TIDM3IN
RNS Number : 8589K
3i Infrastructure PLC
10 May 2022
10 May 2022
Results for the year to 31 March 2022
3i Infrastructure plc (the 'Company') today announces a 17.2%
return for the year, delivery of the FY22 dividend of 10.45 pence
and a 6.7% increase in the target dividend for FY23 to 11.15 pence
per share.
Richard Laing, Chair of 3i Infrastructure plc, said:
"I am delighted to report that we achieved a return of 17.2% in
the year ended 31 March 2022, well ahead of our target and
demonstrating the attractiveness of our portfolio. This is the
eighth consecutive year that we have met or exceeded our return
target; and we have increased the dividend per share in every year
of the Company's existence ."
Phil White, Managing Partner, Infrastructure, 3i Investments
plc, added:
"It was a very good year for the Company - a high level of new
investment, excellent realisations, and a strong portfolio
performance."
Performance highlights
Portfolio consistently meeting or 17.2%
exceeding target returns Total return on opening NAV
GBP404m
Total return for the year
303.3p
NAV per share
Strong level of new investments GBP980m
New investments or commitments
Successful realisation of Oystercatcher's 14% IRR and 20% IRR
European terminals and the European Projects
portfolio
Delivered FY22 dividend target, fully 10.45p
covered Full year dividend per share for
FY22
Setting target for FY23 dividend, up
6.7% year on year
11.15p
Target dividend per share for FY23
For further information, please contact:
Richard Laing, Chair, 3i Infrastructure Tel: 037 1664 0445
plc
Thomas Fodor, investor enquiries Tel: 020 7975 3469
Kathryn van der Kroft, press Tel: 020 7975 3021
enquiries
For further information regarding the announcement of the
results for 3i Infrastructure plc, including a live webcast of the
results presentation at 10.00am, please visit
www.3i-infrastructure.com. The analyst presentation will be made
available on this website during the day.
Notes to the preliminary announcement
Note 1
The statutory accounts for the year to 31 March 2022 have not
yet been delivered to the Jersey Financial Services Commission. The
statutory accounts for the year to 31 March 2021 have been
delivered to the Jersey Financial Services Commission. The
auditor's reports on the statutory accounts for these years are
unqualified. This announcement does not constitute statutory
accounts. The preliminary announcement is prepared on the same
basis as set out in the statutory accounts for the year to 31 March
2021.
Note 2
Subject to shareholder approval, the proposed final dividend is
expected to be paid on 11 July 2022 to holders of ordinary shares
on the register on 17 June 2022. The ex-dividend date for the final
dividend will be on 16 June 2022.
Note 3
This report contains Alternative Performance Measures ('APMs'),
which are financial measures not defined in International Financial
Reporting Standards ('IFRS'). More information relating to APMs,
including why we use them and the relevant definitions, can be
found in the Company's 2022 Annual report and accounts and in the
Financial review section.
Note 4
The preliminary announcement has been extracted from the Annual
report and accounts 2022. The Annual report and accounts 2022 will
be available on the Company's website today. Printed copies of the
Annual report and accounts 2022 will be distributed to shareholders
who have elected to receive printed copy communications on or soon
after 23 May 2022.
Notes to editors
About 3i Infrastructure plc
3i Infrastructure plc is a Jersey-incorporated, closed-ended
investment company, an approved UK Investment Trust, listed on the
London Stock Exchange and regulated by the Jersey Financial
Services Commission. The Company's purpose is to deliver a
long-term sustainable return to shareholders from investing in
infrastructure.
3i Investments plc, a wholly-owned subsidiary of 3i Group plc,
is authorised and regulated in the UK by the Financial Conduct
Authority and acts as Investment Manager to 3i Infrastructure
plc.
This statement has been prepared solely to provide information
to shareholders. It should not be relied on by any other party or
for any other purpose. It and the Company's Annual report and
accounts may contain statements about the future, including certain
statements about the future outlook for 3i Infrastructure plc.
These are not guarantees of future performance and will not be
updated. Although we believe our expectations are based on
reasonable assumptions, any statements about the future outlook are
subject to a number of risks and uncertainties and could change.
Factors which could cause or contribute to such differences
include, but are not limited to, general economic and market
conditions and specific factors affecting the financial prospects
or performance of individual investments within the portfolio of 3i
Infrastructure plc.
This press release is not for distribution (directly or
indirectly) in or to the United States, Canada, Australia or Japan
and is not an offer of securities for sale in or into the United
States, Canada, Australia or Japan. Securities may not be offered
or sold in the United States absent registration under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), or an
exemption from registration under the Securities Act. Any public
offering to be made in the United States will be made by means of a
prospectus that may be obtained from the issuer or selling security
holder and will contain detailed information about 3i Group plc, 3i
Infrastructure plc, 3i India Infrastructure Fund and management, as
applicable, as well as financial statements. No public offering in
the United States is currently contemplated.
Our purpose
Our purpose is to invest responsibly
in infrastructure, delivering long-term
sustainable returns to shareholders
and having a positive impact on our
portfolio companies and their stakeholders.
Chair's statement
3i Infrastructure continues to meet its strategic objectives and
deliver its purpose.
"This has been another excellent year, and we have confidence in
the future of our Company and portfolio."
Richard Laing
Chair, 3i Infrastructure plc
The Company aims to provide shareholders with a total return of
8% to 10% per annum, to be achieved over the medium term. I am
delighted to report that we achieved a return of 17.2% in the year
ended 31 March 2022, well ahead of our target and demonstrating the
attractiveness of our portfolio. This is the eighth consecutive
year that we have met or exceeded our return target; and we have
increased the dividend per share in every year of the Company's
existence.
Our portfolio companies have continued to demonstrate resilience
throughout the Covid-19 pandemic, keeping essential infrastructure
operating and supporting customers, suppliers, employees and their
communities. None of our portfolio companies has direct exposure to
Russia or Ukraine.
We have made good progress against our sustainability objectives
and are pleased with the level of engagement and enthusiasm that we
see across our portfolio companies. Our report this year includes
information on greenhouse gas ('GHG') emissions for each company,
which can be found in the Sustainability report of the Annual
report and accounts 2022.
I am grateful to shareholders and the Board of Directors for
their support during the year, as well as to the Investment
Manager's team for their hard work in a year when office life and
business travel were again restricted. We made good use of virtual
means of communication, as well as meeting in person where
possible.
Our purpose
Our purpose, as set out above, is to invest responsibly in
infrastructure, delivering long-term sustainable returns to
shareholders and having a positive impact on our portfolio
companies and their stakeholders. The key elements of our purpose
are used to structure our Strategic report.
Sustainability is central to our purpose and we create value for
all stakeholders by investing in, developing and actively managing
essential infrastructure which responds to public needs, fosters
sustainable growth and improves the lives of communities. We invest
across a broad range of infrastructure investment themes, and are
highlighting two in particular in this report: energy transition
and digitalisation.
As the countries in which we invest increase their focus on
climate change, we see continued opportunities to invest in energy
transition, putting our capital to work to generate sustainable
returns and to have a positive impact through mitigating climate
change. Similarly, increasing demand for digital connectivity
brings opportunities to invest in building the underlying
infrastructure required to meet that demand.
Performance
The Company generated a total return of GBP404 million in the
year ended 31 March 2022, or 17.2% on opening NAV, ahead of our
target of 8% to 10% per annum to be achieved over the medium
term.
2007 to 2022
In the 15 years since the initial
public offering ('IPO')
the Company has delivered an annualised
total
shareholder return of
13.1%
per annum
The NAV per share increased to 303.3 pence. We delivered a Total
Shareholder Return ('TSR') of 20.9% in the year (FTSE 250: 0.5%).
Since IPO, the Company's annualised TSR is 13.1%, comparing
favourably with the broader market (FTSE 250: 7.1% annualised over
the same period).
Investment activity
This was a busy year for new investments. In June 2021, we
completed the acquisition of a 60% stake in DNS:NET for GBP157
million. DNS:NET is a leading independent telecommunications
provider in Germany. In November 2021, we agreed to invest c.$512
million to acquire 100% of Global Cloud Xchange ('GCX'). GCX is a
leading global data communications service provider. Additional
acquisition debt was raised in March 2022, reducing the Company's
equity commitment to c.GBP300 million. The transaction is expected
to complete in summer 2022.
In December 2021, we invested GBP191 million, net of a
subsequent debt raise, in SRL Traffic Systems ('SRL'). SRL is the
market leading traffic management equipment rental company in the
UK.
We bought out our co-investor, AMP Capital, purchasing their
stake in ESVAGT for GBP258 million in February 2022.
We have continued to support growth in our portfolio companies
with an aggregate GBP71 million investment into DNS:NET, Valorem,
ESVAGT and Joulz to fund further growth.
We completed the sale of Oystercatcher's four European terminals
in October 2021. This resulted in a distribution of EUR55 million
to the Company after repaying all of Oystercatcher's debt
facilities. Oystercatcher retains its holding of a 45% stake in
Oiltanking Singapore. At the end of the financial year, in March
2022, we agreed to sell our European Projects portfolio to 3i
European Operational Projects Fund ('3i EOPF') for GBP103 million.
This transaction is expected to reach completion by June 2022.
Dividend
Following the payment of the interim dividend of 5.225 pence per
share in January 2022, the Board is recommending a final dividend
for the year of 5.225 pence per share, meeting our target for the
year of 10.45 pence per share, 6.6% above last year's total
dividend. We expect the final dividend to be paid on 11 July 2022.
Consistent with our progressive dividend policy, we are announcing
a total dividend target for the year ending 31 March 2023 of 11.15
pence per share, representing an increase of 6.7%.
Changes to the Investment Manager's team
On 31 March 2022, the Investment Manager announced that Phil
White is stepping down from his role as Managing Partner and Head
of Infrastructure, 3i Investments plc, with effect from 1 July
2022. Scott Moseley and Bernardo Sottomayor will be appointed as
Co-Heads of European Infrastructure and will take on Phil's role in
relation to the Company.
Phil has contributed enormously to the Company's success over
many years. During his eight-year tenure as Managing Partner, the
Company's returns have been consistently ahead of the FTSE 250
benchmark and, under his leadership, the capabilities of the
management team have grown considerably. We have appreciated Phil's
experience, wisdom and commitment and are extremely grateful for
all that he has done for the Company.
We note that Phil will continue with the Investment Manager on a
part-time basis and will remain a member of the Investment
Committee. We welcome the appointment of Scott and Bernardo,
knowing them well and having worked with them over many years. The
Board is confident that under their leadership the team will
continue to provide excellent management of the Company.
Corporate governance and Company domicile
The Company's Annual General Meeting ('AGM') was held on 8 July
2021 as a purely functional meeting only conducting the formal
business due to Government guidance and continued restrictions
related to the Covid-19 pandemic in place at the time.
All resolutions were approved by shareholders, including the
re-election of the existing Directors. I was pleased with the high
level of shareholder engagement via proxy voting at that meeting.
We also held an interactive online shareholder presentation two
weeks before the AGM which enabled shareholders to submit questions
for Directors to answer.
This year's AGM will be held on 7 July 2022. Further details are
provided in the Notice of Meeting and on the Company's website,
www.3i-infrastructure.com. We very much look forward to seeing
shareholders in person again at this year's AGM.
In 2021, the UK government consulted on proposals to implement a
simplified corporate re-domiciliation regime that would allow
overseas companies to become UK domiciled. The Company responded
supporting these proposals. If implemented, the Company would be
likely to take advantage of this route to become a UK company.
There would be no change in the Company's status as an approved UK
investment trust.
Directors' duties
The Directors have a duty to act honestly and in good faith with
a view to the best interests of the Company and to exercise the
care, diligence and skill that a reasonably prudent person would
exercise in comparable circumstances.
In accordance with the AIC Code of Corporate Governance 2019
(the 'AIC Code'), the Board does this through understanding the
views of the Company's key stakeholders and carefully considering
how their interests and the matters set out in section 172
Companies Act 2006 of England and Wales have been considered in
Board discussions and decision making. More detail can be found in
the Directors' duties and Section 172 Statement sections later in
this document.
Outlook
The Company has remained disciplined in its investment approach,
and has succeeded in making a number of new investments during the
year. Our portfolio consists of defensive businesses providing
essential services to their customers and the communities they
serve, often benefitting from long-term sustainable trends.
We remain confident in our business model. As our Company has
grown, we have increased the size of the investments we can hold in
our portfolio and the funding options we have available to us. We
are well-placed to take advantage of new investment opportunities
and to continue to support and grow our portfolio companies.
Richard Laing
Chair, 3i Infrastructure plc
9 May 2022
Our approach
We invest responsibly and have a positive impact
Responsible investing
We believe that a responsible approach to investment will add
value to our portfolio and that the effective assessment of
Environmental, Social and Governance ('ESG') risks and
opportunities has a positive effect on the value of our investee
companies.
Since 2011, the Investment Manager has been a signatory to the
UN Principles for Responsible Investment and has embedded a clear
and comprehensive Responsible Investment policy into its investment
and asset management processes. This policy sets out the businesses
in which the Company will not invest, as well as minimum standards
in relation to ESG matters which we expect new portfolio companies
to meet, or to commit to meeting over a reasonable time period. The
policy applies to all of our investments, irrespective of their
country or sector.
Our influence
We use our influence as owners and active managers to ensure
that our investee companies are run responsibly and that they have
a positive impact on the environment and on the communities in
which they operate.
This includes supporting and empowering management teams to
develop business strategies that deliver value whilst mitigating
adverse environmental and social impacts. We create a culture where
there is an ambition to improve our businesses and where it is
known that we value management teams spending time and resources on
sustainability initiatives.
We also seek to manage all material ESG risks and opportunities
during the period of the Company's investment. This includes
enhancing portfolio companies' corporate governance and their board
reporting.
We seek to invest in opportunities that, where appropriate, will
develop solutions to sustainability challenges. We make a limited
number of investments each year, allowing us to be very selective
in our approach to new investment.
Positive impact
Examples of where we are making a positive impact on our
portfolio companies and their stakeholders:
-- Encouraging each portfolio company to include in its
sustainability strategy a focus on its employees and local
communities
-- Investing in DNS:NET and GCX to increase digital connectivity
both locally and internationally
-- Supporting ESVAGT in its transition to servicing the offshore
wind sector
-- Working with portfolio companies to develop plans for
reducing greenhouse gas emissions
-- Supporting Joulz to evolve into an integrated energy
transition solutions provider - with solar, battery and EV charging
technologies, and Infinis to diversify its renewable platform into
solar power and battery storage
-- Providing management teams with support and access to a wide
network of advisers and industry experts
-- Supporting TCR in its contract win with KLM Royal Dutch
Airlines to replace a diesel fleet of ground support equipment
('GSE') with a new electrical fleet
RCF
Sustainability-linked revolving
credit facility ('RCF')
During the year, we refinanced the
Company's revolving credit facility
as a sustainability-linked RCF.
The new facility includes stretching
targets across ESG themes aligned
with our purpose.
The infrastructure market
Competitive landscape
Competition for infrastructure assets remained high with
considerable capital available in the market leading to another
record year of infrastructure assets under management. This year
has seen the launch of several new UK listed and private funds
targeting economic infrastructure investment opportunities. This
includes a number of funds with narrow mandates focused on specific
sub-sectors of the infrastructure market.
Macro environment
Accelerating trends in the macro environment have also increased
investor appetite for the infrastructure asset class.
This year has seen rising inflation followed by expectations of
rising interest rates and a tightening of monetary policy from
central banks.
In this environment, demand for infrastructure assets typically
increases since they can act as a hedge with revenues directly or
indirectly linked to inflation. These trends, and our response to
them, are discussed in more detail within the Risk report.
Megatrends
Megatrends are shaping the world around us, influencing decision
making and changing the demands placed on our economy and services.
Identifying the potential for change is a key driver of our
investment decision making - from the businesses, sectors and
countries we invest in, to the way we go about finding
opportunities.
As the Company's portfolio continues to grow, we seek to
diversify our investments across a range of megatrends that will
provide a supportive environment for long-term sustainable business
growth and returns to shareholders. We also continually assess
underlying risk factors, both when considering new investment
opportunities and in managing the existing portfolio and its
exposure to certain risks, such as commodity prices and foreseeable
technological disruptions.
A disciplined investor
Origination approach
We remain a disciplined investor and where possible seek
opportunities to transact off-market, only participating in
competitive processes where we believe we have a distinct
advantage.
We have a large and focused investment team, with a broad
network and access across the geographies in which we invest. Our
reputation, local presence and the relationships we develop with
management teams provide us with competitive advantages and allowed
us to be successful in signing our new investments this year in
DNS:NET, SRL and GCX on attractive terms.
Asset management
Throughout the year we maintained a significant focus on asset
management activities and investment stewardship. As social
restrictions due to Covid-19 began to ease, we ensured that
portfolio companies were able to continue delivering essential
services whilst focusing on the health and safety of employees, and
the needs of customers and suppliers.
We have increased our focus on sustainability. During the year
we worked with portfolio companies to implement processes to
collect and analyse greenhouse gas emissions data and are pleased
to report the results in our Sustainability report of the Annual
report and accounts 2022. Portfolio companies are now developing
plans for reducing their emissions over time.
In the year we also performed a review of each portfolio
company's cyber security. Portfolio company management teams are
now implementing bespoke recommendations to enhance their cyber
security positions.
Unique offering for shareholders
The Company remains unique, providing shareholders with access
to private infrastructure assets across a variety of megatrends,
sectors and geographies.
Whilst listed and private funds compete against the Company for
new investments, other UK listed infrastructure funds typically
target smaller investments than the Company or investments in
operational and greenfield Public Private Partnership ('PPP')
projects, which are outside our investment focus.
Our primary investment focus remains mid-market economic
infrastructure with controlling majority or significant minority
positions and strong governance rights, whilst adhering to a set of
core investment characteristics and risk factors.
GBP100m-GBP400m
Typical equity investment
9%-14%
Typical range of returns
per annum
Our business model
We invest responsibly in infrastructure to create long-term
value for stakeholders.
What enables Characteristics How we create Value created in the year
us we value
to create value look for in new
investments
Financial Non-financial
Investment Asset intensive Buy well 17.2% 4
Manager's team business Total return on Further investments
3i Group network Asset bases that Strong governance opening in portfolio companies
Engaged asset are net asset value to fund growth
management hard to replicate Define strategy
Reputation Provide essential 10.45p 4
and brand services Execute plan Ordinary dividend New Chair and
High ESG Established market per share non-executive
standards position Realisation Director appointments
Robust policies Good visibility 19% in portfolio companies
and procedures of future Asset IRR
Efficient balance cash flows (since inception) +5.5%
sheet An acceptable Increase in installed
element of demand renewable energy
or market risk capacity
Opportunities
for 10
further growth Portfolio companies
Sustainability reporting on greenhouse
gas emissions
Our business model explained
What enables us to create value
Investment Manager's team
The Company is managed by an experienced and well-resourced
team. The European infrastructure team was established by 3i Group
in 2005 and now comprises more than 50 people, including over 30
investment professionals.
This is one of the largest and most experienced groups of
infrastructure investment professionals in Europe, supported by
dedicated nance, tax, legal, operations and strategy teams.
3i Group network
3i Group has a network of of ces, advisers and business
relationships across Europe. The investment management team
leverages this network to identify, access and assess opportunities
to invest in businesses, on a bilateral basis where possible, and
to position the Company favourably in auction processes.
Engaged asset management
We drive value from our investments through the Investment
Manager's engaged asset management approach. Through this approach,
the Investment Manager partners with our portfolio management teams
to develop and execute a strategy to create long-term value in a
sustainable way. Examples of this partnership include developing
strategies that support investment in the portfolio company's asset
base over the long term; continued improvements in operational
performance; and establishing governance models that promote an
alignment of interests between management and stakeholders.
We develop and supplement management teams, often bringing in a
non-executive chair early in our ownership.
Examples of this engaged asset management approach can be found
on our website, www.3i-infrastructure.com .
Strength portfolio company Invest in and develop Growing our platform businesses
management teams companies to support a through acquisitions
sustainable future
Reputation and brand
The Investment Manager and the Company have built a strong
reputation and track record as investors by investing responsibly,
managing their business and portfolio sustainably and by carrying
out activities according to high standards of conduct and
behaviour. This has been achieved through upholding the highest
standards of governance, at the Investment Manager, the Company and
in investee companies. This in turn has earned the trust of
shareholders, other investors and investee companies, and has
enabled the Investment Manager to recruit and develop employees who
share those values and ambitions for the future.
The Board seeks to maintain this strong reputation through a
transparent approach to corporate reporting, including on our
progress on driving sustainability through our operations and
portfolio. We are committed to communicating in a clear, open and
comprehensive manner and to maintaining an open dialogue with
stakeholders.
High ESG standards
Sustainability and ESG standards are discussed throughout this
report. Please refer to Our approach section, the Sustainability
report of the Annual report and accounts 2022 and the Risk
report.
"There is a strong link between companies that have high ESG
standards and those that are able to achieve long-term sustainable
business growth."
Anna Dellis
Partner, 3i Investments plc
Robust policies and procedures
Established investment and asset management processes are
supported by the Investment Manager's comprehensive set of best
practice policies, including governance, conduct, cyber security
and anti-bribery.
Efficient balance sheet
The Company's flexible funding model seeks to maintain an
efficient balance sheet with sufficient liquidity to make new
investments. In order to capitalise on emerging opportunities,
during the year we extended our borrowing facilities from GBP300
million to GBP1 billion.
Since FY15 the Company has raised equity twice and returned
capital to shareholders twice following successful
realisations.
Characteristics we look for in new investments
We look to build and maintain a diversified portfolio of assets, across a range of geographies
and sectors, whilst adhering to a set of core investment characteristics and risk factors.
The Investment Manager has a rigorous process for identifying, screening and selecting investments
to pursue. Although investments may be made into a range of sectors, the Investment Manager
typically focuses on identifying investments that meet most or all of the following criteria:
Asset intensive business Good visibility of future cash flows
Owning or having exclusive access under long-term Long-term contracts or sustainable demand that allow us to
contracts to assets that are essential to forecast future performance with
deliver the service a reasonable degree of confidence
Asset bases that are hard to replicate Provide essential services
Assets that require time and significant capital or Services that are an integral part of a customer's
technical expertise to develop, with low business or operating requirements, or
risk of technological disruption are essential to everyday life
An acceptable element of demand or market risk Opportunities for further growth
Businesses that have downside protection, but the Opportunities to grow or to develop the business into new
opportunity for outperformance markets, either organically or through
targeted M&A
Established market position Sustainability
Businesses that have a long-standing position, reputation Businesses that meet our Responsible Investing criteria,
and relationship with their customers with opportunities to improve sustainability
- leading to high renewal and retention rates and ESG standards
How we create value
We have a rigorous approach to identify the best investment
opportunities and then work in close partnership with our portfolio
companies to drive sustainable growth.
