the portfolio by GBP159.7 million (March 2016:
GBP124.7 million). Decreasing the discount rate used in the
valuation of each asset by 1% would increase the value of the
portfolio by GBP195.4 million (March 2016: GBP151.1 million).
The majority of assets held within Level 3 have revenues that
are linked, partially linked or in some way correlated to
inflation. The long-term inflation rate assumptions for the country
of domicile of the investments in the portfolio range from 5.0%
(India) (March 2016: 5.0%) to 2.0% (Finland) (March 2016: 2.0%) but
with the majority at 2.5% (UK) (March 2016: 2.5%). Changing the
inflation rate assumption may result in consequential changes to
other assumptions used in the valuation of each asset. The impact
of increasing the inflation rate assumption by 1% for the next two
years would increase the value of the portfolio by GBP41.8 million
(March 2016: GBP29.1 million). Decreasing the inflation rate
assumption used in the valuation of each asset by 1% for the next
two years would decrease the value of the portfolio by GBP41.6
million (March 2016: GBP28.2 million).
The valuations are sensitive to changes to 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 GBP99.8 million (March 2016: GBP90.0 million).
Decreasing the interest rate assumption used in the valuation of
each asset by 1% would increase the value of the portfolio by
GBP96.4 million (March 2016: GBP86.8 million). This calculation
does not take account of any offsetting variances which may be
expected to prevail if interest rates changed, the most significant
impact would be in the portfolio assets with regulated returns
where the future allowed return may also be influenced by the
interest rate.
Unlisted fund
The Company invests in one externally managed fund, the Dalmore
Capital Fund, which is not quoted in an active market. The Company
considered the valuation techniques and inputs used in valuing this
fund to ensure they are reasonable and appropriate and therefore
the Net Asset Value ("NAV") of this fund may be used as an input
into measuring its fair value. In measuring this fair value, the
NAV of the fund is adjusted, as necessary, to reflect restrictions
on redemptions, future commitments, illiquid nature of the
investments and other specific factors of the fund and fund
manager. The Company classifies the fair value of this investment
as Level 3. As at 30 September 2016, the fair value of unlisted
funds was GBP18.0 million (March 2016: GBP18.3 million). There are
no adjustments currently made to the NAV of the fund (March 2016:
none). A 10% adjustment in the NAV of the fund would result in a
GBP1.8 million (March 2016: GBP1.8 million) change in the
valuation.
Intermediate holding companies
The Company invests in a number of intermediate holding
companies that are used to hold the unquoted investments, valued as
referred to above. All other assets and liabilities of the
intermediate holding companies are held either at fair value or a
reasonable approximation to fair value. The fair value of these
intermediate holding companies therefore approximates to their NAV
and the Company classifies the fair value as Level 3. As at 30
September 2016, the fair value of the other assets and liabilities
within these intermediate holding companies was GBP8.2 million
(March 2016: GBP6.7 million).
Over-the-counter derivatives
The Company uses over-the-counter foreign currency derivatives
to hedge foreign currency movements on portfolio assets. The
derivatives are held at fair value which represents the replacement
cost of the instruments at the balance sheet date. The valuation
technique incorporates various inputs including foreign exchange
spot and forward rates, interest rate curves, and uses present
value calculations. For these financial instruments, significant
inputs into models are market observable and are included within
Level 2.
Valuation process for Level 3 valuations
Valuations are the responsibility of the Board of the Company.
The valuation of unquoted investments, unlisted funds and
derivative investments held by the Group is performed on a
half-yearly basis by the valuation team of the Investment Adviser
and reviewed by the Investment Committee of the Investment Adviser.
The valuations are also subject to quality assurance procedures
performed within the valuation team. The valuation team verifies
the major inputs applied in the latest valuation by agreeing the
information in the valuation computation to relevant documents and
market information. On a half-yearly basis, the Investment
Committee presents the valuations to the Board. This includes a
discussion of the major assumptions used in the valuations, with an
emphasis on the more significant investments and investments with
significant fair value changes. The Investment Committee considers
the appropriateness of the valuation methods and inputs, and may
request that alternative valuation methods are applied to support
the valuation arising from the method chosen. Any changes in
valuation methods are discussed and agreed with the Audit and Risk
Committee before being approved by the Board.
