TIDMBBGI
RNS Number : 8665K
BBGI Global Infrastructure S.A.
31 August 2023
The information contained within this Announcement is deemed by
the Company to constitute inside information. Upon the publication
of this Announcement via a Regulatory Information Service this
inside information is now considered to be in the public
domain.
31 August 2023
BBGI Global Infrastructure S.A.
(" BBGI " or the " Company ")
Interim results for the six months ended 30 June 2023
Strong operational and resilient financial performance
BBGI Global Infrastructure S.A. (LSE ticker: BBGI), the global
infrastructure investment company, is pleased to announce its
interim results for the six months ended 30 June 2023.
Sarah Whitney, Non-Executive Chair of BBGI, commented:
"I am pleased to report the strong operational performance of
our globally diversified portfolio of social infrastructure assets
for the first six months of 2023. These results reflect the
low-risk investment strategy, prudent financial management and
value driven asset management approach that we have successfully
deployed since our IPO in 2011.
Our financial performance was resilient throughout H1 2023,
despite the ongoing challenging macroeconomic environment. The
defensive and global nature of our portfolio has again provided
stable, predictable and inflation-linked cash flows, and we have
continued to generate secure, high-quality inflation-linked income
and increased dividends that are expected to remain well
covered.
BBGI has not been immune to the uncertain market and economic
backdrop that has impacted investor sentiment on almost all UK
listed investment companies. The Board does not believe the current
share price adequately reflects the value of the portfolio and its
high-quality inflation linkage, nor does it reflect our strong
financial position and operational performance."
Duncan Ball and Frank Schramm, Co-CEOs of BBGI, said:
"Our results for H1 2023 demonstrate our continued strong
operational performance despite the challenging economic times.
Through our consistent, disciplined approach to active asset
management and prudent financial management, our investments have
continued to deliver during the period, with a resilient financial
performance.
In the current macro-economic environment, our strategy focuses
on directing surplus capital towards the repayment of any
outstanding drawings on the revolving credit facility. We will
continue to maintain a disciplined approach to capital allocation
and transaction activity, only participating in the market and
evaluating potential investment opportunities when they are clearly
value accretive.
Preserving and enhancing the value of our portfolio remain our
top priorities. The strength of our assets is evidenced by the
continued strong market demand for similar assets, thanks to their
high-quality, secure, and long-term inflation-linked contracts,
which generate predictable cash flows. This, in turn, enables us to
deliver attractive returns to our shareholders over the long term.
We approach the future with confidence."
Six months in numbers
Financial highlights [i]
Investment Basis NAV per share Annualised total
NAV NAV return per share
since IPO
GBP1,056.7m 147.8pps 8.8%
down 1.2% as at down 1.4% as at 30 FY 2022: 9.1%
30 June 2023 June 2023
(31 Dec 2022: GBP1,069.2m) (31 Dec 2022: 149.9pps[ii])
High-quality inflation Annualised ongoing Cash dividend cover
linkage charges
0.6% 0.92% 1.68x
FY 2022: 0.5% FY 2022: 0.87% FY 2022:1.47x
2023 target dividend 2024 target dividend 2025 target dividend
7.93pps 8.40pps 8.57pps
+6% +6% +2%
Financial and operational highlights
Strong operational performance
* Strong operational performance of our globally
diversified portfolio of 56 high-quality, 100 per
cent availability-style infrastructure assets.
* Maintained a consistently high asset availability
rate of 99.9 per cent .
* At the period end, BBGI's investment portfolio was
99.5 per cent operational. We have one asset under
construction; Highway 104 in Nova Scotia, Canada, and
substantial completion is scheduled for Q3 2023.
* Our portfolio investments are the essential assets on
which people rely every day, such as schools,
hospitals, fire and police stations, affordable
housing, modern correctional facilities and
transport.
* We partner with the public sector, underpinned by
government or government-backed counterparties, to
help deliver and manage responsibly these assets for
the long term.
* Located in Australia, Canada, Germany, the
Netherlands, Norway, the UK, and the US, all
Portfolio Companies are in stable, well-developed,
and highly-rated investment grade countries.
* As at 30 June 2023, BBGI had a weighted average
portfolio life of 19.8 years. By prioritising
acquiring assets with a long residual life, we have
maintained a portfolio with a long weighted average
life.
* Disciplined approach to capital allocation and
potential acquisitions and will only consider
transactions that are accretive to our shareholders.
Generating secure, inflation-linked income
* Our asset portfolio delivers attractive, predictable
and inflation-linked cash flows.
* Contracted high-quality inflation linkage of 0.6 per
cent.
* Reaffirmed dividend targets of 7.93 pps for 2023 and
8.40 pps for 2024, representing a 6 per cent increase
year on year, and a dividend target of 8.57 pps for
2025. All dividends are e x pected to be fully
cash-covered.
* Cash receipts ahead of projections, with no material
lockups or defaults reported.
* Strong cash dividend cover of 1.68x in H1 2023.
* Half-year dividend declared of 3.965 pps for H1 2023 ,
to be paid in October 2023, in-line with target.
* Average dividend increase of 3.4 per cent on a
compound annual growth rate from 2012 to 2023. BBGI's
progressive dividend outpaced UK CPI delivering
positive real returns to shareholders.
Global portfolio and financial performance resilient despite
market volatility and uncertainty
* There has been market rerating across all sectors in
the alternative asset space in H1 2023.
* During the period, we have observed a modest decrease
in the NAV per share of 1.4 per cent to 147.8 pps
(2022: 149.9 pps) , impacted by macroeconomic
variables beyond our control. This reduction is
mainly attributed to an increase in discount rates
and negative foreign exchange movements. The negative
valuation effects have been partly mitigated by
increased deposit and inflation rates, as well as the
value enhancements or team has delivered across our
portfolio.
o The weighted average discount rate increased from 6.9 per cent
to 7.2 per cent over H1 2023, largely due to the rise in long-term
gilt yields in the UK impacting our UK assets, which constitute
33 per cent of our portfolio .
o In the UK, the risk-free rate has materially increased during
H1 2023, with c. 0.5 per cent added to 20-year gilt yields since
31 December 2022. Conversely, outside the UK, long-term government
bond yields have declined in all jurisdictions except Norway.
o T he weighted average risk-free rate has remained stable at
c. 3.8 per cent since December 2022. The discount rate of 7.2
per cent represents a risk premium of c. 340 basis points, which
the Company views to be adequate and towards the conservative
end for low-risk availability-style investments.
o The negative net effect of foreign exchange movements, after
adjusting for the offsetting effect of the Company's hedging strategy,
resulting in a NAV decrease of GBP12.9 million or 1.2 per cent.
* During the period, the Company recognised an increase
in the portfolio value of GBP13.8 million, or a 1.3
per cent increase in the NAV, resulting from changes
in macroeconomic assumptions. The main drivers were
short-term and long-term deposit rates accounting for
GBP12.9 million of this increase, with the balance
reflecting marginal changes in short-term inflation
forecasts.
* Annualised total NAV return per share since IPO of
8.8 per cent. ([iii])
Prudent financial and risk management
* Our liquidity position remains robust, with a net
debt position of GBP7.9 million and GBP25.8 million
of cash drawings under our GBP230 million
multi-currency RCF, maturing in May 2026. By using
excess cash generated by the Company's portfolio of
investments, these drawings could be repaid by 31
December 2023.
* Fund level leverage remains modest, representing only
2.4 per cent of NAV with no investment transaction
commitments.
* No structural gearing at Group level.
* Portfolio-level borrowings are non-recourse with the
vast majority having fixed base rates during the
concession period. Of the 56 assets in our portfolio,
only one has a refinancing obligation for a tranche
of debt.
* Our proportionate share of Portfolio Company deposits
total approximately GBP385 million[iv]. Through our
proactive asset management strategy, we have secured
competitive deposit rates, which currently average
around c. 4.5 per cent. The interest generated from
these deposits acts as a cushion, providing a
counterbalance against the negative impact on our
portfolio's valuation caused by the increased
weighted average discount rate.
* No outstanding commitments to acquire assets and no
requirement to raise capital in the foreseeable
future.
* Disciplined approach to capital allocation and
potential acquisitions.
* Hedging strategy aimed to reduce NAV foreign exchange
('FX') sensitivity to c. 3 per cent for a 10 per cent
movement in FX.
Value-driven asset management
* We focus on operational performance to drive
efficiencies and generate portfolio optimisation. Our
hands-on approach preserves and enhances the value of
our investments, delivering well-maintained social
infrastructure for communities and end-users, and
attractive returns over the long term for
shareholders.
* Value-accretive activities, including effective
lifecycle cost management, Portfolio Company cost
savings, and optimised cash reserving, contributed
approximately GBP7.6 million to the NAV.
* We maintain our track record of no reported lock-ups
or material defaults at our Portfolio Companies, and
we continue to generate a consistently high asset
availability rate of 99.9 per cent.
* As the sole internally managed equity infrastructure
investment company on the London Stock Exchange, our
structure ensures our interests are fully aligned
with our investors. We are not incentivised by assets
under management, but rather value creation.
Sustainability
* During the period, a comprehensive data collection
exercise was conducted to capture Scope 1, 2 and
material Scope 3 GHG emissions data from all our
Portfolio Companies between 2019 to 2022, a crucial
step in the journey to net zero.
* Our objective is to have 70 per cent of our Portfolio
Companies by value to be 'net zero' 'aligned', or
'aligning', by 2030, with these principles embedded
in our executive remuneration targets.
* Our asset management approach is aligned to six
Sustainable Development Goals ('SDGs') with a focused
ESG approach fully integrated into our business model,
which is led by our purpose. In June 2023, we
published our 2022 ESG report, which provides
detailed information on our ESG progress and
showcases achievements at our 56 Portfolio Companies.
* Under Sustainable Finance Disclosure Regulation
('SFDR'), we fall within the scope of Article 8,
where the investment product promotes social
characteristics and follows good governance
practices. In June 2023, we filed our latest SFDR
disclosures, including details on how we measure our
performance in engaging with our stakeholders and our
contributions to meeting our social characteristics.
Market trends and pipeline
* We believe infrastructure will remain an attractive
asset class due to its defensive nature, predictable
cash flows, and inflation linkage. Looking ahead, the
availability-style infrastructure asset class shows
promising prospects, driven by the need for
decarbonisation, digitalisation, and the upgrade or
replacement of ageing infrastructure.
* In the current macro-economic environment, our
strategy focuses on directing surplus capital towards
the repayment of any outstanding drawings on the
revolving credit facility. However, when appropriate
opportunities arise, we have a structured process for
considering potential new investments. These
opportunities are evaluated with a focus on both
dividends and returns, illustrating our commitment to
pursuing selective and disciplined growth.
* We will continue to maintain a disciplined approach
to capital allocation and transaction activity, only
participating in the market and evaluating potential
investment opportunities when they are clearly value
accretive. Preserving and enhancing the value of our
portfolio remain our top priorities.
Company presentation for analysts and investors
A Company presentation for analysts and investors will take
place today, Thursday, 31 August 2023, at 9.00am (BST) time via an
in-person meeting and a live webcast and audio only dial in
conference call.
For those analysts and investors who wish to attend the
in-person presentation or live conference call, please contact
InvestorServices@bb-gi.com
To access the live webcast, please register in advance here:
https://www.lsegissuerservices.com/spark/BBGISICAVSA/events/9a49493e-5908-4e1b-902b-55f19a7739e1
Webcast participants can type questions into the question
box.
The recording of the interim results presentation and slides
will be made available later in the day via the Company website:
www.bb-gi.com *
FOR FURTHER INFORMATION, PLEASE CONTACT:
BBGI Management Team +352 263 479-1
Duncan Ball
--------------------------------
Frank Schramm
--------------------------------
H/Advisors Maitland (Communications
advisor) +44(0) 20 7379 5151
--------------------------------
James Benjamin BBGI-maitland@h-advisors.global
--------------------------------
Rachel Cohen
--------------------------------
NOTES
BBGI Global Infrastructure S.A. (BBGI) is a responsible
infrastructure investment company and a constituent of the FTSE
250. We invest in and actively manage for the long-term a globally
diversified, low-risk portfolio of essential social infrastructure
investments. Our purpose is to deliver healthier, safer and more
connected societies, while creating sustainable value for all our
stakeholders.
BBGI is committed to delivering stable and predictable cash
flows with progressive long-term dividend growth and attractive,
sustainable, returns for shareholders. Through our proactive and
disciplined approach to active asset management and prudent
financial management, and with a strong focus on ESG, we preserve
and enhance the value of our investments, and deliver well
maintained social infrastructure that serve and support local
communities and end users.
All of BBGI's investments are availability-style and supported
by secure public sector-backed contracted revenues, with high
quality inflation-linkage. Availability-style means that our
revenues are paid so long as the assets are available for use, and
we maintain a consistently high level of asset availability of
99.9%.
BBGI's investment portfolio is over 99% operational with all its
investments located across highly rated investment grade countries
with stable, well developed operating environments.
BBGI's in-house management team is incentivised by shareholder
returns and consistently maintains low comparative ongoing charges
to shareholders.
BBGI is targeting dividends of 7.93 pence and 8.40 pence per
ordinary share for the twelve months ending 31 December 2023 and 31
December 2024, respectively, representing a 6% increase year on
year, and a dividend target of 8.57pps for 2025: all are expected
to be fully cash-covered**.
Further information about BBGI is available on its website at www.bb-gi.com *
The Company's LEI: 529900CV0RWCOP5YHK95
Any reference to the Company or BBGI refers also to its
subsidiaries (where applicable).
* Neither the Company's website nor the content of any website
accessible from hyperlinks on its website (or any other website) is
(or is deemed to be) incorporated into, or forms (or is deemed to
form) part of this announcement.
** These are guidance levels or targets only and not a profit
forecast and there can be no assurance that they will be met.
BBGI Global Infrastructure S.A. Interim Results for the Six
Months Ended 30 June 2023
About BBGI
BBGI Global Infrastructure S.A. (BBGI, the 'Company', and
together with its consolidated subsidiaries, the 'Group') is a
global infrastructure investment company helping to provide
responsible capital to build and maintain critical social
infrastructure ([v]) .
From hospitals to schools, to affordable housing and safer
roads, we partner with the public sector to deliver social
infrastructure that forms the building blocks of local economies,
while creating sustainable value for all stakeholders.
Our purpose: To deliver social infrastructure for healthier,
safer, and more connected societies, while creating sustainable
value for all stakeholders.
Our vision: We invest to serve and connect people.
Our values :
* Trusted to deliver.
* Dependable partner.
* Investor with impact.
* Present-focused, future-ready.
Six months in numbers
Financial highlights
Investment Basis NAV per share Annualised total
NAV NAV return per share
since IPO
GBP1,056.7m 147.8pps 8.8%
down 1.2% as at down 1.4% as at 30 FY 2022: 9.1%
30 June 2023 June 2023
(31 Dec 2022: GBP1,069.2m) (31 Dec 2022: 149.9pps)
High-quality inflation Annualised ongoing Cash dividend cover
linkage charges
0.6% 0.92% 1.68x
FY 2022: 0.5% FY 2022: 0.87% FY 2022:1.47x
2023 target dividend 2024 target dividend 2025 target dividend
7.93pps 8.40pps 8.57pps
+6% +6% +2%
Portfolio highlights
* Strong operational performance of our globally
diversified portfolio of 56 high-quality, 100 per
cent availability-style infrastructure assets.
* Maintained a consistently high asset availability
rate of 99.9 per cent .
* Contracted high-quality inflation linkage of 0.6 per
cent.
* 6 per cent dividend growth targets for 2023 and 2024
reaffirmed.
* Cash receipts ahead of projections, with no material
lockups or defaults.
* Fund level leverage remains modest with GBP25.8
million of RCF cash drawings, representing only 2.4
per cent of NAV, which could be repaid with excess
cash by 31 December 2023. Net debt of GBP7.9 million.
* No structural gearing at Group level, and, with
limited exceptions only, borrowing costs are fixed at
the Portfolio Company level, providing stability and
predictability. 55 of 56 projects have no refinancing
risk during the concession period.
* No outstanding commitments to acquire assets and no
requirement to raise capital in the foreseeable
future.
* Disciplined approach to capital allocation and
potential acquisitions.
* Weighted average discount rate increased to 7.2 per
cent from 6.9 per cent as at 31 December 2022,
reflecting an equity risk premium of c. 3.4 per cent,
mainly reflecting an increase in UK risk-free rates.
* Hedging strategy aimed to reduce NAV foreign exchange
('FX') sensitivity to c. 3 per cent for a 10 per cent
movement in FX.
* Completed a comprehensive data collection process to
assess our portfolio's Scope 1, 2 and material Scope
3 greenhouse gas ('GHG') emissions, carbon footprint
and carbon intensity, a crucial step in the journey
to net zero.
Portfolio at a Glance
The fundamentals
Based on portfolio value as at 30 June 2023.
Investment type
100 per cent availability-style[vi] revenue stream.
Investment type
======================= ========= ======== =======
Availability-style revenue
assets 100%
100%
Investment status
Low-risk operational portfolio.
Investment status
====================== ======== =========== ========
Operations 99.4%
Construction 0.6%
100%
Geographical split
Geographically diversified in stable developed countries.
Geographic split
==================== =====
Canada 35%
UK 33%
Continental Europe 12%
US 10%
Australia 10%
100%
Sector split
Well-diversified sector exposure with large allocation to
lower-risk availability-style road and bridge investments.
Sector split
==================================== =====
Transport 53%
Healthcare 21%
Blue light and modern correctional
facilities 12%
Education 8%
Affordable housing 3%
Clean energy 2%
Other 1%
100%
Investment life
Long investment life with 46 per cent of portfolio by value with
a duration of greater than or equal to 20 years; weighted average
life of 19.8 years. Average portfolio debt maturity of 15.9
years.
Investment life
================== =====
>=25 years 24%
>=20 years and
<25 years 22%
>=10 years and
<20 years 48%
<10 years 6%
100%
Our top five investments
Well-diversified portfolio with no major single asset
exposure.
Top-five investments
========================== ========= ====== =======
Ohio River Bridges
(US) 10.1%
Golden Ears Bridge
(Canada) 9.3%
Northern Territory Secure
Facilities (Australia) 4.4%
A7 Motorway (Germany) 4.3%
A1/A6 Motorway (Netherlands) 4.1%
Next five largest investments 16.1%
Remaining investments 51.7%
100%
Investment ownership
78 per cent of assets by value in the portfolio are 50 per cent
owned or greater.
Investment ownership
======================= =====
100% 45%
>=75% and <100% 7%
>=50% and <75% 26%
<50% 22%
100%
Country rating
All assets located in countries with ratings between AA and
AAA[vii].
Country rating
================= =====
AAA 57%
AA+ 10%
AA 33%
100%
Projected portfolio cash flow
Our underlying assets generate a consistent and long-term stream
of inflation-linked cash flows, extending up to 2051. These cash
flows are predictable due to the involvement of government or
government-backed counterparties and the contractual nature of the
agreements.
Based on current estimates, and assuming no further acquisitions
for illustrative purposes only, the portfolio is forecasted to
enter the capital repayment phase in September 2039. After this,
cash inflows from the portfolio are paid to our shareholders as
capital and the portfolio valuation reduces as assets reach the end
of their concession term.
As at 30 June 2023, BBGI had a weighted average portfolio life
of 19.8 years, a decrease of 0.4 years compared with 31 December
2022. By prioritising the acquisition of assets with a long
residual life, we have maintained a portfolio with a long weighted
average life.
This illustrative chart is a target only, as at 30 June 2023,
and is not a profit forecast. There can be no assurance this target
will be met. The hypothetical target cash flows do not consider any
unforeseen costs, expenses or other factors that may affect the
portfolio assets and therefore the impact on the cash flows to the
Company. As such, the chart above should not in any way be
construed as forecasting the actual cash flows from the portfolio.
There are minor cash flows extending beyond 2051 but for
illustrative purposes, these are excluded from the chart above.
Chair's statement
On behalf of the Supervisory Board, I am pleased to report the
strong operational performance of our globally diversified
portfolio of social infrastructure assets for the first six months
of 2023. These results reflect the low-risk investment strategy,
prudent financial management and value driven asset management
approach that we have successfully deployed since our IPO in
2011.
Our financial performance was resilient throughout H1 2023,
despite the ongoing challenging macroeconomic environment, which
has been characterised by high inflation and rising interest rates,
general market uncertainty and the volatile geopolitical
backdrop.
The defensive and global nature of our portfolio has again
provided stable, predictable and inflation-linked cash flows, and
we have continued to generate secure, high-quality inflation-linked
income and increased dividends that are expected to remain well
covered.
Revenue from our 56 assets is 100 per cent availability-style,
meaning revenues are paid so long as the assets are available for
use. We are insulated from demand risk which can be subject to the
volatility of the economic cycle. At the period end, BBGI's
investment portfolio was 99.4 per cent operational, underlining the
strength of our portfolio and the quality of the operational
management delivered by our teams. We have only one asset under
construction, Highway 104 in Nova Scotia, Canada, where completion
is scheduled for Q3 2023.
Global portfolio resilient despite market volatility and
uncertainty
There has been market rerating across all sectors in the
alternative asset space in H1 2023. During this period, we have
observed a modest decrease in the NAV per share of 1.4 per cent to
NAV 147.8pps, impacted by macroeconomic variables beyond our
control. This reduction is mainly attributed to an increase in
discount rates and negative foreign exchange movements. The
increase in discount rates particularly impacted our UK assets,
which constitute 33 per cent of our portfolio. In the UK, the
risk-free rate has materially increased during H1 2023, with c. 0.5
per cent added to 20-year gilt yields since 31 December 2022.
Conversely, outside the UK, long-term government bond yields have
declined in all jurisdictions except Norway.
The negative valuation effects have been partly mitigated by
increased deposit and inflation rates, as well as the value
enhancements our team has delivered across our portfolio.
Strong liquidity position and robust portfolio-level debt
financing arrangements
W e continue to benefit from a robust liquidity position - of
the 56 assets in our portfolio, only one has a refinancing
obligation for a small tranche of debt . We are therefore largely
insulated from recent increases in interest rates. Our fund level
leverage also remains modest. Drawings on our RCF could be repaid
using excess cash generated by the Company's portfolio of
investments by 31 December 2023. W e have no investment transaction
commitments.
Re-affirming our progressive dividend policy and dividend
targets
I n March 2023, we provided revised dividend targets for 2023
and 2024 of 7.93pps and 8.40pps, respectively. These revised
dividend targets will increase the dividend growth rate to 6 per
cent, ensuring our shareholders benefit from the increased value
created by our high-quality, inflation-linked portfolio. We had
strong cash dividend cover of 1.68x in H1 2023, with c ash receipts
ahead of projections, and no reported lock-ups or material defaults
reported at any of our Portfolio Companies. We expect our dividend
targets to be fully cash covered.
Strengthening our environmental, social and governance processes
and progress
Our purpose is to focus on delivering social infrastructure for
healthier, safer and more connected societies, while creating
sustainable value for all stakeholders. Our portfolio investments
are the essential assets on which people rely every day, such as
schools, hospitals, fire and police stations, affordable housing,
modern correctional facilities and transport. We partner with the
public sector, underpinned by government or government-backed
counterparties, to help deliver and manage responsibly these assets
for the long term.
Given our role as a steward of essential infrastructure, ESG is
a fundamental part of how we do business and we are focused on
embedding our environmental and social commitments as part of our
sustainability obligations. We are developing our ESG reporting
processes and now report Scope 1, 2 and material Scope 3 GHG
emissions, where possible, for all our Portfolio Companies. We
believe that the measuring and reporting of emissions is the first
step towards meaningful progress on our journey to net zero.