Buy well Strong governance Define strategy
-- Comprehensive due diligence -- Make immediate improvements -- Agree strategic direction
-- Consistent with return/yield -- Board representation -- Develop action plan
targets -- Appropriate Board composition -- Focus on ESG
-- Fits risk appetite -- Incentivised management -- Right capital structure
What we do is framed
Execute plan Realisation by our strategic priorities
-- Ongoing support and -- Long-term view but will
advice sell to maximise shareholder
-- Monitor performance value
-- Review further investment
-- Facilitate M&A
Our strategy
Our strategy is to maintain a balanced portfolio of
infrastructure investments
delivering an attractive mix of income yield and capital
appreciation for shareholders.
Strategic priorities
Maintaining a balanced portfolio Delivering an attractive mix of income 17%
yield and capital appreciation for Largest single investment by value*
shareholders.
Investing in a diversified portfolio
in developed markets, with a focus on
the UK and Europe.
Disciplined approach to new investment Focusing selectively on investments GBP980m
that are value enhancing to the New investments or commitments
Company's portfolio and
with returns consistent with our
objectives.
Managing the portfolio intensively Driving value from our portfolio 4
through our engaged asset management Follow-on investments in portfolio
approach. companies
Delivering growth through platform 5
investments. Portfolio companies refinanced*
Maintaining an efficient Minimising return dilution to GBP484m
balance sheet shareholders from holding excessive Total liquidity less investment
cash, while retaining a commitments*
good level of liquidity for future
investment.
Sustainability a key Ensuring that our investment decisions 898MW
driver of performance and asset management approach consider Installed renewable energy capacity
both the risks
and opportunities presented by
sustainability.
* Includes commitment to invest in GCX, net of debt financing,
made on 17 November 2021.
Our objectives and KPIs
Our objectives Our KPIs Rationale and definition Performance over
are to provide -- Total return is the year
shareholders how we measure the -- Total return of
with: overall financial GBP404 million in
performance of the the year, or 17.2%
Company on opening NAV
-- Total return comprises -- The portfolio
the investment return showed good resilience
from the portfolio overall with strong
and income from any performance in particular
cash balances, net from Oystercatcher,
of management and TCR and ESVAGT
performance fees and -- The hedging programme
operating and finance continues to reduce
costs. It also includes the volatility in
foreign exchange movement NAV from exchange
and movement in the rate movements
fair value of derivatives -- Costs were managed
and taxes in line with expectations
-- Total return, measured
as a percentage, is
calculated against
the opening NAV, net
of the final dividend
for the previous year,
and adjusted (on a
time-weighted average
basis) to take into
account any equity
issued and capital
returned in the year
Total return % on opening
NAV
a total return
of 8% to 10%
per annum,
to be achieved
over the medium
term 2018 28.6%
2019 15.4%
2020 11.4%
2021 9.2%
2022 17.2%
Target 8-10%
Target
To provide shareholders
with a total return of
8% to 10% per annum,
to be achieved over the
medium term.
Met or exceeded target
for 2022 and every prior
year shown
a progressive Annual distribution Rationale and definition Performance over
annual dividend pence per share -- This measure re the year
per share ects the dividends -- Proposed total
distributed to shareholders dividend of 10.45
each year pence per share,
-- The Company's business or GBP93 million,
model is to generate is in line with the
returns from portfolio target set at the
income and capital beginning of the
returns (through value year
growth and realised -- Income generated
capital profits). from the portfolio
Income, other portfolio and cash deposits,
company cash distributions including non-income
and realised capital cash distributions
profits generated and other income
are used to meet the from portfolio companies,
operating costs of totalled GBP143 million
the Company and to for the year
make distributions -- Operating costs
to shareholders and finance costs
-- The dividend is used to assess dividend
measured on a pence coverage totalled
per share basis, and GBP50 million in
is targeted to be the year
progressive -- The dividend was
fully covered for
the year
-- Setting a total
dividend target for
FY23 of 11.15 pence
per share, 6.7% higher
than for FY22
2018 7.85p+
2019 8.65p
2020 9.20p
2021 9.80p
2022 10.45p
2023 Target 11.15p
+ Special dividend (2018:
41.40p)
Target
Progressive dividend
per share policy.
FY23 full year dividend
target of 11.15 pence
per share.
Dividend per share increased
every year since IPO
Review from the Managing Partner
We have made attractive new investments, both in new businesses
and companies we already know well, and successfully realised
Oystercatcher's European terminals and our European projects
portfolio.
The portfolio continued to be resilient, delivering strong
operational and financial performance ahead of the expectations we
set a year ago. Competition for new investments remains intense,
leading to high pricing of assets, and we remain disciplined to
invest selectively.
"It was a very good year for the Company - a high level of new
investment, excellent realisations, and a strong portfolio
performance."
Phil White
Managing Partner and Head of Infrastructure, 3i Investments
plc
This was a very busy year of investment activity. Our new
investments in SRL and GCX are both in growth sectors with strong
market positions. Increasing our stake in ESVAGT to 100% and our
injections of additional capital into DNS:NET, Valorem and Joulz
will benefit the Company from further growth in those platforms.
The Company has increased its credit facilities to ensure that it
continues to have ample liquidity to make further new
investments.
The portfolio delivered strong performance during the year and
met our income expectations. As Europe emerges from the Covid-19
pandemic, we have seen a pick-up in growth initiatives in a number
of our portfolio companies and we are working closely with our
portfolio company management teams to execute on these.
Our portfolio is not immune to the challenging current macro
environment of higher inflation, interest rate rises, tax rises,
supply side disruptions and heightened geopolitical risks from
Russia's invasion of Ukraine. However, the Company has a
well-diversified portfolio, each business operating in its
established market position and, in the majority of cases, with
predictable income and some inflation protection. Over the past six
months we have also further reduced the portfolio's exposure to
interest rates through extensive financing activity. We supported
five portfolio companies through refinancing or additional debt
raises, extending debt maturities and locking in fixed rates on
attractive terms.
Portfolio review
Most portfolio companies performed materially ahead of
expectations.
The sale of Oystercatcher's 45% stakes in its four European
terminals in Amsterdam, Terneuzen, Ghent and Malta drove part of
the outperformance in the year. The majority of the net proceeds
from the sale were used to prepay all of Oystercatcher's debt.
The balance of the net proceeds to Oystercatcher, EUR55 million,
was distributed to the Company. Oystercatcher continues to own a
45% stake in Oiltanking Singapore Limited alongside Oiltanking
GmbH.
ESVAGT, in which we invested GBP258 million to acquire the 50%
stake owned by our co-investor, AMP, had a very good year,
benefitting from higher contract rates and utilisation levels
returning to pre-Covid levels. It also won a milestone contract to
provide the world's first green Service Operation Vessel, powered
by batteries and renewable e-methanol, to the Hornsea 2 wind farm
in the UK.
Despite new travel restrictions imposed during the winter, TCR
continued to demonstrate the resilience of its business model and
performed ahead of our expectations for the year. The business
continues to grow, increasing the number of airports in which it
operates and increasing the number of clients it serves.
Infinis significantly exceeded its budget due to outperformance
in its captured landfill methane business, higher UK power prices
and the frequent power supply system imbalances in the UK that
benefitted its power response assets. Attero also benefitted from
high power prices, which, together with higher than forecast waste
supply volumes and gate fees, helped it to materially outperform
expectations and the prior year. In March 2022, the business closed
an additional debt raise on favourable terms.
Our French-headquartered companies, Ionisos and Valorem, were
strong performers in the year. To sustain the growing demand from
the healthcare and pharma industries, Ionisos is looking at various
expansion opportunities beyond the construction of a new site at
Kleve, Germany. Valorem is progressing well with its construction
activity with a total of 105MW of new wind and solar projects
entering into operation during the year. It also successfully
closed Viiatti, a landmark large-scale wind project in Finland.
Tampnet and Joulz performed well during the year. At Tampnet,
customers continued to upgrade their bandwidth requirements.
Joulz's core businesses of Infrastructure Services and Metering
performed in line with expectations and we saw continued healthy
growth in the order book. This was offset by some delays in
completing new projects, mainly due to Covid-19 related staffing
issues. The Company invested GBP5 million of new equity into Joulz
to support further growth.
Our newest assets, DNS:NET and SRL, are performing broadly in
line with our investment cases. In February 2022 we invested a
further GBP33 million in DNS:NET to support its fibre network
roll-out.
On 29 March 2022, the Company signed an agreement to sell its
European projects portfolio, comprising four Dutch and two French
PPP projects across transport and social infrastructure, to 3i
EOPF, representing an uplift of GBP8 million on the value at
September. Completion is expected by June 2022 and proceeds are
estimated at GBP103 million. This results in a 20% gross IRR and a
1.7x gross money multiple for the Company.
Finally, we were pleased with the significant progress made
towards realising the remaining assets in the 3i India
Infrastructure Fund (the 'India Fund'), with the sale of the India
Fund's stake in KMC Roads and in GVK Energy at uplifts to the
carrying value.
Investment activity
During the year, the Company invested or committed GBP980
million into its target markets. In November, we agreed to invest
c.$512 million to acquire 100% of GCX. GCX is a leading global data
communications service provider and owns one of the world's largest
private subsea fibre optic networks. Completion is subject to
certain regulatory approvals and is expected mid-2022. In December,
we completed the GBP191 million acquisition of a 92% stake in SRL
and invested a further GBP21 million into Valorem and GBP5 million
into Joulz to fund their growth. In February, we increased our
stake in ESVAGT from 50% to 100% for GBP258 million and invested a
further GBP33 million into DNS:NET to fund the next step of its
fibre roll-out. These new investments have added further
diversification to the Company's portfolio, which is well-balanced
by size of investment and has exposure to a range of countries,
sectors and risk factors. This should strengthen the Company's
ability to meet its return and dividend objectives over the medium
term.
Throughout the year, we saw an active investment pipeline that
included a broad range of potential new investment opportunities.
Competition for new investments was very high, and we are focused
on achieving an appropriate balance of risk and return.
Sustainability
We took a big step forward on sustainability during the year. We
set several sustainability-related objectives and are pleased to
have met all of these. This includes reporting Scope 1 and Scope 2
greenhouse gas emissions for our portfolio companies for the first
time as well as implementing policies and entering into financial
agreements that further embed sustainability throughout our
investment and asset management processes.
In the year ahead, we plan to build on this progress by working
with portfolio companies to consider potential opportunities to
reduce their greenhouse gas emissions over time and by assessing
the results of climate scenario analysis. We will also continue to
develop our approach to sustainability as the regulatory and
commercial frameworks in which we and our portfolio companies
operate evolve.
Outlook
It was a very good year for the Company, with a high level of
new investment, excellent realisations, and a strong portfolio
performance. The market for new investments remains highly
competitive but we remain very selective and, as we have shown
consistently over many years, are prepared to sell assets where
that generates exceptional returns for shareholders. The Company is
in a healthy position for the future.
Phil White
Managing Partner and Head of Infrastructure, 3i Investments
plc
9 May 2022
New investments
SRL Traffic Systems
SRL is the UK's leading lessor of temporary traffic management
equipment.
Invested
GBP191m
Equity stake
92%
Investment rationale
-- Temporary Traffic Equipment ('TTE') is mission-critical for
the safe use of roads
-- SRL fits with the Company's strategy of investing in
companies with leading market positions and barriers to entry, yet
with operational levers to achieve attractive returns for
shareholders through active asset management
-- SRL has sound market fundamentals through the increasing
emphasis placed on health and safety, and a growing propensity to
rent rather than own TTE
-- Outsourcing ownership of TTE makes economic sense for traffic
management companies, as it allows them to manage maintenance and
utilisation more efficiently
-- SRL has a market leading reputation and is trusted by its
customers
Characteristics
Asset intensive business that is hard to replicate
SRL rents a fleet of c.13,000 TTE under full service contracts. The fleet is deployed from
30 strategically located depots throughout the UK.
Good visibility on future cash flows
There is broad political and regulatory support for increased investment in UK infrastructure
and TTE will be needed to support this.
Provides essential services
TTE is safety critical equipment needed to protect highway workers and segregate traffic,
cyclists and pedestrians.
Acceptable element of demand risk
Primary competition for SRL is from customers with owned assets who often use their own fleets
to serve a baseload of work and then top up with rented TTE.
Established market position
SRL is the only large rental company of TTE in the UK. It benefits from economies of scale
through being able to provide access to TTE nationally and 24/7.
Opportunities for further growth
The rental model is expected to increase penetration and gain market share from the ownership
model over time.
Sustainability
TTE, and in particular SRL's smarter products, allow for greater control of traffic flows,
which in turn reduces congestion around roadworks and improves safety.
GLOBAL CLOUD XCHANGE
GCX owns one of the most comprehensive subsea cable networks
globally.
Expected equity commitment
c.GBP300m
Equity stake
100%
Investment rationale
-- GCX owns one of the most comprehensive subsea cable networks
globally, serving customers in over 180 countries
-- Benefits from the rapidly expanding data market with data
usage forecast to grow exponentially
-- Operates in a market with high barriers to entry whilst
providing an essential service
-- Supported by a highly experienced management team with a
strong track record in the sector
-- Attractive entry valuation following a bilateral process
Characteristics
Asset intensive business that is hard to replicate
GCX's 66,000km of cables, spanning from North America to Asia, would require large upfront
investments and a multi-year lead time to replicate.
Good visibility on future cash flows
GCX's core network benefits from high margins and low maintenance capex requirements, resulting
in an attractive yield profile for 3i Infrastructure.
Provides essential services
GCX is a key infrastructure provider in the rapidly expanding data market, in particular
in high growth markets in Asia and the Middle East.
Acceptable element of demand risk
Over 90% of GCX's revenue is recurring in nature, underpinned by a mixture of medium-term
(1-3 years) and long-term (10 years+) contracts.
Established market position
GCX owns one of the few networks with significant spare capacity to serve the exponentially
growing demand for data traffic on the Europe-Asia and inter-Asia routes.
Opportunities for further growth
In a relatively fragmented market, M&A is an upside opportunity to either accelerate growth
or to further strengthen GCX's network footprint.
Our portfolio
The portfolio comprises a diversified, defensive set of
businesses providing essential services. We are confident that the
portfolio is well positioned to deliver our target returns.
The Company's portfolio was valued at GBP2,873 million at 31
March 2022 (2021: GBP1,804 million) and delivered a
total portfolio return in the year of GBP509 million, including
income and allocated foreign exchange hedging
(2021: GBP232 million).
Table 1 summarises the valuations and movements in the
portfolio, as well as the return for each investment, for
the year. In accordance with accounting standards, 'Investments
at fair value through profit or loss' as reported in
the Balance sheet include, in addition to the portfolio asset
valuation, the cash and other net assets held within intermediate
unconsolidated holding companies. Due to the change in basis of
accounting described in the Financial review, there is no longer
any difference between Table 1 and the amounts reported in the
Financial statements.
Table 1: Portfolio summary (31 March 2022, GBPm)
Portfolio
Directors' Directors' Allocated Underlying total
valuation Accrued Foreign valuation foreign portfolio return
31 March Investment Divestment income Value exchange 31 March exchange income in the
Portfolio 2021 in the in the movement movement translation 2022 hedging in the year(1)
assets year year year
ESVAGT 189 294 (2,3) - 3 57 5 548 (5) 28 85
Infinis 300 - - 2 30 - 332 - 17 47
TCR 199 14 (2,4) - - 67 (1) 279 1 13 80
Tampnet 230 5 (2) - - - 6 241 (2) 22 26
Joulz 219 10 (2,4) - - 14 (2) 241 2 6 20
Ionisos 202 5 (2) - 4 28 (2) 237 2 9 37
Oystercatcher 157 - (56) (5) 1 121 7 230 (5) 5 128
DNS:NET - 193 (2,3) - 2 9 (2) 202 2 4 13
SRL - 274 (83) (5) 5 4 - 200 - 7 11
Valorem 107 21 (4) - - 17 (1) 144 1 4 21
Attero 105 - - - 12 (1) 116 1 5 17
Economic
infrastructure
portfolio 1,708 816 (139) 17 359 9 2,770 (3) 120 485
Projects 93 - (1) (5) - 12 (1) 103 1 7 19
India Fund 3 - (8) - 4 1 - - - 5
Total portfolio
reported in
the Financial
statements(6) 1,804 816 (148) 17 375 9 2,873 (2) 127 509
1 This comprises the aggregate of value movement, foreign exchange translation,
allocated foreign exchange hedging and underlying portfolio income
in the year.
2 Capitalised interest totalling GBP55 million.
3 New investment in ESVAGT of GBP258 million plus GBP12 million of follow-on
investment and DNS:NET of GBP157 million plus GBP33 million of follow-on
investment.
4 Follow-on investment in TCR of GBP1 million, Joulz of GBP5 million
and Valorem of GBP21 million.
5 Shareholder loan repaid. The SRL divestment amount relates to the repayment
of a bridge loan following the raising of a third-party acquisition
debt facility.
6 Cash and other net assets held in unconsolidated subsidiaries of GBP2
million were distributed to the Company during the year. Due to these
distributions and the change in basis of accounting described in the
Financial review, there is no longer any difference between Table 1
and the amounts reported in the Financial statements.
The total portfolio return in the year of GBP509 million is
19.8% (2021: GBP232 million, 13.7%) of the aggregate of the opening
value of the portfolio and investments in the year (excluding
capitalised interest), which total GBP2,565 million.
Performance was strong across the portfolio, driven principally
by the realisation of the European storage terminals held by
Oystercatcher for a price above their opening valuation and by
outperformance from a number of portfolio companies but
particularly TCR and ESVAGT.
Table 2 below shows the portfolio return in the year for each
asset as a percentage of the aggregate of the opening value of the
asset and investments in the asset in the year (excluding
capitalised interest). Note that this measure does not time-weight
for investments in the year.
Table 2: Portfolio return by asset (year to 31 March 2022)
Total portfolio
return 19.8%
ESVAGT 18.5%
Infinis 15.7%
TCR 40.0%
Tampnet 11.3%
Joulz 8.9%
Ionisos 18.3%
Oystercatcher 81.5%
DNS:NET* 6.7%
SRL* 4.0%
Valorem 16.4%
Attero 16.2%
Projects 20.4%
* Acquired during the year and portfolio return not
annualised.
Movements in portfolio value
The movements in portfolio value were driven principally by the
delivery of planned cash flows and other asset outperformance as
well as new and follow-on investments made during the year. A
reconciliation of the movement in portfolio value is shown in Table
3 below. The portfolio summary shown in Table 1 details the
analysis of these movements by asset. Changes to portfolio
valuations arise due to several factors, as shown in Table 4.
Economic infrastructure portfolio
The economic infrastructure portfolio generated a value gain of
GBP359 million in the year, alongside income of GBP120 million.
The GBP121 million value increase in Oystercatcher reflects: the
uplift achieved from the sale of the European terminals; the
prepayment of Oystercatcher's debt; and a reduced discount rate to
reflect higher quality cash flows from Singapore and low
leverage.
The value increase in TCR of GBP67 million reflects: the
outperformance of the business during the year; cost savings
delivered and expected from its cost optimisation programme; and a
reduction in the discount rate to remove the Covid-19 premium
previously applied. This increased valuation is further supported
by increased interest in TCR's full service rental model and our
confidence in the long-term value of its asset base and market
opportunity.
ESVAGT increased in value by GBP57 million, as we revised our
investment case following the completion of the acquisition of our
co-investor's 50% stake in ESVAGT. We revised our growth
assumptions for the business and made a small reduction in the
discount rate to reflect the reduction in risk following the
signing of significant new contracts and the completion of the
newbuild programme for three new MHI Vestas Service Operation
Vessels. In March 2022 we completed a refinancing on improved terms
to support future growth.
Infinis generated a value gain of GBP30 million in the year and
contributed GBP15 million of cash distributions. This was due to a
combination of business outperformance, the continued progress of
its solar development programme and changes in forecast future
power prices.
Ionisos experienced a GBP28 million gain due to significant
outperformance, particularly from strong demand in the medical
devices and pharmaceuticals sectors.
Table 3: Reconciliation of the movement in portfolio value (year
to 31 March 2022, GBPm)
Opening portfolio value at 1 April 2021 1,804
Investment(1) 816
Divestment/capital repaid (148)
Value movement 375
Exchange movement(2) 9
Accrued income movement 17
Closing portfolio value at 31 March 2022 2,873
1 Includes capitalised interest.
2 Excludes movement in the foreign exchange hedging programme (see Table
10 in the Financial review).
Table 4: Components of value movement (year to 31 March 2022, GBPm)
Value movement component Value movement Description
in the year
Planned growth 109 Net value movement resulting from the passage of time,
consistent with the discount rate and
cash flow assumptions at the beginning of the year less
distributions received and capitalised
interest in the year.
Other asset performance 188 Net value movement arising from actual performance in the
year and changes to future cash
flow projections, including financing assumptions and changes
to regulatory assumptions. Includes
the uplift on the sale of Oystercatcher's European terminals
and the Projects portfolio.
Discount rate movement 43 Value movement relating to changes in the discount rate
applied to the portfolio cash flows.
Macroeconomic assumptions 35 Value movement relating to changes to macroeconomic out-turn
or assumptions, eg power prices,
inflation, interest rates and taxation rates. This includes
changes to regulatory returns
that are directly linked to macroeconomic variables.
Total value movement before exchange 375
Foreign exchange retranslation 9 Movement in value due to currency translation to year end
date.
Total value movement 384
Projects portfolio
The value gain in the Projects portfolio of GBP12 million
reflects the proceeds expected from the agreement to sell the
holdings to 3i EOPF which is expected to complete by June 2022.
India Fund
During the year we divested KMC Roads and GVK Energy at an
uplift to the carrying value.
Summary of portfolio valuation methodology
Investment valuations are calculated at the half-year and at the
financial year end by the Investment Manager and then reviewed by
the Board. Investments are reported at the Directors' estimate of
fair value at the relevant reporting date.
The valuation principles used are based on International Private
Equity and Venture Capital ('IPEV') valuation guidelines, generally
using a discounted cash flow ('DCF') methodology (except where a
market quote is available), which the Investment Manager considers
to be the most appropriate valuation methodology for unquoted
infrastructure equity investments.
Where the DCF methodology is used, the resulting valuation is
checked against other valuation benchmarks relevant to the
particular investment, including, for example:
-- earnings multiples;
-- recent transactions; and
-- quoted market comparables.
In determining a DCF valuation, we consider and reflect changes
to the two principal inputs, being forecast cash flows from the
investment and discount rates. We consider both the macroeconomic
environment and investment-specific value drivers when deriving a
balanced base case of cash flows and selecting an appropriate
discount rate.
A prevalent theme this year has been inflationary pressures on
supply chain costs and employee costs. The ability to pass cost
inflation to customers varies by portfolio company so we took a
granular approach to modelling the effects of inflation.
The current impact on the portfolio of the war in Ukraine is, in
our assessment, not material.
The volatility in power prices has positively affected our
energy generating portfolio companies, although the majority of our
power price exposure was hedged in the short to medium term. Future
power price projections are taken from independent forecasters and
changes in these assumptions will affect the future value of these
investments.