5 Issued capital
The Company is authorised to issue an unlimited number of shares
with no fixed par value (March 2016: same).
As at 30 September 2016 As at 31 March 2016
(unaudited) (audited)
Number GBPm Number GBPm
========================================== ================ ======== ============== ======
Issued and fully paid
Opening 793,216,413 887.8 881,351,570 887.8
Issued as part of open offer and placing 233,333,333 385.0 - -
Share consolidation - - (88,135,157) -
========================================== ================ ======== ============== ======
Closing balance 1,026,549,746 1,272.8 793,216,413 887.8
========================================== ================ ======== ============== ======
Aggregate issue costs of GBP13.1 million arising from IPO and
subsequent share issues were offset against the stated capital
account in previous years. In addition, the stated capital account
was reduced by Court order on 20 December 2007 with an amount of
GBP693.1 million transferred to a new, distributable reserve which
has been combined with retained reserves in these accounts.
On 8 June 2016, the Company issued a further 233.3 million
shares as part of an open offer and placing at an issue price of
165.0 pence per share or an aggregate amount of GBP385.0 million.
Issue costs of GBP6.2 million arising from this offer have been
offset against the stated capital account. Therefore as at 30
September 2016, the residual value on the stated capital account
was GBP560.4 million.
In the prior year, a share consolidation took place, which was
set at a ratio of 9 new ordinary shares for every 10 existing
shares. The share consolidation ratio was based on a share price of
168.8 pence per share, equivalent to approximately 10% of the
market capitalisation of the Company at that time.
6 Per share information
The earnings and net assets per share attributable to the equity
holders of the Company are based on the following data:
Six months to Six months to
30 September 30 September
2016 2015
(unaudited) (unaudited)
============================================ ============== ==============
Earnings per share (pence)
Basic and diluted 7.9 9.6
============================================ ============== ==============
Earnings (GBPm)
Profit after tax for the period 73.8 80.7
============================================ ============== ==============
Number of shares (million)
Weighted average number of shares in issue 936.0 840.4
============================================ ============== ==============
As at As at
30 September 31 March
2016 2016
(unaudited) (audited)
============================== ============= ==========
Net assets per share (pence)
Basic and diluted 165.7 161.0
Net assets (GBPm)
Net assets 1,700.9 1,277.0
============================== ============= ==========
7 Dividends
As at 30 September 2016 As at 30 September 2015
(unaudited) (unaudited)
Declared and paid during pence pence
the period per share GBPm per share GBPm
=================================================== ================ ======== =============== =========
Special dividend paid on ordinary shares - - 17.0 149.8
Interim dividend paid on ordinary shares - - - -
Prior year final dividend paid on ordinary shares 3.625 28.7 3.62 31.9
=================================================== ================ ======== =============== =========
3.625 28.7 20.62 181.7
=================================================== ================ ======== =============== =========
The Company proposes paying an interim dividend of 3.775p per
share which will be payable to those shareholders that are on the
register on 25 November 2016. On the basis of the shares in issue
at 30 September 2016, this would equate to an interim dividend of
GBP38.8 million.
8 Contingent liabilities
As at 30 September 2016, the Company had issued EUR28.9 million
(re-translated GBP24.9 million) in the form of letters of credit,
drawn against the revolving credit facility, for the investments
into the RIVM, La Santé, Condorcet and Hart van Zuid projects
(March 2016: EUR29.7 million, re-translated GBP23.4 million).
During the period the letter of credit relating to the A12 project
was cancelled following the Company's investment in the
project.
9 Related parties
Transactions between 3i Infrastructure and 3i Group
3i Group plc ("3i Group") holds 33.8% (March 2016: 34.0%) of the
ordinary shares of the Company. This classifies
3i Group as a "substantial shareholder" of the Company as
defined by the Listing Rules.