Outlook
BBGI has not been immune to the uncertain market and economic
backdrop that has impacted investor sentiment on almost all UK
listed investment companies. The Board does not believe the current
share price adequately reflects the value of the portfolio and its
high-quality inflation linkage, nor does it reflect our strong
financial position and operational performance. As part of its
overall capital allocation strategy, the Board will continue to
closely monitor the discount and will take it into consideration.
However, any potential actions to reduce the discount will only be
undertaken after thorough consideration and taking into account the
long-term implications.
The macroeconomic environment is expected to remain volatile,
particularly in the UK, and inflation is likely to remain high at
least for the near term. As an internally-managed investment
company, our leadership team's alignment of interest with our
shareholders is clear. In this period of economic volatility, we
will continue to be disciplined in our approach to capital
allocation and will only consider transactions that are accretive
to our shareholders.
Sarah Whitney
Chair
Co-CEO's statement
Our investment proposition is robust and defensive: we invest in
creditworthy, government-backed assets, with high-quality
inflation-linked cash flows, that perform well throughout market
and economic cycles.
Our results for H1 2023 demonstrate our continued strong
operational performance despite the challenging economic times.
Through our consistent, disciplined approach to active asset
management and prudent financial management, our investments have
continued to deliver during the period, with a resilient financial
performance. Over the past six months, we have continued to
generate high-quality, predictable and inflation-linked cash flows,
and strong dividend cover for our shareholders.
We are creating a positive sustainable impact on the local
communities served by our 56 infrastructure assets, helping to
provide the responsible capital required to build and maintain
critical social infrastructure in the countries where we do
business.
Key highlights for H1 2023
* Half-year dividend declared of 3.965 pps for H1 2023 ,
to be paid in October 2023, in-line with target.
* Strong cash dividend cover of 1.68x (2022: 1.47 x ).
* Cash receipts from portfolio distributions ahead of
projections.
* Reaffirmed dividend targets of 7.93 pps for 2023 and
8.40 pps for 2024, representing a 6 per cent increase
year on year, and a dividend target of 8.57 pps for
2025: all e x pected to be fully cash-covered.
* NAV per share decreased 1.4 per cent to 147.8 pps
(2022: 149.9 pps), impacted by a rise in discount
rates and negative foreign exchange movements, and
partly offset by increases in interest earned on
deposits, positive impact of inflation on revenues
and value enhancements.
* Annualised total NAV return per share since IPO of
8.8 per cent. ([viii])
* Annualised ongoing charges of 0.92 per cent (2022:
0.87 per cent).
* Fund level leverage remains modest with GBP25.8
million of cash drawings, representing only 2.4 per
cent of NAV, which could be repaid with excess cash
by 31 December 2023. Net debt of GBP7.9 million. The
company has no investment transaction commitments.
* Completed a comprehensive data collection process to
assess our portfolio's Scope 1, 2 and material Scope
3 GHG emissions, carbon footprint and carbon
intensity, an important step in the journey to net
zero.
Valuation and NAV update
As at 30 June 2023, our NAV per share decreased by 1.4 per cent
to 147.8pps (31 December 2022: 149.9pps). There are several
market-specific factors that contributed to the net decrease in the
NAV, the more notable being:
* The weighted average discount rate increased from 6.9
per cent to 7.2 per cent over H1 2023, largely due to
the rise in long-term gilt yields in the UK impacting
our UK assets.
* The negative net effect of foreign exchange movements,
after adjusting for the offsetting effect of the
Company's hedging strategy, resulting in a NAV
decrease of GBP12.9 million or 1.2 per cent.
* These valuation impacts have been partly mitigated by
updated inflation and deposit rate assumptions and
value enhancements to our portfolio.
The number of availability-style transactions and available
market data points have increased in H1 2023 compared to H2 2022,
and these data points support our revised discount rate of 7.2 per
cent. Notwithstanding, the Company complements its market-based
approach by using the Capital Asset Pricing Model where government
risk-free rates plus an equity risk premium are used to calculate
discount rates. This method is used as a reasonability check to our
market-based approach.
During H1 2023, short-term interest rates continued to rise. The
most significant impact on long-term government bond yields, and
subsequently on the discount rates used in the valuation process,
was observed in the UK, where we have seen an increase of c. 0.5
per cent on the risk-free rate thereby contributing to an increase
in the UK discount rate for stable operational projects to 7.5 per
cent. In contrast, in all other countries where we invest with the
exception of Norway, long-term government bond yields have declined
and as a result the weighted average risk-free rate across the
portfolio remained flat. We benefitted from the global nature of
our portfolio of investments with no singular concentration risk in
any one country.
Capital Allocation Policy
In the current macro-economic environment, our strategy focuses
on directing surplus capital towards the repayment of any
outstanding drawings on the revolving credit facility. However,
when appropriate opportunities arise, we have a structured process
for considering potential new investments. These opportunities are
evaluated with a focus on both dividends and returns, illustrating
our commitment to pursuing selective and disciplined growth.
Prudent financial and risk management
Our approach to risk management remains unchanged and there has
been no material movement in our risk profile over the past year.
Our portfolio is not directly impacted by the conflict in Ukraine
or energy price volatility. Through our effective hedging strategy,
we have managed to limit foreign exchange losses .
As of 30 June 2023, our liquidity position remains robust, with
a net debt position of GBP7.9 million and GBP25.8 million of cash
drawings under our GBP230 million multi-currency RCF, maturing in
May 2026. Fund level leverage remains modest, representing only 2.4
per cent of NAV with no investment transaction commitments. All
cash drawings at 30 June 2023 were in Euros, with an all-in debt
rate of 5.08[ix] per cent. By using excess cash generated by the
Company's portfolio of investments, these drawings could be repaid
31 December 2023.
Furthermore, we have benefitted from strong liquidity and our
portfolio-level debt financing arrangements, therefore rising debt
costs have had a limited impact on our financial health, as
evidenced by:
* No structural gearing
* Portfolio-level borrowings are non-recourse with the
vast majority having fixed base rates during the
concession period. Of the 56 assets in our portfolio,
only one has a refinancing obligation for a tranche
of debt. This minor refinancing risk exists in
relation to changes in the lending margin only as the
base market rate has been hedged for the entire debt
term. If the lending margin increases by 1 per cent
from the current forecast, the NAV could be
negatively impacted by GBP7.9 million (0.7 per cent
of NAV).
* Our proportionate share of Portfolio Company deposits
total approximately GBP385 million[x]. Through our
proactive asset management strategy, we have secured
competitive deposit rates across all currencies and
currently earn c. 4.5 per cent on weighted average
basis. The interest generated from these deposits
provides a counterbalance against the negative impact
on our portfolio valuation caused by the increased
weighted average discount rate.
Value-driven asset management
We focus on operational performance to drive efficiencies and
generate portfolio optimisation. Our hands-on approach preserves
and enhances the value of our investments, delivering
well-maintained social infrastructure for communities and
end-users, and attractive returns over the long term for
shareholders.
Value-accretive activities, including effective lifecycle cost
management, Portfolio Company cost savings, and optimised cash
reserving, contributed approximately GBP7.6 million to the NAV.
We maintain our track record of no reported lock-ups or material
defaults at our Portfolio Companies, and we continue to generate a
consistently high asset availability rate of 99.9 per cent.
As the sole internally managed equity infrastructure investment
company on the London Stock Exchange, our structure ensures our
interests are fully aligned with our investors. We are not
incentivised by assets under management, but rather value
creation.
Dividend
We declared a h alf-year dividend of 3.965 pps for H1 2023 , in
line with our target. We are reconfirming our progressive dividend
policy and our dividend targets, which we revised in March 2023 for
2023 and 2024, increasing the dividend growth rate to 6 per cent.
This ensures our shareholders benefit from the increased value
created by our high-quality, inflation-linked portfolio. We also
introduced a new dividend target of 8.57pps for 2025 and we expect
all our dividend targets to be fully cash covered. While our
dividend growth target is set at 6 per cent for 2023 and 2024 in
response to higher short term inflation assumptions, our 2025
target projects a 2 per cent growth under our progressive dividend
policy, predicated on an assumption of a more stable macroeconomic
environment. Assuming a scenario where no additional investments
are made, the projected cash flows generated in the income phase
from BBGI's current portfolio of 56 investments would sustain the
Company's progressive dividend policy[xi] for at least 15
years.
Contributing to a net-zero future
Our asset management approach is aligned to six Sustainable
Development Goals ('SDGs') with a focused ESG approach fully
integrated into our business model, which is led by our purpose. In
June 2023, we published our 2022 ESG report, which provides
detailed information on our ESG progress and showcases achievements
at our 56 Portfolio Companies.
Under Sustainable Finance Disclosure Regulation ('SFDR'), we
fall within the scope of Article 8, where the investment product
promotes social characteristics and follows good governance
practices. In June 2023, we filed our latest SFDR disclosures,
including details on how we measure our performance in engaging
with our stakeholders and our contributions to meeting our social
characteristics.
During the period, a comprehensive data collection exercise was
conducted to capture Scope 1, 2 and material Scope 3 GHG emissions
data from all our Portfolio Companies between 2019 to 2022.
Our objective is to have 70 per cent of our Portfolio Companies
by value to be 'net zero' 'aligned', or 'aligning', by 2030, with
these principles embedded in our executive remuneration
targets.
Looking ahead
We would like to thank our team once again for their hard work
over the past six months. Their dedication and approach are
outstanding and remain a fundamental part of our success.
We will continue to maintain a disciplined approach to capital
allocation and transaction activity, only participating in the
market and evaluating potential investment opportunities when they
are clearly value accretive. Preserving and enhancing the value of
our portfolio remain our top priorities. The strength of our assets
is evidenced by the continued strong market demand for similar
assets, thanks to their high-quality, secure, and long-term
inflation-linked contracts, which generate predictable cash flows.
This, in turn, enables us to deliver attractive returns to our
shareholders over the long term. We approach the future with
confidence.
Duncan Ball Frank Schramm
Co-CEO Co-CEO
Our investment strategy
BBGI provides access to a globally diversified portfolio of
infrastructure investments, which generate long-term and
sustainable returns and serve a critical social purpose in their
local communities. Our portfolio is well diversified across sectors
in education, healthcare, blue light (fire and police), affordable
housing, modern correctional facilities, clean energy and transport
infrastructure assets.
Our business model is built on four strategic pillars:
Low-risk
* Availability-style investment strategy.
* Secure, public sector-backed contracted revenues.
* Stable, predictable cash flows, with high-quality
inflation linkage and progressive long-term dividend
growth.
Globally diversified
* Focus on highly rated investment grade countries.
* Stable, well-developed operating environments.
* A global portfolio, serving society through
supporting local communities.
Strong ESG approach
* ESG fully integrated into the business model.
* Focus on delivering positive social impact - SFDR
Article 8 ([xii]) - and high degree of climate
resilience.
* Executive compensation linked to ESG performance.
Internally managed
* In-house management team focused on delivering
shareholder value first, portfolio growth second.
* Management interests aligned with those of
shareholders.
* Strong pricing discipline and portfolio management.
* Lowest comparative ongoing charges.[xiii]
Our business model is the bedrock of our success, enabling us to
deliver:
o Robust shareholder returns
o Low correlation to other asset classes
o Sustainable growth
Operating model
We follow a proven operating model based on three principles:
value-driven active asset management, prudent financial management
and a selective acquisition strategy, which are fundamental to our
success. This model aims to preserve and create value, while
achieving portfolio growth, ensuring that ESG considerations are
embedded in our processes.
Our active asset management approach seeks to ensure stable
operational performance, preservation of value and, where possible,
identification and incorporation of value enhancements over the
lifetime of the assets under our stewardship. Our approach aims to
reduce costs to our public sector clients and asset end-users, to
enhance the operational efficiency of each asset and to generate a
high level of asset availability, underpinning the social purpose
of our portfolio.
Our prudent financial management approach focuses on efficient
cash and corporate cost management and the implementation of our
foreign exchange hedging strategy. Due to our portfolio's extensive
geographical diversification, we are exposed to foreign exchange
volatility, which we actively seek to mitigate.
We pursue a selective acquisition strategy, so our Management
Board's focus remains within its area of expertise, and we uphold
the strategic pillars defined by our investment proposition. We
actively seek, through portfolio construction, acquisitions with
long-term, predictable, and inflation-protection characteristics
that support our contracted, high-quality, inflation linkage of 0.6
per cent.
Value-driven active asset management
We pursue a standardised approach across our portfolio to
preserve value, to derive operational and value enhancements, and
to improve clients' experience, including:
* Strong client relationships, by prioritising regular
meetings to achieve high rates of client
satisfaction.
* Focused asset management, to ensure distributions are
on time, and on or above budget.
* Focused cost management and portfolio-wide
cost-saving initiatives, to leverage economies of
scale or outperform the base case, such as portfolio
insurance and standardised management contracts for
Portfolio Companies, and lifecycle cost reviews.
* Comprehensive monitoring, to ensure we fulfil our
contractual obligations.
* Detailed climate risk assessment and ESG KPI tracking
tool, which includes over 100 KPIs and questions, to
evaluate the sustainable performance of each of our
investments.
* Maintaining high availability levels by proactively
managing any issues, including site visits to all
significant investments.
* Monitoring and periodically reviewing Portfolio
Company debt facilities and investigating potential
refinancing benefits.
* Measured exposure to construction risk to support NAV
uplift by de-risking assets over the construction
period.
Prudent financial management
We focus on cash performance at both the asset and portfolio
level to drive efficiencies, including:
* Progressive future dividend growth, underpinned by
high-quality inflation linkage and strong portfolio
distributions. Assuming a scenario where no
additional investments are made, the projected cash
flows in the income phase from BBGI's current
portfolio of 56 investments could sustain the
Company's progressive dividend policy for at least 15
years.
* Low ongoing charges through our efficient and
cost-effective internal management structure.
* Managing and mitigating foreign exchange risk through
our hedging strategy: hedging forecast portfolio
distributions, balance sheet hedging through foreign
exchange forward contracts, and borrowing in
non-Sterling currencies.
* Euro-denominated running costs, which provide a
natural hedge against Euro-denominated portfolio
distributions.
* Efficient treasury management system for cash in the
underlying Portfolio Companies to maximise interest
income on deposits.
* Maintaining modest cash balances at the corporate
level to limit cash drag, facilitated through access
to the RCF.
Selective acquisition strategy and strategic investment
partnership
We maintain strategic discipline in our acquisition strategy and
portfolio composition to ensure we pursue growth that builds
shareholder value, not just for growth's sake, including:
* Broad industry relationships throughout multiple
geographies.
* Pre-emption rights to acquire co-shareholders'
interests.
* Visible pipeline through a North American strategic
partnership, which offers an option, but not an
obligation, to transact.
* Global exposure to benefit from geographical
diversification.
* Robust framework embedding ESG principles into
investment due diligence.
* Revolving corporate debt facility to support
transaction execution.
* Focus on the Management Board's core areas of
expertise.
We leverage strong relationships with leading construction
companies to source potential pipeline investments, which support
our low-risk and globally diversified investment strategy.
Typically, these contractors have secured the mandate to design and
build new assets, but look to divest financially after the
construction period has finished - thereafter often maintaining
facility management contracts through a long-term partnership. BBGI
is an attractive partner for several reasons:
* Our cost of capital is typically lower than
construction companies, so involving BBGI can make
the bid more competitive.
* We are a long-term investor with a publicly-listed
status, which is attractive to government and
government-backed counterparties.
* We are considered a reliable source of liquidity
should a construction partner decide to sell.
* Having a financial partner is a prerequisite for some
construction companies so they can avoid
consolidating Portfolio Company debt onto the balance
sheet of their parent company.
* We have extensive asset credentials and a strong
track record, which can assist with the shortlisting
process for new projects.
Portfolio review
Portfolio summary
Our investments as at 30 June 2023 consisted of interests in 56
high-quality, availability-style social infrastructure assets, 99.9
per cent of which are fully operational (by portfolio value). The
portfolio is well diversified across sectors in education,
healthcare, blue light (fire and police), affordable housing,
modern correctional facilities, clean energy , and transport
infrastructure assets.
Located in Australia, Canada, Germany, the Netherlands, Norway,
the UK, and the US , all Portfolio Companies are in stable,
well-developed, and highly-rated investment grade countries.
No. Asset Country Percentage
holding
%
1 A1/A6 Motorway Netherlands 37.1
---------------------------------- ------------ -----------
2 A7 Motorway Germany 49
---------------------------------- ------------ -----------
Aberdeen Western Peripheral
3 Route UK 33.3
---------------------------------- ------------ -----------
4 Avon & Somerset Police HQ UK 100
---------------------------------- ------------ -----------
5 Ayrshire and Arran Hospital UK 100
---------------------------------- ------------ -----------
Barking Dagenham & Havering
6 Primary Care (LIFT) UK 60
---------------------------------- ------------ -----------
7 Bedford Schools UK 100
---------------------------------- ------------ -----------
8 Belfast Metropolitan College UK 100
---------------------------------- ------------ -----------
9 Burg Correctional Facility Germany 90
---------------------------------- ------------ -----------
10 Canada Line Canada 26.7
---------------------------------- ------------ -----------
11 Champlain Bridge Canada 25
---------------------------------- ------------ -----------
12 Clackmannanshire Schools UK 100
---------------------------------- ------------ -----------
13 Cologne Schools Germany 50
---------------------------------- ------------ -----------
14 Coventry Schools UK 100
---------------------------------- ------------ -----------
15 E18 Motorway Norway 100
---------------------------------- ------------ -----------
16 East Down Colleges UK 100
---------------------------------- ------------ -----------
17 Frankfurt Schools Germany 50
---------------------------------- ------------ -----------
18 Fürst Wrede Barracks Germany 50
---------------------------------- ------------ -----------
19 Gloucester Royal Hospital UK 50
---------------------------------- ------------ -----------
20 Golden Ears Bridge Canada 100
---------------------------------- ------------ -----------
21 Highway 104 Canada 50
---------------------------------- ------------ -----------
22 John Hart Generating Station Canada 80
---------------------------------- ------------ -----------
23 Kelowna and Vernon Hospital Canada 100
---------------------------------- ------------ -----------
24 Kent Schools UK 50
---------------------------------- ------------ -----------
25 Kicking Horse Canyon Highway Canada 50
---------------------------------- ------------ -----------
26 Lagan College UK 100
---------------------------------- ------------ -----------
27 Lisburn College UK 100
---------------------------------- ------------ -----------
Liverpool & Sefton Primary
28 Care (LIFT) UK 60
---------------------------------- ------------ -----------
29 M1 Westlink UK 100
---------------------------------- ------------ -----------
30 M80 Motorway UK 50
---------------------------------- ------------ -----------
McGill University Health
31 Centre Canada 40
---------------------------------- ------------ -----------
32 Mersey Care Hospital UK 79.6
---------------------------------- ------------ -----------
33 Mersey Gateway Bridge UK 37.5
---------------------------------- ------------ -----------
34 N18 Motorway Netherlands 52
---------------------------------- ------------ -----------
35 North Commuter Parkway Canada 50
---------------------------------- ------------ -----------
36 North East Stoney Trail Canada 100
---------------------------------- ------------ -----------
North London Estates Partnerships
37 Primary Care (LIFT) UK 60
---------------------------------- ------------ -----------
38 North West Fire and Rescue UK 100
---------------------------------- ------------ -----------
39 North West Regional College UK 100
---------------------------------- ------------ -----------
Northwest Anthony Henday
40 Drive Canada 50
---------------------------------- ------------ -----------
Northern Territory Secure
41 Facilities Australia 100
---------------------------------- ------------ -----------
42 Ohio River Bridges US 66.7
---------------------------------- ------------ -----------
Poplar Affordable Housing
43 & Recreational Centres UK 100
---------------------------------- ------------ -----------
44 Restigouche Hospital Centre Canada 80
---------------------------------- ------------ -----------
45 Rodenkirchen Schools Germany 50
---------------------------------- ------------ -----------
46 Royal Women's Hospital Australia 100
---------------------------------- ------------ -----------
47 Scottish Borders Schools UK 100
---------------------------------- ------------ -----------
48 South East Stoney Trail Motorway Canada 40
---------------------------------- ------------ -----------
49 Stanton Territorial Hospital Canada 100
---------------------------------- ------------ -----------
50 Stoke & Staffs Rescue Service UK 85
---------------------------------- ------------ -----------
51 Tor Bank School UK 100
---------------------------------- ------------ -----------
52 Unna Administrative Centre Germany 90
---------------------------------- ------------ -----------
53 Victoria Correctional Facilities Australia 100
---------------------------------- ------------ -----------
54 Westland Town Hall Netherlands 100
---------------------------------- ------------ -----------
55 William R. Bennett Bridge Canada 80
---------------------------------- ------------ -----------
56 Women's College Hospital Canada 100
---------------------------------- ------------ -----------
Projects listed above are in alphabetical order
Operating model in action
Preserving and enhancing value through active asset
management
Increasing short-term interest rates across all jurisdictions
over the past 12 to 18 months has led to a renewed emphasis on
treasury management and optimisation. During the reporting period,
we have finalised cash pooling arrangements in the UK and Canada to
maximise interest generated on cash deposits of our Portfolio
Companies.
Value-accretive activities, including effective lifecycle cost
management, Portfolio Company savings, and optimised cash
reserving, contributed approximately GBP7.6 million to the NAV.
The operational performance of the Portfolio Companies continued
to be strong. Through our active value-driven approach to asset
management and the robustness of our portfolio we have achieved an
asset availability level of approximately 99.9 per cent. Deductions
were either borne by third-party facility management companies and
road operators or were part of planned expenditures.
There were no material lock-ups, default events or covenant
breaches in the underlying debt financing agreements reported in
the six months to 30 June 2023. This means that all our investments
contributed to our strong dividend cover with distributions ahead
of projections. We are very proud of this achievement.
High-quality inflation linkage
During the reporting period, inflation and interest rates
continued to remain at elevated levels in all jurisdictions where
BBGI invests. The rise in long-term interest rates had an impact on
discount rates, but it has become clear that not all asset classes
perform identically in a rising interest rate environment.
Our equity cash flows are positively linked to inflation at
approximately 0.6 per cent. If long--term inflation is 1 per cent
higher than our assumptions for all future periods, returns should
increase from 7.2 per cent to 7.8 per cent. We achieve this
high-quality inflation linkage through contractual indexation
mechanics in our Project Agreements with our public sector clients
at each Portfolio Company, and update the inflation adjustment at
least annually.
We pass on the indexation mechanism to our subcontractors - on
whom we rely to support our assets' operations - providing an
inflation cost hedge to effectively manage our cost base. The
Portfolio Companies enter facilities management and operating
subcontracts that mirror the inflation arrangements contained in
the Project Agreement. In the UK, Project Agreements tend to have a
Retail Price Index (RPI) adjustment factor, while other regions
commonly use Consumer Price Index (CPI) indexation. However, some
Project Agreements have bespoke inflation indexes that reflect
expected operations and maintenance costs.
The extent of a Portfolio Company's linkage to inflation is
determined by the portion of income and costs linked to inflation.
In most cases, cash flows are positively inflation-linked as the
indexation of revenues is greater than the indexation of
expenses.
The high-quality and defensive nature of our inflation linkage
is underpinned by:
Contractual increases: The adjustment for inflation is a
contractual component of the availability-style cash flows for each
Portfolio Company, supported by creditworthy government or
government-backed counterparties in AA to AAA-rated countries.
While other types of assets may offer a strong theoretical
inflation linkage (e.g., the ability to raise prices in response to
an increase in CPI), they may be subject to changes in elasticity
of demand. For example, toll roads and student accommodation
projects may have the potential to increase prices in response to
an increase in CPI but may be hindered by market demand from
increasing revenue, while costs may simultaneously rise. Such
assets would therefore need to be priced at an appropriate
risk-adjusted basis.