TCR operates in the aviation sector, which has been severely
affected by travel restrictions. The value of TCR assumes a full
recovery in air traffic to pre-Covid-19 levels in 2024, consistent
with the assumptions made in the prior year.
As a 'through the cycle' investor with a strong balance sheet we
consider valuations in the context of the longer-term value of the
investments. This includes consideration of climate change risk and
stranded asset risk. Factors considered include physical risk,
litigation risk linked to climate change and transition risk (for
example, assumptions on the timing and extent of decommissioning of
North Sea oil fields, which affects Tampnet and ESVAGT). We take a
granular approach to these risks, for example each relevant
offshore oil and gas field has been assessed individually to
forecast the market over the long term and a low terminal value has
been assumed at the end of the forecast period.
In the case of stranded asset risk, we consider long-term
threats that may impact value materially over our investment
horizon, for example, technological evolution, climate change, or
societal change.
For ESVAGT, which operates Emergency Rescue and Response Vessels
('ERRVs') in the North Sea servicing sectors including the oil and
gas market, we do not assume any new vessels or replacement vessels
in our valuation for that segment of the business.
However, a number of our portfolio companies are set to benefit
from these changes. Digitalisation in the offshore oil and gas
sector in order to reduce costs is benefitting Tampnet. The energy
transition in the Netherlands, with a focus on electrification, is
benefitting Joulz. The base case for each of our valuations takes a
balanced view of potential factors that we estimate are as likely
to result in underperformance as outperformance.
Discount rate
Table 5 shows the movement in the weighted average discount rate
applied to the portfolio at the end of each year since the
Company's inception and the position as at March 2022. During the
year, the weighted average discount rate increased modestly as the
introduction of the new investments in SRL and DNS:NET to the
portfolio at a higher than average discount rate was mostly offset
by small reductions in discount rates for Oystercatcher, TCR,
ESVAGT and Valorem.
During the year, we witnessed an increase in risk-free rates
across Europe as central banks started to take action in response
to higher inflation. The increase in risk-free rates was offset by
reductions in equity risk premia, the implied excess return over a
risk-free rate of return, in the countries in which we invest. We
are not yet seeing any upward pressure on discount rates as a
result of higher interest rates.
Table 5: Portfolio weighted average discount rate (31 March,
%)
March 08 12.4
March 09 13.8
March 10 12.5
March 11 13.2
March 12 12.6
March 13 12.0
March 14 11.8
March 15 10.2
March 16 9.9
March 17 10.0
March 18 10.5
March 19 10.8
March 20 11.3
March 21 10.8
March 22 10.9
Investment track record
As shown in Table 6, since its launch in 2007, 3i Infrastructure
has built a portfolio that has provided:
-- significant income, supporting the delivery of a progressive
annual dividend;
-- consistent capital growth; and
-- strong capital profits from realisations.
These have contributed to a 19% annualised asset Internal Rate
of Return ('IRR') since the Company's inception. The European
portfolio has generated strong returns, in line with, or in many
cases ahead of, expectations.
These returns were underpinned by substantial cash generation in
the form of income or capital profits.
The value created through this robust investment performance has
been crystallised in a number of instances through well-managed
realisations, shown as 'Realised assets' in Table 6. While the
Company is structured to hold investments over the long term, it
has sold assets where compelling offers will generate additional
shareholder value.
This was the case with WIG in 2019 which generated an IRR of
27%, Eversholt Rail in 2015 and XLT in 2019 which both generated
IRRs in excess of 40% and Elenia and AWG in 2018, which generated
IRRs of 31% and 16% respectively.
Portfolio asset returns in Table 6 include an allocation of FX
hedging where applicable.
Table 6: Portfolio asset returns throughout holding period
(since inception, GBPm)
Value Proceeds on
including disposals/
Total accrued capital Cash
Multiple IRR cost income returns income
Existing portfolio ( Total return)
ESVAGT 1.3x 417 548 - -
Infinis 1.5x 322 332 80 85
TCR 1.9x 156 279 4 22
Tampnet 1.4x 187 241 - 13
Joulz 1.3x 195 241 2 20
Ionisos 1.3x 186 237 - 6
Oystercatcher 3.1x 139 230 47 157
DNS:NET 1.1x 190 202 - 3
SRL 1.1x 191 200 - 2
Valorem 2.0x 80 144 - 16
Attero 1.6x 88 116 1 25
Projects 1.7x 75 103 2 25
Realised assets ( Total return)
WIG (realised December 2019) 1.7x 27% 265 431 21
XLT (realised March 2019) 5.9x 40% 63 332 38
Elenia (realised February 2018) 4.5x 31% 195 766 106
AWG (realised February 2018) 3.3x 16% 173 410 154
Eversholt (realised April 2015) 3.3x 41% 151 391 114
Projects (realised assets) 1.9x 22% 289 446 103
Others(1) 1.2x 8% 138 145 24
India Fund 0.6x (6%) 108 61 -
19% Asset IRR since inception to 31 March 2022
Portfolio asset returns include allocation of FX hedging where
applicable. Dates of asset realisations refer to completion
dates.
(1) Others includes junior debt portfolio, T2C and Novera.
Financial review
The Company delivered another year of outperformance.
Key financial measures(1) (year to 31 March) 2022 2021
Total return(2) GBP404m GBP206m
NAV GBP2,704m GBP2,390m
NAV per share 303.3p 268.1p
Total income GBP133m GBP110m
Total income and non-income cash GBP143m GBP117m
Portfolio asset value GBP2,873m GBP1,802m
Cash balances GBP17m GBP463m
Total liquidity(3) GBP786m GBP763m
1 Prior year figures contain non-material adjustments to the Financial
statements as reported in the prior year Annual report and accounts.
These adjustments are no longer required as explained below.
2 IFRS Total comprehensive income for the year.
3 Includes cash balances of GBP17 million (2021: GBP463 million) and
GBP769 million (2021: GBP300 million) undrawn balances available under
the Company's revolving credit facility including additional committed
facilities which total GBP1 billion.
"The Company has continued to grow income and NAV per share
alongside managing liquidity to fund new investments."
James Dawes
CFO, Infrastructure
The Company delivered another year of outperformance which was
underpinned by strong income and capital returns from the
portfolio. A total of GBP980 million of new investments and
commitments were made and the Company actively managed its
liquidity position through its RCF and an additional GBP600 million
of committed facilities.
The portfolio has the income-generating capacity to support the
progressive dividend policy, and the dividend was covered by net
income this year despite some drag from uninvested cash earlier in
the year. The target dividend for FY23 of 11.15 pence per share is
an increase of 6.7% over FY22.
Returns
Total return
The Company generated a total return for the year of GBP404
million, representing a 17.2% return on opening NAV net of the
prior year final dividend (2021: GBP206 million, 9.2%). This
performance is significantly ahead of the target return of 8% to
10% per annum to be achieved over the medium term.
This outperformance was driven by the strong return from the
sale of Oystercatcher's four European terminals and good
performance across the economic infrastructure portfolio,
particularly from TCR and ESVAGT. Changes in the valuation of the
Company's portfolio assets are described in the Movements in
portfolio value section of the Investment Manager's review.
Total income and non-income cash of GBP143 million in the year
was higher than last year, due to income from new investments and
some portfolio companies resuming distributions after preserving
liquidity in the previous year due to Covid-19 risks (2021: GBP117
million).
Non-income cash receipts reflect distributions from underlying
portfolio companies, which would usually be income to the Company,
but which are distributed as a repayment of investment for a
variety of reasons. Whilst non-income cash does not form part of
the total return shown in Table 7, it is included when considering
dividend coverage.
An analysis of the elements of the total return for the year is
shown in Table 7.
The Financial statements' classification of these components of
total return includes transactions within unconsolidated
subsidiaries as the Company adopts the Investment Entities
(Amendments to IFRS 10, IFRS 12 and IAS 27) basis for its
reporting. In previous years we have shown the non-material
adjustments required to reconcile this analysis to the Financial
statements.
Following the partial divestment of the Oystercatcher investment
and a restructure of some investments previously held through
Luxembourg-based subsidiaries but now held directly by the Company,
we have aligned the basis of reporting in this section to the
Financial statements and will no longer report on an adjusted
basis.
Table 7: Summary total return (year to 31 March, GBPm)
2022 2021
Capital return (excluding exchange) 375 135
Foreign exchange movement in portfolio 9 (24)
Capital return (including exchange) 384 111
Movement in fair value of derivatives (2) 22
Net capital return 382 133
Total income 133 110
Costs (111) (37)
Total return 404 206
Capital return
The capital return is the largest element of the total return.
The portfolio generated a value gain of GBP375 million in the year
to 31 March 2022 (2021: GBP135 million), as shown in Table 8. There
was a positive contribution across the majority of the portfolio
and the largest contributor was Oystercatcher which generated
GBP121 million. These value movements are described in the
Movements in portfolio value section.
Table 8: Reconciliation of the movement in NAV (year to 31 March
2022, GBPm)
Opening NAV at 1 April 2021(1) 2,346
Capital return 375
Net foreign exchange movement (2) 7
Total income 133
Net costs including management fees (3) (111)
NAV before distributions 2,750
Distribution to shareholders (46)
Closing NAV at 31 March 2022 2,704
1 Opening NAV of GBP2,390 million net of final dividend of GBP44 million
for the prior year.
2 Foreign exchange movements are described in Table 11.
3 Includes non-portfolio related exchange movements of GBP3 million.
Foreign exchange impact
The portfolio is diversified by currency as shown in Table 9. We
aim to deliver steady NAV growth for shareholders, and the foreign
exchange hedging programme helps us to do this by reducing our
exposure to fluctuations in the foreign exchange markets.
Portfolio foreign exchange movements, after accounting for the
hedging programme, increased the net capital return by GBP7 million
(2021: reduced by GBP2 million).
As shown in Table 10, the reported foreign exchange gain on
investments of GBP9 million (2021: loss of GBP24 million) included
a gain of GBP1 million from the Company's exposure to the Indian
rupee, which is not hedged. This was partially offset by a GBP2
million loss on the hedging programme (2021: gain of GBP22
million).
Table 9: Portfolio value by currency (at 31 March 2022)
EUR 54%
DKK 19%
GBP 19%
NOK 8%
Table 10: Impact of foreign exchange ('FX') movements on
portfolio value (year to 31 March 2022, GBPm)
Hedged assets Unhedged assets
EUR/SGD/DKK/NOK GBP/rupee
FX gain before hedging 8 1
FX gain after hedging 6 1
Income
The portfolio generated income of GBP127 million in the year
(2021: GBP99 million). Of this amount, GBP24 million was through
dividends (2021: GBP20 million) and GBP103 million through interest
on shareholder loans (2021: GBP79 million). An additional GBP6
million of interest was accrued on the vendor loan notes issued in
lieu of WIG proceeds (2021: GBP10 million) together with a further
GBP0.1 million of interest receivable on deposits (2021: GBP0.4
million). Total income and non-income cash is shown in Table
12.
A strong income contribution from Tampnet and higher non-income
cash receipts offset the reduction in income from Oystercatcher
following divestment of the European terminals. A breakdown of
portfolio income is provided in Table 11, together with an
explanation of the change from prior year.
Interest income from the portfolio was significantly higher than
prior year due to the new investments in SRL, DNS:NET and
ESVAGT.
Dividend and non-income cash distributions increased this year
as liquidity preserved for risks associated with the Covid-19
pandemic in the prior year was released.
Table 11: Breakdown of portfolio income (year to 31 March,
GBPm)
Dividend Interest Dividends Interest Comments
(2022) (2022) (2021) (2021)
ESVAGT - 28 - 22 Further investment in February 2022
Tampnet 17 5 - 5 Liquidity retained in prior year
Infinis - 17 - 17
TCR - 13 - 13
Ionisos - 9 - 9
SRL - 7 - - New investment in FY22
Joulz - 6 - 5
Oystercatcher - 5 13 - Divestment of European terminals
Attero 4 1 5 1
DNS:NET - 4 - - New investment in FY22
Valorem 1 3 - 3 Liquidity retained in prior year
Projects Portfolio 2 5 2 4
Table 12: Total income and non-income cash (year to 31 March, GBPm)
2022 2021
Total income 133 110
Non-income cash 10 7
Total 143 117
Costs
Management and performance fees
During the year to 31 March 2022, the Company incurred
management fees, including transaction fees of GBP10 million, of
GBP43 million (2021: GBP24 million). The fees, payable to 3i plc,
consist of a tiered management fee, and a one-off transaction fee
of 1.2% payable in respect of new investments. The management fee
tiers range from 1.4%, reducing to 1.2% for any proportion of gross
investment value above GBP2.25 billion.
An annual performance fee is also payable by the Company,
amounting to 20% of returns above a hurdle of 8% of the total
return. This performance fee is payable in three equal annual
instalments, with the second and third instalments only payable if
certain future performance conditions are met. This hurdle was
exceeded for the year ended 31 March 2022 resulting in a
performance fee payable to 3i plc in respect of the year ended 31
March 2022 of GBP54 million (2021: GBP7 million).
The first instalment, of GBP18 million, will be paid in May 2022
along with the second instalment of GBP2 million relating to the
previous year's performance fee and the third instalment of GBP6
million relating to the FY20 performance fee.
For a more detailed explanation of how management and
performance fees are calculated, please refer to Note 18 to the
accounts.
Fees payable
Fees payable on investment activities include costs for
transactions that did not reach, or have yet to reach, completion
and the reversal of costs for transactions that have successfully
reached completion and were subsequently borne by the portfolio
company. For the year to 31 March 2022, fees payable totalled GBP3
million (2021: less than GBP1 million).
Other operating and finance costs
Operating expenses, comprising Directors' fees, service provider
costs and other professional fees, totalled GBP3 million in the
year (2021: GBP3 million).
Finance costs of GBP5 million (2021: GBP2 million) in the year
comprised arrangement and commitment fees for the Company's RCF.
Finance costs were higher than in FY21 as the size of the RCF was
increased and drawn in the year.
Ongoing charges ratio
The ongoing charges ratio measures annual operating costs, as
disclosed in Table 13 below, against the average NAV over the
reporting period.
The Company's ongoing charges ratio is calculated in accordance
with the Association of Investment Companies ('AIC') recommended
methodology and was 1.41% for the year to 31 March 2022 (2021:
1.16%). The ongoing charges ratio is higher in periods where new
investment levels are high and new equity is raised or capital is
returned to shareholders. Realisation of assets reduces the ongoing
charges ratio. The cost items that contributed to the ongoing
charges ratio are shown below.
The AIC methodology does not include transaction fees,
performance fees or finance costs. However, the AIC recommends that
the impact of performance fees on the ongoing charges ratio is
noted, where performance fees are payable. The ratio including the
performance fee was 3.52% (2021: 1.45%). The total return of 17.2%
for the year is after deducting this performance fee and ongoing
charges.
Table 13: Ongoing charges (year to 31 March, GBPm)
2022 2021
Investment Manager's fee 32.6 23.7
Auditor's fee 0.6 0.5
Directors' fees and expenses 0.5 0.5
Other ongoing costs 2.4 2.2
Total ongoing charges 36.1 26.9
Ongoing charges ratio 1.41% 1.16%
Balance sheet
The NAV at 31 March 2022 was GBP2,704 million (2021: GBP2,390
million). The principal components of the NAV are the portfolio
assets, cash holdings and borrowings under the RCF, the vendor loan
notes from the sale of WIG, the fair value of derivative financial
instruments and other net assets and liabilities. A summary balance
sheet is shown in Table 14.
At 31 March 2022, the Company's net assets after the deduction
of the final dividend were GBP2,657 million (2021: GBP2,346
million).
Cash and other assets
Cash balances at 31 March 2022 totalled GBP17 million (2021:
GBP463 million).
Cash on deposit was managed actively by the Investment Manager
and there are regular reviews of counterparties and their limits.
Cash is principally held in AAA-rated money market funds.
The decrease in Other net assets is due to an increase in the
performance fee payable.
Borrowings
The Company has a GBP400 million RCF in order to maintain a good
level of liquidity for further investment whilst minimising returns
dilution from holding excessive cash balances. This is a three-year
facility, with a maturity date of November 2024. In December 2021,
the Company increased its existing facility by GBP200 million to
GBP600 million and in January 2022 an additional one-year credit
facility of GBP400 million was agreed. Aggregate credit facilities
totalled GBP1 billion at 31 March 2022. At 31 March 2022 the total
amount drawn was GBP231 million.
NAV per share
The total NAV per share at 31 March 2022 was 303.3 pence (2021:
268.1 pence). This reduces to 298.1 pence (2021: 263.2 pence) after
the payment of the final dividend of 5.225 pence (2021: 4.9 pence).
There are no dilutive securities in issue.
Dividend and dividend cover
The Board has proposed a dividend for the year of 10.45 pence
per share, or GBP93 million in aggregate (2021: 9.8 pence; GBP87
million). This is in line with the Company's target announced in
May last year.
When considering the coverage of the proposed dividend, the
Board assesses the income earned from the portfolio, interest
received on cash balances and any additional non-income cash
distributions from portfolio assets which do not follow from a
disposal of the underlying assets, as well as the level of ongoing
operational costs incurred in the year. The Board also takes into
account any surpluses retained from previous years, and net capital
profits generated through asset realisations, which it considers
available as dividend reserves for distribution.
Table 14: Summary balance sheet (year to 31 March, GBPm)
2022 2021
Portfolio assets 2,873 1,802
Cash balances 17 463
Derivative financial instruments 8 37
Borrowings (231) -
Other net assets (including vendor loan notes) 37 88
NAV 2,704 2,390
Table 15 shows the calculation of dividend coverage and dividend
reserves. The dividend was fully covered for the year with no
surplus (2021: no surplus).
The retained amount available for distribution, following the
payment of the final dividend, the realised loss over cost relating
to the India Fund that was previously unrealised and the
performance fee will be GBP794 million (2021: GBP868 million). This
is a substantial surplus, which is available to support the
Company's progressive dividend policy, particularly should
dividends not be fully covered by income in a future year. A
shortfall could arise, for example, due to holding substantial
uninvested cash or through lower distributions being received from
portfolio companies in order to preserve liquidity.
Table 16 shows that the Company has consistently covered the
dividend over the last five years.
Table 15: Dividend cover (year to 31 March, GBPm)
2022 2021
Total income, other income and non-income cash 143 117
Operating costs including management fees (50) (30)
Dividends paid and proposed (93) (87)
Dividend surplus for the year - -
Dividend reserves brought forward from prior year 868 876
Realised loss over cost on disposed assets (20) (1)
Performance fees (54) (7)
Dividend reserves carried forward 794 868
Table 16: Dividend cover (five years to 31 March 2022, GBPm)
Net Dividend
income(1)
Mar 2018(2) 116 72
Mar 2019 165 70
Mar 2020 105 82
Mar 2021 87 87
Mar 2022 93 93
1 Net income is Total income, other income and non-income cash less operating
costs.
2 A return of capital to shareholders in 2018 reduced the FY18 final
dividend payment.
Sensitivities
The sensitivity of the portfolio to key inputs to our valuations
is shown in Table 17 and described in more detail in Note 7 to the
accounts. The portfolio valuations are positively correlated to
inflation. The longer-term inflation assumptions beyond two years
remain consistent with central bank targets, eg UK CPI at 2%.
The sensitivities shown in Table 17 are indicative and are
considered in isolation holding all other assumptions constant.
Timing and quantum of price increases will vary across the
portfolio and the sensitivity may differ from that modelled.
Changing the inflation rate assumption may necessitate
consequential changes to other assumptions used in the valuation of
each asset.
Table 17: Portfolio sensitivities (year to 31 March 2022)
-1% +1%
Discount rate GBP297m/10.3% GBP(258m)/9.0%
Inflation (for two years) GBP(46m)/1.6% GBP43m/1.5%
Interest rate GBP156m/5.4% GBP(158m)/5.5%
Alternative Performance Measures ('APMs')
We assess our performance using a variety of measures that are
not specifically defined under IFRS and are therefore termed APMs.
The APMs that we use may not be directly comparable with those used
by other companies. These APMs provide additional information of
how the Company has performed over the year and are all financial
measures of historical performance.
The APMs are consistent with those disclosed in prior years.
-- Total return on opening NAV reflects the performance of the
capital deployed by the Company during the year. This measure is
not influenced by movements in share price or ordinary dividends to
shareholders. This is a common APM used by investment
companies.
-- The NAV per share is a measure of the underlying asset base
attributable to each ordinary share of the Company and is a useful
comparator to the share price. This is a common APM used by
investment companies.
-- Total income and non-income cash is used to assess dividend
coverage based on distributions received and accrued from the
investment portfolio.
-- Investment value including commitments measures the total
value of shareholders' capital deployed by the Company.
-- Total portfolio return percentage reflects the performance of
the portfolio assets during the year.
The definition and reconciliation to IFRS of the APMs is shown
below.
The table below defines our APMs.
APM Purpose Calculation Reconciliation to IFRS
Total return on A measure of the overall It is calculated as the total The calculation uses IFRS
opening NAV financial performance of the return of GBP404 million, as measures.
Company. shown in the Statement of
comprehensive
income, as a percentage of the
opening NAV of GBP2,390 million
For further information see the net of the final dividend for
KPI section. the previous year of GBP44
million.
NAV per share A measure of the NAV per share It is calculated as the NAV The calculation uses IFRS
in the Company. divided by the total number of measures and is set out in Note
shares in issue at the balance 14 to the accounts.
sheet date.
Total income and A measure of the income and It is calculated as the total Total income uses the IFRS
non-income cash other cash receipts by the income from the underlying measures Investment income and
Company which support the portfolio and other assets plus Interest receivable. The
payment of non-income non-income
expenses and dividends. cash being the repayment of cash, being the proceeds from
shareholder loans not resulting partial realisations of
from the disposal of an investments are shown in the
underlying Cash flow
portfolio asset. statement. The realisation
proceeds which result from a
partial sale of an underlying
portfolio
asset are not included within
non-income cash.
Investment A measure of the size of the It is calculated as the The portfolio asset value uses
value including investment portfolio including portfolio asset value plus the IFRS measures. The value of
commitments the value of further contracted amount of the contracted future commitments is set out
future investments committed by commitment. in
the Company. Note 16 to the accounts.
Total portfolio A measure of the financial It is calculated as the total The calculation uses capital
return percentage performance of the portfolio. portfolio return in the year of return (including exchange),
GBP509 million, as shown in movement in fair value of
Table 1, as a percentage of the derivatives,
sum of the opening value of the underlying portfolio income,
portfolio and investments opening portfolio value and
in the year (excluding investment in the year. The
capitalised interest) of reconciliation
GBP2,565 million. of all these items to IFRS is
shown in Table 1 including in
the footnotes.
Risk report
"Effective risk management is at the heart of everything we do
as a Board."
Wendy Dorman
Chair, Audit and Risk Committee
Introduction
At the start of the year, the Audit and Risk Committee (the
'Committee'), alongside the Investment Manager, began a new
three-year cycle of risk reviews to identify and consider the
impact and likelihood of the key, principal and emerging risks
facing the Company today. A number of risks were reassessed to
reflect developments in the year, and the list of emerging risks
was refreshed. The Committee updated the risk register and risk
matrix as a result of the analysis conducted during the year, and
considered the alignment of the principal risks identified to the
Company's strategic objectives.