The Company has committed US$250 million to the 3i India
Infrastructure Fund ("the India Fund") to invest in the Indian
infrastructure market. 3i Group also committed US$250 million of
investment capital to the India Fund. No commitments (March 2016:
nil) were drawn down by the India Fund from the Company during the
period. In total, commitments of US$183.7 million or GBP141.5
million re-translated had been drawn down at 30 September 2016
(March 2016: US$183.7 million or GBP127.6 million) by the India
Fund from the Company. As the India Fund has reached the end of its
investment period, the Company's outstanding commitment to the
India Fund is limited to 15% of the original
US$250 million commitment. At 30 September 2016, the outstanding
commitment was US$37.5 million, or GBP28.9 million re-translated
(March 2016: US$37.5 million or GBP26.1 million).
3i Networks Finland Limited, a subsidiary of 3i Group, receives
a priority profit share from 3i Networks Finland LP, an
unconsolidated subsidiary of the Company. During the period, GBP1.0
million (September 2015: GBP1.0 million) was payable directly to 3i
Group, of which the Company's share was GBP0.9 million (September
2015: GBP0.9 million) and which was therefore offset against the
total advisory fee payable by the Company. As at 30 September 2016,
nil remained outstanding (March 2016: nil).
3i Osprey GP Limited, a subsidiary of 3i Group, receives a
priority profit share from 3i Osprey LP, an unconsolidated
subsidiary of the Company. During the period, GBP1.9 million
(September 2015: GBP1.8 million) was payable directly to 3i Group,
of which the Company's share was GBP1.2 million (September 2015:
GBP1.2 million) and which was therefore offset against the total
advisory fee payable by the Company. As at 30 September 2016,
GBP0.4 million remained outstanding (March 2016: GBP0.3
million).
3i Investments plc, a subsidiary of 3i Group, acts as the
exclusive Investment Adviser to the Company and provides its
services under an Investment Advisory Agreement ("IAA"). It also
acts as the manager for the India Fund. 3i plc, another subsidiary
of 3i Group, together with 3i Investments plc, provides support
services to the Company.
Under the IAA, an annual advisory fee is payable to 3i plc based
on the Gross Investment Value of the Company at the end of each
financial period. Gross Investment Value is defined as the total
aggregate value (including any subscription obligations) of the
investments of the Group as at the start of a financial period plus
any investment (excluding cash) made during the period valued at
cost (including any subscription obligations). The applicable
annual rate is 1.5%, dropping to an annual rate of 1.25% for
investments that have been held by the Group for longer than five
years. A lower fee of 1% per annum is applicable for any
investments in primary and operational projects. The advisory fee
accrues throughout a financial period and quarterly instalments are
payable on account of the advisory fee for that period. The
advisory fee is not payable in respect of cash or cash equivalent
liquid temporary investments held by the Group throughout a
financial period. For the period to 30 September 2016, GBP11.1
million (September 2015: GBP7.5 million) was payable and GBP0.3
million (March 2016: GBP0.8 million) remained due to 3i plc at 30
September 2016. This amount includes fees of GBP2.2 million
(September 2015: GBP2.1 million) which were paid directly from
unconsolidated subsidiary entities to 3i plc.
The IAA also provides for an annual performance fee to be
payable to 3i plc. This becomes payable when the Adjusted Total
Return per ordinary share (being mainly the closing Net Asset Value
per share aggregated with any distributions made in the course of
the financial period and any accrued performance fees relating to
the financial period) for the period exceeds the Target Total
Return per share, being the Net Asset Value per ordinary share
equal to the opening Net Asset Value per ordinary share, adjusted
for the issue of new equity in the period, increased at a rate of
8% per annum ("the performance hurdle"). If the performance hurdle
is exceeded, the performance fee will be equal to 20% of the
Adjusted Total Return per share in excess of the performance hurdle
for the relevant financial period, multiplied by the weighted
average of the total number of shares in issue over the relevant
financial period. In addition, the performance fee includes a high
water mark requirement so that, before payment of a performance
fee, besides the 8% performance hurdle, the return must also exceed
the performance level in respect of which any performance fee has
been paid in the previous three financial years. The performance
hurdle and high water mark requirement was not exceeded for the
period to 30 September 2016 and therefore no performance fee was
recognised (September 2015: nil). The outstanding balance payable
as at 30 September 2016 was nil (March 2016: GBP19.5 million).