Protection against rising costs: We transfer the indexation
mechanism to our subcontractors, who are crucial in supporting the
operations of our assets. This arrangement serves as an inflation
cost hedge, helping us to efficiently control our cost base.
Similarly, in most cases, the risk of energy cost increases rests
with our public sector client or has been passed down to the
subcontractor.
Not dependent on regulatory review: The inflation adjustment is
automatic and contractual and is not subject to regulatory review.
Once the relevant reference factor is published, the adjustment is
mechanical.
Portfolio approach: Our inflation linkage comes from diverse
Portfolio Companies in different countries.
Prudent financial management
Our assets continued to perform well during the reporting period
with cash receipts during the period ahead of projections.
Our net debt position as of 30 June 2023 was GBP7.9 million with
drawings outstanding under the RCF representing 2.4 per cent of
NAV.
We have efficient cash management in place, which aims to avoid
cash drag. We use the proven financing methodology of drawing on
our RCF before raising new equity to repay the temporary debt. The
committed amount available to the Company from the RCF is GBP230
million, which matures in 2026. Furthermore, the Company has the
possibility of increasing the quantum to GBP300 million by means of
an accordion provision. This provides us with the ability to
execute larger acquisitions in an efficient manner, and ensures we
are a trusted and repeat partner in our key markets.
Despite increasing cost pressures resulting from heightened
levels of inflation, our diligent approach to cost management has
enabled us to maintain our ongoing charges at a competitive level
of 0.92 per cent.
Selective acquisition strategy
During the period, we remained active in the market and
carefully assessed new investment opportunities. Although we
evaluated several opportunities, the Management Board chose not to
pursue them as they did not meet our criteria for accretive
inflation-linkage, yield, or residual life.
Supply chain monitoring
The Management Board consistently monitors the potential
concentration risk posed by operations and maintenance (O&M)
contractors that provide counterparty services to our assets. The
table below depicts the level of O&M contractor exposure as a
percentage of portfolio value. ([xiv])
O&M contractors
==================================== ======= =====
Portfolio Company in-house 13%
SNC-Lavalin O&M Inc 10%
Capilano Highway Services 10%
Cushman and Wakefield 6%
Black & McDonald 6%
Integral FM 5%
Honeywell 5%
Hochtief Solutions
AG 4%
Carmacks Maintenance Services 4%
Graham AM 3%
Intertoll Ltd. 3%
BEAR Scotland 3%
Guildmore Ltd. 3%
Amey Community Ltd. 3%
Galliford Try FM 3%
Remaining investments 19%
100%
The Management Board has thoroughly assessed the risk exposure
and has not identified any significant risks. We have a strict
supply chain monitoring policy in place and maintain a diverse
contractor base and supply chain, with no concentrated exposure.
Additionally, we have implemented risk mitigation measures to
address any potential supply chain issues proactively.
Construction defects
We proactively monitor the quality of our assets to promptly
identify any construction defects. When necessary, we take
appropriate remediation measures to ensure the highest standard of
our portfolio. The responsibility for, and the cost of remediation
and related deductions lie with the relevant construction
subcontractor on each asset, in line with statutory limitation
periods. This plays an important role in our effective counterparty
risk management.
Latent defects risk was mitigated during the reporting period,
with 58 per cent of portfolio value covered by either limitation or
warranty periods and there were no material defects reported on any
of our portfolio assets.
Latent defects limitations / Warranty
period remaining
========================================== =====
Expired 42%
Within 1 year 10%
1-2 years 8%
2-5 years 19%
5-10 years 15%
10+ years 6%
100%
Project hand back
At the end of a concession, the private partner transfers
control and management of the project back to the public sector.
This process is termed 'hand back'. The concessions for two of the
Company's UK accommodation assets will expire in January 2026 and
August 2027. Preparations for their hand back is underway.
Following the Infrastructure and Projects Authority UK's
guidelines, collaborative working groups have been established,
comprising representatives from the Authority, the FM contractor,
and the Portfolio Companies, each involved in the projects. The FM
contractor bears the hand back risk for both assets.
The hand back process is progressing positively, with notable
advancements made so far. Interactions and cooperation among all
parties are robust, fostering strong relationships. As of now, no
risks that could affect either of the Portfolio Companies have been
detected in the process.
Market trends and pipeline
BBGI continues to operate in an unpredictable macroeconomic and
geopolitical environment. Financial markets remain volatile, and
peak inflation and interest rate levels and timing remain
uncertain.
As rising long-term risk-free rates were predominantly observed
in the UK during the reporting period, we have seen robust demand
and only a moderate increase in pricing for high-quality
availability-style infrastructure assets, as evidenced by
third-party transactions. However, the changing macroeconomic
conditions have negatively impacted the share prices of listed
infrastructure companies, limiting sector participants' short-term
access to equity capital markets. Therefore, we will continue to
exercise discipline and only pursue transactions that are accretive
and enhance our portfolio construction.
We believe infrastructure will remain an attractive asset class
due to its defensive nature, predictable cash flows, and inflation
linkage. Looking ahead, the social infrastructure asset class shows
promising prospects, driven by the need for decarbonisation,
digitalisation, and the upgrade or replacement of ageing
infrastructure.
With a healthy balance sheet and a largely untapped RCF, we are
well positioned to navigate the evolving core infrastructure
landscape with discipline and ambition. Our objective is to deliver
accretive long-term predictable and inflation-linked cash flows to
our shareholders.
As many market participants are evaluating the prospects of an
economic recession, we take comfort in the resilience of the
contractual nature of our cash flows, which are paid by high
credit-quality government clients, in return for delivering
essential social infrastructure.
Within the broader infrastructure sector, there has been a wide
variation in how different types of assets have performed. Going
forward, economic infrastructure investments may be impacted if the
economy grows at lower rates than forecast. However, the
availability-style infrastructure assets in which we invest are
less cyclical, and thus more resilient during potential economic
downturns.
New opportunities
While BBGI's primary focus remains on the secondary market, we
recognise that primary market activity serves as an essential
indicator for future secondary opportunities in the medium to
longer term. Although there is no guarantee that the planned
infrastructure spending will result in investment opportunities, we
expect that governments will seek private sector capital to support
their ambitious plans, especially considering the significant
strain on government balance sheets following the Covid
pandemic.
Numerous countries have announced substantial infrastructure
investments in response to climate change targets. The OECD
forecasts a need for US$6.9 trillion in global investment annually
until 2030 to meet climate and development objectives.[xv]
Canada : The 'Investing in Canada Plan' commits over C$180
billion until 2035 for infrastructure projects benefitting
Canadians. Over C$136 billion has been invested to date. The
Investing in Canada Plan is designed to achieve three objectives:
create long-term economic growth to build a stronger middle class;
support the resilience of communities and transition to a clean
growth economy; and build social inclusion and socio-economic
outcomes for all Canadians. Investments will be directed towards
infrastructure to support a resilient recovery, focusing on public
transit, low-carbon transition initiatives, and a national
infrastructure fund.
UK: The UK Infrastructure Bank, established in 2021, aims to
stimulate growth and transition to net zero by 2050. Together with
the private sector and local government, the bank is leading a
shared mission to accelerate investment in the UK's infrastructure.
The government expects to support at least GBP40 billion of
investments in various sectors, including transport, water, waste
and digital.
US: The Infrastructure Investment and Jobs Act, a US$1.2
trillion bipartisan bill approved in November 2021, commits
significant funding to infrastructure development across various
areas, including roads, bridges, public transit and broadband. It
is the largest such investment programme in more than a generation
and raises federal infrastructure spending to its highest share of
GDP since the early 1980s.
EU: The European Commission unveiled a major infrastructure
investment strategy aimed at mobilising up to EUR300 billion of
investments in global development between 2021 and 2027[xvi]. The
strategy will seek to develop physical infrastructure in five key
sectors: digital; climate and energy; transport; health; and
education and research and allows the EU to leverage public and
private investment in priority areas. The European Commission said
the European Fund for Sustainable Development will make up to
EUR135 billion available for guaranteed investments for
infrastructure projects between 2021 and 2027.
Australia: The Australian Government is investing A$120 billion
over ten years from 2022-2033 in land transport infrastructure
through its rolling infrastructure pipeline, most of which is
delivered under the Infrastructure Investment Program. The
government has committed to upgrading key freight routes in the
regions, reducing traffic congestion in cities, developing faster
rail, improving road safety, and empowering local councils to
support projects that matter to local communities.
2023 and beyond: BBGI's pipeline for transactions
BBGI remains committed to expanding its essential social
infrastructure portfolio. From 19 availability-style assets in
2011, our portfolio has grown to 56 assets, including roads,
schools, healthcare facilities, transport and modern correctional
facilities.
Our focus remains on assets with long-term predictable and
inflation-linked revenues, often with public sector counterparties,
either through concessions or direct ownership. These opportunities
will further diversify and strengthen our portfolio, ensuring
sustainable returns for our shareholders.
Operating and financial review
The Management Board is pleased to present the Operating and
Financial Review for the six months ended 30 June 2023.
Highlights and key performance indicators
Certain key performance indicators ('KPIs') for the past 3.5
years are outlined below:
KPI Target Dec-20 Dec-21 Jun-23 Commentary
Dec-22
Progressive long-term 50% of the
Dividends dividend growth 2023 target
(paid or declared) in pps 7.18 7.33 7.48 3.965 declared
------------------------------ ------ ------ -------- ----------- -----------------
Not achieved
Positive NAV per during the
NAV per share share growth 1.2% 2.1% 6.6% (1.4%) reporting period
------------------------------ ------ ------ -------- ----------- -----------------
Annualised total 7% to 8% annualised
shareholder return on IPO issue price
since IPO of GBP1 per share 11.0% 10.4% 8.8% 7.4% Achieved
------------------------------ ------ ------ -------- ----------- -----------------
Competitive cost
Ongoing charge position 0.86% 0.86% 0.87% 0.92%[xvii] Achieved
------------------------------ ------ ------ -------- ----------- -----------------
Cash dividend
cover >1.0x 1.27x 1.31x 1.47x 1.68x Achieved
------------------------------ ------ ------ -------- ----------- -----------------
Asset availability > 98% asset availability P P P P Achieved
------------------------------ ------ ------ -------- ----------- -----------------
Single asset To be less than 9% 11% 11% 10 % Achieved
concentration 25% of portfolio
risk immediately post-acquisition
(as a percentage (GEB) (ORB) (ORB) (ORB)
of portfolio)
------------------------------ ------ ------ -------- ----------- -----------------
Availability-style
assets
(as a percentage Maximise availability-style
of portfolio) assets 100% 100% 100% 100% Achieved
------------------------------ ------ ------ -------- ----------- -----------------
Asset management
Cash performance
Our portfolio of 56 high-quality, availability-style PPP
infrastructure investments performed well during the period, with
total cash flows ahead of projections and the underlying financial
models.
Construction exposure
Our investment policy is to invest principally in assets that
have completed construction and are operational. Accordingly,
investments in assets that are under construction are limited to 25
per cent of the portfolio's value. We aim to produce a stable
dividend, while gaining exposure to the potential NAV uplift that
occurs when assets move from successful construction to the
operational phase.
As at 30 June 2023, 99.4 per cent of our assets were
operational. Highway 104 in Canada is the only project in
construction. We reached financial close on our Highway 104 project
in May 2020, with substantial completion scheduled for Q3 2023. The
Management Board believes measured construction exposure will not
compromise our ability to meet our dividend targets.
Investment performance
Return track record
Like many other listed companies in the infrastructure and
renewables sectors, macro uncertainty has weighed on investor
sentiment and our shares have traded at a discount to NAV for a
notable portion of the reporting period.
The share price weakness and associated discount to Net Asset
Value, has been seen across BBGI's UK listed peers and reflects
amongst other things the markets concern about the effects of
higher inflation, higher interest rates and potential consumer
recessions, on areas such as discount rates, the availability and
price of debt and the volume and price of infrastructure
transactions going forward. However, the Board does not believe the
current share price accurately reflects the value of our portfolio
or its prospects.
Since going public in 2011, BBGI shares have only briefly traded
at a discount to NAV, namely at the start of the global pandemic in
March 2020, during the UK Prime Minister Truss 'Mini budget', and
more recently during H1 2023 amidst concerns about the impact of
rising interest rates on the valuations of infrastructure and
renewable investments. The Company is focused on long-term
investing with its low-risk portfolio of long duration assets
providing the opportunity to look beyond these periods of market
stress. The Board closely monitors the discount and takes it into
consideration as part of its overall capital allocation strategy,
however, actions to try to reduce the discount will only be
undertaken after thorough consideration and taking into account the
long-term implications.
Against the FTSE All-Share, the Company has shown a low ten-year
correlation of 26.3 per cent and a beta of 0.26 20 .
The share price closed at 138.0 pence on 30 June 2023,
representing a 6.6 per cent discount to the NAV per share at the
period-end.
The total NAV return per share from IPO to 30 June 2023 was
163.8 per cent or 8.8 per cent on an annualised basis ([xviii])
.
Distribution policy
Distributions on the ordinary shares are planned to be paid
twice a year, normally in respect of the six months to 30 June and
the six months to 31 December.
Dividends
On 5 April 2023, we paid a second interim dividend of 3.74pps
for the period 1 July 2022 to 31 December 2022. Together with the
first interim dividend (which was paid in October 2022), the total
dividend for the year ended 31 December 2022 amounted to 7.48pps.
The Board approved a 2023 interim dividend of 3.965pps to be paid
on 19 October 2023, which is in line with its dividend target for
the year of 7.93pps. Furthermore, the Board is reaffirming its 2024
dividend target of 8.40pps and a dividend target for 2025 of 8.57
pence per share.
-- Average dividend increase of 3.4 per cent on a compound
annual growth rate from 2012 to 2023.
Valuation
The Management Board is responsible for carrying out the fair
market valuation of the Company's investments, which is then
presented to the Supervisory Board for consideration as part of its
approval of the Annual and Interim Reports. The valuation occurs
semi-annually on 30 June and 31 December and is reviewed by an
independent third-party valuation expert.
The Company's investments are principally non-market traded
investments with predictable long-term availability-style revenue;
therefore, the valuation is determined using the discounted cash
flow methodology. Our forecast assumptions for key macroeconomic
factors impacting cash flow include inflation rates and deposit
rates, and enacted changes in taxation rates during the reporting
period. These assumptions are based on market data, publicly
available economic forecasts, and long-term historical averages. We
also exercise judgement in assessing the future cash flows from
each investment, using detailed financial models produced by each
Portfolio Company and adjusting these models where necessary to
reflect our assumptions as well as any specific cash flow
assumptions. The Company's consolidated valuation is a
sum-of-the-parts valuation with no further adjustments made to
reflect scale, scarcity, or diversification of the overall
portfolio.
The fair value of each investment is then determined by applying
an appropriate discount rate, alongside contracted foreign exchange
rates, or reporting period-end foreign exchange rates and
withholding taxes (as applicable).
The discount rates applied considers investment risks, including
the phase of the investment (construction, ramp-up or stable
operation), investment-specific risks and opportunities, and
country-specific factors.
Our determination of appropriate discount rates involves
judgement based on market knowledge, insights from investment and
bidding activities, benchmark analysis with comparable companies
and sectors, discussions with advisers, and publicly available
information and analysing the equity risk premium over government
bond yields. As a reasonability check to our market-based approach
and providing further guidance to determine the appropriate market
discount rates, the Company complements its market-based approach
by using the Capital Asset Pricing Model where government risk-free
rates plus an equity risk premium are used to calculate discount
rates.
The table below illustrates the breakdown of movements in the
NAV.
NAV movement 31 December 2022 to 30 June 2023
The NAV at 30 June 2023 was GBP1,056.7 million (31 December
2022: GBP1,069.2 million), representing a decrease of 1.2 per
cent.
NAV movement 31 December 2022 to 30 June 2023 GBP million
NAV at 31 December 2022 1,069.2
================================================ ===========
Deduct: other net assets at 31 December 2022(i) (27.9)
------------------------------------------------ -----------
Portfolio value at 31 December 2022 1,097.0
================================================ ===========
Distributions from investments(ii) (51.9)
------------------------------------------------ -----------
Rebased opening portfolio value at 1 January
2023 1,045.2
================================================ ===========
Portfolio return(iii) 45.0
================================================ ===========
Change in market discount rate (26.8)
================================================ ===========
Change in macroeconomic assumptions 13.8
================================================ ===========
Foreign exchange net movement(iv) (12.9)
------------------------------------------------ -----------
Portfolio value at 30 June 2023 1,064.2
================================================ ===========
Add: Other net liabilities at 30 June 2023(i) (7.5)
------------------------------------------------ -----------
NAV at 30 June 2023 1,056.7
-----------
(i) These figures represent the net assets of the Group after
excluding the investments at fair value through profit or loss
('Investments at FVPL') and the net position on currency hedging
instruments. Refer to the Pro Forma Balance Sheet in the Financial
Results section of this Interim Report for further detail.
(ii) While distributions from investments at FVPL reduce the
portfolio value, there is no impact on the Company's NAV as the
effect of the reduction in the portfolio value is offset by the
receipt of cash at the consolidated Group level. Distributions in
the above table are shown net of withholding tax.
(iii) Portfolio return comprises the unwinding of the discount
rate, portfolio performance, the net effect of actual inflation,
and updated operating assumptions to reflect current
expectations.
(iv) Includes the positive unrealised mark-to-market movement on
the balance sheet hedge of GBP8.1 million. Under IFRS, the related
asset is recorded separately as a derivative financial asset in the
Condensed Consolidated Interim Statement of Financial Position.
Key drivers for NAV change
The rebased opening portfolio value, after cash distributions
from investments of GBP51.9 million, was GBP1,045.2 million.
Portfolio return consists of several components, including the
unwinding of the discount rate, portfolio performance, the net
effect of actual inflation, and updated operating assumptions:
During the period, the Company recognised a GBP45.0 million
portfolio return, representing a 4.2 per cent increase in the NAV
resulting from the unwinding of discount rates, and portfolio
performance, which reflects current expectations based on the
Company's hands-on active asset management. As the Company moves
closer to forecasted investment distribution dates, the time value
of those cash flows increases on a net present value basis and this
effect is called unwinding. GBP7.6 million of the GBP45.0 million
is attributable to value enhancements delivered by our active asset
management approach. These value-accretive activities included
effective lifecycle cost management, Portfolio Company cost
savings, and optimised cash reserving.
Change in market discount rates supported by transactional data
points:
The number of availability-style transactions and available
market data points have increased in the H1 2023 compared to H2
2022. Our objective when using market data points is to provide
further validation of the discount rates applied in the valuation
process. The Company has obtained at least one relevant
transactional data point for each currency in which we invest,
except for the Norwegian krone. Each data point considered
represents a transaction closed in December 2022 or later;
therefore, each data point considers recent macroeconomic changes.
In the case of Norway, where no transactional data was available, a
risk premium of 3.0 per cent has been adopted.
We continue to complement our market-based approach for this
reporting period by using the Capital Asset Pricing Model where
government risk-free rates plus an equity risk premium are used to
construct discount rates. This analysis is used as a reasonability
check for our market-based approach. While there is no direct
correlation between government bond yields and the risk premium on
the one hand and market discount rates on the other, the equity
risk premium is a useful additional data point.
Based on data from transactional activity, benchmark analysis
with comparable companies and sectors, discussions with advisers in
the relevant markets, and publicly available information gathered
over the period, we have increased the weighted average discount
rate to 7.2 per cent (31 December 2022: 6.9 per cent), which
management believes to be conservative for a portfolio of
availability-style social infrastructure investments. This
perspective is further informed by our recent participation in
auction processes in North America. While we ultimately decided not
to proceed, reliable feedback from the sell-side advisor indicates
that discount rates from bidders were c. 7.0 per cent. This
methodology calculates the weighted average based on the value of
each investment in proportion to the total portfolio value, that
is, based on the net present value of their respective future cash
flows.
The demand for availability style transactions remained robust,
with transactional data points outside the UK indicating a modest
increase in discount rates with only the UK showing a different
trend. As a result, the UK, which represents 33 per cent of our
portfolio value, displays the most significant discount rate
increase, rising by approximately 0.7 per cent to 7.5 per cent for
stable operational projects. In contrast, the increase in other
jurisdictions is up to a maximum of 0.2 per cent.
While individual risk-free rates have moved in a heterogenous
manner during the period (see table below), the weighted average
risk-free rate has remained stable at c. 3.8 per cent since
December 2022. The discount rate of 7.2 per cent represents a risk
premium of c. 340 basis points, which the Company views to be
adequate and towards the conservative end for low-risk
availability-style investments. The Company believes that a risk
premium in the range of 250 to 350 basis points is appropriate for
the low-risk availability-style assets in our portfolio. This view
is supported by an announcement of the German Network Agency, which
calculated equity risk premium for regulated gas and assets of
around 300 basis points. As it is generally accepted that PPP/PFI
assets have a lower risk profile than regulated assets, on this
basis the risk premium for PPP/PFI assets should be generally
around the 300 basis points mark.
In Canada, representing 35 per cent of the Company's investment
portfolio, the 20-year government bond rate decreased c. 0.2 per
cent[xix] over the period with broadly similar movements in
Australia, Germany, the US and the Netherlands. The single material
outlier has been the UK, representing 32 per cent of the Company's
investment portfolio, with the 20-year government gilt rate
increasing c. 0.5 per cent[xx] over the period with a broadly
similar movement in Norway. This divergence across jurisdictions
has a stabilising effect on the overall weighted average discount
rate applied in the valuation process, which further emphasises the
benefits of a global investment strategy with no singular
concentration risk to any one country.
Country Risk-free rate Risk-free rate Movement in
December 2022- June 2023 period
United Kingdom 4.0% 4.5% 0.5%
=============== ============== ============
Canada 3.4% 3.2% (0.2%)
=============== ============== ============
Australia 4.3% 4.2% (0.1%)
=============== ============== ============
US 4.2% 4.1% (0.1%)
=============== ============== ============
Germany 2.6% 2.5% (0.1)
=============== ============== ============
Netherlands 2.9% 2.7% (0.2%)
=============== ============== ============
Norway 3.3% 3.9% 0.6%
==================== =============== ============== ============
Portfolio weighted
average risk-free
rate 3.8% 3.8% --
=============== ============== ============
Going forward, the Company is confident that investment demand
for availability-style social infrastructure, offering long-term,
predictable and inflation-linked cash flows will remain strong.
Specific discount rates consider risks associated with the
investment including the phase the investment is in, such as
construction, ramp-up or stable operation, investment-specific
risks and opportunities, and country-specific factors. For
investments in the construction phase, we apply a risk premium to
reflect the higher-risk inherent during this stage of the
investment's lifecycle. Currently, the portfolio has one investment
in construction, Highway 104, which represents approximately 0.5
per cent of the overall portfolio value. Construction is expected
to be completed in H2 of 2023.
Furthermore, we have applied risk premiums or discounts to a
limited number of other investments based on their individual
circumstances. For example, we have made adjustments to acute
hospitals in the UK, where a risk premium of 50bps continues to be
applied. The only UK acute hospital in the portfolio is Gloucester
Royal Hospital, representing less than 1 per cent of the overall
NAV. This risk premium reflects the ongoing situation in the UK,
where some public health clients are facing cost pressures and are
actively seeking cost savings, including deductions. To date, BBGI
has not been affected.