The following sections explain how we identify and manage risks
to the Company. We outline the key risks, our assessment of their
potential impact on the Company and our portfolio in the context of
the current environment and how we seek to mitigate them.
Approach to risk governance
The Board is ultimately responsible for the risk management of
the Company. It seeks to achieve an appropriate balance between
mitigating risk and generating long-term sustainable risk-adjusted
returns for shareholders. Integrity, objectivity and accountability
are embedded in the Company's approach to risk management.
The Board exercises oversight of the risk framework, methodology
and process through the Committee. The risk framework is designed
to provide a structured and consistent process for identifying,
assessing and responding to risks. The Committee ensures that there
is a consistent approach to risk across the Company's strategy,
business objectives, policies and procedures.
The Company is also reliant on the risk management frameworks of
the Investment Manager and other key service providers, as well as
on the risk management operations of each portfolio company.
The Board manages risks through reports from the Investment
Manager and other service providers and through representation on
portfolio companies' boards by the Investment Manager's team
members.
Risk framework
Risk related reporting
Internal External - Annual report
-- Monthly management accounts -- Risk appetite
-- Internal and external audit reports -- Viability statement
-- Service provider control reports -- Internal controls
-- Risk logs -- Going concern
-- Compliance reports -- Statutory/accounting disclosures
-- Risk related reporting
Risk appetite
During the year, the Committee discussed the Company's risk
appetite and concluded that it remained broadly stable. As an
investment company, the Company seeks to take investment risk. The
appetite for investment risk is described previously in the Our
approach section, and in the Investment policy towards the end of
this document. Investments are made subject to the Investment
Manager's Responsible Investment policy, which addresses an
important element of our appetite for investment risk. Given the
strong competition for new investments, investment discipline
remains a key consideration. The target risk-adjusted objective of
delivering 8% to 10% return per annum over the medium term remains
consistent with our current portfolio investment cases, including
our recent new investments. It is expected that as the portfolio
expands, the range of expected returns in individual investment
cases may also expand to include higher risk/return 'value add'
cases and lower risk/return 'core' investments. We recognise that
this has the potential to result in greater volatility in returns
on an individual asset basis.
The benefits of diversification across sectors, countries and
types of underlying economic risk will mitigate this volatility,
and the Company has sought to build a diverse portfolio while
considering carefully the underlying risks to which our portfolio
companies are exposed. The Committee concluded that the risk
appetite of the Company for economic infrastructure investments has
not changed, and remains appropriate for our investment mandate and
target returns. The Covid-19 pandemic provided a severe test of the
appropriateness of the Company's risk appetite, and its
attractiveness to investors. The portfolio overall has been
resilient, and benefitted from diversification across
infrastructure subsectors and types of underlying risks.
The key tools used by the Committee to define the Company's risk
appetite and to determine the appetite for key risks are the risk
register and the risk matrix. The process of creating and reviewing
the risk register and risk matrix is described below, together with
a discussion of the Company's appetite for each of the key risks.
Beyond the appetite for investment risk discussed above, the
Company seeks to limit or manage exposure to other risks to
acceptable levels.
Risk review process
The Company's risk review process includes the monitoring of key
strategic and financial metrics considered to be indicators of
potential changes in its risk profile. The review includes, but is
not limited to, the following:
-- infrastructure and broader market overviews;
-- key macroeconomic indicators and their impact on the
performance and valuation of portfolio companies;
-- regular updates on the operational and financial performance of portfolio companies;
-- experience of investment and divestment processes;
-- compliance with regulatory obligations, including climate-related regulation;
-- analysis of new and emerging regulatory initiatives;
-- liquidity management;
-- assessment of climate risks to the portfolio, including
physical, transition and litigation risks;
-- consideration of scenarios that may impact the viability of the Company;
-- assessment of emerging risks; and
-- review of the Company's risk log.
Risk register review process
October 2021
Directors identify and score the principal, key and emerging
risks facing 3iN
December 2021
Analysis and interpretation of responses
April 2022
Risk register and risk matrix updated
January 2022
Impact and likelihood of the identified risks considered
The Committee uses the risk framework to identify emerging and
key risks, and to evaluate changes in risks over time. Developments
during the year in the more significant key risks or 'principal
risks' are discussed later in this document. These are risks that
the Committee considers to have the potential to materially impact
the delivery of our strategic objectives.
The Committee evaluates the probability of each identified risk
materialising and the impact it may have, with reference to the
Company's strategy and business model.
The review process was updated this year to assess the
likelihood and impact of each risk over two timeframes, within
three years and beyond three years. The evaluation of these key
risks is then presented on a risk matrix. Mitigating controls have
been developed for each risk and the adequacy of the mitigation is
then assessed and, if necessary, additional controls are
implemented and reviewed by the Committee at a subsequent
meeting.
The Committee considers the identified principal risks in
greater detail in the assessment of the Company's viability.
A number of scenarios have been developed to reflect plausible
outcomes should the principal risks be experienced, as well as
consideration of stressed scenarios that could result in the
Company ceasing to be viable.
As the Company is an investment company, the stressed scenarios
reflect reduced cash flows from the Company's investment portfolio,
such that debt covenants are breached and liabilities not met.
Following the invasion of Ukraine, a scenario was developed this
year for a new emerging risk of an escalation of this conflict in
Europe.
The Investment Manager models the impact of these scenarios on
the Company and reports the results to the Committee. The resulting
assessment of viability is included in this Risk report.
Review during the year
Early in the financial year, the Committee engaged EY to
benchmark the Company's risk review process and to facilitate a
workshop with the Committee to consider improvements to the
process. Presentation of the results of the benchmarking exercise
and the workshop took place in September 2021. The risk review
process was subsequently updated to consider the likelihood and
impact of the key risks over two timeframes. The 'blank sheet of
paper' element of the risk review process, conducted at the start
of each three-year cycle of reviews, was considered to be best
practice against the benchmarking undertaken.
Risk categorisation
The Committee uses the following categorisation to describe risks
that are identi ed during the risk review process.
Emerging risks Key risks Principal risks
An emerging risk is one A key risk is considered The Committee maintains
that may currently to pose the a risk matrix, onto which
in future be likely to risk of a material impact the key risks are mapped
have a material impact on the Company. Risks by impact and likelihood.
on the performance of may be identi ed as emerging The principal risks are
the Company and the achievement risks and subsequently identi ed on the risk
of our long-term objectives, become key risks. Identi matrix as those with
but that is not yet considered ed key risks may cease the highest combination
to be a key risk. to be considered key of impact and likelihood
over time. scores.
In October 2021, the Committee instigated a process designed to
identify and score the key risks and update the list of emerging
risks currently facing the Company. This started with the 'blank
sheet of paper' exercise where each Director, and several members
of the Investment Manager's team, identified the top risks facing
the Company. In December 2021, the Committee analysed the data
collected and identified the principal risks facing the Company,
scoring each for impact and likelihood (within a three year period
and beyond a three year period). In January 2022, the results of
the principal risk scoring were considered and assessed and
additional changes made.
In March and April 2022, the Committee reviewed the updated risk
register and risk matrix and the Company's appetite for each of the
key risks.
We have a relatively diverse spread of assets in the portfolio
and it is important that risk diversity is maintained as we evolve
the portfolio through new investments and realisations.
Future realisations may continue the evolution of risk in the
portfolio in line with our strategy and allow the Company to manage
its exposure to more sensitive assets, or to take account of where
the risk profile of an asset has changed over time.
We are confident that the portfolio remains defensive and
resilient, and in a position to benefit from asymmetric returns in
rising or declining markets (taking more of the upside in a rising
market, and benefitting from protection in a downside). We believe
the current appetite for risk is appropriate.
Emerging risks
The Company is a long-term investor and therefore needs to
consider the impact of both identified key risks, as detailed
below, and risks that are considered emerging or longer-term. Risk
categorisation, including the definition of emerging risk, is shown
above.
The Board and the Investment Manager consider these factors when
reviewing the performance of the portfolio and when evaluating new
investments, seeking to identify which factors present a potential
risk and can either be mitigated or converted into
opportunities.
As part of the ongoing risk identification and management of the
Company, the Committee considers whether these emerging risks
should be added to the Company's risk register. The risk register
is a 'live' document that is reviewed and updated regularly by the
Committee as new risks emerge and existing risks change. Examples
of emerging risks that were considered during the year include the
impact of changes in technology on our portfolio companies, a
future pandemic, divergence between the UK and the EU regulation
increasing friction over trade in goods and services, and
escalating regulatory reporting requirements. The risk of an
escalation of the war in Ukraine was added to the list of emerging
risks this year.
Key risks
Key risks are mapped by impact and likelihood on a risk matrix.
During the year, the Committee considered the development of all
the key risks in detail. Within the category of key risks, the
principal risks identified by the Committee in the financial year
are set out in the Principal risks and mitigation table below,
alongside how the Company seeks to mitigate these risks.
Market and economic risk was considered the top risk facing the
Company. This includes the consequences of sanctions on Russia and
Russian companies, the recovery from the Covid-19 pandemic,
increased commodity and energy prices, rising inflation and
interest rates, supply chain constraints and a heightened risk of
recession.
The risk review showed a high level of consistency with the
prior year, with a small number of changes in the key risks
identified. The assessment of likelihood and impact of the key
risks resulted in some changes to the principal risks facing the
Company.
The risk of having an unbalanced portfolio is considered to have
decreased following the new investments made in the year which have
increased the diversity of the portfolio. Following that high level
of new investment, the management of liquidity risk is considered
to have increased and become a principal risk.
The risk of poor investment performance is considered to have
increased such that it is now a principal risk, reflecting the risk
at individual portfolio company level of increased market and
economic risk alongside the evolution of underlying risks in our
portfolio consistent with our investment strategy to focus on
economic infrastructure assets. The risk of an inappropriate rate
of investment is considered to have decreased this year, with a
good flow of new investment opportunities through the pipeline
which converted into a good number of new and follow-on
investments.
Exposure to competition risk is considered to have increased
further reflecting the level of fund raising by other asset
managers including several new listed funds.
These changes are reflected in the table of Principal risks and
mitigations table below.
Covid-19
The Covid-19 pandemic was a major test of the business models of
all companies. The resilient response of our portfolio companies
was consistent with our strategy and with the characteristics that
we look for in infrastructure investments. We are encouraged by the
strength of the performance of our portfolio this year as Europe
recovers from the pandemic and restrictions are eased in the
countries in which we invest. More detail can be found in the
Investment Manager's review and elsewhere in this Risk report.
Climate risk
There is an increased focus on sustainability and ESG amongst
our shareholders and in the wider market. Although there is still
much uncertainty around the extent and timing of the impact of
climate change, government and societal action, and future
regulations, we recognise that climate-related risk is a key risk
as well as an investment theme for the Company. In our review this
year, we decided to separate climate-related risk into two distinct
but related risks.
Climate regulation risk has been added to the risk register, to
address the regulatory risk to the Company and the portfolio
associated with the transition to a low-carbon economy. The
existing climate risk was amended to address the physical and
transition risks from climate change on the portfolio.
We have increased our disclosures and reporting on climate risk
and our Investment Manager has evolved its proprietary ESG tool to
allow us to assess this and other risks in more detail across the
portfolio. This year, the Investment Manager added consideration of
ESG risks, including climate risks, earlier in the investment
process.
Our progress in TCFD reporting is described in the
Sustainability report of the Annual report and accounts 2022, and
this now includes GHG emissions reporting for scopes 1 and 2 for
our portfolio companies.
All of the companies in our portfolio recognise the importance
of considering climate change and of evolving a sustainable
business model. As discussed in the Sustainability report of the
Annual report and accounts 2022, the physical and transition
climate-related risks are also seen as opportunities for all
companies in our portfolio.
There are no acute physical nor transition risks identified in
the portfolio that would suggest that climate risk is a principal
risk, although an example of the impact of a transition risk is the
introduction of a tax on imported waste or a carbon tax in the
Netherlands, which impacts Attero, and the risk of early
decommissioning of oil and gas assets which impacts some customers
of Tampnet and ESVAGT. We consider that the mitigating controls at
the Company and the Investment Manager over climate regulation risk
prevent this from being a principal risk at the moment.
Principal risks and mitigations
External
Principal risk Risk description Risk mitigation
Market/economic -- Macroeconomic or market volatility, such -- Resources and experience of the
as may arise from the consequences of the Investment Manager on deal-making, asset
Risk exposure invasion management and
movement in the year of Ukraine and from the effects on hedging solutions to market volatility
Increased economies of the Covid-19 pandemic, ows -- Periodic legal and regulatory updates
through to pricing, on the Company's markets and in-depth
Link to Strategic valuations and portfolio performance market and
priorities -- Fiscal tightening impacts market sector research from the Investment
Manage portfolio intensively environment Manager and other advisers
-- Risk of sovereign default lowers market -- Portfolio diversi cation to mitigate
sentiment and increases volatility the impact of a downturn in any geography
-- Misjudgement of in ation and/or interest or sector
rate outlook or portfolio company-specific effects
-- The permanent capital nature of an
investment trust allows us to look through
market volatility
and the economic cycle
Competition -- Increased competition for the -- Continual review of market data and
acquisition of review of Company return target compared
Risk exposure assets in the Company's strategic focus to market
movement in the year areas returns
Increased -- Deal processes become more competitive -- Origination experience and disciplined
and prices increase approach of Investment Manager
Link to Strategic -- New entrants compete with a lower cost -- Strong track record and strength of 3i
priorities of capital Infrastructure brand
Disciplined approach
Debt markets -- Debt becomes increasingly expensive, -- The Investment Manager maintains close
deteriorate eroding returns relationships with a number of banks and
Risk exposure -- Debt availability is restricted monitors
movement in the year -- The Company's RCF or portfolio company the market through transactions and advice
No significant change debt cannot be re nanced due to lack of -- Regular reporting of Company liquidity
appetite and portfolio company re nancing
Link to Strategic priorities from banks requirements
Manage portfolio intensively -- Investment Manager has extensive
experience in raising debt finance for
portfolio companies,
alongside an in-house Treasury team to
provide advice on treasury issues
-- Active management of portfolio company
debt facilities, with fixed rates and long
duration
of debt
Operational
Principal risk Risk description Risk mitigation
Loss of senior Investment -- Members of the deal team at the -- Benchmarked compensation packages and
Manager staff Investment Manager leave and 'deal-doing' deferred remuneration
and portfolio -- Notice periods within employment
Risk exposure management capability in the short to medium contracts
movement in the year term is restricted -- Strength and depth of the senior team and
No significant change strength of the 3i Group brand
-- Careful management of senior management
Link to Strategic transition
priorities
Invest responsibly
Sustainability key driver
Strategic
Principal risk Risk description Risk mitigation
Management of liquidity -- Failure to manage the Company's -- Regular reporting of current and
liquidity, including cash and available projected liquidity
Risk exposure credit facilities -- Investment and planning processes
movement in the year -- Insufficient liquidity to pay dividends consider sources of liquidity
Increased and operating expenses or to make new -- Flexible funding model, where liquidity
investments can be sought from available cash balances
Link to Strategic -- Hold excessive cash balances, introducing including
priorities cash drag on the Company's returns reinvestment of proceeds from realisations,
Disciplined approach committed credit facilities which can be
increased
with approval from our lenders, and the
issue of new share capital
Deliverability of -- Failure to ensure the investment strategy -- Market returns are reviewed regularly
return target can deliver the return target and dividend -- The Investment Manager and other advisers
policy to the Company report on market positioning
Risk exposure of the Company -- Investment process addresses expected
movement in the year -- Failure to adapt the strategy of the return on new investments and the impact on
No significant change Company to changing market conditions the portfolio
-- Consideration of risks, including ESG and
climate risks, in the investment process
Link to Strategic
priorities
Invest responsibly
Sustainability key driver
Investment
Principal risk Risk description Risk mitigation
Security of assets -- An incident, such as a cyber or terrorist -- Regular review of the Company and key
Risk exposure attack service providers
movement in the year -- Unauthorised access of information and -- Regular review and update of cyber due
No significant change operating systems diligence for potential investments
-- Regulatory and legal risks from failure -- Review of portfolio companies for cyber
to comply with cyber related laws and risk management and incident readiness
Link to Strategic regulations,
priorities including data protection
Invest responsibly
Sustainability key driver
Poor investment performance -- Misjudgement of the risk and return -- Robust investment process with thorough
Risk exposure attributes of a new investment challenge of the investment case supported
movement in the year -- Material issues at a portfolio company by detailed
Increased -- Poor judgement in the realisation of an due diligence
asset -- Investment Manager's active asset
Link to Strategic management approach including proactive
priorities management of
Invest responsibly issues arising at portfolio company level
Sustainability key driver -- Experience of the Investment Manager's
team in preparing for and executing
realisations
of investments
Development of significant key risks in the year
The disclosures in the Risk report are not an exhaustive list of
risks and uncertainties faced by the Company, but rather a summary
of significant key risks which are under active review by the
Board. These significant key risks have the potential to affect
materially the achievement of the Company's strategic objectives
and impact its financial performance. This disclosure shows
developments in these significant key risks for the year. The risks
that have been identified as principal risks are described in more
detail in the Principal risks and mitigations table.
External risks - market and competition
The markets in which the Company seeks to invest, and in
particular the European economic infrastructure market, are more
competitive than ever, with strong demand for new investments.
Competition continued to increase as the infrastructure sector has
demonstrated its resilience during the pandemic.
In this environment, the Investment Manager continues to
leverage its network and skills to look for investments that can
deliver attractive and sustainable risk-adjusted returns to the
Company's shareholders.
The Company achieved a high level of new investment in the year,
while avoiding the most heavily competed processes in the
market.
Inflation in the UK and Europe has risen sharply in the year,
driven by rising energy costs, supply chain bottlenecks, labour and
raw material shortages and the reopening of economies from
pandemic-related lockdowns. Higher inflation is generally positive
for the Company, particularly for assets which have revenues at
least partially linked to inflation, although higher inflation may
also result in increased costs.
Central bank base rates increased during the year, and these
increases are likely to continue in the coming year. This would
increase debt financing costs for our portfolio companies and could
also lead to increases in required rates of return on equity, both
of which would decrease portfolio company valuations. Long-term
fixed rate debt is in place across the majority of our portfolio
which mitigates the risk from interest rate changes in the shorter
term. The increase in competition noted above has led to required
rates of return on equity remaining at historic low levels.
The Company is exposed to movements in sterling exchange rates
against a number of currencies, most significantly the euro. The
Company operates a hedging programme which substantially offsets
volatility in returns from exchange rate movements. The Board
monitors the effectiveness of the Company's hedging policy on a
regular basis.
There are actual and potential indirect effects on portfolio
companies of the Russian invasion of Ukraine and the imposition of
sanctions on Russia and Russian businesses, including increasing
cost and wage inflation, availability of resources and disruptions
to normal market activities. However, the impact to date on
portfolio companies has been limited.
The valuation of our portfolio companies that generate
electricity, Infinis, Valorem and Attero, is affected by the
evolution of long-term power price forecasts and by fluctuations in
the spot power price. Volatility in prices is expected to continue
as thermal and nuclear plants are retired, there is growth in
intermittent renewables and increasing demand due to the
electrification of transport and heating, and due to the the war in
Ukraine. Infinis's electricity offtake arrangements include
contracts with Gazprom Marketing & Trading Ltd, a large
supplier in the UK non-domestic energy market. Whilst these
contracts are not currently affected by sanctions, Infinis is
actively replacing contracts where permitted and others will run
off over time.
We do not expect Infinis to be adversely affected by any
extension of sanctions or an insolvency process for Gazprom
Marketing & Trading Ltd.
Sanctions on Russia and Russian companies, together with the
recovery from the Covid-19 pandemic, has led to an increase in oil
prices. For Oystercatcher, the increase in oil prices has led to a
backwardation market structure which, together with recent market
volatility, may maintain some short-term downward pressure on
pricing of contract renewals.
Ionisos is a provider of cold sterilisation and ionising
radiation treatment services to the medical, pharmaceutical,
plastics and cosmetics industries. Gamma radiation, one of the
three methods of cold sterilisation used, relies on the radioactive
decay of Cobalt-60, a scarce resource. Ionisos's Estonian business
has in the past sourced Cobalt-60 from a Russian-owned company,
JSC. Whilst JSC is not currently subject to sanctions, Ionisos will
not source new Cobalt-60 from JSC for the foreseeable future and is
seeking alternative sources of supply. The capacity of the Estonian
business would reduce over time until new Cobalt-60 is sourced.
Air traffic movements and passenger numbers remain substantially
below the levels seen before the Covid-19 pandemic, although they
are now showing signs of recovery. The timing and extent of future
recovery remains uncertain. This affects TCR more than other
companies in our portfolio, although we are pleased with the
performance of TCR over the duration of the pandemic and the strong
performance this year as the industry starts to recover. We have
maintained our assumption of a longer-term return to pre-pandemic
levels of air travel by 2024.
External risks - regulatory and tax
The Company's investment in Infinis is exposed to electricity
market regulation risk around the future of network access and
charging arrangements. It is possible that this could affect the
valuation of Infinis, and we are closely monitoring the position.
The direction of network access charging reform is for more
location-based charging which in principle should benefit
generators such as Infinis with sites predominantly in
demand-dominated areas.
Ofgem is progressing a series of reviews and consultations
following its recent Significant Code Review, resulting in a degree
of regulatory uncertainty for the foreseeable future.
The unprecedented fiscal stimulus that we have seen during the
Covid-19 pandemic has increased sovereign debt levels and a
consequence of this is likely to be higher taxes to balance the
deficit. The increase in the UK corporation tax rate from April
2023 is reflected in the valuations of Infinis, SRL and Tampnet and
the increase in the Dutch corporation tax rate from April 2022 is
reflected in the valuations of Joulz and Attero.
Strategic risks
The Company manages its balance sheet and liquidity position
actively, seeking to maintain adequate liquidity to pursue new
investment opportunities, while not diluting shareholder returns by
holding surplus cash balances. At 31 March 2022 there was GBP17
million available in cash, with drawings of GBP231 million under
the RCF. The Company increased the size of the committed credit
facilities during the year, with aggregate facilities of GBP1
billion at the date of this report.
The portfolio is diversified across sector and geography with no
investment above 17% of portfolio value.
Investment risks
Portfolio companies continue to experience fraud attempts, some
of which are successful, but none of which has had a material
impact on any of our companies. In the year the Investment Manager
commissioned a review of cyber controls by an independent IT
security provider, building upon a previous review by the same
company. No significant weaknesses in cyber security were
identified and the majority of more minor issues noted in the
review have been addressed. We remain vigilant and continue to
focus on effective operations of controls against possible
cyber-attack, particularly as this risk continues to increase
following the outbreak of war in Ukraine.
Further to the announcement in March 2021 that the facilities of
Steril Milano, a subsidiary of Ionisos, had been closed, Steril
Milano was placed into voluntary liquidation during the period.