Under the IAA, the Investment Adviser's appointment may be
terminated by either the Company or the Investment Adviser giving
the other not less than 12 months' notice in writing, to expire no
earlier than 8 May 2019, unless 3i Investments plc has previously
ceased to be a member of 3i Group, or with immediate effect by
either party giving the other written notice in the event of
insolvency or material or persistent breach by the other party. The
Investment Adviser may also terminate the agreement on two months'
notice given within two months of a change of control of the
Company.
Pursuant to the UK Support Services Agreement, the Company also
pays 3i plc an annual fee for the provision of support services.
Such remuneration is payable quarterly in arrears. The cost
incurred for the period to 30 September 2016 was GBP0.4 million
(September 2015: GBP0.4 million). The outstanding balance payable
as at 30 September 2016 was GBP0.2 million (March 2016: GBP0.2
million).
Accounting policies
Basis of preparation
These financial statements are the unaudited Half-yearly
consolidated financial statements (the "Half-yearly Financial
Statements") of 3i Infrastructure plc (the "Company" or "3i
Infrastructure"), a company incorporated and registered in Jersey,
and its consolidated subsidiaries (together referred to as the
"Group") for the six-month period ended 30 September 2016.
The Half-yearly Financial Statements have been prepared in
accordance with International Accounting Standard 34 Interim
Financial Reporting ("IAS 34") and the accounting policies set out
in the Annual report and accounts 2016. They should be read in
conjunction with the consolidated financial statements for the year
to 31 March 2016, as they provide an update of previously reported
information. The financial statements are prepared on a going
concern basis, as the Directors are satisfied that the Group has
the resources to continue in business for the foreseeable future.
In making this assessment, the Directors have considered a wide
range of information relating to present and future conditions,
including future projections of profitability and cash flows.
The Half-yearly Financial Statements were authorised for issue
by the Directors on 2 November 2016.
The Half-yearly Financial Statements do not constitute statutory
accounts. The statutory accounts for the year to 31 March 2016,
prepared under IFRS as adopted by the European Union, and on which
the auditors issued a report, which was unqualified, have been
filed with the Jersey Financial Services Commission.
The preparation of the Half-yearly Financial Statements in
conformity with IFRS requires the Board to make judgments,
estimates and assumptions that affect the application of policies
and reported amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are based on
historical experience and other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future periods.
All accounting policies and related estimates used in the
preparation of the Half-yearly Financial Statements are consistent
with those stated in the Annual report and accounts 2016.
Statement of Directors' responsibilities
The Directors, who are required to prepare the financial
statements on a going concern basis unless it is not appropriate,
are satisfied that the Group has the resources to continue in
business for the foreseeable future and that the financial
statements continue to be prepared on a going concern basis.
The Directors confirm to the best of their knowledge that:
a) the condensed set of financial statements have been prepared in accordance with IAS 34 as
adopted by the European Union; and the interim report, taken as a whole, is fair, balanced
and understandable and provides the information necessary for shareholders to assess the Company's
performance; and
b) the Half-yearly report includes a fair review of the information required by the FCA's Disclosure
and Transparency Rules (4.2.7 R and 4.2.8 R).
The Directors of 3i Infrastructure plc and their functions are
listed below.