Change in macroeconomic assumptions:
During the period, the Company recognised an increase in the
portfolio value of GBP13.8 million, or a 1.3 per cent increase in
the NAV, resulting from changes in macroeconomic assumptions. The
main drivers were short-term and long-term deposit rates accounting
for GBP12.9 million of this increase, with the balance reflecting
marginal changes in short-term inflation forecasts.
The Company's forecasted inflation rates were broadly in line
with actual inflation, delivering on the projected growth in the
portfolio value. See the Alternative Performance Measures section
for further details on our inflation linkage.
Short-term deposit rates have risen in conjunction with the
increase in underlying benchmark rates and are expected to remain
at elevated levels in most jurisdictions. We also believe it
appropriate to update some of our long-term deposit rate
assumptions to reflect the current rate environment, bringing them
in line with long-term averages. The effect of revised deposit rate
assumptions resulted in a GBP12.9 million, or a 1.2 per cent
increase in NAV.
Foreign exchange:
A significant proportion of the Company's underlying investments
are denominated in currencies other than Sterling. The Company
maintains its accounts, prepares the valuation and pays dividends
in Sterling. Accordingly, fluctuations in exchange rates between
Sterling and the relevant local currencies will affect the value of
the Company's underlying investments.
The forecasted distributions from investments are converted to
Sterling at either the contracted foreign exchange rate, for 100
per cent of non-Sterling and non-Euro-denominated cash flows
forecast to be received over the next four years, or at the closing
foreign exchange rate for the unhedged future cash flows.
During the period ended 30 June 2023, the appreciation of
Sterling ('GBP') against the Canadian Dollar ('CAD'), Australian
Dollar ('AUD'), the Euro ('EUR'), the US Dollar ('USD'), and the
Norwegian Krone ('NOK') accounted for a net decrease in the
portfolio value of GBP12.9 million, which includes the positive
unrealised mark-to-market movement on the Company's balance sheet
hedge of GBP8.1 million. Since IPO in December 2011, the net
cumulative effect of foreign exchange movements on the portfolio
value, after considering the effect of balance sheet hedging, has
been a decrease of GBP1.0 million, or 0.1 per cent of the 30 June
2023 NAV.
The table below shows the closing exchange rates, which were
used to convert unhedged future cash flows into the reporting
currency at 30 June 2023.
GBP/ Valuation impact FX rates as FX rates as FX rate
of of change
30 June 2023 31 December
2022
AUD Negative 1.9070 1.7743 (7.48%)
================== ============== ============= =========
CAD Negative 1.6777 1.6386 (2.39%)
================== ============== ============= =========
EUR Negative 1.1633 1.1298 (2.97%)
================== ============== ============= =========
NOK Negative 13.6169 11.9150 (14.28%)
================== ============== ============= =========
USD Negative 1.2663 1.2097 (4.68%)
================== ============== ============= =========
Although the closing rate is the required conversion rate to use
for the unhedged future cash flows, it is not necessarily
representative of future exchange rates as it reflects a specific
point in time.
The Group uses forward currency swaps to (i) hedge 100 per cent
of forecasted cash flows over the next four years on an annual
rolling basis, and (ii) to implement balance sheet hedging in order
to limit the decrease in the NAV to approximately 3 per cent, for a
10 per cent adverse movement in foreign exchange rates.[xxi] This
is achieved by hedging a portion of the non-Sterling and non-Euro
portfolio value.[xxii] It is worth noting that forecasted
distributions in Euro are not hedged, as a natural hedge is in
place due to a significant portion of the running costs incurred at
the consolidated level being denominated in Euro . The effect of
the Company's hedging strategy can also be expressed as a
theoretical or implicit portfolio allocation to Sterling exposure.
In other words, on an unhedged basis, the portfolio allocation to
Sterling exposure at 30 June 2023 would need to be approximately 77
per cent to obtain the same NAV sensitivity to a 10 per cent
adverse change in foreign exchange rates, as shown in the Foreign
Exchange Sensitivity table below.
Macroeconomic events
The quality and predictability of portfolio cash flows has come
into sharper focus given uncertainty in the markets generally and
continued elevated inflation levels. Against this backdrop, the
Company is well-positioned through its high-quality contracted
inflation linkage, which is achieved through annually updated
contractual indexation in the Company's Project Agreements.
Additionally, there has been no material adverse effect on the
portfolio valuation resulting from the war in Ukraine. This is
primarily because the Company holds a low-risk, 100 per cent
availability-style portfolio, coupled with strong stakeholder
collaboration to identify and mitigate any potential adverse
effects.
Macroeconomic assumptions
In addition to the discount rates, we use the following
assumptions ('Assumptions') for the cash flows:
30 June 2023 31 December 2022
Inflation UK(i) RPI/CPIH 6.30% for 2023; 3.90% for 13.40% (actual) for
2024 then 2.75% (RPI) / 2022; 5.80% for 2023
2.0% (CPIH) then 2.75% (RPI)
/ 2.00% (CPIH)
================== ========================== =========================
Canada 2.80% for 2023; 2.30% for 6.30% (actual) for
2024 then 2.00% 2022; 4.00% for 2023;
2.30% for 2024 then
2.0%
================== ========================== =========================
Australia 4.50% for 2023; 3.25% for 8.00% for 2022; 4.75%
2024 then 2.50% for 2023 3.25% for
2024 then 2.50%
================== ========================== =========================
Germany/ 5.40% for 2023; 3.00% for 8.40% for 2022; 6.30%
Netherlands(ii) 2024 then 2.00% for 2023; 3.40% for
2024 then 2.00%
================== ========================== =========================
Norway(ii) 5.00% for 2023; 2.30% for 5.90% (actual) for
2024 then 2.25% 2022; 4.90% for 2023
then 2.25%
================== ========================== =========================
US 3.00% for 2023 then 2.50% 6.50% (actual) for
2022; 3.40% for 2023
then 2.50%
================== ========================== =========================
Deposit UK 3.55% to 2024, then 2.00% 2.00% to 2024, then
rates (p.a.) 1.50%
================== ========================== =========================
Canada 5.30% to 2024, then 2.00% 3.50% to 2024, then
1.75%
================== ========================== =========================
Australia 4.25% to 2024, then 3.50% 3.25% to 2024, then
3.00%
================== ========================== =========================
Germany/ 2.75% to 2024, then 1.00% 0.50% to 2024, then
Netherlands 1.00%
================== ========================== =========================
Norway 3.20% to 2024, then 2.25% 2.00% to 2024, then
2.00%
================== ========================== =========================
US 4.90% to 2024, then 1.75% 3.75% to 2024, then
1.50%
================== ========================== =========================
Corporate UK 25.00% 19.00% until March
tax rates 2023 then 25.00%
(p.a.)
================== ========================== =========================
Canada(iii) 23.00% / 26.50% / 27.00% 23.00% / 26.50% /
/ 29.00% 27.00% / 29.00%
================== ========================== =========================
Australia 30.00% 30.00%
================================== ========================== =========================
Germany(iv) 15.83% (incl. Solidarity 15.83% (incl. solidarity
charge) charge)
================== ========================== =========================
Netherlands 25.80% 25.80%
================================== ========================== =========================
Norway 22.00% 22.00%
================================== ========================== =========================
US 21.00% 21.00%
================================== ========================== =========================
(i) On 25 November 2020, the UK Government announced the phasing
out of RPI after 2030 to be replaced with CPIH. The Company's UK
portfolio indexation factor changes from RPI to CPIH beginning on 1
January 2031.
(ii) CPI indexation only. Where investments are subject to a
basket of indices, a projection for non-CPI indices is used.
(iii) Individual tax rates vary among Canadian provinces:
Alberta; Ontario; Quebec; Northwest Territories; Saskatchewan;
British Columbia; New Brunswick.
(iv) Individual local trade tax rates are considered in addition
to the tax rate above.
Sensitivities
Discount rate sensitivity
The weighted average discount rate applied to the Company's
portfolio of investments is the single most important judgement and
variable.
The following table shows the sensitivity of the NAV to a change
in the discount rate.
Change in NAV 30 June
Discount rate sensitivity (i) 2023
( GBP80.6 ) million, i.e.
Increase by 1% to c. 8.2% (7.6)%
=========================
GBP92.7 million, i.e.
Decrease by 1% to c. 6.2% 8.8%
=========================
(i) Based on the weighted average rate of 7.2 per cent.
Inflation has increased in all jurisdictions across BBGI's
geographies, and interest rates have risen from historical lows,
although in some jurisdictions these trends have reversed over the
period. Should long-term interest rates rise substantially further,
this is likely to further affect discount rates, and as a result,
negatively impact portfolio valuation.
Combined sensitivity: inflation, deposit rates and discount
rates
It is reasonable to assume that if discount rates increase, then
deposit rates and inflation would also be affected. To illustrate
the effect of this combined movement on the Company's NAV, a
scenario was created assuming a one percentage point increase in
the weighted average discount rate to 8.2 per cent, and a one
percentage point increase in both deposit and inflation above the
macroeconomic assumptions.
Combined sensitivity: inflation, deposit rates Change in NAV 30 June
and discount rates 2023
( GBP17.2 ) million, i.e.
Increase by 1% ( 1.6 ) %
=========================
Inflation sensitivity
The Company's investments are contractually entitled to receive
availability-style revenue streams from public sector clients,
which are typically adjusted every year for inflation. Facilities
management subcontractors for accommodation investments and
operating and maintenance subcontractors for transport investments
have similar indexation arrangements. The portfolio cash flows are
positively linked with inflation (e.g. RPI, CPI, or a basket of
indices).
This inflation linkage is achieved through contractual
indexation mechanics in the various Project Agreements with the
public sector clients at the Portfolio Companies and the inflation
adjustment updated at least annually.
Inflation sensitivity
The table below shows the sensitivity of the NAV to a change in
inflation rates compared to the assumptions in the table above:
Inflation sensitivity Change in NAV 30 June
2023
GBP50.2 million, i.e.
Inflation +1% 4.7%
=========================
( GBP43.4 ) million, i.e.
Inflation -1% ( 4.1 ) %
=========================
Short-term inflation sensitivity
Inflation may continue to be elevated for the short-term before
diminishing. To illustrate the effect of persistent higher
short-term inflation on the Company's NAV, three scenarios were
created assuming inflation is two percentage points above our
assumptions for the next one, three and five years .
Short-term inflation sensitivity Change in NAV 30 June
2023
GBP11.8 million, i.e.
Inflation +2% for one year 1.1%
=====================
GBP32.1 million, i.e.
Inflation +2% for three years 3.0%
=====================
GBP48.6 million, i.e.
Inflation +2% for five years 4.6%
=====================
Foreign exchange sensitivity
As described above, a significant proportion of the Company's
underlying investments are denominated in currencies other than
Sterling.
The following table shows the sensitivity of the NAV to a change
in foreign exchange rates:
Change in NAV 30 June
Foreign exchange sensitivity (i) 2023
(GBP24.8) million, i.e.
Increase by 10% ( 2.3 )%
=======================
GBP25.8 million, i.e.
Decrease by 10% 2.4%
=======================
(i) Sensitivity in comparison to the spot foreign exchange rates
at 30 June 2023 and considering the contractual and natural hedges
in place, derived by applying a 10 per cent increase or decrease to
the Sterling/foreign currency rate.
Deposit rate sensitivity
Portfolio Companies typically have cash deposits that are
required to be maintained as part of the senior debt funding
requirements (e.g. six-month debt service reserve accounts and
maintenance reserve accounts). As at 31 March 2023, BBGI's
proportionate share in the total deposits held by the Portfolio
Companies exceeds GBP375 million. The asset cash flows are
positively correlated with the deposit rates.
The table below shows the sensitivity of the NAV to a percentage
point change in long-term deposit rates compared to the long-term
assumptions in the table above :
Change in NAV 30 June
Deposit rate sensitivity 2023
GBP20.5 million, i.e.
Deposit rate +1% 1.9 %
=====================
( GBP20.2 ) million,
Deposit rate -1% i.e. ( 1.9 ) %
=====================
Lifecycle costs sensitivity
Lifecycle costs are the cost of planned interventions or
replacing material parts of an asset to maintain it over the
concession term. They involve larger items that are not covered by
routine maintenance and, for roads, it will include items such as
replacement of asphalt, rehabilitation of surfaces, or replacement
of equipment. Lifecycle obligations are generally passed down to
the facility maintenance provider, except for transportation
investments, where these obligations are typically retained by the
Portfolio Company.
Of the 56 investments in the portfolio, 20 investments retain
the lifecycle obligations. The remaining 36 investments have this
obligation passed down to the subcontractor.
The table below shows the sensitivity of the NAV to a change in
lifecycle costs:
Lifecycle costs sensitivity (i) Change in NAV 30 June
2023
(GBP23.4) million, i.e.
Increase by 10% ( 2.2 )%
=======================
GBP21.7 million, i.e.
Decrease by 10% 2.1%
=======================
(i) Sensitivity applied to the 20 investments in the portfolio
that retain the lifecycle obligation i.e. the obligation is not
passed down to the subcontractor.
Corporate tax rate sensitivity
The profits of each Portfolio Company are subject to corporation
tax in the country where the Portfolio Company is located.
The table below shows the sensitivity of the NAV to a change in
corporate tax rates compared to the assumptions in the table
above:
Change in NAV 30 June
Corporate tax rate sensitivity 2023
(GBP10.8) million, i.e.
Tax rate +1% ( 1.0 )%
=======================
GBP10.7 million, i.e.
Tax rate -1% 1.0%
=======================
Refinancing: senior debt rate sensitivity
Assumptions are used where a refinancing of senior debt is
required for an investment during the remaining investment
concession term. There is a risk that such assumptions may not be
achieved.
The table below shows the sensitivity of the NAV to a one
percentage point increase in the forecasted debt rate.
Change in NAV 30 June
Senior debt refinancing sensitivity 2023
(GBP7.9) million, i.e.
Debt rate +1% ( 0.7 )%
======================
Refinancing sensitivity relates to the Northern Territory Secure
Facilities, as it is common practice in the Australian
infrastructure market to have senior debt durations that are
typically between five and seven years. We assume three
refinancings for the Northern Territory Secure Facilities, between
December 2025 and December 2038. Long-term interest rate hedges
fully mitigate base rate risk, leaving exposure only to potential
changes in margin.
Gross Domestic Product sensitivity
Our portfolio is not sensitive to GDP.
The principal risks faced by the Group and the mitigants in
place are outlined in the Risk section.
Key Portfolio Company and portfolio cash flow Assumptions
underlying the NAV calculation include:
* The discount rates and the Assumptions, as set out
above, continue to be applicable.
* The updated financial models used for the valuation
accurately reflect the terms of all agreements
relating to the Portfolio Companies and represent a
fair and reasonable estimation of future cash flows
accruing to the Portfolio Companies.
* Cash flows from and to the Portfolio Companies are
received and made at the times anticipated.
* Non-UK investments are valued in local currency and
converted to Sterling at either the period-end spot
foreign exchange rates or the contracted foreign
exchange rate.
* Where the operating costs of the Portfolio Companies
are contractually fixed, such contracts are performed,
and where such costs are not fixed, they remain
within the current forecasts in the valuation models.
* Where lifecycle costs/risks are borne by the
Portfolio Companies, they remain in line with current
forecasts in the valuation models.
* Contractual payments to the Portfolio Companies
remain on track and contracts with public sector or
public sector-backed counterparties are not
terminated before their contractual expiry date.
* Any deductions or abatements during the operations
period of Portfolio Companies are passed down to
subcontractors under contractual arrangements or are
part of the planned (lifecycle) forecasts.
* Changes to the concession period for certain
investments are realised.
* In cases where the Portfolio Companies have contracts
which are in the construction phase, they are either
completed on time or any delay costs are borne by the
construction contractors.
* Enacted tax rates or regulatory changes, or forecast
changes with a high probability, on or prior to this
reporting period-end with a future effect materially
impacting cash flow forecasts, are reflected in the
financial models.
In forming the above assessments, BBGI uses its judgement and
works with our Portfolio Company management teams, as well as using
due diligence information from, or working with, suitably qualified
third parties such as technical, legal, tax and insurance
advisers.
Financial results
Basis of accounting
We have prepared the Group's Condensed Consolidated Interim
Financial Statements in accordance with International Financial
Reporting Standards ('IFRS') as adopted by the European Union
('EU'). In accordance with IFRS, the Company qualifies as an
Investment Entity and, therefore, does not consolidate its
investments in subsidiaries that qualify as investments at fair
value through profit or loss. However, certain subsidiaries that
are not investments at FVPL, but instead provide investment-related
services or activities that relate to the investment activities of
the Group, are consolidated. As an Investment Entity, the Company
recognises distributions from Investments at FVPL as a reduction in
their carrying value. These distributions reduce the estimated
future cash flows which are used to determine the fair value of the
investments at FVPL. The accounting principles applied are
consistent with those principles applied in the prior year
reporting.
Income and costs
Period Period
Pro forma Income Statement ended 30 ended 30
Investment basis June 2023 June 2022
GBP million GBP million
================================= ============ ============
Income from investments at FVPL 19.7 100.4
Other operating income 1.6 0.2
================================= ============ ============
Operating income 21.3 100.6
================================= ============ ============
Administrative expenses (6.3) (5.8)
Other operating expenses (0.2) (0.4)
Net finance result (1.4) (0.9)
================================= ============ ============
Profit before tax 13.4 93.5
Tax expense - net (2.3) (1.0)
================================= ============ ============
Profit for the year 11.1 92.5
Other comprehensive income 1.1 -
================================= ============ ============
Total comprehensive income 12.2 92.5
================================= ============ ============
Basic earnings per share (pence) 1.55 12.98
================================= ============ ============
During the six-month period, the Group recognised a net income
from investments at FVPL amounting to GBP19.7 million (30 June
2022: GBP100.4 million). This income is derived from a combination
of factors, including the positive effect of inflation and deposit
interest rate increases, the net effect of foreign exchange, the
unwinding of discount and value enhancements.
The movement in income from investments at FVPL on a comparative
basis can be primarily attributed to foreign exchange fluctuations
and changes in discount rates. In the June 2022 reporting period,
we recorded a net foreign exchange income, after considering the
net effect of unrealised results from balance sheet hedging, of
GBP32.4 million. However, in the June 2023 reporting period, we
recognised a loss of GBP12.9 million, resulting in a significant
swing of GBP45.3 million. Additionally, discount rates remained
unchanged in the June 2022 reporting period; however, in the June
2023 reporting period, we recognised a loss of GBP26.8 million.
Together, these factors contributed to a total swing of GBP72.1
million on a comparative basis.
During the reporting period, the Company recognised a net gain
of GBP8.1 million on balance sheet hedging and GBP5.7 million on
cash flow hedging (30 June 2022: GBP13.6 million net loss on
balance sheet hedging and GBP14.1 million net loss on cash flow
hedging). For pro-forma purposes, the net result of balance sheet
and cash flow hedging is included in income from investments at
FVPL.
Further detail on the income generated by the Group's
Investments at FVPL is provided in the Valuation section of this
Interim Report.
Administrative expenses include personnel expenses, legal and
professional fees and office and administration expenses. See
further detail in the Group level corporate cost analysis.
Profit for the six-month period decreased to GBP11.1 million (30
June 2022: GBP92.5 million). This reduction is primarily
attributable to those factors outlined above, being the adverse
effects of foreign exchange movements on our non-Sterling
denominated portfolio and the increase in UK risk-free-rates, which
has led to an increase in the discount rates applied in valuing our
UK assets.
Group level corporate cost analysis
The table below is prepared on an accrual basis.
Period Period
ended 30 ended
Corporate costs June 2023 30 June
GBP million 2022
GBP million
============================ ============ ============
Personnel expenses 4.1 3.7
Taxes 2.3 1.0
Legal and professional fees 1.5 1.5
Net finance result 1.4 0.9
Office and administration 0.7 0.5
Acquisition-related costs 0.2 0.4
============================ ============ ============
Corporate costs 10.2 8.0
============================ ============ ============
Personnel expenses for the six-month period were GBP4.1 million
(30 June 2022: GBP3.7 million) with the increase driven largely by
inflation adjustments to staff salaries.
The net finance result for the six-month period was GBP1.4
million (30 June 2022: GBP0.9 million). This figure reflects
borrowing costs, commitment fees and other fees relating to the
Group's RCF. At 30 June 2023, the Group had GBP25.8 million of
borrowings outstanding under the RCF.
Acquisition-related costs incurred during the six-month period
amounted to GBP0.2 million (30 June 2022: GBP0.4 million), which
relates to unsuccessful bid costs amounting to GBP0.2 million (30
June 2022: less than GBP0.1 million).
Ongoing charges
Using costs incurred to 30 June 2023, the Company's estimated
annualised ongoing charges ('OGC') percentage at 30 June 2023 is
0.92 per cent (31 December 2022: 0.87 per cent).
The OGC has increased slightly compared to the reported figure
as of 31 December 2022. This increase is primarily due to
underlying cost increases driven by inflationary pressures,
including staff salaries, with limited offsetting denominator
effect from the average NAV.
The estimated annualised OGC percentage is prepared in
accordance with the Association of Investment Companies ('AIC')
recommended methodology. The percentage represents the annualised
reduction or drag on shareholder returns as a result of recurring
operational expenses incurred in managing the Group's consolidated
entities and provides an indication of the level of recurring costs
likely to be incurred in managing the Group in the future.
Period ended
30 June 2023 Year ended
Ongoing charges information (annualised) 31 Dec 2022
==================================================== ================= =================
Ongoing charges (using AIC recommended methodology) 0.92% 0.87%
==================================================== ================= =================
In accordance with the AIC recommended methodology, fees that
are linked to investment performance could be viewed as analogous
to performance fees paid by externally managed investment companies
and should therefore be excluded from the principal OGC
calculation.
Annualised fees directly linked to investment performance as a
percentage of average NAV are estimated to be 0.11 per cent.
Combined therefore, the estimated annualised aggregate of ongoing
charges plus investment performance fees is 1.03 per cent.
Cash flows
The table below summarises the sources and uses of cash and cash
equivalents for the Group.
Period ended Period ended
30 June 2023 30 June 2022
GBP million GBP million
================================================ ================= =================
Distributions from Investments at FVPL(i) 53.9 62.1
Net cash flows used in operating activities (11.7) (11.1)
Additional Investments at FVPL and other assets - (23.7)
Net cash flows used in financing activities (55.7) (15.2)
Impact of foreign exchange gain/(loss) on cash
and cash equivalents 0.2 1.2
================================================ ================= =================
Net cash inflow (outflow) (13.3) 13.3
================================================ ================= =================
( (i) Distributions in the above table are shown gross of
withholding tax. The associated withholding tax outflow is included
in 'Net cash flows used in operating activities'.
The Group's portfolio of investments continued to perform
strongly over the six-month period, with gross distributions
exceeding projections. However, on a comparative basis, the
distributions were down due to the previously reported
opportunistic refinancing completed in H1 2022, which resulted in a
one-off distribution of proceeds.
Cash dividends paid during the six mo nths ended 30 June 2023
amounted to GBP25.1 million (30 June 2022: GBP25.1 million).
Cash dividend cover
For the six months ended 30 June 2023, the Group achieved a cash
dividend cover ratio of 1.68x (period ended 30 June 2022: 2.03x)
calculated as follows:
30 June 30 June
2023 2022
GBP million GBP million
(except (except
ratio) ratio)
================================================== ============ ==============
Distributions from investments at FVPL 53.9 62.1
Less: Net cash flows used in operating activities (11.7) (11.1)
================================================== ============ ==============
Net distributions 42.2 51.0
Divided by cash dividends paid 25.1 25.1
================================================== ============ ==============
Cash dividend cover (ratio) 1.68x 2.03x
================================================== ============ ==============
The strong cash dividend coverage for the period was underpinned
by BBGI's high-quality, contracted, inflation linked cash flows.