This was fully provided for in the March 2021 valuation of Ionisos.
Steril Milano represented c.3% of Ionisos's 2020 EBITDA.
Operational risks
The key areas of operational risk include attracting and
retaining key personnel at the Investment Manager, and whether the
Investment Manager's team can continue to support the delivery of
the Company's objectives. The team has strength and depth and the
transition in senior management has been carefully managed. The
Board monitors the performance of the Investment Manager through
the Management Engagement Committee. It also monitors the
performance of key service providers, receiving reports of any
significant control breaches.
Resilience statement
Our resilience comes from the effective implementation of our
business model. Key elements of our business model relating to
resilience include the Investment Manager's disciplined approach to
new investment and engaged asset management, the defensive
characteristics of our portfolio of investments, high ESG
standards, our flexible funding model and efficient balance sheet,
and the capability of the Investment Manager's team.
This is underpinned by the strong institutional culture and
values of our Investment Manager, high standards of corporate
governance, and effective risk management.
Over the life of the Company, the Investment Manager has built a
resilient and diversified portfolio with good growth potential and
downside protection that delivers an attractive mix of income yield
and capital appreciation for shareholders. This has been achieved
through consistent delivery of our strategic priorities.
Short-term resilience
The Directors assess the Company's short-term resilience through
monitoring portfolio, pipeline and finance reports. These are
prepared monthly, and discussed at quarterly scheduled Board
meetings and Board update calls held between scheduled meetings.
Six-monthly detailed investment reviews are prepared by the
Investment Manager and discussed with the Board, as part of the
half-yearly and annual valuation and reporting processes. These
reviews describe sources of risk at portfolio company level, and
mitigating actions being taken or considered.
The resilience of key suppliers, including the Investment
Manager, is considered annually or more frequently if appropriate.
The Audit and Risk Committee is provided with relevant extracts of
reports from the Investment Manager's internal audit team, which
includes an annual report on the European infrastructure investment
team. Further detail is included in the Governance section in the
Annual report and accounts.
The Directors manage the Company's liquidity actively, reviewing
reports on current and forecast liquidity from the Investment
Manager, alongside recommendations for seeking additional liquidity
when appropriate. Further discussion on the RCF can be found in the
Financial review section.
The identification of material uncertainties that could cast
significant doubt over the ability of the Company to continue as a
going concern forms the basis of the Going concern statement
below.
Going concern
The Company's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Strategic report and in the Financial statements
and related Notes to our Annual report and accounts to 31 March
2022. The nancial position of the Company, its cash ows, liquidity
position and borrowing facilities are described in the Financial
statements and related Notes to the accounts. In addition, Note 9
to the accounts includes the Company's objectives, policies and
processes for managing its capital, its nancial risk management
objectives, details of its nancial instruments and hedging
activities, and its exposures to credit risk and liquidity
risk.
The Directors have made an assessment of going concern, taking
into account the Company's cash and liquidity position, current
performance and outlook, which considered the impact of the
Covid-19 pandemic and the war in Ukraine, using the information
available up to the date of issue of these Financial
statements.
The Company has liquid nancial resources and a strong investment
portfolio providing a predictable income yield and an expectation
of medium-term capital growth. The Company manages and monitors
liquidity regularly, ensuring that it is suf cient.
At 31 March 2022, liquidity remained strong at GBP786 million
(2021: GBP763 million). Liquidity comprised cash and deposits of
GBP17 million (2021: GBP463 million) and undrawn facilities of
GBP769 million (2021: GBP300 million). The GBP200 million accordion
and GBP400 million additional facility both mature within 12 months
of the date of this report. In addition, the Company is able to
call the second tranche of the deferred consideration from the
realisation of WIG, GBP98 million with six weeks' notice and, in
June 2022, is expecting to receive GBP103 million from the sale of
its Projects portfolio.
The Company had an expected investment commitment of c.GBP300
million at 31 March 2022, relating to the equity cost for the
acquisition of GCX expected to close in the summer. The Company
expects to receive the WIG deferred consideration and the proceeds
from the sale of the Projects portfolio prior to the completion of
this investment.
The Company had ongoing charges of GBP36 million in the year to
31 March 2022, detailed in Table 13 in the Financial review, which
are indicative of the ongoing run rate in the short term. In
addition, the FY22 performance fee of GBP54 million (2021: GBP7
million) is due in three equal instalments with the rst instalment
payable in the next 12 months along with the second instalment of
FY21's performance fee and the third instalment of FY20's
performance fee, and a proposed nal dividend for FY22 of GBP47
million which is expected to be paid in July.
Although not a commitment, the Company has announced a dividend
target for FY23 of 11.15 pence per share. Income and non-income
cash is expected to be received from the portfolio investments
during the coming year, some of which will be required to support
the payment of this dividend target and the Company's other nancial
commitments.
The Directors have acknowledged their responsibilities in
relation to the Financial statements for the year to 31 March 2022.
After making the assessment on going concern, the Directors
considered it appropriate to prepare the Financial statements of
the Company on a going concern basis.
The Company has suf cient nancial resources and liquidity and is
well-positioned to manage business risks in the current economic
environment and can continue operations for a period of at least 12
months from the date of this report. This is supported by the
scenario analysis and stress testing described in the medium-term
resilience section and the viability statement. Accordingly, the
Directors continue to adopt the going concern basis in preparing
the Annual report and accounts.
Medium-term resilience
The assessment of medium-term resilience, which includes
modelling of stressed scenarios and reverse stress tests, considers
the viability and performance of the Company in the event of
specific stressed scenarios which are assumed to occur over a
three-year horizon. This stress testing forms the basis of the
Viability statement below.
The Directors consider that a three-year period to March 2025 is
an appropriate period to review for assessing the Company's
viability. This re ects greater predictability of the Company's
cash ows over that time period and increased uncertainty
surrounding economic, political and regulatory changes over the
longer term.
The stress testing focuses on the principal risks, but also
reflects those new and emerging risks that are considered to be of
sufficient importance to require active monitoring by the Audit and
Risk Committee. The scenarios used are described in the Viability
statement below. The medium-term resilience of the Company is
assessed through analysing the impact of these scenarios on key
metrics such as total return, income yield, net asset value,
covenants on the RCF and available liquidity.
Viability statement
The Directors consider the medium-term prospects of the Company
to be favourable. The Company has a diverse portfolio of
infrastructure investments, producing good and reasonably
predictable levels of income which cover the dividend and costs.
The defensive nature of the portfolio and of the essential services
that the businesses in which we invest provide to their customers
are being demonstrated in the current climate. The Investment
Manager has a strong track record of investing in carefully
selected businesses and projects and of driving value through an
engaged asset management approach. The Directors consider that this
portfolio can continue to meet the Company's objectives.
The Directors have assessed the viability of the Company over a
three-year period to March 2025. The Directors have taken account
of the current position of the Company, including its strong
liquidity position with GBP17 million of cash and GBP769 million of
undrawn credit facilities, its commitment of c.GBP300 million to
the new investment in GCX described in the Going concern section
above, and the principal risks it faces which are documented in
this Risk report.
The Directors have considered the potential impact on the
Company of a number of scenarios in addition to the Company's
business plan and recent forecasts, which quantify the nancial
impact of the principal risks occurring. These scenarios represent
severe yet plausible circumstances that the Company could
experience, including a signi cant impairment in the value of the
portfolio and a reduction in the cash ows available from portfolio
companies from a variety of causes.
The assessment was conducted over several months, during which
the proposed scenarios were evaluated by the Board, the assumptions
set, and the analysis produced and reviewed. Analysis included the
impact of an escalation of the war in Ukraine on our portfolio
companies and the impact of a resulting economic downturn. Other
considerations included the possible impact of climate-related
events and transition risks, widespread economic turmoil, a
reduction in cash distributions from portfolio companies to the
Company, a tightening of debt markets and the failure of a large
investment.
The assumptions used to model these scenarios included a fall in
value of some or all of the portfolio companies, a reduction in
cash ows from portfolio companies, a reduction in the level of new
investment, the imposition of additional taxes on distributions
from, or transactions in, the portfolio companies, an increase in
the cost of debt and restriction in debt availability, and an
inability for the Company to raise equity. The implications of
changes in the in ation, interest rate and foreign exchange
environment were also considered, separately and in
combination.
The results of this stress testing showed that the Company would
be able to withstand the impact of these scenarios occurring over
the three-year period. The Directors also considered scenarios that
would represent a serious threat to its liquidity and viability in
that time period. These scenarios were considered to be remote,
such as a fall in equity value of the portfolio of materially more
than 50% whilst being fully drawn on the RCF including the
accordion, or an equivalent fall in income.
Based on this assessment, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the three-year
period to March 2025.
Long-term resilience
As described above, the long-term resilience of the Company,
beyond the Viability statement period, comes from the effective
implementation of our business model and consistent delivery of our
strategic objectives.
Our approach to origination and portfolio construction, focus on
price discipline and engaged asset management approach enable us to
adapt in response to new and emerging risks and challenges
including climate change and developments in megatrends.
The characteristics that we look for in infrastructure
investments, support the long-term resilience of the Company. The
performance of the portfolio through the Covid-19 pandemic provided
good evidence of this. The underlying megatrends supporting the
longer-term resilience of each portfolio company are identified in
the Our approach section.
We have a long-term investment time horizon made possible by our
permanent capital base that is unconstrained by the fixed
investment period and fundraising cycle seen in private limited
partnership funds.
Although the scenarios and stress testing to support the
viability statement are modelled over a three-year time horizon,
the resilience shown by the Company, and its ability to recover
from these stressed situations, supports the assessment of our
resilience over a longer term than three years.
Directors' duties
Section 172 statement
The Directors are obliged to act honestly and in good faith with
a view to the best interests of the Company; and to exercise the
care, diligence and skill that a reasonably prudent person would
exercise in comparable circumstances.
The Directors fulfil their duties through the Company's
governance framework and through their delegation of discretionary
investment management authority to the Investment Manager.
The Company adheres to the AIC Code and it is the intention of
the AIC Code that the matters set out in section 172 Companies Act
2006 ('s172') are reported on to the extent they do not conflict
with Jersey law. The Directors exercise their duties by
understanding the views of the Company's key stakeholders and
considering all of the matters set out in s172 in both their
discussions and in decision making.
Board decisions are guided by the Company's purpose. The Board
acknowledges that not every decision made will necessarily result
in a positive outcome for every stakeholder group. Board decisions
often involve complex interactions of factors and require Directors
to understand and have regard to a range of stakeholder interests
and concerns. By considering the Company's purpose together with
its strategic priorities and having a clear process in place for
decision making, we can ensure that Board discussion has regard to
the potential impact of our decisions on each stakeholder group in
accordance with s172.
Under s172 a director of a company must act in a way they
consider in good faith would be most likely to promote the success
of the company for the benefit of its members as a whole, and in
doing so have regard to:
The likely consequences of any decision in the long term
Our purpose and strategy combined with the responsible
investment approach of the Investment Manager focuses on
sustainable returns and outcomes.
The impact of the Company's operations on the community and the
environment
We use our influence to promote a commitment in our portfolio
companies to mitigate any adverse environmental and social impacts,
and to enhance positive effects on their communities and the
environment.
The interests of the Company's employees
Whilst we do not have any employees, our purpose includes the
intention to have a positive impact on our portfolio companies and
their stakeholders, which includes the employees of those portfolio
companies.
The desirability of maintaining a reputation for high standards
of business conduct
Our success relies on maintaining a strong reputation and our
values and ethics are aligned to our purpose, our strategy and our
ways of working.
The need to foster the Company's business relationships with
suppliers, customers and others
We engage with all our stakeholders either directly or through
the Investment Manager.
The need to act fairly towards all members of the Company
The Board actively engages with its shareholders and balances
their interests when implementing our strategy.
Read more in our Annual report and accounts 2022, available on
our website
Accounts and other information
Statement of comprehensive income
For the year to 31 March
Year to Year to
31 March 31 March
2022 2021
Notes GBPm GBPm
Net gains on investments 7 384 118
Investment income 7 127 92
Fees payable on investment activities (3) (1)
Interest receivable 6 11
Investment return 514 220
Movement in the fair value of derivative financial instruments 5 (2) 22
Management and performance fees payable 2 (97) (31)
Operating expenses 3 (3) (3)
Finance costs 4 (5) (2)
Exchange movements (3) -
Profit before tax 404 206
Income taxes 6 - -
Profit after tax and profit for the year 404 206
Total comprehensive income for the year 404 206
Earnings per share
Basic and diluted (pence) 14 45.3 23.1
Statement of changes in equity
For the year to 31 March
Stated Total
capital Retained Capital Revenue shareholders'
account reserves(1) reserve(1) reserve(1) equity
For the year to 31 March 2022 Notes GBPm GBPm GBPm GBPm GBPm
Opening balance at 1 April 2021 779 1,282 330 (1) 2,390
Total comprehensive income for the year - - 324 80 404
Dividends paid to shareholders of the Company
during the year 15 - - (11) (79) (90)
Closing balance at 31 March 2022 779 1,282 643 - 2,704
Stated Total
capital Retained Capital Revenue shareholders'
account reserves(1) reserve(1) reserve(1) equity
For the year to 31 March 2021 Notes GBPm GBPm GBPm GBPm GBPm
Opening balance at 1 April 2020 779 1,282 196 12 2,269
Total comprehensive income for the year - - 134 72 206
Dividends paid to shareholders of the Company
during the year 15 - - - (85) (85)
Closing balance at 31 March 2021 779 1,282 330 (1) 2,390
1 The Retained reserves, Capital reserve and Revenue reserve are distributable reserves. Retained
reserves relate to the period prior to 15 October 2018. Further information can be found in
Accounting policy H.
Balance sheet
As at 31 March
2022 2021
Notes GBPm GBPm
Assets
Non-current assets
Investments at fair value through profit or loss 7 2,873 1,804
Derivative financial instruments 10 6 18
Total non-current assets 2,879 1,822
Current assets
Derivative financial instruments 10 20 25
Trade and other receivables 8 104 106
Cash and cash equivalents 17 462
Total current assets 141 593
Total assets 3,020 2,415
Liabilities
Non-current liabilities
Derivative financial instruments 10 (6) (2)
Trade and other payables 12 (38) (10)
Loans and borrowings 11 (231) -
Total non-current liabilities (275) (12)
Current liabilities
Derivative financial instruments 10 (12) (4)
Trade and other payables 12 (29) (9)
Total current liabilities (41) (13)
Total liabilities (316) (25)
Net assets 2,704 2,390
Equity
Stated capital account 13 779 779
Retained reserves 1,282 1,282
Capital reserve 643 330
Revenue reserve - (1)
Total equity 2,704 2,390
Net asset value per share
Basic and diluted (pence) 14 303.3 268.1
The Financial statements and related Notes were approved and
authorised for issue by the Board of Directors on 9 May 2022 and
signed on its behalf by:
Richard Laing
Chair
Cash flow statement
For the year to 31 March
Year to Year to
31 March 31 March
2022 2021
GBPm GBPm
Cash flow from operating activities
Purchase of investments (761) (43)
Proceeds from other financial assets 12 104
Proceeds from partial realisations of investments 140 14
Proceeds from full realisations of investments 8 30
Investment income(1) 54 51
Fees paid on investment activities (4) -
Operating expenses paid (4) (3)
Interest received - 1
Management and performance fees paid (50) (29)
Amounts received on the settlement of derivative contracts 27 6
Distributions from transfer of investments from unconsolidated subsidiaries (2) - 5
Net cash flow from operating activities (578) 136
Cash flow from financing activities
Fees and interest paid on financing activities (6) (2)
Dividends paid (90) (85)
Drawdown of revolving credit facility 955 -
Repayment of revolving credit facility (724) -
Net cash flow from financing activities 135 (87)
Change in cash and cash equivalents (443) 49
Cash and cash equivalents at the beginning of the year 462 413
Effect of exchange rate movement (2) -
Cash and cash equivalents at the end of the year 17 462
1 Investment income includes dividends of GBP24 million (2021: GBP6 million), interest of GBP30
million (2021: GBP43 million) and no distributions (2021: GBP2 million) received from unconsolidated
subsidiaries.
2 Following the change of tax residence of the Company from Jersey to the UK, several of the
investments held in unconsolidated subsidiaries domiciled outside the UK have been transferred
to be held directly by the Company.
Reconciliation of net cash flow to movement in net debt
For the year to 31 March
Year to Year to
31 March 31 March
2022 2021
Notes GBPm GBPm
Change in cash and cash equivalents (443) 49
Drawdown of revolving credit facility 11 (955) -
Repayment of revolving credit facility 11 724 -
Change in net (debt) / cash resulting from cash flows (674) 49
Movement in net (debt) / cash (674) 49
Net cash at the beginning of the year 462 413
Effect of exchange rate movement (2) -
Net (debt) / cash at the end of the year (214) 462
In the above reconciliation there were no non-cash
movements.
Significant accounting policies
Corporate information
3i Infrastructure plc (the 'Company') is a company incorporated
in Jersey, Channel Islands. The Financial statements for the year
to 31 March 2022 comprise the Financial statements of the Company
as defined in IFRS 10 Consolidated Financial Statements.
The preliminary results for the year ended 31 March 2022 have
been extracted from audited accounts which have not yet been
delivered to the Jersey Financial Services Commission. The
Financial statements set out in this announcement do not constitute
statutory accounts for the year ended 31 March 2022 or 31 March
2021. The financial information for the year ended 31 March 2021 is
derived from the statutory accounts from that year. The reports of
the auditors on the statutory accounts for the year ended 31 March
2022 and the year ended 31 March 2021 were unqualified.
The Financial statements included in this announcement were
authorised for issue by the Board of Directors on 9 May 2022.
Statement of compliance
These Financial statements have been prepared in accordance with
United Kingdom adopted International Financial Reporting Standards
('IFRS') and International Accounting Standards.
These Financial statements have also been prepared in accordance
with and in compliance with the Companies (Jersey) Law 1991.
Basis of preparation
In accordance with IFRS 10 (as amended), entities that meet the
definition of an investment entity are required to fair value
certain subsidiaries through profit or loss in accordance with IFRS
9 Financial Instruments, rather than consolidate their results. The
Company does not have any consolidated subsidiaries, which would
include subsidiaries that are not themselves investment entities
and provide investment-related services to the Company.
The Financial statements of the Company are presented in
sterling, the functional currency of the Company, rounded to the
nearest million except where otherwise indicated.
The preparation of financial statements in conformity with IFRS
requires the Board to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on experience and other factors
that are believed to be reasonable under the circumstances, the
results of which form the basis of determining the carrying values
of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
Going concern
The Financial statements are prepared on a going concern basis
as disclosed in the Risk report, as the Directors are satisfied
that the Company has the resources to continue in business for the
foreseeable future. The Directors have made an assessment of going
concern, taking into account a wide range of information relating
to present and future conditions, including the Company's cash and
liquidity position, current performance and outlook, which has
considered the impact of the recovery from the Covid-19 pandemic,
ongoing geopolitical uncertainties and current and expected
financial commitments using information available to the date of
issue of these Financial statements. As part of this assessment the
Directors considered:
-- the analysis of the adequacy of the Company's liquidity,
solvency and capital position. The Company manages and monitors
liquidity regularly ensuring it is adequate and sufficient. At 31
March 2022, liquidity remained strong at GBP786 million (2021:
GBP763 million). Liquidity comprised cash and deposits of GBP17
million (2021: GBP463 million) and undrawn facilities of GBP769
million (2021: GBP300 million). The GBP200 million accordion and
GBP400 million additional facility both mature within 12 months of
the date of this report. In addition, the Company is able to call
the second tranche of the deferred consideration from the
realisation of WIG of GBP98 million with six weeks' notice and, in
June 2022, is expecting to receive GBP103 million from the sale of
its Projects portfolio. Income and non-income cash is expected to
be received from the portfolio investments during the coming year,
a portion of which will be required to support the payment of the
dividend target and the Company's other financial commitments;
-- uncertainty around the valuation of the Company's assets as
set out in the Key estimation uncertainties section. The valuation
policy and process was consistent with prior years. This year a key
focus of the portfolio valuations at 31 March 2022 was an
assessment of the impact of the macroeconomic environment on the
operational and financial performance of each portfolio company. In
particular this focused on increasing inflationary pressures,
tightening debt markets, volatility in power prices, recovery from
the Covid-19 pandemic and ongoing geopolitical uncertainties. We
have incorporated into our cash flow forecasts a balanced view of
future income receipts and expenses; and
-- the Company's financial commitments. The Company had one
investment commitment at 31 March 2022 totalling c.GBP300 million
in GCX, a global data communications service provider. The Company
had ongoing charges of GBP36 million in the year to 31 March 2022,
detailed in Table 5 in the Financial review, which are indicative
of the ongoing run rate in the short term. The Company has a FY22
performance fee accrual of GBP54 million, a third of which is
payable within the next 12 months. The Company has a FY21
performance fee accrual of GBP4 million relating to the second and
third instalments of the FY21 fee, the second instalment being due
within the next 12 months, an accrual of GBP12 million relating to
the third instalment of the FY20 fee due within the next 12 months
and a proposed final dividend for FY22 of GBP47 million. In
addition, while not a commitment at 31 March 2022, the Company has
a dividend target for FY23 of 11.15 pence per share. In order to
meet the commitment to invest in GCX, the Company expects to
receipt the WIG deferred consideration and the proceeds from the
sale of the Projects portfolio prior to the completion of this
investment.
In addition to the considerations listed above there are a
number of mitigating actions within management control to enhance
available liquidity. These include seeking to extend the maturity
of available credit facilities, the timing of certain income
receipts from the portfolio and the level and timing of new
investments or realisations.
Having performed the assessment of going concern, the Directors
considered it appropriate to prepare the Financial statements of
the Company on a going concern basis. The Company has sufficient
financial resources and liquidity and is well placed to manage
business risks in the current economic environment and can continue
operations for a period of at least 12 months from the date of
these Financial statements.
Key judgements
The preparation of financial statements in accordance with IFRS
requires the Directors to exercise judgement in the process of
applying the accounting policies defined below. The following
policies are areas where a higher degree of judgement has been
applied in the preparation of the Financial statements.
(i) Assessment as investment entity - Entities that meet the
definition of an investment entity within IFRS 10 are required to
measure their subsidiaries at fair value through profit or loss
rather than consolidate them unless they provided
investment-related services to the Company. To determine that the
Company continues to meet the definition of an investment entity,
the Company is required to satisfy the following three
criteria:
(a) the Company obtains funds from one or more investors for the
purpose of providing those investor(s) with investment management
services;
(b) the Company commits to its investor(s) that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income, or both; and
(c) the Company measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Company meets the criteria as follows:
-- the stated strategy of the Company is to deliver stable
returns to shareholders through a mix of income yield and capital
appreciation;
-- the Company provides investment management services and has
several investors who pool their funds to gain access to
infrastructure related investment opportunities that they might not
have had access to individually; and
-- the Company has elected to measure and evaluate the
performance of all of its investments on a fair value basis. The
fair value method is used to represent the Company's performance in
its communication to the market, including investor presentations.