By order of the Board
Richard Laing
Chairman
2 November 2016
Board of Directors and their functions
Richard Laing
Non-executive Chairman and chairman of the Nominations Committee and the Management Engagement
Committee
Philip Austin MBE
Non-executive Director,
Senior Independent Director and chairman of the Remuneration Committee
Doug Bannister
Non-executive Director
Wendy Dorman
Non-executive Director
Ian Lobley
Non-executive Director
Paul Masterton
Non-executive Director
Steven Wilderspin
Non-executive Director and chairman of the Audit and Risk Committee
Investment policy
The Company aims to build a diversified portfolio of equity
investments in entities owning infrastructure businesses and
assets. The Company seeks investment opportunities globally, but
with a focus on Europe, North America and Asia.
The Company's equity investments will often comprise share
capital and related shareholder loans (or other financial
instruments that are not shares but that, in combination with
shares, are similar in substance). The Company may also invest in
junior or mezzanine debt in infrastructure businesses or
assets.
Most of the Company's investments are in unquoted companies.
However, the Company may also invest in entities owning
infrastructure businesses and assets whose shares or other
instruments are listed on any stock exchange, irrespective of
whether they cease to be listed after completion of the investment,
if the Directors judge that such an investment is consistent with
the Company's investment objectives. The Company will, in any case,
invest no more than 15% of its total gross assets in other
investment companies or investment trusts which are listed on the
Official List.
The Company may also consider investing in other fund structures
(in the event that it considers, on receipt of advice from the
Investment Adviser, that that is the most appropriate and effective
means of investing), which may be advised or managed either by the
Investment Adviser or a third party. If the Company invests in
another fund advised or managed by 3i Group, the relevant
proportion of any advisory or management fees payable by the
investee fund to 3i plc will be deducted from the annual advisory
fee payable under the Investment Advisory Agreement and the
relevant proportion of any performance fee will be deducted from
the annual performance fee, if payable, under the Investment
Advisory Agreement. For the avoidance of doubt, there will be no
similar set-off arrangement where any such fund is advised or
managed by a third party.
For most investments, the Company seeks to obtain representation
on the board of directors of the investee company (or equivalent
governing body) and in cases where it acquires a majority equity
interest in a business, that interest may also be a controlling
interest.
No investment made by the Company will represent more than 25%
of the Company's gross assets, including cash holdings, at the time
of the making of the investment. It is expected that most
individual investments will exceed GBP50 million. In some cases,
the total amount required for an individual transaction may exceed
the maximum amount that the Company is permitted to commit to a
single investment. In such circumstances, the Company may consider
entering into co-investment arrangements with 3i Group (or other
investors who may also be significant shareholders), pursuant to
which 3i Group and its subsidiaries (or such other investors) may
co-invest on the same financial and economic terms as the Company.
The suitability of any such co-investment arrangements will be
assessed on a transaction-by-transaction basis and would be subject
to Board approval. Depending on the size of the relevant investment
and the identity of the relevant co-investor, such a co-investment
arrangement may be subject to the related party transaction
provisions contained in the Listing Rules and may therefore require
shareholder consent.
The Company's Articles require its outstanding borrowings,
including any financial guarantees to support subsequent
obligations, to be limited to 50% of the gross assets of the Group
(valuing investments on the basis included in the Group's
accounts).
In accordance with Listing Rules requirements, the Company will
only make a material change to its investment policy with the
approval of shareholders.
Portfolio valuation methodology
A description of the methodology used to value the investment
portfolio of 3i Infrastructure and its consolidated subsidiaries
("the Group") is set out below in order to provide more detailed
information than is included within the accounting policies and the
Investment Adviser's review for the valuation of the portfolio. The
methodology complies in all material aspects with the
"International Private Equity and Venture Capital valuation
guidelines" which are endorsed by the British Private Equity and
Venture Capital Association and Invest Europe (formerly the
European Private Equity and Venture Capital Association).
Basis of valuation
Investments are reported at the Directors' estimate of fair
value at the reporting date in compliance with IFRS 13 Fair Value
Measurement. Fair value is defined as 'the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date'.