The cash dividend cover for FY 2023 is forecast to be in the range
of 1.30x to 1.40x. The projected reduction on an annual basis is
due to the front-ended distribution profile of the portfolio.
Pro forma balance sheet
30 June 31 Dec
Investment basis 2023 2022
GBP million GBP million
==================================== ============ ============
Investments at FVPL 1,064.2 1,097.0
Trade and other receivables 2.3 0.9
Other assets and liabilities (net) (1.9) (2.4)
Net debt (7.9) (26.3)
NAV attributable to ordinary shares 1,056.7 1,069.2
==================================== ============ ============
As at 30 June 2023, cash and cash equivalents amounted to
GBP17.9 million (GBP31.2 million as at 31 December 2022). A
reconciliation of cash and cash equivalent to net debt is provided
below:
30 June 31 Dec
2023 2022
GBP million GBP million
============================= ============ ============
Cash and cash equivalent 17.9 31.2
============================= ============ ============
Loans and borrowings (24.9) (56.4)
Unamortised debt issue costs (0.9) (1.1)
============================= ============ ============
Outstanding loan drawdown (25.8) (57.5)
============================= ============ ============
Net debt (7.9) (26.3)
============================= ============ ============
Three-year comparative of investment basis 30 June 31 Dec 31 Dec
NAV 2023 2022 2021
=========================================== ======= ======= =======
NAV (millions) 1,056.7 1,069.2 1,001.6
NAV per share (pence) 147.8 149.9 140.7
=========================================== ======= ======= =======
The Investment Basis NAV decreased by 1.2 per cent to GBP1,056.7
million as at 30 June 2023 (31 December 2022: GBP1,069.2 million)
and by 1. 4 per cent on an Investment Basis NAV per share basis).
The NAV total return on a per share basis for the six months to 30
June 2023 was 1.1 per cent.
Alternative performance measures ('APM')
APM is understood as a financial measure of historical or future
financial performance, financial position, or cash flows, other
than a financial measure defined or specified under IFRS. The Group
reports a selection of APM as summarised in the table below and as
used throughout this Interim Report. The Management Board believes
that these APM provide additional information that may be useful to
the users of this Report.
The APM presented here should supplement the information
presented in the Financial Statement section of this Report. The
APM used are not measures of performance or liquidity under IFRS
and should not be considered in isolation or as a substitute for
measures of profit, or as an indicator of the Group's operating
performance or cash flows from operating activities, as determined
in accordance with IFRS.
APM Explanation 30 June 31 December
2023 2022
On a compounded annual growth rate basis.
This represents the steady-state annual
Annualised growth rate based on the NAV per share
total NAV at 30 June 2023 assuming dividends declared
return since IPO in December 2011 have been
per share reinvested. 1 8.8% 9.1%
======================= ======================================================= ========== ===========
On a compounded annual growth rate basis.
This represents the steady state annual
Annualised growth rate based on share price as
total at 30 June 2023, assuming dividends
shareholder declared since IPO in December 2011
return since have been reinvested. Investment performance
IPO can be assessed by comparing this figure
('Annualised to the 7 per cent to 8 per cent TSR
TSR') target set at IPO. 7.4% 8.8%
======================= ======================================================= ========== ===========
Calculated as a percentage of actual
availability payments received, as a
percentage of scheduled availability
fee payments. The Company targets a
rate in excess of 98 per cent. A high
asset availability rate can be viewed
as a proxy to strong underlying asset
Asset availability performance. 99.9% 99.9%
======================= ======================================================= ========== ===========
The cash dividend cover ratio is a multiple
that divides the total net cash generated
in the period (available for distribution
to investors) by the total cash dividends
paid in the period based on the cash
flow from operating activities under
IFRS. A high cash dividend cover ratio
reduces the risk that the Group will
Cash dividend not be able to continue making fully
cover ratio covered dividend payments. 1.68x 1.47x
======================= ======================================================= ========== ===========
Represents the contractual, index-linked
provisions, which adjust annually to
provide a positive and high-quality
link to inflation. The measure represents
the increase in portfolio returns if
inflation is one percentage point higher
than our modelled assumptions for all
future periods. Under current assumptions,
the expected portfolio return would
increase from 7.2 per cent to 7.8 per
Inflation cent for a one percentage point increase
linkage to our inflation assumptions. 0.6% 0.5%
======================= ======================================================= ========== ===========
Net debt This amount, when considered in conjunction GBP(7.9) GBP(26.3)
with the available commitment under million million
the Group's RCF (unutilised RCF amount
of GBP203 million as at 30 June 2023),
is an indicator of the Group's ability
to meet financial commitments, to pay
dividends, and to undertake acquisitions.
======================= ======================================================= ========== ===========
Represents the estimated reduction or
drag on shareholder returns as a result
of recurring operational expenses incurred
in managing the Group's consolidated
entities and provides an indication
of the level of recurring costs likely
Ongoing to be incurred in managing the Group
charges in the future. 0.92% 0.87%
======================= ======================================================= ========== ===========
Target dividend Represents the forward-looking target 7.93 for 7.93 for
dividend per share. These are targets 2023 2023
only and are not a profit forecast.
There can be no assurance that these
targets will be met or that the Company
will make any distribution at all.
8.40 for 8.40 for
2024 2024
8.57 for 8.57 for
2025 2025
======================= ======================================================= ========== ===========
Calculated using the FTSE All-Share,
ten-year data representing the ten years
preceding 30 June 2023. This performance
measure demonstrates the level of volatility
Ten-year of the Company's shares in comparison
beta to the wider equity market. 0.26 0.24
======================= ======================================================= ========== ===========
Total shareholder The TSR combines share price
appreciation and dividends paid since return
since IPO IPO in December 2011 to represent the
total return to the shareholder ('TSR') expressed
as a percentage. This is based on share price
at 30 June
2023 and after adding back dividends paid or
declared since IPO. 128.2% 152.6%
================================================================================ ========== ===========
Weighted average Represents the weighted average,
by value, of the remaining individual
portfolio life project concession lengths in
years. Calculated by reference to the existing
portfolio at 30 June 2023, assuming no future
portfolio additions. 19.8 20.2
================================================================================ ========== ===========
(1) Calculated using the Morningstar methodology.
Reconciliation of investment basis to IFRS
Reconciliation of condensed consolidated
Interim Income Statement
30 June 2023 30 June 2022
Investment Consolidated Investment Consolidated
basis(i) Adjust IFRS basis(i) Adjust IFRS
GBP million GBP GBP million GBP million GBP million GBP million
million
========================= =========== ======== ============ =========== =========== ============
Income from Investments
at FVPL 19.7 (13.8) 5.9 100.4 27.7 128.1
Other operating income 1.6 5.7 7.3 0.2 - 0.2
========================= =========== ======== ============ =========== =========== ============
Operating income 21.3 (8.1) 13.2 100.6 27.7 128.3
Administrative expenses (6.3) - (6.3) (5.8) - (5.8)
Other operating expenses (0.2) - (0.2) (0.4) (14.1) (14.5)
Net finance result (1.4) - (1.4) (0.9) - (0.9)
Net gain (loss) on
balance sheet hedging - 8.1 8.1 - (13.6) (13.6)
Profit before tax 13.4 - 13.4 93.5 - 93.5
Tax expense - net (2.3) - (2.3) (1.0) - (1.0)
========================= =========== ======== ============ =========== =========== ============
Profit from continuing
operations 11.1 - 11.1 92.5 - 92.5
========================= =========== ======== ============ =========== =========== ============
Reconciliation of Condensed Consolidated
Interim Statement of Financial Position
30 June 2023 31 December 2022
====================================== =======================================
Investment Consolidated Investment Consolidated
basis(i) Adjust IFRS basis(i) Adjust IFRS
GBP million GBP million GBP million GBP million GBP GBP
million million
============================ =========== =========== ============ =========== ============ ============
Investments at FVPL 1,064.2 (9.2) 1,055.0 1,097.0 5.8 1,102.8
Trade and other receivables 2.3 - 2.3 0.9 - 0.9
Other net liabilities (1.9) - (1.9) (2.4) - (2.4)
Net debt (7.9) - (7.9) (26.3) - (26.3)
Derivative liability - 9.2 9.2 - (5.8) (5.8)
============================ =========== =========== ============ =========== ============ ==============
NAV attributable to
ordinary shares 1,056.7 - 1,056.7 1,069.2 - 1,069.2
============================ =========== =========== ============ =========== ============ ==============
(i) Represents the value of the Group's total net assets under
the Investment Basis NAV. The Investment Basis NAV represents the
residual interest of the shareholders in the Group, after all the
liabilities of the Group, if any, have been settled.
Risk
We follow a risk-based approach to internal controls. Our risk
management function facilitates the Management Board's duty to
effectively govern and manage the risks we face. Given the nature
of our assets and our interaction with the capital markets, we do
not operate in a risk-free environment. In an uncertain
environment, we take proactive action to address risks, and to
achieve our business and investment objectives.
We identify, analyse, assess, report, and manage all material
risks, and aim to identify risks we face as early as possible, so
we can minimise their impact.
We classify risks into the following risk categories:
* Market risks
* Credit risks
* Counterparty risks
* Liquidity risks
* Operational risks
* Sustainability risks
We analyse all identified risks during the risk reporting
process to understand the range of possible impacts on BBGI. By
undertaking this risk review, we can determine material risks to
analyse and respond to, and which risks require no further
attention. This gives the Management Board a universal
interpretation of risk.
Our risk management function performs a risk assessment to
determine the likelihood that a predefined event will occur and any
subsequent impact; it also estimates risk levels for a particular
situation, compares these against benchmarks or standards, and
determines an acceptable level of risk.
In the risk profile all identified risks are classified
according to risk type, in line with the risk categories above. For
material risks identified, BBGI's Risk Manager advises on key risk
indicators to include in the risk profile and suggests appropriate
quantitative and qualitative limits to mitigate the potential
impact of those risks, which are discussed and approved by the
Management Board before being formally included in the Risk
Profile.
We have assessed inherent risk and have applied relevant
mitigating factors to arrive at a remaining residual risk that the
Management Board deems manageable and acceptable.
The following table summarises our material risks but is not an
exhaustive list of all the potential risks BBGI faces. There may be
other unknown risks, or those regarded as less material, that
could, in the future, materially impact our performance, our
assets, and our capital resources.
Risk description Risk mitigation
MARKET RISKS
-------------------------- --------------------------- -------------------------------------------------------------
Volatility We use a discounted BBGI uses a market-based valuation
of discount cash flow methodology to determine a base discount
rates to value our portfolio rate for steady-state, operational
of investments. Higher investments in the different
discount rates have jurisdictions we operate, and
a negative impact on we use our judgement in arriving
valuation and the ultimate at the appropriate discount
rate of return realised rates. We may apply adjustments
by our investors, while to the base rate to reflect
lower discount rates variances from the average
may have a positive benchmark when we determine
impact. investment-specific characteristics
Our most important and risk profile.
judgement and variable Government bond yields have
is the discount rate continued to increase during
we apply to our portfolio the reporting period in the
of investments. UK and in Norway. Conversely,
Appropriate in the same period, we have
discount rates are seen long-term government bond
key to deriving a fair yields decrease in Australia,
and reasonable portfolio Canada, Germany, the Netherlands,
valuation. and US thereby reinforcing
Changes in market rates the benefits of having a globally
of interest (in diversified portfolio. Over
particular, the same period transaction
government bond yields) activity has increased with
may impact the discount market data points available.
rate used to value Nevertheless, and consistent
our future projected with the valuation at 31 December
cash flows, and thus 2022, BBGI has complemented
our valuation. its market-based approach by
additionally using the capital
asset pricing model where risk-free
rates plus an equity risk premium
are used to calculate discount
rates. This method is used
as a reasonability check for
our market-based approach.
Our NAV is sensitivity-tested
periodically for changes in
discount rates.
Inflation rates are positively
linked to the NAV. An increase
in discount rates due to increased
government bond yields coincides
currently with significantly
higher inflation rates. Together
with higher short-term and
long-term forecasted deposit
rates offset, partially at
least, increased discount rates
in our portfolio valuation
calculation.
An increase in long-dated government
bond yields will not necessarily
result in an equivalent increase
in discount rates with historical
data indicating that in periods
where long-dated government
bond yields have largely trended
downwards, the market discount
rate applied to secondary transactions
has not followed in lockstep.
A sensitivity analysis to changes
in discount rates, and the
resulting effect on NAV, is
provided in the valuation section
of this report.
--------------------------- -------------------------------------------------------------
Foreign exchange A significant proportion Currency-hedging arrangements
of our underlying for portfolio distributions
investments denominated in Australian Dollar,
- 67 per cent of the Canadian Dollar, Norwegian
portfolio value at Krone and US Dollar are in
30 June 2023 - are place for a rolling period
denominated in currencies of four years to mitigate some
other than Sterling. foreign exchange risk.
We maintain our financial In addition to cash flow hedging,
statements, prepare we also hedge a portion of
the portfolio valuation, the non-Sterling, non-Euro
and pay dividends in portfolio value, and aim to
Sterling. reduce NAV sensitivity to approximately
There is a risk that 3 per cent for a 10 per cent
fluctuations in exchange adverse foreign exchange movement.
rates between Sterling Euro-denominated fund running
and relevant local costs currently provide a natural
currencies will adversely hedge against the Euro-denominated
affect the value of portfolio distributions.
our underlying Furthermore, the ability to
investments, draw on the RCF in the currency
distributions and the of the underlying asset distributions
ultimate rate of return provides an additional hedging
realised by our investors. alternative.
BBGI has investments in five
currencies other than Sterling,
resulting in some natural diversification
among underlying currencies.
A sensitivity analysis to the
movement in foreign exchange
rates, and the resulting effect
on NAV, is provided in the
valuation section of this report.
--------------------------- -------------------------------------------------------------
Interest and Our performance may Our Portfolio Companies have
deposit rates be adversely affected sought to hedge substantially
by changes in interest all their floating rate interest
rates. BBGI has an liabilities against changes
exposure to interest in underlying interest rates
rates through borrowings with interest rate swaps.
under the RCF, debt At the Group level, we maintain
at the Portfolio Company deposits at low levels and
level and cash deposits. only raise capital when there
The Portfolio Companies is a clear strategy for deploying
typically have some proceeds.
cash reserves and A sensitivity analysis to movement
deposits. in the senior debt rate, and
From a financial modelling the resulting effect on NAV,
perspective, we assume is provided in the valuation
that deposits can be section of this report.
placed at a forecast
rate, which varies
depending on country.
If deposit rates exceed
or fall below projections
for short-term and
long-term rates, the
effect on investment
returns will depend
on the amount of deposits.
--------------------------- -------------------------------------------------------------
Inflation We have observed varied A scenario of persistent high
levels of inflationary inflation across our jurisdictions
pressure, and the presents the risk of declining
resulting real returns to investors.
valuation effects, We typically mitigate inflation
across the portfolio. risk for our Portfolio Companies
Our valuation and the to some extent by seeking to
ultimate rate of return match the indexation of the
realised by our investors revenues to the indexation
may be adversely or of the operational cost.
positively affected It is also important to note
by lower or higher that BBGI's equity cash flows
than expected inflation. are positively linked to inflation.
Prolonged periods of A sensitivity analysis to movements
deflation could result in inflation rates, and the
in defaults under resulting effect on NAV, is
Portfolio provided in the valuation section
Company loan arrangements. of this report.
The revenues and However, the level of inflation
expenditure linkage across the investments
of our Portfolio Companies held varies and is inconsistent.
developed under The consequences of higher
availability-style or lower levels of inflation
schemes are often partly than that assumed by the Company
or wholly subject to will not be uniform across
indexation. our investments.
From a financial modelling
perspective, an assumption
is usually made that
inflation will increase
at an assumed rate
(which may vary depending
on country). The effect
on investment returns,
if inflation exceeds
or falls below the
projections for this
rate, typically depends
on how each Portfolio
Company's costs are
affected by inflation,
and any unitary charge
indexation provisions
agreed with the client
on any investment.
--------------------------- -------------------------------------------------------------
Changes to There is a continued Certain risks, such as changes
tax legislation, risk that enacted changes to corporation tax rates (including
treaties, and in tax law, tax rates due to fiscal constraints),
rates and global tax cannot be prevented or mitigated.
initiatives,
including the OECD's We value our portfolio of investments
recommendations in based on enacted tax rates.
relation to base erosion Our management team works closely
and profit shifting with our global tax advisers
or tax treaty eligibility, and is briefed periodically
could have an adverse on relevant tax developments.
effect on our cash We continue to monitor the
flows, and reduce evolution of draft legislation
investors' for excessive interest and
returns. financing expenses limitation
('EIFEL') rules in Canada and
potential impact on our investments.
These draft EIFEL rules aim
to limit the deduction of 'interest
and financing expenses' to
a fixed percentage of earnings
before interest, tax, depreciation,
and amortisation for Canadian
income tax purposes. Over the
past 12 months the private
sector, through a PPP industry
representative body, made several
submissions to the Department
of Finance on the proposed
legislation. Following a review
of submissions and open consultations,
the Department of Finance released
a revised draft of the legislation
in November 2022. This revised
draft provides for an exemption
for third-party debt financing
on PPP type projects, similar
to the public benefit entity
concept in the UK.
In December 2022 we provisioned
c. GBP9.8 million and until
the revised legislation is
finalised it is unclear if
an additional provision is
required.
Generally, BBGI has a globally
diversified portfolio of assets,
thereby reducing the tax concentration
risk of any one country.
A sensitivity analysis to movement
in corporate tax rates, and
the resulting effect on NAV,
is provided in the valuation
section of this report.
--------------------------- -------------------------------------------------------------
Lifecycle or During the life of Of the 56 assets in the BBGI
operational an investment, components portfolio, 20 Portfolio Companies
cost risk of our assets (such retain the lifecycle obligations
as asphalt or concrete and hand back obligations at
for roads and bridges; the end of the concession period
or roofs and air handling and two Portfolio Companies
plants for buildings) self-deliver the operations.
are likely to need The remaining 36 assets have
to be replaced or undergo these lifecycle and hand back
a major refurbishment. obligations passed down to
There is a risk that the subcontractor.
the actual cost of Each Portfolio Company forecasts,
replacement or models, and provides for the
refurbishment timing and costs of such replacements
of these lifecycle or refurbishments. This is
obligations will be based on internal or external
greater than the technical advice to assist
forecasted in forecasting of lifecycle
cost, or that the timing timings, scope of work and
of the intervention costs. We experienced some
may be earlier than limited supply chain pressure
forecast. affecting lifecycle cost which
Additionally, a potential were typically outweighed by
risk arises if there higher inflation-linked revenues.
is a disparity in the
interpretation of As part of acquisition due
hand-back diligence, we review budgeted
obligations at the costs and assess their adequacy.
end of the concession A sensitivity analysis to movements
period between the in lifecycle costs is provided
public sector client in the valuation section of
and the Portfolio Company, this report.
which could lead to The risk of insurance cost
a budgetary overrun increases is partly mitigated
in lifecycle or by a contractual premium risk-sharing
operational mechanism with certain public
costs. sector clients. For other Portfolio
There is also the general Companies, the risk is borne
risk that costs may entirely by the public sector
be higher than budgeted. client but for a limited number
This typically relates of Portfolio Companies there
to insurance costs is no mitigation available.
and management service
contracts or where
Portfolio Company
management
teams are responsible
for operational service
delivery.
--------------------------- -------------------------------------------------------------
COUNTERPARTY
RISKS
-------------------------- --------------------------- -------------------------------------------------------------
Failure of The risk of a For assets under construction
subcontractor subcontractor (c. 0.5 per cent of the portfolio
performance service failure, poor value), there are several mitigants
or credit risk performance or and steps we take to manage
(construction subcontractor this risk:
contractors, insolvency, which is * A construction joint venture with two or more
facility managers, sufficiently serious counterparties is typically jointly and severally
operation, and to cause a Portfolio liable: if one party fails, the other is obligated to
maintenance Company to terminate take over the obligations.
contractors) or to be required by
the client or lenders
to terminate a * We perform a contractor replacement analysis as part
subcontract. of our initial investment due diligence. Most
There may be a loss subcontractors on our investments are well
of revenue during the established, with several competing providers.
time taken to find Therefore, we expect that a pool of potential
a replacement replacement supplier counterparties is available if a
subcontractor. service counterparty fails, although not necessarily
The replacement at the same cost.
subcontractor
may also levy a surcharge
to assume the subcontract, * Construction subcontractors are typically required by
or charge more to provide lenders to provide a robust security package, often
the services. consisting of letters of credit, parent company
guarantees or performance bonding.
The latter two mitigants are
also in place for investments
once they become operational.
However, any liability of subcontractors
is typically capped at contractually
agreed amounts.
Other mitigants during operations
include:
* Periodic benchmarking of defined soft facility
services on some investments.
* A diversified group of subcontractors, with no
substantial concentration risk.
* Ongoing subcontractor monitoring for our investments,
as well as contingency plans as appropriate, to
ensure we mitigate the risk of counterparty failure.
--------------------------- -------------------------------------------------------------
LIQUIDITY RISKS
-------------------------- --------------------------- -------------------------------------------------------------
Access to capital There is a risk that The need to issue new equity
a continued disruption capital primarily relates to
to the equity markets the repayment of drawings under
could lead to an inability the RCF. As at 30 June 2023,
to raise new capital. the Company was in a modest
Such a disruption could net debt position of GBP7.9
limit our ability to million with GBP203 million
grow and our ability available to draw under the
to repay debt drawn RCF, and has no investment
under our RCF. transaction commitments.
To the extent that
we do not have cash Our RCF expires in May 2026.
reserves pending The Management Board can seek
investment, to refinance the RCF to extend
we expect to bridge its maturity and reduce the
finance further near-term requirement to repay
investments drawings, though we do not
using the RCF. intend to be drawn for substantial
Although we have had periods of time.
an RCF since July 2012
(subsequently refinanced), The Board and our Company's
we cannot guarantee brokers regularly assess market
this will always be sentiment. Where there is a
the case, or that we prolonged disruption to the
will be able to issue equity markets the Company
further shares in the can also consider, as part
market. of an effective portfolio construction
strategy, the sale of one or
more investments to repay any
outstanding amounts under the
RCF.
--------------------------- -------------------------------------------------------------
Premium or The risk of share price To assist BBGI in managing
discount to volatility, or trading any temporary or permanent
NAV at a discount to NAV, share price discounts to NAV,
leading to lower returns we can make annual market purchases
to shareholders. of up to 14.99 per cent of
the ordinary shares in issue.
We offer a continuation vote
to shareholders every two years;
the next will be proposed at
our Annual General Meeting
on 30 April 2025.
The Management Board meets
regularly with shareholders
and receives regular briefings
from our Company's brokers
to manage investor relations.
--------------------------- -------------------------------------------------------------
OPERATIONAL
RISKS
-------------------------- --------------------------- -------------------------------------------------------------
Poor investment There is a risk that BBGI has developed a robust
due diligence errors may be made asset acquisition due diligence
in the assumptions, process. Our typical due diligence
calculations, or includes model, legal, tax,
methodology technical, anti-money laundering,
applied during an ESG, sustainability and insurance
acquisition reviews.
due diligence process.
In such circumstances,
the figures and/or
the returns generated
by the Portfolio Company
and the ultimate rate
of return realised
by our investors may
be lower than those
estimated or projected.