In addition, the Company reports fair value information internally
to Directors, who use fair value as the primary measurement
attribute to evaluate performance.
The Directors are of the opinion that the Company has all the
typical characteristics of an investment entity and continues to
meet the definition in the standard. This conclusion will be
reassessed on an annual basis.
(ii) Assessment of investments as structured entities - A
structured entity is an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity. Additional disclosures are required by
IFRS 12 for interests in structured entities, whether they are
consolidated or not. The Directors have assessed whether the
entities in which the Company invests should be classified as
structured entities and have concluded that none of the entities
should be classified as structured entities as voting rights are
the dominant factor in deciding who controls these entities.
(iii) Assessment of consolidation requirements - The Company
holds significant stakes in the majority of its investee companies
and must exercise judgement in the level of control of the
underlying investee company that is obtained in order to assess
whether the Company should be classified as a subsidiary.
The Company must also exercise judgement in whether a subsidiary
provides investment-related services or activities and therefore
should be consolidated or held at fair value through profit or
loss. Further details are shown in significant accounting policy 'A
Classification' below.
During the year, the Company set up seven wholly owned
subsidiary entities for new investments in SRL and GCX. The
Directors have assessed whether any of these entities provide
investment-related services and have concluded that they should not
be consolidated and that they should all be held at fair value
through profit or loss.
The adoption of certain accounting policies by the Company also
requires the use of certain critical accounting estimates in
determining the information to be disclosed in the Financial
statements.
Key estimation uncertainties
Valuation of the investment portfolio
The key area where estimates are significant to the Financial
statements and have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year is in the valuation of the investment
portfolio. The portfolio is well-diversified by sector, geography
and underlying risk exposures. The key risks to the portfolio are
discussed in further detail in the Risk report.
The majority of assets in the investment portfolio are valued on
a discounted cash flow basis which requires assumptions to be made
regarding future cash flows, terminal value and the discount rate
to be applied to these cash flows. The methodology for deriving the
fair value of the investment portfolio, including the key
estimates, is set out in the Portfolio valuation methodology
section. Refer to Note 7 for further details of the valuation
techniques, significant inputs to those techniques and sensitivity
of the fair value of these investments to the assumptions that have
been made.
The discount rate applied to the cash flows in each investment
portfolio company is a key source of estimation uncertainty. The
acquisition discount rate is adjusted to reflect changes in
company-specific risks to the deliverability of future cash flows
and is calibrated against secondary market information and other
available data points, including comparable transactions. The
discount rates applied to the investment portfolio at 31 March 2022
range from 10.0% to 13.2% (2021: 7% to 12%) and the weighted
average discount rate applied to the investment portfolio is 10.9%
(2021: 10.8%). The increase in the year is due to the introduction
of the new investments in SRL and DNS:NET to the portfolio at a
higher than average discount rate, mostly offset by small
reductions in discount rates for Oystercatcher, TCR, ESVAGT and
Valorem. The Projects portfolio is now valued on a sales basis and
therefore this investment has been removed from the discount rate
range.
The cash flows on which the discounted cash flow valuation is
based are derived from detailed financial models. These incorporate
a number of assumptions with respect to individual portfolio
companies, including: forecast new business wins or new orders;
cost-cutting initiatives; liquidity and timing of debtor payments;
timing of non-committed capital expenditure and construction
activity; the terms of future debt refinancing; and macroeconomic
assumptions such as inflation and oil and power prices. Future
power price projections are taken from independent forecasters and
changes in these assumptions will affect the future value of our
energy generating portfolio companies . The Summary of portfolio
valuation methodology section provides further details on some of
the assumptions that have been made in deriving a balanced base
case of cash flows.
The terminal value attributes a residual value to the portfolio
company at the end of the projected discrete cash flow period based
on market comparables. The terminal value assumptions consider
climate change risk and stranded asset risk. The valuation of each
asset has significant estimation in relation to asset specific
items but there is also consideration given to the impact of wider
megatrends such as the transition to a lower-carbon economy and
climate change. The effects of climate change, including extreme
weather patterns or rising sea levels in the longer term could
impact the valuation of the assets in the portfolio in different
ways. The Summary of portfolio valuation methodology section
earlier in this document provides further details on some of the
assumptions that have been made in deriving terminal values and
some of the risk factors considered in the cash flow forecasts, for
example in relation to the inflationary headwinds currently being
experienced.
New and amended standards adopted for the current year
Standards and amendments to standards applicable to the Company
that became effective during the year and were adopted by the
Company on 1 April 2021 are listed below.
Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16) (1 January 2021)
This amendment has not had a material impact on the Financial
statements.
Standards and amendments issued but not yet effective
As at 31 March 2022, the following new or amended standards,
which have not been applied in these Financial statements, had been
issued by the International Accounting Standards Board ('IASB') but
are yet to become effective.
Amendments to IAS 1 Classification of Liabilities as Current or
Non-current (1 January 2023)
Amendments to IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors (1 January 2023)
Amendments to IAS 16 Property, Plant and Equipment - Proceeds
before Intended Use (1 January 2022)
Amendments to IAS 37 Provisions, Contingent Liabilities and
Contingent Assets - Onerous Contracts (1 January 2022)
Amendments to IFRS 3 Business Combinations (1 January 2022)
Amendments to IFRS 17 Insurance contracts (1 January 2022)
Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 resulting from
Annual Improvements to IFRS 2018-2020 Cycle
(1 January 2022)
The Company intends to adopt these standards when they become
effective, however does not currently anticipate the standards will
have a significant impact on the Company's financial statements.
Current assumptions regarding the impact of future standards will
remain under consideration in light of interpretation notes as and
when they are issued.
A Classification
(i) Subsidiaries - Subsidiaries are entities controlled by the
Company. Control exists when the Company is exposed, or has rights,
to variable returns from its involvement with the subsidiary entity
and has the ability to affect those returns through its power over
the subsidiary entity. In accordance with the exception under IFRS
10 Consolidated Financial Statements, the Company only consolidates
subsidiaries in the Financial statements if they are deemed to
perform investment-related services and do not meet the definition
of an investment entity. Investments in subsidiaries that do not
meet this definition are accounted for as Investments at fair value
through profit or loss with changes in fair value recognised in the
Statement of comprehensive income in the year. The Directors have
assessed all entities within the structure and concluded that there
are no subsidiaries of the Company that provide investment-related
services or activities.
(ii) Associates - Associates are those entities in which the
Company has significant influence, but not control, over the
financial and operating policies. Investments that are held as part
of the Company's investment portfolio are carried in the Balance
sheet at fair value even though the Company may have significant
influence over those entities.
(iii) Joint ventures - Interests in joint ventures that are held
as part of the Company's investment portfolio are carried in the
Balance sheet at fair value. This treatment is permitted by IFRS 11
and IAS 28, which allows interests held by venture capital
organisations where those investments are designated, upon initial
recognition, as at fair value through profit or loss and accounted
for in accordance with IFRS 9 with changes in fair value recognised
in the Statement of comprehensive income in the year.
B Exchange differences
Transactions entered into by the Company in a currency other
than its functional currency are recorded at the rates ruling when
the transactions occur. Foreign currency monetary assets and
liabilities are translated to the functional currency at the
exchange rate ruling at the balance sheet date. Foreign exchange
differences arising on translation to the functional currency are
recognised in the Statement of comprehensive income. Foreign
exchange differences relating to investments held at fair value
through profit or loss are shown within the line Net gains on
investments. Foreign exchange differences relating to other assets
and liabilities are shown within the line Exchange movements.
Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated using the
exchange rate at the date of the transactions. Non-monetary assets
and liabilities denominated in foreign currencies that are stated
at fair value are translated to the functional currency using
exchange rates ruling at the date the fair value was determined
with the associated foreign exchange difference being recognised
within the unrealised gain or loss on revaluation of the asset or
liability.
C Investment portfolio
Recognition and measurement - Investments are recognised and
de-recognised on a date where the purchase or sale of an investment
is under a contract whose terms require the delivery or settlement
of the investment. The Company manages its investments with a view
to profiting from the receipt of investment income and obtaining
capital appreciation from changes in the fair value of investments.
Therefore, all quoted investments and unquoted investments are
measured at fair value through profit or loss upon initial
recognition and subsequently carried in the Balance sheet at fair
value, applying the Company's valuation policy. Acquisition related
costs are accounted for as expenses when incurred.
Net gains or losses on investments are the movement in the fair
value of investments between the start and end of the accounting
period, or investment disposal date, or the investment acquisition
date and the end of the accounting period, including divestment
related costs where applicable, converted into sterling using the
exchange rates in force at the end of the period; and are
recognised in the Statement of comprehensive income.
Income
Investment income is that portion of income that is directly
related to the return from individual investments. It is recognised
to the extent that it is probable that there will be an economic
benefit and the income can be reliably measured.
The following specific recognition criteria must be met before
the income is recognised:
-- dividends from equity investments are recognised in the
Statement of comprehensive income when the Company's rights to
receive payment have been established. Special dividends are
credited to capital or revenue according to their
circumstances;
-- interest income from loans that are measured at fair value
through profit or loss is recognised as it accrues by reference to
the principal outstanding and the effective interest rate
applicable, which is the rate that exactly discounts the estimated
future cash flows through the expected life of the financial asset
to the asset's carrying value or principal amount. The remaining
changes in the fair value movement of the loans are recognised
separately in the line Net gains on investments in the Statement of
comprehensive income;
-- distributions from investments in Limited Partnerships are
recognised in the Statement of comprehensive income when the
Company's rights as a Limited Partner to receive payment have been
established; and
-- fees receivable represent amounts earned from investee
companies on completion of underlying investment transactions and
are recognised on an accruals basis once entitlement to the revenue
has been established.
D Fees
(i) Fees - Fees payable represent fees incurred in the process
of acquiring an investment and are measured on the accruals
basis.
(ii) Management fees - A management fee is payable to 3i plc,
calculated as a tiered fee based on the Gross Investment Value of
the Company and is accrued in the period it is incurred. Further
details on how this fee is calculated are provided in Note 18.
(iii) Performance fee - The Investment Manager is entitled to a
performance fee based on the total return generated in the period
in excess of a performance hurdle of 8%. The fee is payable in
three equal annual instalments and is accrued in full in the period
it is incurred. Further details are provided in Note 18.
(iv) Finance costs - Finance costs associated with loans and
borrowings are recognised on an accruals basis using the effective
interest method.
E Treasury assets and liabilities
Short-term treasury assets and short- and long-term treasury
liabilities are used to manage cash flows and the overall costs of
borrowing. Financial assets and liabilities are recognised in the
Balance sheet when the relevant company entity becomes a party to
the contractual provisions of the instrument.
(i) Cash and cash equivalents - Cash and cash equivalents in the
Balance sheet and Cash flow statement comprise cash at bank,
short-term deposits with an original maturity of three months or
less and AAA rated money market funds. Money market funds are
accounted for at amortised cost under IFRS 9. However due to their
short-term and liquid nature, this is the same as fair value.
Interest receivable or payable on cash and cash equivalents is
recognised on an accruals basis.
(ii) Bank loans, loan notes and borrowings - Loans and
borrowings are initially recognised at the fair value of the
consideration received, net of issue costs associated with the
borrowings. Where issue costs are incurred in relation to arranging
debt finance facilities these are capitalised and disclosed within
Trade and other receivables and amortised over the life of the
loan. After initial recognition, loans and borrowings are
subsequently measured at amortised cost using the effective
interest method, which is the rate that exactly discounts the
estimated future cash flows through the expected life of the
liabilities. Amortised cost is calculated by taking into account
any issue costs and any discount or premium on settlement.
(iii) Derivative financial instruments - Derivative financial
instruments are used to manage the risk associated with foreign
currency fluctuations in the valuation of the investment portfolio.
This is achieved by the use of forward foreign currency contracts.
Such instruments are used for the sole purpose of efficient
portfolio management. All derivative financial instruments are held
at fair value through profit or loss.
Derivative financial instruments are recognised initially at
fair value on the contract date and subsequently remeasured to the
fair value at each reporting date. All changes in the fair value of
derivative financial instruments are taken to the Statement of
comprehensive income. The maturity profile of derivative contracts
is measured relative to the financial contract settlement date of
each contract and the derivative contracts are disclosed in the
Financial statements as either current or non-current
accordingly.
F Other assets
Assets, other than those specifically accounted for under a
separate policy, are stated at their consideration receivable less
impairment losses. Such assets are short-term in nature and the
carrying value of these assets is considered to be approximate to
their fair value. Assets are reviewed for recoverability and
impairment using the expected credit loss model simplified
approach. The Company will recognise the asset's lifetime expected
credit losses at each reporting period where applicable in the
Statement of comprehensive income. An impairment loss is reversed
at subsequent financial reporting dates to the extent that the
asset's carrying amount does not exceed its carrying value, had no
impairment been recognised.
Assets with maturities less than 12 months are included in
current assets, assets with maturities greater than 12 months after
the Balance sheet date are classified as non-current assets.
G Other liabilities
Liabilities, other than those specifically accounted for under a
separate policy, are stated based on the amounts which are
considered to be payable in respect of goods or services received
up to the financial reporting date. Such liabilities are short-term
in nature, the carrying value of these liabilities is considered to
be approximate to their fair value.
H Equity and reserves
(i) Share capital - Share capital issued by the Company is
recognised at the fair value of proceeds received and is credited
to the Stated capital account. Direct issue costs net of tax are
deducted from the fair value of the proceeds received.
(ii) Equity and reserves - The Stated capital account of the
Company represents the cumulative proceeds recognised from share
issues or new equity issued on the conversion of warrants made by
the Company net of issue costs and reduced by any amount that has
been transferred to Retained reserves, in accordance with Jersey
Company Law, in previous years. Share capital is treated as an
equity instrument, on the basis that no contractual obligation
exists for the Company to deliver cash or other financial assets to
the holder of the instrument.
On 15 October 2018, the Company became UK tax domiciled and,
with effect from that date, was granted UK approved investment
trust status. Financial statements prepared under IFRS are not
strictly required to apply the provisions of the Statements of
Recommended Practice issued by the UK Association of Investment
Companies for the financial statements of Investment Trust
Companies (the 'AIC SORP'). However, where relevant and
appropriate, the Directors have looked to follow the
recommendations of the SORP. From this date, the retained profits
of the Company have been applied to two new reserves being the
Capital reserve and the Revenue reserve. These are in addition to
the existing Retained reserves which incorporate the cumulative
retained profits of the Company (after the payment of dividends)
plus any amounts that have been transferred from the Stated capital
account of the Company to 15 October 2018.
The Directors have exercised their judgement in applying the AIC
SORP and a summary of these judgements are as follows:
-- Net gains on investments are applied wholly to the Capital
reserve as they relate to the revaluation or disposal of
investments.
-- Dividends are applied to the Revenue reserve except under
specific circumstances where a dividend arises from a return of
capital or proceeds from a refinancing, when they are applied to
the Capital reserve.
-- Fees payable are applied to the Capital reserve where the
service provided is, in substance, an intrinsic part of an
intention to acquire or dispose of an investment.
-- Movement in the fair value of derivative financial
instruments is applied to the Capital reserve as the derivative
hedging programme is specifically designed to reduce the volatility
of sterling valuations of the non-sterling denominated
investments.
-- Management fees are applied to the Revenue reserve as they
reflect ongoing asset management. Where a transaction fee element
is due on the acquisition of an investment it is applied to the
Capital reserve.
-- Performance fees are applied wholly to the Capital reserve as
they arise mainly from capital returns on the investment
portfolio.
-- Operating costs are applied wholly to the Revenue reserve as
there is no clear connection between the operating expenses of the
Company and the purchase and sale of an investment.
-- Finance costs are applied wholly to the Revenue reserve as
the existing borrowing is not directly linked to an investment.
-- Exchange movements are applied to the Revenue reserve where
they relate to exchange on non-portfolio assets.
(iii) Dividends payable - Dividends on ordinary shares are
recognised in the period in which the Company's obligation to make
the dividend payment arises and are deducted from Retained reserves
for the period to 15 October 2018 and from the Revenue reserve for
subsequent periods.
I Income taxes
Income taxes represent the sum of the tax currently payable,
withholding taxes suffered and deferred tax. Tax is charged or
credited in the Statement of comprehensive income, except where it
relates to items charged or credited directly to equity, in which
case the tax is also dealt with in equity.
The tax currently payable is based on the taxable profit for the
year. This may differ from the profit included in the Statement of
comprehensive income because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible.
To enable the tax charge to be based on the profit for the year,
deferred tax is provided in full on temporary timing differences,
at the rates of tax expected to apply when these differences
crystallise. Deferred tax assets are recognised only to the extent
that it is probable that sufficient taxable profits will be
available against which temporary differences can be set off. In
practice, some assets that are likely to give rise to timing
differences will be treated as capital for tax purposes. Given
capital items are exempt from tax under the Investment Trust
Company rules, deferred tax is not expected to be recognised on
these balances. All deferred tax liabilities are offset against
deferred tax assets, where appropriate, in accordance with the
provisions of IAS 12.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Notes to the accounts
1 Operating segments
The Directors review information on a regular basis that is
analysed by portfolio segment; being Economic infrastructure
businesses, the Projects portfolio and the India Fund, and by
geography. These segments are reviewed for the purpose of resource
allocation and the assessment of their performance. In accordance
with IFRS 8, the segmental information provided below uses these
segments for the analysis of results as it is the most closely
aligned with IFRS reporting requirements. The Company is an
investment holding company and does not consider itself to have any
customers.
The following is an analysis of the Company's investment return,
profit before tax, assets, liabilities and net assets by portfolio
segment for the year to 31 March 2022:
Economic
infrastructure Projects India
businesses portfolio Fund Unallocated(1) Total
For the year to 31 March 2022 GBPm GBPm GBPm GBPm GBPm
Investment return 486 18 5 5 514
Profit/(loss) before tax 483 19 5 (103) 404
For the year to 31 March 2021
Investment return 196 8 5 11 220
Profit/(loss) before tax 215 11 5 (25) 206
As at 31 March 2022
Assets 2,796 105 - 119 3,020
Liabilities (18) (1) -(297) (316)
Net assets/(liabilities) 2,778 104 -(178) 2,704
As at 31 March 2021
Assets 1,748 96 3 568 2,415
Liabilities (6) - -(19) (25)
Net assets 1,742 96 3 549 2,390
1 Unallocated includes cash, management and performance fees payable,
RCF drawn and other payables and receivables (including vendor loan
notes) which are not directly attributable to the investment portfolio.
The following is an analysis of the Company's investment return,
profit before tax, assets, liabilities and net assets by geography
for the year to 31 March 2022:
UK and Continental
Ireland(1) Europe(2) Asia Total
For the year to 31 March 2022 GBPm GBPm GBPm GBPm
Investment return 63 446 5 514
(Loss)/profit before tax (45) 444 5 404
For the year to 31 March 2021
Investment return 53 162 5 220
Profit before tax 17 184 5 206
As at 31 March 2022
Assets 653 2,367 -3,020
Liabilities (298) (18) -(316)
Net assets 355 2,349 -2,704
As at 31 March 2021
Assets 868 1,544 32,415
Liabilities (19) (6) - (25)
Net assets 849 1,538 32,390
1 Including Channel Islands. All centrally incurred costs have been deemed to be incurred in
the UK and Ireland while recognising these costs support
allocations across geographies.
2 Continental Europe includes all returns generated from, and investment portfolio value relating
to, the Company's investments in Oystercatcher, including those derived from its underlying
business in Singapore.
The Company generated 12% (2021: 24%) of its investment return
in the year from investments held in the UK and Ireland and 87%
(2021: 74%) of its investment return from investments held in
continental Europe. During the year, the Company generated 95%
(2021: 94%) of its investment return from investments in Economic
infrastructure businesses, 4% (2021: 4%) from investments in
Projects and 1% (2021: 2%) from its investment in the India Fund.
Given the nature of the Company's operations, the Company is not
considered to be exposed to any operational seasonality or
cyclicality that would impact the financial results of the Company
during the year or the financial position of the Company at 31
March 2022.
2 Management and performance fees payable
Year to Year to
31 March 31 March
2022 2021
GBPm GBPm
Management fee 43 24
Performance fee 54 7
97 31
Total management and performance fees payable by the Company for
the year to 31 March 2022 were GBP97 million (2021: GBP31 million).
Note 18 provides further details on the calculation of the
management fee and performance fee.
3 Operating expenses
Operating expenses include the following amounts:
Year to Year to
31 March 31 March
2022 2021
GBPm GBPm
Audit fees 0.6 0.4
Directors' fees and expenses 0.5 0.5
In addition to the fees described above, audit fees of GBP0.05
million (2021: GBP0.07 million) were paid by unconsolidated
subsidiary entities for the year to 31 March 2022 to the Company's
auditor.
Services provided by the Company's auditor
During the year, the Company obtained the following services
from the Company's auditor, Deloitte LLP.
Year to Year to
31 March 31 March
2022 2021
Audit services GBPm GBPm
Statutory audit (1) Company 0.40 0.30
UK unconsolidated subsidiaries(2) 0.05 0.04
Overseas unconsolidated subsidiaries(2) - 0.03
0.45 0.37
1 Amounts exclude VAT.
2 These amounts were paid from unconsolidated subsidiary entities and
do not form part of operating expenses but are included in the net
gains on investments.
Non-audit services
Deloitte LLP and their associates provided non-audit services
for fees totalling GBP104,635 for the year to 31 March 2022 (2021:
GBP52,700). This related to agreed-upon procedures work in respect
of the management and performance fees (GBP7,560), agreed-upon
procedures work in respect of Sustainability KPIs for the RCF
reporting (GBP27,000), the review of the interim financial
statements (GBP55,575) and reporting accountant work (GBP14,500).
In line with the Company's policy, Deloitte LLP provided non-audit
services to certain investee companies. The fees for these services
are ordinarily borne by the underlying investee companies or
unconsolidated subsidiaries, and therefore are not included in the
expenses of the Company. Details on how such non-audit services are
monitored and approved can be found in the Governance section of
the Annual report and accounts.
4 Finance costs
Year to Year to
31 March 31 March
2022 2021
GBPm GBPm
Finance costs associated with the debt facilities 3 2
Professional fees payable associated with the arrangement of debt financing 2 -
5 2
The finance costs associated with the debt facilities have
increased in the year ended 31 March 2022 as a result of higher
average drawings and increases in the total available facilities.
The average monthly drawn position during the year was GBP80
million (2021: nil) and the average monthly total available
facilities was GBP508 million (2021: GBP300 million).
5 Movement in the fair value of derivative financial
instruments
Year to Year to
31 March 31 March
2022 2021
GBPm GBPm
Movement in the fair value of forward foreign exchange contracts (2) 22
The movement in the fair value of derivative financial
instruments is included within profit before tax but not included
within investment return.