General
In estimating fair value, the Directors seek to use a
methodology that is appropriate in light of the nature, facts and
circumstances of the investment and its materiality in the context
of the overall portfolio. The methodology that is the most
appropriate may consequently include adjustments based on informed
and experience-based judgments, and will also consider the nature
of the industry and market practice. Methodologies are applied
consistently from period to period except where a change would
result in a better estimation of fair value. Given the
uncertainties inherent in estimating fair value, a degree of
caution is applied in exercising judgments and making necessary
estimates.
Investments may include portfolio assets and other net
assets/liabilities balances. The methodology for valuing portfolio
assets is set out below. Any net assets/liabilities within
intermediate holding companies are valued in line with the Group
accounting policy and held at fair value or approximate to fair
value.
Quoted investments
Quoted equity investments are valued at the closing bid price at
the reporting date. In accordance with International Financial
Reporting Standards, no discount is applied for liquidity of the
stock or any dealing restrictions. Quoted debt investments will be
valued using quoted prices provided by third-party broker
information where reliable or will be held at cost less fair value
adjustments.
Unquoted investments
Unquoted investments are valued using one of the following
methodologies:
- Discounted Cash Flow ("DCF")
- Proportionate share of net assets
- Sales basis
- Cost less any fair value adjustments required
DCF
DCF is the primary basis for valuation. In using the DCF basis,
fair value is estimated by deriving the present value of the
investment using reasonable assumptions and estimation of expected
future cash flows and the terminal value and date, and the
appropriate risk-adjusted discount rate that quantifies the risk
inherent to the investment. The terminal value attributes a
residual value to the investee company at the end of the projected
discrete cash flow period. The discount rate will be estimated for
each investment derived from the market risk-free rate, a
risk-adjusted premium and information specific to the investment or
market sector.
Proportionate share of net assets
Where the Group has made investments into other infrastructure
funds, the value of the investment will be derived from the Group's
share of net assets of the fund based on the most recent reliable
financial information available from the fund. Where the underlying
investments within a fund are valued on a DCF basis, the discount
rate applied may be adjusted by the Company to reflect its
assessment of the most appropriate discount rate for the nature of
assets held in the fund. In measuring the fair value, the net asset
value of the fund is adjusted, as necessary, to reflect
restrictions on redemptions, future commitments, illiquid nature of
the investments and other specific factors of the fund.
Sales basis
The expected sale proceeds will be used to assign a fair value
to an asset in cases where offers have been received as part of an
investment sales process. This may either support the value derived
from another methodology or may be used as the primary valuation
basis. A marketability discount is applied to the expected sale
proceeds to derive the valuation where appropriate.
Cost less fair value adjustment
Any investment in a company that has failed or, in the view of
the Board, is expected to fail within the next 12 months, has the
equity shares valued at nil and the fixed income shares and loan
instruments valued at the lower of cost and net recoverable
amount.
Information for shareholders
Note
The interim dividend is expected to be paid on 9 January 2017 to
holders of ordinary shares on the register on
25 November 2016. The ex-dividend date will be 24 November
2016.
Registrars
For shareholder services, including notifying changes of
address, the registrar details are as follows:
Capita Registrars (Jersey) Limited
12 Castle Street
St. Helier
Jersey JE2 3RT
Channel Islands
e-mail: registrars@capita.je
Telephone: +44 (0)1534 847 000
Shareholder helpline: 0871 664 0300
Calls cost 12p per minute plus your phone company's access
charge. If you are outside the United Kingdom, please call +44 371
664 0300. Calls outside the United Kingdom will be charged at the
applicable international rate. Capita are open between
9.00am-5.30pm, Monday to Friday, excluding public holidays in
England and Wales.
Website
For full up-to-date investor relations information including the
latest share price, recent reports, results presentations and
financial news, please visit our investor relations website
www.3i-infrastructure.com
If you would prefer to receive shareholder communications
electronically, including your annual reports and notices of
meetings, please go to
www.3i-infrastructure.com/shareholder-services/registrar-e-communications
for details of how to register.
Frequently used registrars' forms may be found on our website at
www.3i-infrastructure.com/shareholder-services
This information is provided by RNS
The company news service from the London Stock Exchange
END
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