--------------------------- -------------------------------------------------------------
Valuation The most significant Our portfolio valuation is
risk of material prepared semi-annually by an
misstatement experienced internal team,
in our financial overseen by our Management
statements Board.
applies to the fair Furthermore, the valuation
valuation of the is reviewed by an independent,
investment third-party valuation expert,
portfolio and in and is also reviewed and audited
particular by the Company's external auditor.
the discount rates All key assumptions used in
used and key assumptions the valuation process are outlined
applied when valuing in the valuation section of
these investments. this report, some of which
There is a risk that are subject to sensitivity
errors may be made testing.
in the assumptions, Financial models are typically
calculations or reviewed or audited by external
methodology advisers.
used in a periodic However, sensitivity testing
valuation process. has its limitations: it cannot
Financial models, either provide a comprehensive assessment
for the Group or our of every risk we face and should
underlying Portfolio be considered accordingly.
Companies, may also
contain errors, or
incorrect inputs,
resulting
in inaccurate projections
of distributions. These
could adversely impact
the valuation on
individual
investments and the
overall assessment
of our financial position.
--------------------------- -------------------------------------------------------------
Construction The risk of certain In general, Portfolio Companies
defects operational costs in can submit claims against construction
relation to construction subcontractors for defects
defects lies with the in the design, construction
Portfolio Company. or commissioning of project
assets. This 'right to claim'
applies for a pre-determined
period following the completion
of construction ('statutory
limitations period'), and this
may differ between jurisdictions.
If disputes arise, an arbitration
or court process may be used.
Once the statutory limitations
period has ended, the remediation
of construction defects identified
after this point typically
falls to the Portfolio Company
itself, and thus becomes the
risk of the Portfolio Company.
In addition, there may be other
situations where the risk would
lie with the Portfolio Company,
for example where a subcontractor
becomes insolvent, and may
no longer be able to fulfil
its obligations to correct
these defects.
--------------------------- -------------------------------------------------------------
Change in law Different laws and The Management Board seeks
or regulation regulations apply in regular briefings from its
the countries where legal and tax advisers to stay
BBGI and our Portfolio abreast of impending or possible
Companies are located. changes in law.
There is a risk that Change in law provisions are
changes in laws and included in some contracts,
regulations may have thus providing further mitigation.
an adverse effect on BBGI has a globally diversified
the performance of portfolio of assets, thereby
the underlying investment, reducing the Group's exposure
which will then affect to changes in any single country.
the cash flows derived
from the investments
and/or the valuation
of the investments.
--------------------------- -------------------------------------------------------------
Inadequate Inadequate succession Co-CEO structure: this structure
succession planning planning poses a reduces any potential for key
significant man risk considerably.
risk to our organisation's Succession Planning: Proactive
long-term stability succession plans are in place
and growth. The absence to contribute to smooth transitions
of robust succession and continuity in leadership
strategies could roles. By regularly reviewing
potentially and assessing the talent within
disrupt key leadership the company, the Board can
transitions, impacting identify and develop pathways
our ability to ensure for key individuals and also
seamless operations identify areas where there
and strategic continuity. may be over reliance on a single
individual.
Contractual Notice Periods:
Adequate notice periods are
included in each of the Management
Board members.
Competitive Compensation Packages:
The Company offers benchmarked
compensation packages to attract
and retain top talent.
Deferred Remuneration: The
Company has implemented a deferred
remuneration strategy ensuring
that Management Board and key
individuals have a vested interest
in the long-term success and
stability of the company.
--------------------------- -------------------------------------------------------------
Failing IT A breach of data security BBGI has taken several measures
systems or cyber-attacks could occur by accident to reduce the risk of a cyber-attack.
or because of an external We have outsourced the hosting
cyber-attack. A of our IT platform to an industry
cyber-attack specialist. In doing so, we
could affect our IT benefit from access to IT security
systems or those of experts, with our platform
our Portfolio Companies, monitored by an advanced IT
causing theft, loss security system. This approach
of data, or damage would be less cost-effective
to the infrastructure's if our IT infrastructure was
control systems and maintained onsite.
equipment. Every year, we engage an external
A cyber-attack could expert to carry out an intrusion
affect not only BBGI's test on our IT platform to
reputation, but could identify and patch any vulnerabilities.
also have legal, We perform business continuity
financial, tests, carry out disaster recovery
and operational tests every year, and our employees
repercussions periodically undergo cyber
for the Group. security training.
In a typical PPP structure,
public sector clients have
their own IT systems. However,
most of our Portfolio Companies
do not maintain their own IT
systems. Instead, subcontractors
of a Portfolio Company (such
as management service providers,
facility maintenance contractors
for accommodation assets, and
maintenance contractors for
transport assets) will have
their own IT systems, which
will likely house data relating
to a project.
In a typical PPP structure,
such as those in BBGI's portfolio,
risks are passed down to subcontractors
by the Portfolio Company.
However, any liability is capped
to contractually agreed amounts,
including risks relating to
design and construction, warranties
for IT systems (such as a warranty
that the system will meet specifications
requiring it to meet robust
security requirements), and
the risk of a cyber-attack
interrupting the provision
of services to a project.
--------------------------- -------------------------------------------------------------
Voluntary termination There remains a risk The Management Board believes
that public sector there are mitigants or deterrents
clients of our Portfolio to the risk of voluntary termination
Companies choose to of contracts:
exercise their right * In cases where debt or bond facilities were agreed
to voluntarily terminate when interest rates were higher than current levels
the contracts. interest rate swaps remain largely 'out of the money'
When this happens, for our Portfolio Companies, and any public body
the public sector is wishing to terminate a contract in the current
typically contractually interest rate environment would also need to cover
obliged to pay the cost of the swap breakage fee. Conversely, the
compensation cost of unwinding Project Agreements and repaying
on termination to equity senior debt in a rising interest rate environment
holders, debt providers, could also prove a mitigant to early termination.
and other parties,
depending on the
circumstances. * Our Portfolio Company equity investors would,
While provisions vary depending on the contractual provisions, also need to
between contracts, be compensated, as well as the public sector being
they generally ensure required to budget for the ongoing provision of the
that our investors service.
are paid either market
value for their equity
interests, or a value
to achieve the originally
projected IRR, and
in these cases, where
the compensation amount
is less than current
valuation levels, we
would suffer a material
loss.
--------------------------- -------------------------------------------------------------
SUSTAINABILITY
RISKS
-------------------------- --------------------------- -------------------------------------------------------------
Sustainability Sustainability risk We seek to integrate and appraise
risk has been defined in material sustainability risks
Article 2(22) of the into our processes in several
Sustainable Financial ways:
Disclosure Regulation * Alongside traditional financial criteria, we
as 'an environmental, systematically consider whether - and to what extent
social or governance - financially material sustainability risks might
event or condition meaningfully impact our investments.
that, if it occurs,
could cause an actual
or potential material * In 2021 and 2022, we undertook a formal portfolio
negative impact on climate risk assessment to better understand the
the value of the impact of climate risk on BBGI. The findings
investment'. demonstrate a high degree of climate resilience
For example, climate across our asset portfolio, both today and under
change can give rise different climate warming scenarios.
to a range of
sustainability
risks. * Although climate change is projected to increase
Financial risks from physical risk impacts across our portfolio, many of
climate change can our assets, due to the vital services they provide,
arise through two primary have been designed and constructed in consideration
channels: of potential physical risk impacts, and are
(i) physical risk, inherently more resilient to climate change.
from abrupt and acute
weather events, or
chronic longer-term * We typically mitigate events arising from adverse
shifts in climate climate change through insurance coverage, pass-down
patterns, to subcontractors and public sector client relief
each causing disruptions events. However, in severe cases, adverse climate
to businesses and change events could lead to early termination of
economic concession agreements and compensation payments,
activities (and the which are materially lower than our valuation.
value of investments
in them); and
(ii) transition risk, * Aligned with our SFDR Article 8 product
from a shift to low classification, our focused approach of investing in
carbon and climate core social infrastructure assets that serve society
resilient policies, should mitigate sustainability risk linked to a
laws and technologies social event or condition.
and changes in societal
attitudes. Failure
to acknowledge climate
change may also alienate
certain investors and
reduce our access to
capital.
All sustainability
risks can be broken
down into physical
and transition risks,
which could both impact
the performance of
an asset or of BBGI
itself and have a
material
negative impact on
investment returns.
For example,
infringements
of human rights could
have a significant
impact on the financial
performance of an
investment.
--------------------------- -------------------------------------------------------------
Environmental, social and governance ('ESG') highlights
We are committed to creating a positive impact on society and
the environment through our portfolio of social infrastructure
investments. As we continue to improve our monitoring and reporting
of ESG performance, we are pleased to share our progress and
achievements during H1 2023.
ESG Report for 2022: In June, we published our third standalone
annual Environmental, Social and Governance (ESG) Report, with
detailed information on the progress we made during 2022 and
showcases the achievements delivered at our Portfolio
Companies.
The report focuses on our most material ESG topics, an approach
we have developed based on stakeholder engagement and materiality
assessment. It also aims to complement the Task Force on
Climate-Related Financial Disclosures ('TCFD') reporting, included
in our 2022 Annual Report, and discloses our climate metrics and
scenario analysis.
Read more:
https://www.bb-gi.com/media/2253/bbgi_esg-report-2022.pdf
Portfolio emissions: During the reporting period we completed a
comprehensive data collection exercise to assess our portfolio's
GHG emissions, carbon footprint, and carbon intensity. This is a
significant step towards understanding and reducing our portfolio's
environmental impact. We quantified GHG emissions (Scope 1, Scope
2, and Scope 3) using primary utility data obtained directly from
our Portfolio Companies, following recognised standards such as GHG
Protocol and PCAF guidance.[xxiii] [xxiv] The reported GHG
emissions can be split to distinguish emissions related to assets
under construction or undergoing major expansion works and avoided
emissions.
Going forward, we will work closely with our Portfolio Companies
and their operations and maintenance contractors to streamline
their data collection and reporting efforts. Additionally, over
time we plan to develop net zero plans at the Portfolio Companies
to support our own net zero targets.
PAI Statement for SFDR Reporting: In June 2023, we published our
first Statement on Principal Adverse Impacts of investment
decisions on sustainability factors (PAI Statement) for the SFDR.
This new disclosure showcases how we assess and measure the
sustainability impacts of our investment decisions.
The EU Sustainable Finance Disclosure Regulation (SFDR) is a set
of European Union rules which came into effect on 10 March 2021,
and aims to provide transparency regarding sustainability within
financial markets. The goal of SFDR is to make the sustainability
profile of funds more comparable and easier to understand. SFDR
focuses on categorising products into specific types, providing
information with regards to the integration of sustainability risks
and pre-defined metrics for assessing the ESG impacts of the
investment process.
We are an Article 8 fund under SFDR, where the investment
product promotes social characteristics and follows good governance
practices.
We remain committed to aligning with best practice reporting
standards. We will closely monitor regulatory developments and
actively engage with our peers from the infrastructure investment
sector to stay at the forefront of sustainable governance
practices.
Read more:
https://www.bb-gi.com/media/2277/bbgi_sfdr-pai-statement_30062023.pdf
Auditors Review Report
Report on Review of Condensed Consolidated Interim Financial
Statements
To the Management Board of
BBGI Global Infrastructure S.A.
6E, Route de Trèves
L-2633 Senningerberg
Grand Duchy of Luxembourg
We have reviewed the accompanying condensed consolidated interim
financial statements of BBGI Global Infrastructure S.A. (the
"Company") and its subsidiaries (the "Group"), which comprise the
condensed consolidated interim statement of financial position as
at 30 June 2023, and the condensed consolidated interim income
statement, the condensed consolidated interim statement of other
comprehensive income, the condensed consolidated interim statement
of changes in equity and the condensed consolidated interim
statement of cash flow for the six-month period then ended, and a
summary of significant accounting policies and other explanatory
information.
Management Board's responsibility for the condensed consolidated
interim financial statements
The Management Board is responsible for the preparation and fair
presentation of these condensed consolidated interim financial
statements in accordance with International Financial Reporting
Standards as adopted by the European Union, and for such internal
control as the Management Board determines is necessary to enable
the preparation of condensed consolidated interim financial
statements that are free from material misstatement, whether due to
fraud or error.
Responsibility of the "Réviseur d'entreprises agréé"
Our responsibility is to express a conclusion on these condensed
consolidated interim financial statements based on our review. We
conducted our review in accordance with International Standard on
Review Engagements (ISRE 2410) as adopted for Luxembourg by the
"Institut des Réviseurs d'Entreprises". This standard requires us
to comply with relevant ethical requirements and conclude whether
anything has come to our attention that causes us to believe that
the condensed consolidated interim financial statements, taken as a
whole, are not prepared in all material respects in accordance with
the applicable financial reporting framework.
A review of condensed consolidated interim financial statements
in accordance with ISRE 2410 is a limited assurance engagement. The
"Réviseur d'entreprises agréé" performs procedures, primarily
consisting of making inquiries of management and others within the
Company, as appropriate, and applying analytical procedures, and
evaluates the evidence obtained.
The procedures performed in a review are substantially less than
those performed in an audit conducted in accordance with
International Standards on Auditing. Accordingly, we do not express
an audit opinion on these condensed consolidated interim financial
statements.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the accompanying condensed consolidated
interim financial statements do not give a true and fair view of
the financial position of BBGI Global Infrastructure S.A. as of 30
June 2023, and of its financial performance and its cash flows for
the six month period then ended in accordance with International
Financial Reporting Standards as adopted by the European Union.
PricewaterhouseCoopers, Société coopérative Luxembourg, 30
August 2023
Represented by
Emanuela Sardi
Condensed Consolidated Interim Income Statement
For the six months ended 30 June 2023 (Unaudited)
30 June 30 June
In thousands of Sterling Notes 2023 2022
========================================= ===== ======= ========
Income from investments at fair value
through profit or loss 9 6,064 128,059
Other operating income 8 7,250 248
========================================= ===== ======= ========
Operating income 13,314 128,307
================================================ ======= ========
Administrative expenses 5 (6,337) (5,789)
Other operating expenses 6 (231) (14,501)
========================================= ===== ======= ========
Operating expenses (6,568) (20,290)
================================================ ======= ========
Results from operating activities 6,746 108,017
Net finance result 7 (1,419) (890)
Net gain (loss) on balance sheet hedging 16 8,057 (13,592)
========================================= ===== ======= ========
Profit before tax 13,384 93,535
Tax expense 11 (2,321) (1,057)
========================================= ===== ======= ========
Profit for the period 11,063 92,478
================================================ ======= ========
Earnings per share
Basic earnings per share (pence) 13 1.55 12.98
Diluted earnings per share (pence) 13 1.55 12.97
========================================= ===== ======= ========
The accompanying notes form an integral part of the unaudited
condensed consolidated interim financial statements.
Condensed Consolidated Interim Statement of Other Comprehensive
Income
For the six months ended 30 June 2023 (Unaudited)
30 June 30 June
In thousands of Sterling Note 2023 2022
===================================================== ==== ======= =======
Profit for the period 11,063 92,478
Other comprehensive income for the period that
may be reclassified to profit or loss in subsequent
periods
Exchange difference on translation of foreign
operations 12 1,124 55
===================================================== ==== ======= =======
Total comprehensive income for the period 12,187 92,533
=========================================================== ======= =======
The accompanying notes form an integral part of the unaudited
condensed consolidated interim financial statements.
Condensed Consolidated Interim Statement of Financial
Position
As at 30 June 2023
30 June 31 December
2023 2022
In thousands of Sterling Notes (Unaudited) (Audited)
=========================================== ======= ============ ============
Assets
Property and equipment 101 123
Investments at fair value through profit
or loss 9 1,055,024 1,102,844
Deferred tax assets 149 153
Other non-current assets 244 275
=========================================== ======= ============ ============
Non-current assets 1,055,518 1,103,395
==================================================== ============ ============
Trade and other receivables 17 2,348 909
Other current assets 1,307 994
Derivative financial assets 16 10,942 2,885
Cash and cash equivalents 10 17,880 31,157
=========================================== ======= ============ ============
Current assets 32,477 35,945
==================================================== ============ ============
Total assets 1,087,995 1,139,340
==================================================== ============ ============
Equity
Share capital 12 852,255 850,007
Additional paid-in capital 12, 17 2,294 2,502
Translation and other capital reserves 12 3,873 14,371
Retained earnings 198,304 202,298
=========================================== ======= ============ ============
Equity attributable to the owners of the Company 1,056,726 1,069,178
==================================================== ============ ============
Liabilities
Loans and borrowings 14 24,857 56,390
Derivative financial liabilities 16 1,397 5,687
=========================================== ======= ============ ============
Non-current liabilities 26,254 62,077
==================================================== ============ ============
Loans and borrowings 14 206 230
Trade and other payables 15 2,894 3,242
Derivative financial liabilities 16 338 3,006
Tax liabilities 11 1,577 1,607
=========================================== ======= ============ ============
Current liabilities 5,015 8,085
==================================================== ============ ============
Total liabilities 31,269 70,162
==================================================== ============ ============
Total equity and liabilities 1,087,995 1,139,340
==================================================== ============ ============
Net asset value attributable to the owners
of the Company 12 1,056,726 1,069,178
Net asset value per ordinary share (pence) 12 147.84 149.89
=========================================== ======= ============ ============
The accompanying notes form an integral part of the unaudited
condensed consolidated interim financial statements.
Condensed Consolidated Interim Statement of Changes in
Equity
For the six months ended 30 June 2023 (Unaudited)
Translation
Additional and other
Share paid-in capital Retained Total
In thousands of Sterling Notes capital capital reserves earnings equity
================================= ======= ========= =============== ============= ========== =========
Balance as at 31 December
2022 ( Audited) 850,007 2,502 14,371 202,298 1,069,178
Total comprehensive income
for the six months ended 30
June 2023
Profit for the period - - - 11,063 11,063
Other comprehensive income - - (10,498) 11,622 1,124
================================= ======= ========= =============== ============= ========== =========
Total comprehensive income for
the period - - (10,498) 22,685 12,187
========================================== ========= =============== ============= ========== =========
Transactions with the owners
of the Company, recognised
directly in equity
Scrip dividends 12 1,536 - - (1,536) -
Cash dividends 12 - - - (25,143) (25,143)
Equity settlement of share-based
compensation 12,17 742 (1,283) - - (541)
Share-based payment 17 - 1,075 - - 1,075
Share issuance costs 12 (30) - - - (30)
Balance as at 30 June 2023 (Unaudited) 852,255 2,294 3,873 198,304 1,056,726
========================================== ========= =============== ============= ========== =========
Translation
Additional and other
Share paid-in capital Retained Total
In thousands of Sterling Notes capital capital reserves earnings equity
================================= ======= ========= =============== ============= ========== =========
Balance at 31 December 2021
(Audited) 847,858 1,833 (8,809) 159,661 1,000,543
Total comprehensive income
for the six months ended 30
June 2022
Profit for the period - - - 92,478 92,478
Other comprehensive income - - 35,518 (35,463) 55
================================= ======= ========= =============== ============= ========== =========
Total comprehensive income
for the period - 1.833 35,518 57.015 92,533
================================= ======= ========= =============== ============= ========== =========
Transactions with the owners
of the Company, recognised
directly in equity
Scrip dividends 12 964 - - (964) -
Cash dividends 12 - - - (25,135) (25,135)
Equity settlement of share-based
compensation 12,17 1,084 (1,068) - - 16
Share-based payment 17 - 770 - - 770
Share issuance costs 12 (27) - - - (27)
================================= ======= ========= =============== ============= ========== =========
Balance as at 30 June 2022
(Unaudited) 849,879 1,535 26,709 190,577 1,068,700
================================= ======= ========= =============== ============= ========== =========
The accompanying notes form an integral part of the unaudited
condensed consolidated interim financial statements.
Condensed Consolidated Interim Statement of Cash Flows
For the six months ended 30 June 2023 (Unaudited)
30 June 30 June
In thousands of Sterling Notes 2023 2022
======================================================== ===== ======== =========
Operating activities
Profit for the period 11,063 92,478
Adjustments for:
Depreciation expense 5 25 14
Net finance result 7 1,419 890
Income from investments at fair value through
profit or loss 9 (6,064) (128,059)
Net loss (gain) on derivative financial instruments 16 (13,761) 27,684
Foreign currency exchange gain - net 8 (1,511) (186)
Share-based compensation 17 1,075 770
Tax expense 11 2,321 1,057
======================================================== ===== ======== =========
Working capital adjustments:
Trade and other receivables (1,108) (316)
Other assets (204) (536)
Trade and other payables (55) (828)
======================================================== ===== ======== =========
Cash used in operating activities (6,800) (7,032)
Interest paid and other borrowing costs (1,589) (747)
Interest received 308 6
Realised loss on derivative financial instruments
- net 16 (1,255) (1,825)
Taxes paid (2,347) (1,518)
======================================================== ===== ======== =========
Net cash flows used in operating activities (11,683) (11,116)
=============================================================== ======== =========
Investing activities
Acquisition of/additional investments at fair
value through profit or loss 9 - (23,619)
Distributions received from investments at fair
value through profit or loss 9 53,884 62,097
Acquisition of property and equipment (3) (78)
======================================================== ===== ======== =========
Net cash flows from investing activities 53,881 38,400
=============================================================== ======== =========
Financing activities
Dividends paid 12 (25,143) (25,135)
Repayment of loans and borrowings 14 (45,520) -
Proceeds from issuance of loans and borrowings 14 15,000 10,000
Debt and equity instruments issue costs 12 (30) (27)
======================================================== ===== ======== =========
Net cash flows used in financing activities (55,693) (15,162)
=============================================================== ======== =========
Net increase (decrease) in cash and cash equivalents (13,495) 12,122
Impact of foreign exchange gain on cash and cash
equivalents 218 1,211
Cash and cash equivalents as at 1 January 31,157 26,862
======================================================== ===== ======== =========
Cash and cash equivalents as at 30 June 10 17,880 40,195
======================================================== ===== ======== =========
The accompanying notes form an integral part of the unaudited
condensed consolidated interim financial statements.
Notes to the Condensed Consolidated Interim Financial
Statements
For the six months ended 30 June 2023
1. Corporate information
BBGI Global Infrastructure S.A.,('BBGI', or the 'Company' or,
together with its consolidated subsidiaries, the 'Group') is an
investment company incorporated in Luxembourg in the form of a
public limited liability company (société anonyme) with variable
share capital (société d'investissement à capital variable, or
'SICAV') and regulated by the Commission de Surveillance du Secteur
Financier ('CSSF') under Part II of the amended Luxembourg law of
17 December 2010 on undertakings for collective investments with an
indefinite life. The Company qualifies as an alternative investment
fund within the meaning of Article 1 (39) of the amended law of 12
July 2013 on alternative investment fund managers ('2013 Law')
implementing Directive 2011/61/EU of the European Parliament and of
the Council of 8 June 2011 on Alternative Investment Fund Managers
and amending Directives 2003/41/EC and 2009/65/EC and Regulations
(EC) No 1060/2009 and (EU) No 1095/2010 and is authorised as an
internal alternative investment fund manager in accordance with
Chapter 2 of the 2013 Law. The Company was admitted to the official
list of the UK Listing Authority (premium listing, closed-ended
investment company) and to trading on the main market of the London
Stock Exchange on 21 December 2011.
As at 1 January 2021, the main market of the London Stock
Exchange is not considered as an EU regulated market (as defined by
the MiFID II). As a result, Directive 2004/109/EC of the European
Parliament and of the Council of 15 December 2004, on the
harmonisation of transparency requirements in relation to
information about issuers whose securities are admitted to trading
on a regulated market, and amending Directive 2001/34/EC (the
Transparency Directive) as implemented in Luxembourg law by the act
dated 11 January 2008 on transparency requirements for issuers (the
Transparency Act 2008), among other texts, do not apply to the
Company.
The Company's registered office is 6E, route de Trèves, L-2633
Senningerberg, Luxembourg.