6 Income taxes
Year to Year to
31 March 31 March
2022 2021
GBPm GBPm
Current taxes
Current year - -
Total income tax charge in the Statement of comprehensive income - -
Reconciliation of income taxes in the Statement of comprehensive
income
The tax charge for the year is different from the standard rate
of corporation tax in the UK, currently 19% (2021: 19%), and the
differences are explained below:
Year to Year to
31 March 31 March
2022 2021
GBPm GBPm
Profit before tax 404 206
Profit before tax multiplied by rate of corporation tax in the UK of 19% (2021: 19%) 77 39
Effects of:
Non-taxable capital profits due to UK approved investment trust company status (70) (26)
Non-taxable dividend income (5) (1)
Dividends designated as interest distributions (3) (12)
Temporary differences on which deferred tax is not recognised 1 -
Total income tax charge in the Statement of comprehensive income - -
The Company's affairs are directed so as to allow it to meet the
requisite conditions to continue to operate as an approved
investment trust company for UK tax purposes. The approved
investment trust status allows certain capital profits of the
Company to be exempt from tax in the UK and also permits the
Company to designate the dividends it pays, wholly or partly, as
interest distributions. These features enable approved investment
trust companies to ensure that their investors do not ultimately
suffer double taxation of their investment returns, ie once at the
level of the investment fund vehicle and then again in the hands of
the investors.
Under the UK Finance Act 2021, the UK corporation tax rate will
increase for large companies from the current rate of 19% to 25%
with effect from 1 April 2023. Should the Company recognise any
deferred tax assets and liabilities, a rate of 19% or 25% would be
used depending on when the assets and liabilities are expected to
be crystallised.
7 Investments at fair value through profit or loss and financial
instruments
All financial instruments for which fair value is recognised or
disclosed are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
Level Fair value input description Financial instruments
Level 1 Quoted prices (unadjusted and in active markets) Quoted equity investments
Level 2 Inputs other than quoted prices included in Level 1 that Derivative financial instruments held at fair value
are observable in the market either
directly (ie as prices) or indirectly (ie derived from
prices)
Level 3 Inputs that are not based on observable market data Unquoted investments and unlisted funds
For assets and liabilities that are recognised in the Financial
statements on a recurring basis, the Company determines whether
transfers have occurred between levels in the hierarchy by
reassessing the categorisation (based on the lowest level input
that is significant to the fair value measurement as a whole) for
each reporting period.
The table below shows the classification of financial
instruments held at fair value into the fair value hierarchy at 31
March 2022. For all other assets and liabilities, their carrying
value approximates to fair value. During the year ended 31 March
2022, there were no transfers of financial instruments between
levels of the fair value hierarchy (2021: none).
Trade and other receivables in the Balance sheet includes GBP2
million of deferred finance costs relating to the arrangement fee
for the revolving credit facility and additional facilities (2021:
GBP1 million). This has been excluded from the table below as it is
not categorised as a financial instrument.
Financial instruments classification
As at 31 March 2022
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Financial assets
Investments at fair value through profit or loss - - 2,873 2,873
Trade and other receivables - 102 - 102
Derivative financial instruments - 26 - 26
- 128 2,873 3,001
Financial liabilities
Derivative financial instruments - (18) - (18)
- (18) - (18)
As at 31 March 2021
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Financial assets
Investments at fair value through profit or loss - - 1,804 1,804
Trade and other receivables - 105 - 105
Derivative financial instruments - 43 - 43
- 148 1,804 1,952
Financial liabilities
Derivative financial instruments - (6) - (6)
- (6) - (6)
Reconciliation of financial instruments categorised within Level
3 of fair value hierarchy
As at
31 March
2022
Level 3 fair value reconciliation GBPm
Opening fair value 1,804
Additions 816
Disposal proceeds and repayment (148)
Movement in accrued income 17
Fair value movement (including exchange movements) 384
Closing fair value 2,873
As at
31 March
2021
Level 3 fair value reconciliation GBPm
Opening fair value 1,652
Additions 91
Disposal proceeds and repayment (48)
Movement in accrued income (9)
Fair value movement (including exchange movements) 118
Closing fair value 1,804
The fair value movement (including exchange movements) is equal
to the Net gains on investments showing in the Statement of
comprehensive income. All unrealised movements on investments and
foreign exchange movements are recognised in profit or loss in the
Statement of comprehensive income during the year and are
attributable to investments held at the end of the year.
The holding period of the investments in the portfolio is
expected to be greater than one year. Therefore, investments are
classified as non-current unless there is an agreement to dispose
of the investment within one year and all relevant regulatory or
other third-party approvals have been received. It is not possible
to identify with certainty whether any investments may be sold
within one year.
Investment income of GBP127 million (2021: GBP92 million)
comprises dividend income of GBP24 million (2021: GBP6 million),
interest of GBP103 million (2021: GBP83 million) and no
distributions (2021: GBP3 million) from unconsolidated
subsidiaries.
Unquoted investments
The Company invests in private companies which are not quoted on
an active market. These are measured in accordance with the
International Private Equity Valuation guidelines with reference to
the most appropriate information available at the time of
measurement. Further information regarding the valuation of
unquoted investments can be found in the Portfolio valuation
methodology section.
The Company's policy is to fair value both the equity and
shareholder debt investments in infrastructure assets together
where they will be managed and valued as a single investment, were
invested at the same time and cannot be realised separately. The
Directors consider that equity and debt share the same
characteristics and risks and they are therefore treated as a
single unit of account for valuation purposes and a single class
for disclosure purposes. As at 31 March 2022, the fair value of
unquoted investments was GBP2,873 million (2021: GBP1,802 million).
Individual portfolio asset valuations are shown in the Portfolio
summary.
The fair value of the investments is sensitive to changes in the
macroeconomic assumptions used as part of the portfolio valuation
process. As part of its analysis, the Board has considered the
potential impact of a change in a number of the macroeconomic
assumptions used in the valuation process. By considering these
potential scenarios, the Board is well positioned to assess how the
Company is likely to perform if affected by variables and events
that are inherently outside of the control of the Board and the
Investment Manager.
The majority of the assets held within Level 3 are valued on a
discounted cash flow basis, hence, the valuations are sensitive to
the discount rate assumed in the valuation of each asset. Other
significant unobservable inputs include the inflation rate
assumption, the interest rates assumption used to project the
future cash flows and the forecast cash flows themselves. The
sensitivity to the inflation rate and interest rates is described
below and the sensitivity to the forecast cash flows is captured in
the Market risk section in Note 9.
A discussion of discount rates applied can be found in the
Summary of portfolio valuation methodology section. Increasing the
discount rate used in the valuation of each asset by 1% would
reduce the value of the portfolio by GBP258 million (2021: GBP152
million). Decreasing the discount rate used in the valuation of
each asset by 1% would increase the value of the portfolio by
GBP297 million (2021: GBP176 million).
The majority of assets held within Level 3 have revenues that
are linked, partially linked or in some way correlated to
inflation. The long-term inflation rate assumptions for the country
of domicile of the investments in the portfolio range from 5.0%
(India) (2021: 5.0%) to 2.0% (the Netherlands) (2021: 2.0%). The
long-term RPI assumption for the UK is 2.5% (2021: 2.5%). The
impact of increasing the inflation rate assumption by 1% for the
next two years would increase the value of the portfolio by GBP43
million (2021: GBP25 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 GBP46
million (2021: GBP25 million). The timing and quantum of price
increases will vary across the portfolio and the sensitivity may
differ from that modelled. Changing the inflation rate assumption
may result in consequential changes to other assumptions used in
the valuation of each asset.
The valuations are sensitive to changes in interest rates, which
may result from: (i) unhedged existing borrowings within portfolio
companies; (ii) interest rates on uncommitted future borrowings
assumed within the asset valuations; and (iii) cash deposits held
by portfolio companies. These comprise a wide range of interest
rates from short-term deposit rates to longer-term borrowing rates
across a broad range of debt products. Increasing the cost of
borrowing assumption for unhedged borrowings and any future
uncommitted borrowing and the cash deposit rates used in the
valuation of each asset by 1% would reduce the value of the
portfolio by GBP158 million (2021: GBP88 million). Decreasing the
interest rate assumption for unhedged borrowings used in the
valuation of each asset by 1% would increase the value of the
portfolio by GBP156 million (2021: GBP82 million). This calculation
does not take account of any offsetting variances which may be
expected to prevail if interest rates changed, including the impact
of inflation discussed above.
Intermediate holding companies
The Company invests in a number of intermediate holding
companies that are used to hold the unquoted investments, valued as
referred to above. All other assets and liabilities of the
intermediate holding companies are held either at fair value or a
reasonable approximation to fair value. The fair value of these
intermediate holding companies therefore approximates to their NAV
and the Company classifies the fair value as Level 3. As at 31
March 2022, the fair value of the other assets and liabilities
within these intermediate holding companies was GBPnil (2021: GBP2
million).
Over-the-counter derivatives
The Company uses over-the-counter foreign currency derivatives
to hedge foreign currency movements. The derivatives are held at
fair value which represents the price that would be received to
sell or transfer the instruments at the balance sheet date. The
valuation technique incorporates various inputs including foreign
exchange spot and forward rates, and uses present value
calculations. For these financial instruments, significant inputs
into models are market observable and are included within
Level 2.
Valuation process for Level 3 valuations
The valuations on the Balance sheet are the responsibility of
the Board of Directors of the Company. The Investment Manager
provides a valuation of unquoted investments, debt and unlisted
funds held by the Company on a half-yearly basis. This is performed
by the valuation team of the Investment Manager and reviewed by the
valuation committee of the Investment Manager. The valuations are
also subject to quality assurance procedures performed within the
valuation team. The valuation team verifies the major inputs
applied in the latest valuation by agreeing the information in the
valuation computation to relevant documents and market information.
The valuation committee of the Investment Manager considers the
appropriateness of the valuation methods and inputs, and may
request that alternative valuation methods are applied to support
the valuation arising from the method chosen. On a half-yearly
basis, the Investment Manager presents the valuations to the Board.
This includes a discussion of the major assumptions used in the
valuations, with an emphasis on the more significant investments
and investments with significant fair value changes. Any changes in
valuation methods are discussed and agreed with the Audit and Risk
Committee before the valuations on the Balance sheet are approved
by the Board.
8 Trade and other receivables
Year to Year to
31 March 31 March
2022 2021
GBPm GBPm
Current assets
Vendor loan notes 100 105
Other receivables including prepayments 2 -
Capitalised finance costs 2 1
104 106
Vendor loan notes ('VLNs') of GBP98 million plus interest are
due from the purchaser following the sale of WIG in December 2019.
These can be called on by giving notice and carry an interest rate
of 6%. These are measured at amortised cost using the effective
interest method. Accrued interest on the VLNs is included in the
table above.
9 Financial risk management
A full review of the Company's objectives, policies and
processes for managing and monitoring risk is set out in the Risk
report. This Note provides further detail on financial risk
management, cross-referring to the Risk report where applicable and
providing further quantitative data on specific financial
risks.
Each investment made by the Company is subject to a full risk
assessment through a consistent investment approval process. The
Board's Management Engagement Committee, Audit and Risk Committee
and the Investment Manager's investment process are part of the
overall risk management framework of the Company.
The funding objective of the Company is that each category of
investment ought to be broadly matched with liabilities and
shareholders' funds according to the risk and maturity
characteristics of the assets, and that funding needs are to be met
ahead of planned investment.
Capital structure
The Company has a continuing commitment to capital efficiency.
The capital structure of the Company consists of cash held on
deposit and in AAA rated money market funds, borrowing facilities
and shareholders' equity. The Company's Articles require its
outstanding borrowings, including any financial guarantees to
support subsequent obligations, to be limited to 50% of the gross
assets of the Company. The type and maturity of the Company's
borrowings are analysed in Note 11 and the Company's equity is
analysed into its various components in the Statement of changes in
equity. Capital is managed so as to maximise the return to
shareholders, while maintaining a strong capital base that ensures
that the Company can operate effectively in the marketplace and
sustain future development of the business. The Board is
responsible for regularly monitoring capital requirements to ensure
that the Company is maintaining sufficient capital to meet its
future investment needs.
The Company is regulated by the Jersey Financial Services
Commission under the provisions of the Collective Investment Funds
(Jersey) Law 1988 as a listed closed-ended collective investment
fund and is not required as a result of such regulation to maintain
a minimum level of capital.
Capital is allocated for investment in infrastructure across the
UK and continental Europe. As set out in the Company's investment
policy, the maximum exposure to any one investment is 25% of gross
assets (including cash holdings) at the time of investment.
Credit risk
The Company is subject to credit risk on the debt component of
its unquoted investments, cash, deposits, derivative contracts and
receivables. The maximum exposure to credit risk as a result of
counterparty default equates to the current carrying value of these
financial assets. Throughout the year and the prior year, the
Company's cash and deposits were held with a variety of
counterparties, principally in AAA rated money market funds, as
well as in short-term bank deposits and notice accounts with a
minimum of a A credit rating. The counterparties selected for the
derivative financial instruments were all banks with a minimum of a
BBB+ credit rating with at least one major rating agency. Following
the sale of WIG in December 2019, the Company received VLNs from
the purchaser, Brookfield Infrastructure Fund IV, that are reported
within Trade receivables. The credit risk on these VLNs has been
assessed through calculating an expected credit loss using the
credit ratings of underlying investors in the Brookfield fund and
the amount of undrawn commitments to the fund to calculate a
probability of default.
The credit quality of unquoted investments, which are held at
fair value and include debt and equity elements, is based on the
financial performance of the individual portfolio companies. The
credit risk relating to these assets is based on their enterprise
value and is reflected through fair value movements. This
incorporates the impact of the recovery from the Covid-19 pandemic,
the volatility in the oil prices and power prices and other
macroeconomic factors such as inflation and interest rate rises.
The performance of underlying investments is monitored by the Board
to assess future recoverability.
For those assets and income entitlements that are not past due,
it is believed that the risk of default is small and capital
repayments and interest payments will be made in accordance with
the agreed terms and conditions of the investment. If the portfolio
company has failed and there is no expectation to recover any
residual value from the investment, the Company's policy is to
record an impairment for the full amount of the loan. When the net
present value of the future cash flows predicted to arise from the
asset, discounted using the effective interest rate method, implies
non-recovery of all or part of the Company's investment a fair
value movement is recorded equal to the valuation shortfall.
As at 31 March 2022, the Company had no loans or receivables or
debt investments considered past due (2021: nil).
The Company actively manages counterparty risk. Counterparty
limits are set and closely monitored by the Board and a regular
review of counterparties is undertaken by the Investment Manager
and reported to the Board. As at 31 March 2022, the Company did not
consider itself to have a significant exposure to any one
counterparty and held deposits and derivative contracts with a
number of different counterparties to reduce counterparty risk
(2021: same).
Due to the size and nature of the investment portfolio there is
the potential for concentration risk. This risk is managed by
diversifying the portfolio by sector and geography.
Liquidity risk
Further information on how liquidity risk is managed is provided
in the Risk report. The table below analyses the maturity of the
Company's contractual liabilities.
Payable Due within Due between Due between
on demand 1 year 1 and 2 years 2 and 5 years Total
2022 GBPm GBPm GBPm GBPm GBPm
Liabilities
Loans and borrowings(1) - (7) (5) (234) (246)
Trade and other payables (4) (26) (20) (18) (68)
Derivative contracts - (12) (3) (3) (18)
Financial commitments(2) (302) - - - (302)
Total undiscounted financial liabilities (306) (45) (28) (255) (634)
1 Loans and borrowings relate to undrawn commitment fees and interest
payable on the RCF referred to in Note 11.
2 Financial commitments are described in Note 16 and are not recognised
in the Balance sheet.
Payable Due within Due between Due between
on demand 1 year 1 and 2 years 2 and 5 years Total
2021 GBPm GBPm GBPm GBPm GBPm
Liabilities
Loans and borrowings(1) - (2) (2) - (4)
Trade and other payables (9) - (8) (2) (19)
Derivative contracts - (4) (2) - (6)
Financial commitments(2) (38) - - - (38)
Total undiscounted financial liabilities (47) (6) (12) (2) (67)
1 Loans and borrowings relate to undrawn commitment fees and interest
payable on the RCF and additional facilities referred to in Note
11.
2 Financial commitments are described in Note 16 and are not recognised
in the Balance sheet.
The derivative contracts liability shown is the net cash flow
expected to be paid on settlement.
In order to manage the contractual liquidity risk the Company
has free cash and debt facilities in place, is able to call the
VLNs referred to in Note 8 with six weeks' notice and, in June
2022, is expecting to receive GBP103 million from the sale of its
Projects portfolio.
Market risk
The valuation of the Company's investment portfolio is largely
dependent on the underlying trading performance of the companies
within the portfolio, but the valuation of the portfolio and the
carrying value of other items in the Financial statements can also
be affected by interest rate, currency and market price
fluctuations. The Company's sensitivities to these fluctuations are
set out below.
(i) Interest rate risk
Further information on how interest rate risk is managed is
provided in the Risk report.
An increase of 100 basis points in interest rates over 12 months
(2021: 100 basis points) would lead to an approximate decrease in
net assets and net profit of the Company of GBP2 million (2021:
increase of GBP5 million). This exposure relates principally to
changes in interest payable on the drawn RCF balance at the year
end (2021: in interest receivable on cash on deposit held at the
year end). The average cash balance of the Company, which is more
representative of the cash balance during the year, was GBP269
million (2021: GBP405 million) and the weighted-average interest
earned was 0.04% (2021: 0.1%).
In addition, the Company has indirect exposure to interest rates
through changes to the financial performance of portfolio companies
caused by interest rate fluctuations as disclosed in Note 7. This
risk is considered a component of market risk described in section
(iii). The Company does not hold any fixed rate debt investments or
borrowings and is therefore not exposed to fair value interest rate
risk.
(ii) Currency risk
Further information on how currency risk is managed is provided
in the Risk report. The currency denominations of the Company's net
assets are shown in the table below. The sensitivity analysis
demonstrates the exposure of the Company's net assets to movements
in foreign currency exchange rates. The hedging strategy is
discussed in the Financial review.
As at 31 March 2022
Sterling(1) Euro NOK DKK US dollar Total
GBPm GBPm GBPm GBPm GBPm GBPm
Net assets 456 1,457 243 548 - 2,704
Sensitivity analysis
Assuming a 10% appreciation in sterling against the euro, NOK,
DKK and US dollar exchange
rates:
Impact of exchange movements on net profit and net assets 139 (132) (22) (50) - (65)
1 Sterling impact relates to the impact of fair value movement in derivatives
held by the Company to hedge foreign currency fluctuations in the
valuation of the investment portfolio. The notional amount of the
derivatives is disclosed in Note 10.
As at 31 March 2021
Sterling(1) Euro NOK DKK US dollar Total
GBPm GBPm GBPm GBPm GBPm GBPm
Net assets 848 1,116 234 189 3 2,390
Sensitivity analysis
Assuming a 10% appreciation in sterling against the euro, NOK,
DKK and US dollar exchange
rates:
Impact of exchange movements on net profit and net assets 109 (101) (21) (17) - (30)
1 Sterling impact relates to the impact of fair value movement in derivatives
held by the Company to hedge foreign currency fluctuations in the
valuation of the investment portfolio. The notional amount of the
derivatives is disclosed in Note 10.
The impact of an equivalent depreciation in sterling against the
euro, NOK, DKK and US dollar exchange rates has the inverse impact
on net profit and net assets from that shown above. There is an
indirect exposure to the rupee through the investment in the India
Fund which is denominated in US dollars but it is only the direct
exposure that is considered here. The risk exposure at the year end
is considered to be representative of this year as a whole.
(iii) Market risk
Further information about the management of external market risk
and its impact on price or valuation, which arises principally from
unquoted investments, is provided in the Risk report. A 10%
increase in the fair value of those investments would have the
following direct impact on net profit and net assets. The impact of
a change in all cash flows has an equivalent impact on the fair
value, as set out below.
As at As at
31 March 31 March
2022 2021
Investments Investments
at fair value at fair value
GBPm GBPm
Increase in net profit and net assets 287 180
The impact of a 10% decrease in the fair value of those
investments would have the inverse impact on net profit and net
assets from that shown above. The risk exposure at the year end is
considered to be representative of this year as a whole.
By the nature of the Company's activities, it has large
exposures to individual assets that are susceptible to movements in
price. This risk concentration is managed within the Company's
investment strategy as discussed in the Risk report.
(iv) Fair values
The fair value of the investment portfolio is described in
detail in the Portfolio valuation methodology section and in Note
7. The fair values of the remaining financial assets and
liabilities approximate to their carrying values (2021: same).
The sensitivity analysis in respect of the interest rate,
currency and market price risks is considered to be representative
of the Company's exposure to financial risks throughout the period
to which they relate (2021: same).
10 Derivative financial instruments
As at As at
31 March 31 March
2022 2021
GBPm GBPm
Non-current assets
Forward foreign exchange contracts 6 18
Current assets
Forward foreign exchange contracts 20 25
Non-current liabilities
Forward foreign exchange contracts (6) (2)
Current liabilities
Forward foreign exchange contracts (12) (4)
Forward foreign exchange contracts
The Company uses forward foreign exchange contracts to minimise
the effect of fluctuations in the investment portfolio from
movements in exchange rates and also to fix the value of certain
expected future cash flows arising from distributions made by
investee companies.
The fair value of these contracts is recorded in the Balance
sheet. No contracts are designated as hedging instruments and
consequently all changes in fair value are taken through profit or
loss.
As at 31 March 2022, the notional amount of the forward foreign
exchange contracts held by the Company was GBP1,555 million (2021:
GBP1,090 million).
11 Loans and borrowings
On 3 November 2021, the Company refinanced its GBP300 million
RCF as a new GBP400 million sustainability-linked RCF with a
maturity date of November 2024 and two one-year extension options.
The Company has the right to increase the size of the new RCF by a
further GBP200 million, provided that existing lenders have a right
of first refusal. This right was exercised on 16 December 2021 for
a one-year period. On 31 January 2022 an additional GBP400 million
facility was agreed for a one-year period. Total available debt
facilities at 31 March 2022 were GBP1 billion (2021: GBP300
million).
The new RCF is secured by a floating charge over the bank
accounts of the Company. Interest is payable at SONIA or EURIBOR
plus a fixed margin on the drawn amount. This fixed margin is
subject to a small adjustment annually based upon performance
against agreed sustainability metrics. As at 31 March 2022, the
Company had drawn cash of GBP231 million from the RCF (2021: nil).
The new RCF has certain loan covenants, including a loan to value
ratio.
12 Trade and other payables
As at As at
31 March 31 March
2022 2021
GBPm GBPm
Non-current liabilities
Performance fee 38 10
Current liabilities
Management and performance fees 27 8
Accruals and other creditors 2 1
67 19
The carrying value of all liabilities is representative of fair
value (2021: same).
13 Issued capital
As at 31 March 2022 As at 31 March 2021
Number GBPm Number GBPm
Authorised, issued and fully paid
Opening balance 891,434,010 1,496 891,434,010 1,496
Closing balance 891,434,010 1,496 891,434,010 1,496
Aggregate issue costs of GBP24 million arising from IPO and
subsequent share issues have been offset against the stated capital
account in previous years. In addition, the stated capital account
was reduced by Court order on 20 December 2007 with an amount of
GBP693 million transferred to a new, distributable reserve which
has been combined with retained reserves in these accounts.
Therefore, as at 31 March 2022, the residual value on the stated
capital account was GBP779 million.
14 Per share information
The earnings and net assets per share attributable to the equity
holders of the Company are based on the following data:
Year to Year to
31 March 31 March
2022 2021
Earnings per share (pence)
Basic and diluted 45.3 23.1
Earnings (GBPm)
Profit after tax for the year 404 206
Number of shares (million)
Weighted average number of shares in issue 891.4 891.4
Number of shares at the end of the year 891.4 891.4
As at As at
31 March 31 March
2022 2021
Net assets per share (pence)
Basic and diluted 303.3 268.1
Net assets (GBPm)
Net assets 2,704 2,390
15 Dividends
Year to 31 March 2022 Year to 31 March 2021
Declared and paid during the year
Pence per share Pence per
GBPm share GBPm
Interim dividend paid on ordinary shares 5.225 46 4.900 44
Prior year final dividend paid on ordinary shares 4.900 44 4.600 41
10.125 90 9.500 85
The Company proposes paying a final dividend of 5.225 pence per
share (2021: 4.9 pence) which will be payable to those shareholders
that are on the register on 17 June 2022. On the basis of the
shares in issue at year end, this would equate to a total final
dividend of GBP47 million (2021: GBP44 million).
The final dividend is subject to approval by shareholders at the
AGM in July 2022 and has therefore not been accrued in these
Financial statements
16 Commitments
As at As at
31 March 31 March
2022 2021
GBPm GBPm
Unquoted investments 302 38
As at 31 March 2022, the Company was committed to invest $398
million (GBP302 million) in GCX. Following the end of the 3i India
Infrastructure Fund (the 'India Fund') life at the end of March
2022, the India Fund has now moved into liquidation and the
outstanding US$38 million (GBP27 million) commitment is no longer
callable. During the year, the Company invested in ESVAGT and as a
result, the prior year commitment of DKK 100 million (GBP11
million) was extinguished.
17 Contingent liabilities
As at 31 March 2022, the Company had no contingent liabilities
(2021: nil).
18 Related parties
Transactions between 3i Infrastructure and 3i Group
3i Group plc ('3i Group') holds 30.2% (2021: 30.2%) of the
ordinary shares of the Company. This classifies 3i Group as a
'substantial shareholder' of the Company as defined by the Listing
Rules. During the year, 3i Group received dividends of GBP27
million (2021: GBP26 million) from the Company.
In 2007 the Company committed US$250 million to the India Fund
to invest in the Indian infrastructure market. 3i Group also
committed US$250 million to the India Fund. No commitments (2021:
nil) were drawn down by the India Fund from the Company during the
year. In total, commitments of US$184 million or GBP140 million
re-translated (2021: US$184 million or GBP133 million) had been
drawn down at 31 March 2022 by the India Fund from the Company. As
the India Fund has reached the end of its life and has moved into
liquidation, the outstanding commitment at 31 March 2022 is no
longer callable (2021: US$38 million or GBP27 million).
3i Investments plc, a subsidiary of 3i Group, is the Company's
Alternative Investment Fund Manager and provides its services under
an Investment Management Agreement ('IMA'). 3i Investments plc also
acts as the investment manager of the India Fund. 3i plc, another
subsidiary of 3i Group, together with 3i Investments plc, provides
support services to the Company (which are ancillary and related to
the investment management service) which it is doing pursuant to
the terms of the IMA.
Fees under the IMA consist of a tiered management fee and time
weighting of the management fee calculation and a one-off
transaction fee of 1.2% payable in respect of new investments. The
applicable tiered rates are shown in the table below. The
management fee is payable quarterly in advance.
Gross investment value Applicable tier rate
Up to GBP1.25bn 1.4%
GBP1.25bn to GBP2.25bn 1.3%
Above GBP2.25bn 1.2%
For the year to 31 March 2022, GBP43 million (2021: GBP25
million) was payable, including one-off transaction fees payable in
respect of new investments and advance payments of GBP42 million
were made resulting in an amount due to 3i plc of GBP1 million at
31 March 2022 (2021: less than GBP1 million due from 3i plc). In
consideration of the provision of support services under the IMA,
the Company pays the Investment Manager an annual fixed fee. The
cost for the support services incurred for the year to 31 March
2022 was GBP1 million (2021: GBP1 million). There was no
outstanding balance payable as at 31 March 2022 (2021: nil).
Under the IMA, a performance fee is payable to the Investment
Manager equal to 20% of the Company's total return in excess of 8%,
payable in three equal annual instalments. The second and third
instalments will only be payable if either (a) the Company's
performance in the year in which that instalment is paid also
triggers payment of a performance fee in respect of that year, or
(b) if the Company's performance over the three years starting with
the year in which the performance fee is earned exceeds the 8%
hurdle on an annual basis. There is no high water mark
requirement.
The performance hurdle requirement was exceeded for the year to
31 March 2022 and therefore a performance fee of GBP54 million was
recognised (2021: GBP7 million). The outstanding balance payable as
at 31 March 2022 was GBP64 million (2021: GBP18 million), which
includes the second and third instalments of the prior year fee and
the third instalment of the FY20 fee.
Outstanding balance
Year Performance fee at Payable in FY23
(GBPm) 31 March (GBPm) (GBPm)
FY22 54 54 18
FY21 7 4 2
FY20 17 6 6
Under the IMA, the Investment Manager's appointment may be
terminated by either the Company or the Investment Manager giving
the other not less than 12 months' notice in writing, but subject
to a minimum term of four years from 15 October 2018, unless 3i
Investments plc has previously ceased to be a member of 3i Group,
or with immediate effect by either party giving the other written
notice in the event of insolvency or material or persistent breach
by the other party. The Investment Manager may also terminate the
agreement on two months' notice given within two months of a change
of control of the Company.
Regulatory information relating to fees
3i Investments plc acts as the Alternative Investment Fund
Manager ('AIFM') to the Company. In performing the activities and
functions of the AIFM, the AIFM or another 3i company may pay or
receive fees, commissions or non-monetary benefits to or from third
parties of the following nature:
-- Payments for third-party services : The Company may retain
the services of third-party consultants; typically this is for an
independent director or other investment management specialist
expertise. The amount paid varies in accordance with the nature of
the service and the length of the service period and is usually,
but not always, paid or reimbursed by the portfolio companies. The
payment may involve a flat fee, retainer or success fee. Such
payments, where borne by the Company, are included within Operating
expenses. In some circumstances, the AIFM may retain the services
of third-party consultants which are paid for by the AIFM and not
recharged to the Company.
-- Payments for services from 3i companies : Other 3i companies
may provide investment advisory and other services to the AIFM or
other 3i companies and receive payment for such service.
19 Unconsolidated subsidiaries and related undertakings
Name Place of incorporation Ownership
and operation interest
3i Infrastructure (Luxembourg) S.à
r.l. Luxembourg 100%
3i Infrastructure (Luxembourg) Holdings
S.à r.l. Luxembourg 100%
Oystercatcher Luxco 1 S.à r.l. Luxembourg 100%
Oystercatcher Luxco 2 S.à r.l. Luxembourg 100%
Oystercatcher Holdco Limited UK 100%
3i Osprey LP UK 69%
3i India Infrastructure Fund A LP UK 100%
BIF WIP LP (dissolved during the year) UK 100%
BIF WIP Dutch Holdco B.V. (dissolved
during the year) The Netherlands 100%
3i Infrastructure (Netherlands) B.V.
(formerly Heijmans Capital B.V.) (dissolved
during the year) The Netherlands 100%
NMM Company B.V. The Netherlands 100%
Heijmans A12 B.V. The Netherlands 100%
3i ERRV Denmark Limited Jersey 100%
ERRV Luxembourg Holdings S.à r.l. Luxembourg 100%
3i WIG Limited Jersey 100%
3i Envol Limited Jersey 100%
3i Tampnet Holdings Limited UK 100%
3iN Attero Holdco Limited UK 100%
3i Amalthea Topco Limited UK 100%
Reef Topco Limited UK 100%
Reef Midco Limited UK 100%
Reef Bidco Limited UK 100%
Joulz Group:
Joulz Holdco B.V. The Netherlands 99%
Joulz Bidco B.V. The Netherlands 99%
Joulz Diensten B.V. The Netherlands 99%
Joulz Meetbedrijf B.V. The Netherlands 99%
Joulz Infradiensten B.V. The Netherlands 99%
Joulz Laadoplossingen B.V. The Netherlands 99%
Ionisos Group:
Epione Holdco SAS France 96%
Epione Bidco SAS France 96%
Ionisos Mutual Services SAS France 96%
Ionisos SAS France 96%
Ionisos GmbH Germany 96%
Ionmed Esterilizacion SA Spain 96%
Scandinavian Clinics Estonia OÜ Estonia 96%
Steril Milano Srl Italy 96%
Infinis Group:
3i LFG Topco Limited Jersey 100%
Infinis Energy Group Holdings Limited UK 100%
Infinis Energy Management Limited UK 100%
Infinis Limited UK 100%
Infinis (Re-Gen) Limited UK 100%
Novera Energy (Holdings 2) Limited UK 100%
Novera Energy Generation No. 1 Limited UK 100%
Novera Energy Operating Services Limited UK 100%
Gengas Limited UK 100%
Novera Energy Generation No. 2 Limited UK 100%
Renewable Power Generation Limited UK 100%
Novera Energy Generation No. 3 Limited UK 100%
Costessey Energy Limited UK 100%
Mayton Wood Energy Limited UK 100%
Infinis Alternative Energies Limited UK 100%
Infinis Energy Services Limited UK 100%
Novera Energy Services UK Limited UK 100%
Infinis China (Investments) Limited UK 100%
Infinis (COE) Limited UK 100%
Infinis Energy Storage Limited UK 100%
Novera Energy Pty Limited UK 100%
Barbican Holdco Limited UK 100%
Barbican Bidco Limited UK 100%
Alkane Energy Limited UK 100%
Alkane Biogas Limited UK 100%
Alkane Energy UK Limited UK 100%
Alkane Services Limited UK 100%
Seven Star Natural Gas Limited UK 100%
Regent Park Energy Limited UK 100%
Leven Power Limited UK 100%
Rhymney Power Limited UK 100%
Alkane Energy CM Holdings Limited UK 100%
Alkane Energy CM Limited UK 100%
Infinis Solar Holdings Limited UK 100%
Infinis Solar Developments Limited UK 100%
Infinis Solar Limited UK 100%
ND Solar Enterprises Limited UK 100%
Aura Power Solar UK6 Limited UK 100%
DNS:NET Group:
DNS Holdings GmbH Germany 64%
DNS Bidco GmbH Germany 64%
DNS:NET Internet Service GmbH Germany 64%
SRL Traffic Systems Group:
Amalthea Holdco Limited UK 92%
Amalthea Midco Limited UK 92%
Amalthea Bidco Limited UK 92%
Jupiter Bidco Limited UK 92%
SRL Traffic Systems Limited UK 92%
SRL GmbH Germany 92%
SRL Traffic Systems Limited Ireland 92%
ESVAGT Group:
ERRV Holdings ApS Denmark 100%
ERRV ApS Denmark 100%
ESVAGT Holdings Inc US 100%
ESVAGT A/S Denmark 100%
ESVAGT Norge AS Norway 100%
ESVAGT Holdings Ltd UK 100%
P/F ESVAGT-Thor Faroe Islands 51%
ESVAGT UK Ltd UK 100%
The list above comprises the unconsolidated subsidiary
undertakings of the Company as at 31 March 2022.
There are no current commitments or intentions to provide
financial or other support to any of the unconsolidated
subsidiaries, including commitments or intentions to assist the
subsidiaries in obtaining financial support except for those
disclosed in Note 16 (2021: none). No such financial or other
support was provided during the year (2021: none).
Investment policy (unaudited)
The Company aims to build a diversified portfolio of equity
investments in entities owning infrastructure businesses and
assets. The Company seeks investment opportunities globally, but
with a focus on Europe, North America and Asia.
The Company's equity investments will often comprise share
capital and related shareholder loans (or other financial
instruments that are not shares but that, in combination with
shares, are similar in substance). The Company may also invest in
junior or mezzanine debt in infrastructure businesses or
assets.
Most of the Company's investments are in unquoted companies.
However, the Company may also invest in entities owning
infrastructure businesses and assets whose shares or other
instruments are listed on any stock exchange, irrespective of
whether they cease to be listed after completion of the investment,
if the Directors judge that such an investment is consistent with
the Company's investment objectives. The Company will, in any case,
invest no more than 15% of its total gross assets in other
investment companies or investment trusts which are listed on the
Official List.
The Company may also consider investing in other fund structures
(in the event that it considers, on receipt of advice from the
Investment Manager, that that is the most appropriate and effective
means of investing), which may be advised or managed either by the
Investment Manager or a third party. If the Company invests in
another fund advised or managed by 3i Group, the relevant
proportion of any advisory or management fees payable by the
investee fund to 3i plc will be deducted from the annual management
fee payable under the Investment Management Agreement and the
relevant proportion of any performance fee will be deducted from
the annual performance fee, if payable, under the Investment
Management Agreement.
For the avoidance of doubt, there will be no similar set-off
arrangement where any such fund is advised or managed by a third
party.
For most investments, the Company seeks to obtain representation
on the board of directors of the investee company (or equivalent
governing body) and in cases where it acquires a majority equity
interest in a business, that interest may also be a controlling
interest.
No investment made by the Company will represent more than 25%
of the Company's gross assets, including cash holdings, at the time
of making the investment. It is expected that most individual
investments will exceed 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. Depending on the
size of the relevant investment and the identity of the relevant
co-investor, such a co-investment arrangement may be subject to the
related party transaction provisions contained in the Listing Rules
and may therefore require shareholder consent.
The Company's Articles require its outstanding borrowings,
including any financial guarantees to support subsequent
obligations, to be limited to 50% of the gross assets of the
Company (valuing investments on the basis included in the Company's
accounts).
In accordance with Listing Rules requirements, the Company will
only make a material change to its investment policy with the
approval of shareholders.
Statement of Directors' responsibilities
In accordance with the FCA's Disclosure Guidance and
Transparency Rules, the Directors confirm to the best of their
knowledge that:
a) the Financial statements, prepared in accordance with
applicable accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company taken as a whole; and
b) the Annual report and accounts include a fair review of the
development and performance of the business and the position of the
Company taken as a whole, together with a description of the
principal risks and uncertainties faced by the Company.
The Directors of the Company and their functions are listed
below. The Directors have acknowledged their responsibilities in
relation to the Financial statements for the year to 31 March
2022.
Richard Laing
Chair
9 May 2022
Board of Directors and their functions
Richard Laing
Non-executive Chair and Chair of the Nominations Committee and
the Management Engagement Committee.
Doug Bannister
Non-executive Director.
Wendy Dorman
Non-executive Director and Chair of the Audit and Risk
Committee.
Samantha Hoe-Richardson
Non-executive Director.
Ian Lobley
Non-executive Director.
Paul Masterton
Senior Independent Director and Chair of the Remuneration
Committee.
Portfolio valuation methodology (unaudited)
A description of the methodology used to value the investment
portfolio of the Company is set out below in order to provide more
detailed information than is included within the accounting
policies and the Investment Manager's review for the valuation of
the portfolio. The methodology complies in all material aspects
with the International Private Equity and Venture Capital valuation
guidelines which are endorsed by the British Private Equity and
Venture Capital Association and Invest Europe.
Basis of valuation
Investments are reported at the Directors' estimate of fair
value at the reporting date in compliance with IFRS 13 Fair Value
Measurement. Fair value is defined as 'the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date'.
General
In estimating fair value, the Directors seek to use a
methodology that is appropriate in light of the nature, facts and
circumstances of the investment and its materiality in the context
of the overall portfolio. The methodology that is the most
appropriate may consequently include adjustments based on informed
and experience-based judgements, and will also consider the nature
of the industry and market practice. Methodologies are applied
consistently from period to period except where a change would
result in a better estimation of fair value. Given the
uncertainties inherent in estimating fair value, a degree of
caution is applied in exercising judgements and making necessary
estimates.
Investments may include portfolio assets and other net
assets/liabilities balances. The methodology for valuing portfolio
assets is set out below. Any net assets/liabilities within
intermediate holding companies are valued in line with the Company
accounting policy and held at fair value or approximate to fair
value.
Quoted investments
Quoted equity investments are valued at the closing bid price at
the reporting date. In accordance with International Financial
Reporting Standards, no discount is applied for liquidity of the
stock or any dealing restrictions. Quoted debt investments will be
valued using quoted prices provided by third-party broker
information where reliable or will be held at cost less fair value
adjustments.
Unquoted investments
-- Unquoted investments are valued using one of the following methodologies:
-- Discounted Cash Flow ('DCF');
-- Proportionate share of net assets;
-- Sales basis; and
-- Cost less any fair value adjustments required.
DCF
DCF is the primary basis for valuation. In using the DCF basis,
fair value is estimated by deriving the present value of the
investment using reasonable assumptions and estimation of expected
future cash flows, including contracted and uncontracted revenues,
expenses, capital expenditure, financing and taxation, and the
terminal value and date, and the appropriate risk-adjusted discount
rate that quantifies the risk inherent to the investment. The
terminal value attributes a residual value to the investee company
at the end of the projected discrete cash flow period. The discount
rate will be estimated for each investment derived from the market
risk-free rate, a risk-adjusted premium and information specific to
the investment or market sector.
Proportionate share of net assets
Where the Company has made investments into other infrastructure
funds, the value of the investment will be derived from the
Company's share of net assets of the fund based on the most recent
reliable financial information available from the fund. Where the
underlying investments within a fund are valued on a DCF basis, the
discount rate applied may be adjusted by the Company to reflect its
assessment of the most appropriate discount rate for the nature of
assets held in the fund. In measuring the fair value, the net asset
value of the fund is adjusted, as necessary, to reflect
restrictions on redemptions, future commitments, illiquid nature of
the investments and other specific factors of the fund.
Sales basis
The expected sale proceeds will be used to assign a fair value
to an asset in cases where offers have been received as part of an
investment sales process. This may either support the value derived
from another methodology or may be used as the primary valuation
basis. A marketability discount is applied to the expected sale
proceeds to derive the valuation where appropriate.
Cost less fair value adjustment
Any investment in a company that has failed or, in the view of
the Board, is expected to fail within the next 12 months, has the
equity shares valued at nil and the fixed income shares and loan
instruments valued at the lower of cost and net recoverable
amount.
Glossary
Alternative Investment Fund ('AIF')
3i Infrastructure plc is an AIF managed by 3i Investments
plc.
Alternative Investment Fund Manager ('AIFM') is the regulated
manager of an AIF. For 3i Infrastructure plc, this is 3i
Investments plc.
Approved Investment Trust Company This is a particular UK tax
status maintained by 3i Infrastructure plc. An approved Investment
Trust company is a UK tax resident company which meets certain
conditions set out in the UK tax rules which include a requirement
for the company to undertake portfolio investment activity that
aims to spread investment risk and for the company's shares to be
listed on an approved exchange. The 'approved' status for an
investment trust must be agreed by the UK tax authorities and its
benefit is that certain profits of the company, principally its
capital profits, are not taxable in the UK.
Association of Investment Companies ('AIC') The Association of
Investment Companies is a UK trade body for
closed-ended investment companies.
Board The Board of Directors of the Company.
Capital reserve recognises all profits that are capital in
nature or have been allocated to capital. These profits are
distributable by way of a dividend.
Company 3i Infrastructure plc.
Discounting The reduction in present value at a given date of a
future cash transaction at an assumed rate, using a discount factor
reflecting the time value of money.
External auditor The independent auditor, Deloitte LLP.
Fair value through profit or loss ('FVTPL') is an IFRS
measurement basis permitted for assets and liabilities which meet
certain criteria. Gains and losses on assets and liabilities
measured as FVTPL are recognised directly in the Statement of
comprehensive income.
FY15, FY20, FY21, FY22, FY23 refers to the financial years to 31
March 2015, 31 March 2020, 31 March 2021, 31 March 2022 and 31
March 2023 respectively.
Initial Public Offering ('IPO' ) is the mechanism by which a
company admits its stock to trading on a public stock exchange. 3i
Infrastructure plc completed its IPO in March 2007.
International Financial Reporting Standards ('IFRS' ) are
accounting standards issued by the International Accounting
Standards Board ('IASB'). The Company's financial statements are
required to be prepared in accordance with IFRS, as adopted by the
UK.
Investment income is that portion of income that is directly
related to the return from individual investments and is recognised
as it accrues. It is comprised of dividend income, income from
loans and receivables and fee income. It is recognised to the
extent that it is probable that there will be an economic benefit
and the income can be reliably measured.
Key Performance Indicator ('KPI') is a measure by reference to
which the development, performance or position of the Company can
be measured effectively.
Money multiple is calculated as the cumulative distributions or
realisation proceeds plus any residual value divided by invested or
paid-in capital.
Net asset value ('NAV') is a measure of the fair value of all
the Company's assets less liabilities.
Net assets per share ('NAV per share' ) is the NAV divided by
the total number of shares in issue.
Net gains on investments is the movement in the fair value of
investments between the start and end of the accounting period, or
investment disposal date, or the investment acquisition date and
the end of the accounting period, including divestment related
costs where applicable, converted into sterling using the exchange
rates in force at the end of the period.
Ongoing charges A measure of the annual recurring operating
costs of the Company, expressed as a percentage of average NAV over
the reporting period.
Public Private Partnership ('PPP') is a government service or
private business venture which is funded and operated through a
partnership of government and one or more private sector
companies.
Retained reserves recognise the cumulative profits to 15 October
2018, together with amounts transferred from the Stated capital
account.
Revenue reserve recognises all profits that are revenue in
nature or have been allocated to revenue.
Revolving credit facility ('RCF') A GBP400 million facility
provided by the Company's lenders with a maturity date in November
2024, together with a further GBP200 million of commitments
maturing in December 2022 and GBP400 million of commitments
maturing in January 2023.
SORP means the Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and Venture Capital
Trusts.
Stated capital account The Stated capital account of the Company
represents the cumulative proceeds recognised from share issues or
new equity issued on the conversion of warrants made by the Company
net of issue costs and reduced by any amount that has been
transferred to Retained reserves, in accordance with Jersey Company
Law, in previous years.
Sustainability KPIs Sustainability metrics in relation to the
Sustainability-linked revolving credit facility. The facility
includes targets across ESG themes aligned with our purpose.
TCFD is the Task Force on Climate-related Financial
Disclosures.
Total return measured as a percentage, is calculated against the
opening NAV, net of the final dividend for the previous year, and
adjusted (on a time weighted average basis) to take into account
any equity issued and capital returned in the year.
Total shareholder return ('TSR' ) is the measure of the overall
return to shareholders and includes the movement in the share price
and any dividends paid, assuming that all dividends are reinvested
on their ex-dividend date.
For further information see our website
www.3i-infrastructure.com
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