The Company is a closed-ended investment company that invests
principally in a diversified portfolio of Public Private
Partnership ('PPP')/Private Finance Initiative ('PFI')
infrastructure or similar style assets. As at 30 June 2023, the
Company has one investment that is under construction.
As at 30 June 2023, the Group employed 25 staff (30 June 2022:
25 staff).
Reporting period
The Group's interim reporting period runs from 1 January to 30
June each year. The Group's condensed consolidated interim income
statement, condensed consolidated interim statement of other
comprehensive income, condensed consolidated interim statement of
financial position, condensed consolidated interim statement of
changes in equity, and condensed consolidated interim statement of
cash flows include comparative figures as at 31 December 2022 and
30 June 2022, as appropriate.
These condensed consolidated interim financial statements were
approved by the Management Board on 30 August 2023.
2. Basis of preparation
Statement of compliance
The condensed consolidated interim financial statements of the
Group for the six-month period have been prepared in accordance
with International Accounting Standards ('IAS') 34 Interim
Financial Reportingin accordance with International Financial
Reporting Standards ('IFRS'), as adopted by the European Union, and
do not include all information required for full annual
consolidated financial statements. Accordingly, these condensed
consolidated interim financial statements are to be used in
conjunction with the annual consolidated financial statements for
the year ended 31 December 2022.
The Group follows, to the fullest extent possible, the
provisions of the Standard of Recommended Practices issued by the
Association of Investment Companies ('AIC SORP'). If a provision of
the AIC SORP is in direct conflict with IFRS as adopted by the EU,
the standards of the latter prevail.
The condensed consolidated interim financial statements have
been prepared on a historical cost basis, except for investments at
fair value through profit or loss ('Investments at FVPL') and
derivative financial instruments that have been measured at fair
value.
Changes in accounting policy
The accounting policies, measurement and valuation principles
applied by the Group in these condensed consolidated interim
financial statements are consistent with those applied by the Group
in its annual consolidated financial statements as at and for the
year ended 31 December 2022, except for the adoption of new
standards effective as at 1 January 2023.
New and amended standards applicable to the Group starting on 1
January 2023 are as follows:
Amendments to IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2: Disclosure of Accounting policies
The amendments aim to help entities provide accounting policy
disclosures that are more useful by replacing the requirement for
entities to disclose their 'significant' accounting policies with a
requirement to disclose their 'material' accounting policies and
adding guidance on how entities apply the concept of materiality in
making decisions about accounting policy disclosures.
Definition of Accounting Estimate - Amendments to IAS 8
The amendments introduce a definition of 'accounting estimates'
and clarify the distinction between changes in accounting estimates
and changes in accounting policies and the correction of errors.
Also, they clarify how entities use measurement techniques and
inputs to develop accounting estimates.
These amendments have no significant impact on the condensed
consolidated interim financial statements of the Group.
Functional and presentation currency
These condensed consolidated interim financial statements are
presented in Sterling, the Company's functional currency. All
amounts presented in tables throughout the report have been rounded
to the nearest thousand, unless otherwise stated.
The Company as an Investment Entity
The Management Board has assessed that the Company is an
Investment Entity in accordance with the provisions of IFRS 10. The
Company meets the following criteria to qualify as an Investment
Entity:
a) Obtains funds from one or more investors for the purpose of
providing those investors with investment management services - The
Group is internally managed with management focused solely on
managing those funds received from its shareholders in order to
maximise investment income/returns.
b) Commits to its investors that its business purpose is to
invest funds solely for returns from capital
appreciation, investment income, or both. - The investment objectives of the Company are to:
- Provide investors with secure and highly predictable long-term
cash flows whilst actively managing the investment portfolio with
the intention of maximising return over the long term.
- Target an annual dividend payment with the aim to increase
this distribution progressively over the longer term.
- Target an IRR which is to be achieved over the longer term via
active management and to enhance the value of existing
investments.
The above-mentioned objectives support the fact that the main
business purpose of the Company is to seek to maximise investment
income for the benefit of its shareholders.
c) Measures and evaluates performance of substantially all of
its investments on a fair value basis - The investment policy of
the Company is to invest in equity, subordinated debt or similar
interests issued in respect of infrastructure assets that have been
developed predominantly under the PPP/PFI or similar styled
procurement models. Each of these assets is valued at fair value.
The valuation is carried out on a six-monthly basis as at 30 June
and 31 December each year.
Based on the Management Board's assessment, the Company also
meets the typical characteristics of an Investment Entity as
follows:
a) it has more than one investment - as at 30 June 2023, the Company has 56 investments;
b) it has more than one investor - the Company is listed on the
London Stock Exchange with its shares held by a broad pool of
investors;
c) it has investors that are not related parties of the entity -
other than those shares held by the Supervisory Board and
Management Board Directors, and certain other employees, all
remaining shares in issue (more than 99 per cent) are held by
non-related parties of the Company; and
d) it has ownership interests in the form of equity or similar
interests - ownership in the Company is through equity
interest.
3. Material accounting judgements, estimates and assumptions
The preparation of condensed consolidated interim financial
statements in conformity with IFRS requires the Management Board to
make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ
from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
In the process of applying the Group's accounting policies, the
Management Board has made the following judgements that would have
the most significant effect on the amounts recognised in the
condensed consolidated interim financial statements.
3.1 Assessment as an investment entity
Refer to Note 2 for the discussion on this topic.
3.2 Fair value determination
The Group accounts for its investments in PPP/PFI entities
('Portfolio Companies') as Investments at FVPL. The valuation is
determined using the discounted cash flow methodology. The cash
flows forecasted to be received by the Company or its consolidated
subsidiaries, generated by each of the underlying Portfolio
Companies, and adjusted as appropriate to reflect the risk and
opportunities, have been discounted using asset-specific discount
rates. The valuation methodology is the same one used in previous
reporting periods.
The fair value of other financial assets and liabilities, other
than current assets and liabilities, is determined by discounting
future cash flows at an appropriate discount rate and with
reference to recent market transactions, where appropriate. Further
information on assumptions and estimation uncertainties are
disclosed in Note 16.
Fair values are categorised into different levels in a fair
value hierarchy based on the inputs in the valuation methodology,
as follows:
- Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.
- Level 2: inputs other than quoted prices included in Level 1,
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
- Level 3: inputs for the asset or liability that are not based
on observable market data ('unobservable inputs').
If the inputs to measure fair value of an asset or a liability
fall into different levels of the fair value hierarchy, then the
fair value measurement is categorised in its entirety at the same
level of the fair value hierarchy as the lowest level input that is
significant to the entire measurement.
The Group recognises transfers between levels of fair value
hierarchy at the end of the reporting period in which the change
has occurred.
3.3 Going concern basis of accounting
The Management Board has satisfied itself that the Group has
adequate resources to continue in operational existence for at
least 12 months from the date of approval of the condensed
consolidated interim financial statements. After due consideration,
the Management Board believes it is appropriate to adopt the going
concern basis of accounting in preparing the condensed consolidated
interim financial statements.
3. Segment reporting
IFRS 8 - Operating Segments adopts a 'through the eyes of the
management' approach to an entity's reporting of information
relating to its operating segments, and also requires an entity to
report financial and descriptive information about its reportable
segments.
Based on a review of information provided to the Management
Board, the Group has identified five reportable segments based on
the geographical concentration risk. The main factor used to
identify the Group's reportable segments is the geographical
location of the asset.
The Management Board has concluded that the Group's reportable
segments are: (1) UK; (2) North America; (3) Australia; (4)
Continental Europe; and (5) Holding activities. These reportable
segments are the basis on which the Group reports information to
the Management Board.
Profit or loss for the period for the six months ended are
presented below:
For the six months ended 30 North Continental Holding Total
June 2023
In thousands of Sterling UK America Australia Europe Activities Group
Income from investments at FVPL 8,062 (2,980) (3,642) 4,624 - 6,064
Administrative expenses - - - - (6,337) (6,337)
Other operating income - net - - - - 7,019 7,019
=================================== ====== ======== ========= =========== ========== ========
Results from operating activities 8,062 (2,980) (3,642) 4,624 682 6,746
=================================== ====== ======== ========= =========== ========== ========
Net finance result - - - - (1,419) (1,419)
Net gain on balance sheet hedging - - - - 8,057 8,057
Tax expense - net - - - - (2,321) (2,321)
=================================== ====== ======== ========= =========== ========== ========
Profit or loss for the period 8,062 (2,980) (3,642) 4,624 4,999 11,063
=================================== ====== ======== ========= =========== ========== ========
For the six months ended 30 North Continental Holding Total
June 2022
In thousands of Sterling UK America Australia Europe Activities Group
Income from investments at FVPL 47,696 65,982 9,509 4,872 - 128,059
Administration expenses - - - - (5,789) (5,789)
Other operating expenses - net - - - - (14,253) (14,253)
---------------------------------- -------- ------- ----------- ----------- ---------- --------
Results from operating activities 47,696 65,982 9,509 4,872 (20,042) 108,017
---------------------------------- -------- ------- ----------- ----------- ---------- --------
Net finance result - - - - (890) (890)
Net loss on derivative financial
instruments - - - - (13,592) (13,592)
Tax expense - - - - (1,057) (1,057)
---------------------------------- -------- ------- ----------- ----------- ---------- --------
Profit or loss for the period 47,696 65,982 9,509 4,872 (35,581) 92,478
---------------------------------- -------- ------- ----------- ----------- ---------- --------
Statement of financial position segment information as at 30
June 2023 and 31 December 2022 are presented below:
As at 30 June 2023 North Continental Holding Total
In thousands of Sterling UK America Australia Europe Activities Group
========================== ======== ======== ========== ============ =========== ==========
Assets
Property and equipment - - - - 101 101
Investments at FVPL 343,559 476,880 102,717 131,868 - 1,055,024
Other non-current assets - - - - 393 393
Current assets - - - - 32,477 32,477
========================== ======== ======== ========== ============ ===========
Total assets 343,559 476,880 102,717 131,868 32,971 1,087,995
========================== ======== ======== ========== ============ ===========
Liabilities
Non-current - - - - 26,254 26,254
Current - - - - 5,015 5,015
Total liabilities - - - - 31,269 31,269
As at 31 December 2022 North Continental Holding Total
In thousands of Sterling UK America Australia Europe Activities Group
========================== ======== ======== ========== ============ =========== ==========
Assets
Property and equipment - - - - 123 123
Investments at FVPL 354,002 504,408 112,414 132,020 - 1,102,844
Other non-current assets - - - - 428 428
Current assets - - - - 35,945 35,945
==========================
Total assets 354,002 504,408 112,414 132,020 36,496 1,139,340
==========================
Liabilities
Non-current - - - - 62,077 62,077
Current - - - - 8,085 8,085
Total liabilities - - - - 70,162 70,162
The Holding activities of the Group include the activities which
are not specifically related to a specific asset or region but to
those companies which provide services to the Group. The total
current assets classified under Holding activities mainly represent
cash and cash equivalents.
Transactions between reportable segments are conducted at arm's
length and are accounted for in a similar way to the basis of
accounting used for third parties. The accounting methods used for
all the segments are similar and comparable with those of the
Company.
4. Administrative expenses
Six months Six months
ended ended
In thousands of Sterling 30 June 2023 30 June
2022
Personnel expenses
Short-term benefits 2,843 2,812
Share-based compensation expenses 1,075 770
Supervisory Board fees 158 115
4,076 3,697
Legal and professional fees 1,496 1,529
Office and other expenses 740 549
Depreciation expense 25 14
6,337 5,789
Short-term benefits relate to the Management Board and staff,
and include basic salaries, Short-Term Incentive Plan ('STIP'),
staff bonus, social security contributions and other related
expenses.
The Group has engaged certain third parties to provide legal,
depositary, audit, tax and other services. The expenses incurred in
relation to such services are treated as legal and professional
fees.
Included in the legal and professional fees are audit fees and
other related services amounting to GBP242,000 (30 June 2022:
GBP181,000). There were no non-audit-related services for the six
months ended 30 June 2023 (30 June 2022: GBP7,000).
5. Other operating expenses
Six months Six months
ended ended
In thousands of Sterling 30 June 2023 30 June
2022
Acquisition-related costs 231 409
Net loss on derivative financial instruments(i) (Note
16) - 14,092
231 14,501
(i) Relates to foreign exchange hedging on forecasted
distributions from Investments at FVPL.
6. Net finance result
Six months Six months
ended ended
In thousands of Sterling 30 June 2023 30 June
2022
Finance costs on loan and borrowings (Note 14) (1,727) (896)
Interest income on bank deposits 308 6
(1,419) (890)
7. Other operating income
Six months Six months
ended ended
In thousands of Sterling 30 June 2023 30 June
2022
Gain on derivative financial instruments(i) - net (Note
16) 5,704 -
Foreign currency exchange gain - net 1,511 186
Others 35 62
7,250 248
(i) Relates to foreign exchange hedging on forecasted
distributions from Investments at FVPL.
8. Investments at FVPL
30 June 31 December
In thousands of Sterling 2023 2022
Balance at 1 January 1,102,844 975,225
Acquisitions of/additions in Investments at FVPL - 64,407
Income from investments at FVPL (i) 6,064 159,545
Distributions received from Investments at FVPL (53,884) (96,333)
1,055,024 1,102,844
(i) This account reflects the unrealised gains on the valuation
of Investments at FVPL. For the six months ended 30 June 2022, the
income from investments at FVPL amounted to GBP128,059,000)
Income from investments at FVPL include the impact of foreign
exchange for the six months ended 30 June 2023 amounting to a net
loss of GBP21.0 million (six months ended 30 June 2022: net gain of
GBP45.1 million).
Refer to Note 16 of the condensed consolidated interim financial
statements for further information on Investments at FVPL.
Distributions from Investments at FVPL are received after
either: (a) financial models have been tested for compliance with
certain ratios; or (b) financial models have been submitted to the
external lenders of the Portfolio Companies; or (c) approvals of
the external lenders on the financial models have been
obtained.
As at 30 June 2023 and 31 December 2022, loans and interest
receivable from unconsolidated subsidiaries are embedded within
Investments at FVPL.
The valuation of Investments at FVPL considers all cash flows
related to each individual Portfolio Company.
10. Cash and cash equivalents
Cash and cash equivalents relate to bank deposits amounting to
GBP17,880,000 (31 December 2022: GBP31,157,000).
11. Taxes
The Company, as an undertaking for collective investment, is
exempt from corporate income tax in Luxembourg and instead pays an
annual subscription tax of 0.05 per cent on the value of its net
assets.
For the six months ended 30 June 2023, the Company incurred a
subscription tax expense of GBP267,000 (30 June 2022: GBP249,000).
The Company as a collective investment vehicle is not subject to
taxes on capital gains or income. All other consolidated companies
are subject to taxation at the applicable rate in their respective
jurisdictions.
A significant portion of the profit before tax relates to the
movement in fair valuation of Investments at FVPL, which are only
recognised in the consolidated financial statements and are
therefore not included in the taxable income of the standalone
accounts of consolidated entities.
The Company has adopted IFRS 10, resulting in its designation as
an Investment Entity (see Note 2). Consequently, tax expenses of
unconsolidated subsidiaries are not shown as a separate line item
in these condensed consolidated interim financial statements.
Instead, they are incorporated into the fair value calculation of
Investments at FVPL with the net income of each Portfolio Company
taxed in its respective jurisdictions.
During the six months ended 30 June 2023, the Group recognised a
tax expense of GBP2,321,000 (30 June 2022: GBP1,057,000). The tax
liability as at 30 June 2023 is GBP1,577,000 (31 December 2022:
GBP1,607,000).
12.Capital and reserves
Share capital
Changes in the Company's share capital are as follows:
30 June 31 December
In thousands of Sterling 2023 2022
Share capital as at 1 January 850,007 847,858
Share capital issued through scrip dividends 1,536 1,092
Equity settlement of share-based compensation (see Note
17) 742 1,084
Share issuance costs (30) (27)
852,255 850,007
The changes in the number of ordinary shares of no-par value
issued by the Company are as follows:
30 June 31 December
In thousands of shares 2023 2022
In issue at beginning of the year 713,331 712,126
Shares issued through scrip dividends 1,017 649
Shares issued as share-based compensation - net (i) 439 556
714,787 713,331
(i) Being the net share entitlement after adjustments to settle
taxes.
All shares rank equally with regard to the Company's residual
assets. The holders of ordinary shares are entitled to receive
dividends as declared from time to time and are entitled to one
vote per share at general meetings of the Company.
The Company meets the minimum share capital requirement as
imposed under the applicable Luxembourg regulation.
Additional paid-in capital
This account amounting to GBP2,294,000 (30 June 2022:
GBP2,502,000) relates to fair value of the awards recognised under
share-based payment arrangements with the Management Board and
selected employees.
Translation and other capital reserve
Intragroup foreign currency differences are recognised in other
comprehensive income and presented in the foreign currency
translation reserve in equity except for exchange differences from
intragroup monetary items which are reflected in the consolidated
income statement. The translation reserve amounts to a credit
balance of GBP3,650,000 (31 December 2022: debit balance of
GBP14,153,000). The remaining balance, being the other capital
reserve, relates to reserve required for statutory purposes, which
may not be distributed.
Dividends
The dividends declared and paid by the Company during the six
months ended 30 June 2023 and 2022 are as follows:
In thousands of Sterling except as otherwise stated 30 June
2023
2022 2 (nd) interim dividend of 3.740 pence per qualifying ordinary
share - for the period 1 July 2022 to 31 December 2022 26,679
The 31 December 2022 2 nd interim dividend was paid in April
2023. The value of the scrip election was GBP1,536,000, with the
remaining amount of
GBP25,143,000 paid in cash to those investors that did not elect
for scrip.
In thousands of Sterling except as otherwise stated 30 June
2022
2021 2 (nd) interim dividend of 3.665 pence per qualifying ordinary
share - for the period 1 July 2021 to 31 December 2021 26,099
The 31 December 2021 2 nd interim dividend was paid in April
2022. The value of the scrip election was GBP964,000, with the
remaining amount of
GBP25,135,000 paid in cash to those investors that did not elect
for scrip.
Net Asset Value ('NAV')
The consolidated NAV and NAV per share as at 30 June 2023, 31
December 2022 and 31 December 2021 were as follows:
In thousands of Sterling 2023 2022 2021
NAV attributable to the owners of the Company 1,056,726 1,069,178 1,000,543
NAV per ordinary share (pence) 147.84 149.89 140.50
13. Earnings per share
a) Basic earnings per share
The basic earnings per share is calculated by dividing the
profit for the period by the weighted average number of ordinary
shares outstanding.
Six months Six months
ended ended
In thousands of Sterling 30 June 30 June
2023 2022
Profit for the period 11,063 92,478
Weighted average number of ordinary shares in issue 714,368 712,340
Basic earnings per share (in pence) 1.55 12.98
The weighted average number of ordinary shares outstanding for
the purpose of calculating the basic earnings per share is computed
as follows:
Six months Six months
ended ended
In thousands of shares 30 June 30 June
2023 2022
Shares outstanding as at 1 January 713,331 712,126
Effect of scrip dividends issued 763 144
Shares issued as share-based compensation 274 70
Weighted average - outstanding shares 714,368 712,340
b) Diluted earnings per share
The diluted earnings per share is calculated by dividing the
profit for the period by the weighted average number of ordinary
shares outstanding, after adjusting for the effects of all
potential dilutive ordinary shares.
The weighted average number of potential diluted ordinary shares
for the purpose of calculating the diluted earnings per share is
computed as follows:
Six months Six months
ended ended
In thousands of shares 30 June 30 June
2023 2022
Weighted average number of ordinary shares for basic
earnings per share 714,368 712,340
Effect of potential dilution from share-based payment 1,212 565
Weighted average number of ordinary shares for diluted
earnings per share 715,580 712,905
The price of the Company's shares for the purpose of calculating
the potential dilutive effect of award letters (Note 17) was based
on the average market price for the six months ended 30 June 2023
and 30 June 2022, respectively, during which period the awards were
outstanding.
14. Loans and borrowings
The Group has a multi-currency RCF with ING Bank, KfW IPEX Bank,
DZ Bank, Frankfurt Am Main and SMBC Bank EU AG for a total
commitment of GBP230 million. The tenor of the RCF is five years
(maturing in May 2026). The borrowing margin is 165 bps over the
reference bank rate. Under the RCF, the Group retains the
possibility to consider larger transactions by virtue of having
structured a further GBP70 million incremental accordion tranche,
for which no commitment fees will be paid.
Outstanding drawdowns under the RCF as at 30 June 2023 amounted
to GBP25.8 million (31 December 2022: GBP57.5 million). As at 30
June 2023, the
Group has utilised GBP1.3 million (31 December 2022: GBP1.3
million) of the GBP230 million RCF, which was being used to cover
letters of credit.
The RCF unamortised debt issuance cost amounted to GBP932,000 as
at 30 June 2023 (31 December 2022: GBP 1,094 , 000). The
unamortised debt issuance cost is netted against the outstanding
amount drawn under the credit facility.
The total finance cost incurred under the RCF for the six months
ended 30 June 2023 amounted to GBP1,727,000 (30 June 2022:
GBP892,000) which includes the amortisation of debt issuance costs
of GBP162,000 (30 June 2022: GBP162,000). RCF related fees payable
as at 30 June 2023 amounted to GBP206,000 (31 December 2022:
GBP230,000).
Changes in liabilities arising from financing activities
1 January Foreign 30 June
In thousands of Sterling 2023 Proceeds Repayment Exchange Others 2023
Loans and borrowings -
non-current 56,390 15,000 (45,520) (1,174) 161 24,857
1 January Foreign 31 December
In thousands of Sterling 2022 Proceeds Repayment Exchange Others 2022
Loans and borrowings -
non-current - 72,512 (17,000) 1,972 (1,094) 56,390
Pledges and collaterals in relation to the RCF
As at 30 June 2023 and 31 December 2022, certain consolidated
subsidiaries, that are classified as Obligors under the RCF, have
provided a pledge over all shares issued, over receivables between
the Obligors and over the bank accounts of the Obligors.
Based on the provisions of the RCF, in the event of continuing
event of default, the lender, among other things, will have the
right to cancel all commitments and declare all or part of
utilisations to be due and payable, including all related
outstanding amounts, and exercise or direct the security agent to
exercise any or all of its rights, remedies, powers or discretions
under the RCF.
The Group operated comfortably within covenant limits of the RCF
during the six months ended 30 June 2023 and year ended 31 December
2022.
15. Trade and other payables
Trade and other payables amounting to GBP2,894,000 as at 30 June
2023 (30 June 2022: GBP3,242,000) are non-interest bearing and are
usually settled within six months.
16. Fair value measurements and sensitivity analysis
The fair values of financial assets and liabilities, together
with the carrying amounts shown in the condensed consolidated
interim statement of financial position are presented below. It
does not include fair value information for financial assets and
financial liabilities not measured at fair value if the carrying
amount is a reasonable approximation of fair value (i.e., cash and
cash equivalents, trade and other receivables, trade payables,
accruals and other payables and loans and borrowings).
The table below analyses financial instruments carried at fair
value, by valuation method. The different levels have been defined
under Note 3.2 Fair value determination:
30 June 2023 Fair value
In thousands of Sterling
Level 1 Level Level Total
2 3
Financial assets measured at fair value
Investments at FVPL - - 1,055,024 1,055,024
Derivative financial assets - 10,942 - 10,942
Financial liabilities measured at fair
value
Derivative financial liabilities - (1,735) - (1,735)
31 December 2022 Fair value
In thousands of Sterling
Level 1 Level Level Total
2 3
Financial assets measured at fair value
Investments at FVPL - - 1,102,844 1,102,844
Derivative financial assets - 2,885 - 2,885
Financial liabilities measured at fair
value
Derivative financial liabilities - (8,693) - (8,693)
There were no transfers between any levels during the year.
Investments at FVPL
The Management Board is responsible for carrying out the fair
market valuation of the Company's investments, which it then
presents to the Supervisory Board. The valuation is carried out on
a six-monthly basis as at 30 June and 31 December each year. The
valuation is reviewed by an independent third-party valuation
expert.
The valuation is determined using the discounted cash flow
methodology. The cash flow forecasts, generated by each of the
underlying Portfolio Companies, are received by the Company or its
subsidiaries, adjusted as appropriate to reflect risks and
opportunities, and discounted using asset- specific discount rates.
The valuation methodology remains unchanged from previous reporting
periods.
Key Portfolio Company and portfolio cash flow assumptions
underlying NAV calculation include:
- Discount rates and the Assumptions, as set out below, continue to be applicable.
- The updated financial models used for the valuation accurately
reflect the terms of all agreements relating to the Portfolio
Companies and represent a fair and reasonable estimation of future
cash flows accruing to the Portfolio Companies.
- Cash flows from and to the Portfolio Companies are received
and made at the times anticipated.
- Non-UK investments are valued in local currency and converted
to Sterling at either the period-end spot exchange rates or the
contracted hedge rate.
- Where the operating costs of the Portfolio Companies are
contractually fixed, such contracts are performed, and where such
costs are not fixed, they remain within the current forecasts in
the valuation models.
- Where lifecycle costs/risks are borne by the Portfolio
Companies, they remain in line with the current forecasts in the
valuation models.
- Contractual payments to the Portfolio Companies remain on
track and contracts with public sector or public sector backed
counterparties are not terminated before their contractual expiry
date.
- Any deductions or abatements during the operations period of
Portfolio Companies are passed down to subcontractors under
contractual arrangements or are part of the planned (lifecycle)
forecasts.
- Changes to the concession period for certain investments are realised.
- In cases where the Portfolio Companies have contracts which
are in the construction phase, they are either completed on time or
any delay costs are borne by the construction contractors.
- Enacted tax or regulatory changes on or prior to this
reporting period end with a future effect impacting cash flow
forecasts are reflected in the financial models.
In forming the above assessments, BBGI works with Portfolio
Company management teams, as well as using due diligence
information from, or working with, suitably qualified third parties
such as technical, legal, tax and insurance advisers.
The Group uses the following assumptions ('Assumptions') for the
cash flows:
30 June 2023 31 December 2022
Inflation UK(i) RPI/CPIH 6.30% for 2023; 3.90% 13.40% (actual) for
for 2024 then 2.75% 2022; 5.80% for 2023
(RPI) / 2.00% (CPIH) then 2.75% (RPI) /
2.00% (CPIH)
Canada 2.80% for 2023; 2.30% 6.30% (actual) for
for 2024 then 2.00% 2022; 4.00% for 2023;
2.30% for 2024 then
2.00%
Australia 4.50% for 2023; 3.25% 8.00% for 2022; 4.75%
for 2024 then 2.50% for 2023 3.25% for
2024 then 2.50%
Germany/ Netherlands(ii) 5.40% for 2023; 3.00% 8.40% for 2022; 6.30%
for 2024 then 2.00% for 2023; 3.40% for
2024 then 2.00%
Norway(ii) 5.00% for 2023; 2.3% 5.90% (actual) for
for 2024 then 2.25% 2022; 4.90% for 2023
then 2.25%
US 3.00% for 2023 then 6.50% (actual) for
2.50% 2022; 3.40% for 2023
then 2.50%
Deposit rates UK 3.55% to 2024, then 2.00% to 2024, then
(p.a.) 2.00% 1.50%
Canada 5.30% to 2024, then 3.50% to 2024, then
2.00% 1.75%
Australia 4.25% to 2024, then 3.25% to 2024, then
3.50% 3.00%
Germany/ Netherlands 2.75% to 2024, then 0.50% to 2024, then
1.00% 1.00%
Norway 3.20% to 2024, then 2.00% to 2024, then
2.25% 2.00%
US 4.90% to 2024, then 3.75% to 2024, then
1.75% 1.50%
Corporate tax UK 25.00% 19.00% until March
rates (p.a.) 2023 then 25.00%
Canada(iii) 23.00% / 26.50% / 23.00% / 26.50% / 27.00%
27.00% / 29.00% / 29.00%
Australia 30.00% 30.00%
Germany(iv) 15.83% (incl. Solidarity 15.83% (incl. Solidarity
charge) charge)
Netherlands 25.80% 25.80%
Norway 22.00% 22.00%
US 21.00% 21.00%
(i) On 25 November 2020, the UK Government announced the phasing
out of RPI after 2030 to be replaced with CPIH; the Company's UK
portfolio indexation factor changes from RPI to CPIH beginning on 1
January 2031.
(ii) CPI indexation only. Where investments are subject to a
basket of indices, a projection for non-CPI indices is used.
(iii) Individual tax rates vary among Canadian Provinces:
Alberta; Ontario, Quebec, Northwest Territory; Saskatchewan,
British Columbia; New Brunswick.
(iv) Individual local trade tax rates are considered in addition
to the tax rate above.
Discount rate sensitivity
The weighted average discount rate that is applied to the
Company's portfolio of investments is the single most important
judgement and variable.
The following table shows the sensitivity of the NAV to a change
in the discount rate:
+1% to 8.22% in 2023(i) -1% to 6.22% in
2023(i)
Effects In thousands of Sterling NAV Profit NAV Profit
or loss or loss
30 June 2023 (80,591) (80,591) 92,719 92,719
31 December 2022 (87,101) (87,101) 100,702 100,702
(i) Based on the weighted average discount rate of 7.2 per cent
(31 December 2022: 6.9 per cent)
Inflation has increased in all jurisdictions across BBGI's
geographies, and interest rates have risen from historical lows,
although in some jurisdictions these trends have reversed over the
period. In the event long-term interest rates rise substantially
further, this is likely to further affect discount rates, and as a
result, negatively impact portfolio valuation.
Combined sensitivity: inflation, deposit rates and discount
rates
It is reasonable to assume that if discount rates increase, then
deposit rates and inflation would also be affected. To illustrate
the effect of this combined movement on the NAV, a scenario was
created assuming a one percentage point increase in the weighted
average discount rate to 8.2 per cent, and a one percentage point
increase in both deposit and inflation above the macroeconomic
assumptions.
+1%
Effects In thousands of Sterling NAV Profit
or loss
30 June 2023 (17,239) (17,239)
31 December 2022 (22,796) (22,796)
Inflation sensitivity
The Company's investments are contractually entitled to receive
availability-based income streams from public sector clients, which
are typically adjusted every year for inflation. Facilities
management subcontractors for accommodation investments and
operating and maintenance subcontractors for transport investments
have similar indexation arrangements. The portfolio cash flows are
positively correlated with inflation (e.g. RPI, CPI, or a basket of
indices).
This inflation-linkage is achieved through contractual
indexation mechanics in the various project agreements with the
public sector clients at the Portfolio Companies and the inflation
adjustment updated at least annually.
The following table shows the sensitivity of the NAV to a change
in the inflation rates compared to the assumptions in the table
above:
+1% -1%
Effects in thousands of Sterling NAV Profit NAV Profit
or loss or loss
30 June 2023 50,193 50,193 (43,428) (43,428)
31 December 2022 51,508 51,508 (45,524) (45,524)
Short-term inflation sensitivity
Inflation may continue to be elevated for the short-term before
diminishing. To illustrate the effect of persistent higher
short-term inflation on the Company's NAV, three scenarios were
created assuming inflation is two percentage points above our
assumptions for the next one, three and five years.
+2%
Effects In thousands of Sterling NAV Profit
or loss
Inflation +2% for one year 11,774 11,774
Inflation +2% for three years 32,073 32,073
Inflation +2% for five years 48,636 48,636
Foreign exchange sensitivity
A significant proportion of the Group's underlying investments
are denominated in currencies other than Sterling. The Group
maintains its accounts, prepares the valuation and pays dividends
in Sterling.
The following table shows the sensitivity of the NAV to a change
in foreign exchange rates:
Increase by 10% (i) Decrease by 10% (i)
Effects in thousands of Sterling NAV Profit NAV Profit
or loss or loss
30 June 2023 (24,778) (24,778) 25,770 25,770
31 December 2022 (23,665) (23,665) 31,488 31,488
(i) Sensitivity in comparison to the spot foreign exchange rates
at 31 December 2022 and considering the contractual and natural
hedges in place, derived by applying a 10 per cent increase or
decrease to the Sterling/foreign currency rate.
Deposit rate sensitivity
Portfolio Companies typically have cash deposits that are
required to be maintained as part of the senior debt funding
requirements (e.g. six months' debt service reserve accounts,
maintenance reserve accounts). The asset cash flows are positively
correlated with the deposit rates.
The table below shows the sensitivity of the NAV to a
percentage-point change in long-term deposit rates compared to the
long-term assumptions in the table above:
+1% - 1%
Effects in thousands of Sterling NAV Profit NAV Profit
or loss or loss
30 June 2023 20,510 20,510 (20,230) (20,230)
31 December 2022 51,508 51,508 (45,524) (45,524)
Lifecycle costs sensitivity
Lifecycle costs are the cost of planned interventions or
replacing material parts of an asset to maintain it over the
concession term. It involves larger items that are not covered by
routine maintenance, and for roads, it will include items such as
replacement of asphalt, rehabilitation of surfaces, or replacement
of electromechanical equipment. Lifecycle obligations are generally
passed down to the facility maintenance provider with the exception
of transportation investments where these obligations are typically
retained by the Portfolio Company.
Of the Group's 56 Investments at FVPL, 20 Investments at FVPL
retain the lifecycle obligations. The remaining 36 investments have
this obligation passed down to the subcontractor.
The following table shows the sensitivity of the NAV to a change
in lifecycle costs:
Increase by 10%(i) Decrease by 10%(i)
Effects In thousands of Sterling NAV Profit NAV Profit
or loss or loss
30 June 2023 (23,374) (23,374) 21,722 21,722
31 December 2022 (25,956) (25,956) 23,459 23,459
(i) Sensitivity applied to the 20 Investments at FVPL which
retain the lifecycle obligation i.e. the obligation is not passed
down to the subcontractor.
Corporate tax rate sensitivity
The profits of each Portfolio Company are subject to corporation
tax in the country where the Portfolio Company is located.
The table below shows the sensitivity of the NAV to a change in
corporate tax rates compared to the assumptions in the table
above:
+1% -1%
Effects In thousands of Sterling NAV Profit NAV Profit
or loss or loss
30 June 2023 (10,835) (10,835) 11,346 11,346
31 December 2022 (11,150) (11,150) 11,011 11,011
====== ========
Refinancing: senior debt rate sensitivity
Assumptions are used where a refinancing of senior debt
financing is required for an investment during the remaining
concession term. There is a risk that such assumptions may not be
achieved.
The table below shows the sensitivity of the NAV to a one
percentage point increase to the forecasted debt rate.
Debt rate +1%
Effects In thousands of Sterling NAV Profit
or loss
30 June 2023 (7,875) (7,875)
31 December 2022 (9,051) (9,051)
Derivative financial instruments
The fair value of derivative financial instruments ('foreign
exchange forward contracts') is calculated by the difference
between the contractual forward rate and the estimated forward
exchange rates at the maturity of the forward contract. The foreign
exchange forward contracts are fair valued periodically by the
counterparty bank. The fair value of foreign exchange forward
contracts as at 30 June 2023 amounted to a net receivable of
GBP9,207,000 (31 December 2022: GBP5,808,000 - net liability). The
counterparty bank has an S&P/Moody's credit rating of
A+/Aa3.
The Group uses forward currency swaps to (i) hedge 100 per cent
of forecasted cash flows over the next four years on an annual
rolling basis ('cash flow hedging'), and (ii) to implement balance
sheet hedging in order to limit the decrease in the NAV to
approximately 3 per cent, for a 10 per cent adverse movement in
foreign exchange rates ('balance sheet hedging').
During the six months ended 30 June 2023, the Group recognised
the following net gain(loss) on derivative financial instruments at
FVPL:
Six months ended Six months ended
30 June 30 June 30 June 30 June
2023 2023 2022 2022
In thousands of Sterling Realised Unrealised Realised Unrealised
Cash flow hedging (1,255) 6,959 (1,825) (12,267)
Balance sheet hedging - 8,057 - (13,592)
(1,255) 15,016 (1,825) (25,859)
The Group has exposure to the following risks from financial
instruments:
Credit risk
Credit risk is the risk that the counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Group, resulting in:
1) impairment or reduction in the amounts recoverable from
receivables and other current and non-current assets; and
2) non-recoverability, in part or in whole, of cash and cash
equivalents deposited with banks.
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset.
The Group's policy over liquidity risk is that it will seek to
have sufficient liquidity to meet its liabilities and obligations
when they fall due.
The Group manages liquidity risk by maintaining adequate cash
and cash equivalents and access to borrowing facilities to finance
day-to-day operations and medium to long-term capital needs. The
Group also regularly monitors the forecast and actual cash
requirements and matches the maturity profiles of the Group's
financial assets and financial liabilities.
Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates, interest rates and equity prices, will
affect the Group's income or the value of its holdings of financial
instruments. The objective of market risk management is to manage
and control market risk exposures within acceptable parameters,
while optimising the returns.
17. Related parties and key contracts
All transactions with related parties were undertaken on an
arm's length basis.
Supervisory Board fees
The members of the Supervisory Board of the Company were
entitled to a total of GBP158,000 in fees for the six months ended
30 June 2023 (30 June 2022: GBP115,000).
Directors' shareholding in the Company
30 June 31 December
In thousands of shares 2023 2022
Management Board
Duncan Ball 1,049 871
Frank Schramm 1,001 829
Michael Denny 630 504
Supervisory Board
June Aitken 56 31
Andrew Sykes 40 40
Sarah Whitney 39 39
Christopher Waples 17 17
2,832 2,331
Remuneration of the Management Board
The Management Board members are entitled to a fixed
remuneration under their contracts and are also entitled to
participate in a short-term incentive plan ('STIP') and a long-term
incentive plan ('LTIP'). Compensation under their contracts is
reviewed annually by the Remuneration Committee.
The total short-term and other long-term benefits recorded in
the condensed consolidated interim income statement for key
management personnel are as follows:
Six months Six months
In thousands of Sterling ended 30 ended 30
June 2023 June 2022
Short-term benefits 1,411 1,352
Share-based payment 951 687
2,362 2,039
Share-based compensation
Each of the members of the Management Board participates in the
Group's LTIP.
During the six months ended 30 June 2023, the Company settled
the outstanding obligation under the 2019 LTIP Award and the 2022
Deferred STIP, on a net basis after taking into account the
expected tax liability, through the issuance of 175,242 shares and
263,720 shares respectively. The total accrued amount prior to
current period settlement under the 2019 LTIP Award and the 2022
Deferred STIP was GBP445,000 and GBP708,000 respectively.
Trade and other receivables
As at 30 June 2023, trade and other receivables include
short-term net receivables from non-consolidated subsidiaries
amounting to GBP2,348,000 (31 December 2022: GBP909,000).
18. Standards issued but not yet effective
A number of new standards and amendments to standards are
effective for annual periods beginning after 1 January 2023 and
earlier application is permitted; however, the Group has not early
adopted any of the forthcoming new or amended standards in
preparing these condensed consolidated interim financial
statements. The Group intends to adopt these new and amended
standards, if applicable, when they become effective.
Board Members, Agents & Advisers
Supervisory Board Management Board
* Sarah Whitney (Chair) * Duncan Ball
* Jutta af Rosenborg * Michael Denny
* Christopher Waples * Frank Schramm
* Andrew Sykes
* June Aitken
Registered Office Receiving Agent and UK Transfer
6E route de Trèves Agent
L-2633 Senningerberg Link Market Services Trustees
Grand Duchy of Luxembourg Limited
10(th) Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
United Kingdom
Central Administrative Agent, Luxembourg Communications Adviser
Registrar H/Advisors Maitland
and Transfer Agent, Depositary and 3 Pancras Square
Principal Paying Agent London N1C 4AG
CACEIS Investor Services Bank S.A. United Kingdom
(formerly RBC Investor Services Bank
S.A.)
14 Porte de France
L-4360 Esch-sur-Alzette
Grand Duchy of Luxembourg
Depository Auditors
Link Market Services Trustees Limited PricewaterhouseCoopers, Société
10(th) Floor cooperative
Central Square 2 rue Gerhard Mercator
29 Wellington Street B.P. 1443
Leeds LS1 4DL L-1014 Luxembourg
United Kingdom Grand Duchy of Luxembourg
Corporate Brokers Corporate Brokers
Jefferies International Limited Winterflood Securities Limited
100 Bishopsgate Cannon Bridge House
London EC2N 4JL 25 Dowgate Hill
United Kingdom London EC4R 2GA
United Kingdom
EEA based Centralised Securities Luxembourg CSD Principal Agent
Depository Banque Internationale à Luxembourg
LuxCSD 69 route d'Esch
42 Avenue John F. Kennedy Office PLM 018A
L-1855 Luxembourg L-2953 Luxembourg
Grand Duchy of Luxembourg Grand Duchy of Luxembourg
Registre de Commerce et des Sociétés Luxembourg B163879
Listing Chapter 15 premium listing, closed-ended investment company
Trading Main Market
ISIN LU0686550053
SEDOL B6QWXM4
Ticker BBGI
Indices FTSE 250, FTSE 350, FTSE 350 High Yield and FTSE All-Share
Glossary
Abbreviation Definition
/ Term
AIC The UK Association of Investment Companies, the
trade association for closed-ended investment
companies in the UK
AIC Code The 2019 AIC Code of Corporate Governance
APM Alternative Performance Measures
AUD, A$ Australian Dollar
Availability-style Availability-style, unlike 'demand-based' means
that revenues are paid provided the asset is available
for use
BBGI / Company BBGI Global Infrastructure S.A.
CAD, C$ Canadian Dollar
CPI Consumer Price Index
ESG Environmental, Social and Governance
EUR, EUR Euro
FCA the UK Financial Conduct Authority
Financed Emissions GHG emissions from our investments
FX Foreign Exchange
GBP, Sterling, Great British Pounds Sterling
GBP
GDP Gross Domestic Product
GHG Greenhouse Gas
Group The Company and its subsidiaries
IFRS International Financial Reporting Standards as
adopted by the European Union
Investments Investments at fair value through profit or loss
at FVPL
IPO Initial Public Offering
KPI Key Performance Indicator
LIFT The UK's Local Improvement Finance Trust
Management Board The Executive Directors of the Company
NAV Net Asset Value
NED Independent Non-Executive Director, a member of
the Supervisory Board
NOK Norwegian Krone
O&M Operation and Maintenance
OGC Ongoing Charges
PFI Private Finance Initiative
PPP Public Private Partnership
pps British pence per share
PwC PricewaterhouseCoopers société cooperative,
the Company's External Auditor
RCF Revolving Credit Facility
RPI Retail Price Index
SDG, SDGs Sustainable Development Goals
SFDR Sustainable Finance Disclosure Regulation
Supervisory The independent Non-Executive Directors of the
Board Company
TCFD Task Force on Climate-Related Financial Disclosures
TSR Total Shareholder Return
USD, US$ US Dollar
Cautionary Statement
Certain sections of this Interim Report, including, but not
limited to, the Chair's Statement and the Strategic Report of the
Management Board, have been prepared solely to provide additional
information to shareholders to assess the Group's strategies and
the potential for those strategies to succeed. This additional
information should not be relied on by any other party or for any
other purpose.
These sections may include statements that are, or may be deemed
to be, 'forward-looking' statements . These forward-looking
statements can be identified using forward-looking terminology,
including the terms: 'believes', 'estimates', 'anticipates',
'forecasts', 'projects', 'expects', 'intends', 'may', 'will' or
'should' or, in each case, their negative or other variations or
comparable terminology.
These forward-looking statements include matters that are not
historical facts. They appear throughout this document and include
statements regarding the intentions, beliefs or current
expectations of the Management and Supervisory Boards concerning,
among other things, the investment objectives and investment
policy, financing strategies, investment performance, results of
operations, financial condition, liquidity, prospects and
distribution policy of the Group, and the markets in which it
invests.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future.
Forward-looking statements are not a guarantee of future
performance. The Group's actual investment performance, results of
operations, financial condition, liquidity, distribution policy and
the development of its financing strategies may differ materially
from the impression created by the forward-looking statements
contained in this document.
Subject to their legal and regulatory obligations, the
Management and Supervisory Boards expressly disclaim any
obligations to update or revise any forward-looking statement
contained herein to reflect any change in expectations with regard
thereto or any change in events, conditions, or circumstances on
which any statement is based.
In addition, these sections may include target figures and
guidance for future financial periods. Any such figures are targets
only and are not forecasts.
This report has been prepared for the Group, and therefore gives
greater emphasis to those matters that are significant to BBGI
Global Infrastructure S.A. and its subsidiaries when viewed as a
whole.
[i] Refer to the Alternative Performance Measurement section of
this Interim Report for further details.
[ii] Pence per share ('pps').
[iii] Refer to the Alternative Performance Measures section of
this Interim Report for more detail.
[iv] At 31 March 2023.
[v] Social infrastructure refers to public infrastructure assets
and services. It includes education, healthcare, blue light (fire
and police), affordable housing, modern correctional facilities,
clean energy and transport infrastructure assets. In exchange for
providing these assets and services, BBGI receives a revenue stream
that is paid directly by the public sector.
[vi] Availability-style means revenues are paid provided the
assets are available for use, so our portfolio has no exposure to
demand-based or regulated investments.
[vii] Source: Standard & Poor's credit ratings.
[viii] Refer to the Alternative Performance Measures section of
this Interim Report for more detail.
[ix] Euribor 3.43 per cent plus margin of 1.65 per cent.
[x] At 31 March 2023.
[xi] Assumes a 2 per cent dividend growth from 2025 onwards.
[xii] SFDR disclosure requirements. The Company is designated as
an Article 8 Fund under SFDR and reports on criteria for a socially
beneficial investment.
([xiii]) In comparison to the latest publicly available
information for all closed-ended, LSE-listed equity infrastructure
investment companies.
([xiv]) For this illustration, when a project has more than one
FM contractor and/or O&M contractor, the exposure is allocated
equally among the contractors.
[xv]
https://www.europarl.europa.eu/RegData/etudes/BRIE/2021/679081/EPRS_BRI(2021)679081_EN.pdf
[xvi]
https://ec.europa.eu/commission/presscorner/detail/en/ip_21_6433
[xvii] The June 2023 ongoing charge is calculated on an
annualised basis. Refer to the Alternative Performance Measurement
section of this Interim Report for further details.
[xviii] Refer to the Alternative Performance Measurement section
of this Interim Report for further details.
[xix] Reference bond: Canadian Government 20-year bond (GTCAD20Y
Govt).
[xx] Reference bond: UK Government Debt - 20-year bond (GUKG20
Index).
[xxi] Based on the portfolio composition on the date the balance
sheet hedge contracts are entered into.
[xxii] The Company assumes a natural hedge between Euro
denominated fund running costs and Euro denominated distributions
received into the future, thereby providing a natural hedge.
[xxiii] Greenhouse Gas Protocol Corporate Standard (2004),
Revised Edition ('GHG Protocol').
[xxiv] Partnership for Carbon Accounting Financials ('PCAF')
standard for Financed Emissions: PCAF (2022), The Global GHG
Accounting and Reporting Standard Part A: Financed Emissions.
Second Edition.
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END
IR BRGDIIDXDGXG
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