TIDM3IN
RNS Number : 1508Y
3i Infrastructure PLC
11 May 2021
11 May 2021
Results for the year to 31 March 2021
3i Infrastructure plc (the 'Company') today announces a 9.2%
return for the year, delivery of the FY21 dividend of 9.8 pence and
a 6.6% increase in the target dividend for FY22 to 10.45 pence per
share.
Richard Laing, Chair of 3i Infrastructure plc, said:
"I am pleased to report that we achieved a return of 9.2% in the
year ended 31 March 2021, in line with our target and demonstrating
the resilience of our portfolio. This is the seventh consecutive
year that we have met or exceeded our medium-term return target;
and we have increased the dividend per share in every year of the
Company's existence."
Phil White, Managing Partner, Infrastructure, 3i Investments
plc, added:
"The portfolio continued to be resilient during the Covid-19
pandemic, outperforming the expectations we set a year ago. We were
pleased to announce a new investment in DNS:NET, a successful
independent telecommunications provider and our first sizeable
investment in the German infrastructure market. Competition for new
investments is higher than ever and we remain very selective in
pursuing new opportunities."
Performance highlights
Resilient portfolio consistently meeting 9.2%
or Total return on opening NAV
exceeding target returns
GBP206m
Total return for the year
268.1p
NAV per share
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New investment, DNS:NET, in high growth EUR182m
sector New investment commitment
in Germany
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Delivered FY21 dividend target, fully 9.8p
covered and up 6.5% year-on-year Full year dividend per share for
FY21
Further 6.6% increase in FY22 target
10.45p
Target dividend per share for FY22
---------------------------------------------- ------------------------------------
Strong liquidity position to make new GBP463m
investments and to grow and support existing Cash position
portfolio
---------------------------------------------- ------------------------------------
For further information, please contact:
Richard Laing, Chair, 3i Infrastructure Tel: 037 1664 0445
plc
Thomas Fodor, investor enquiries Tel: 020 7975 3469
Kathryn van der Kroft, press Tel: 020 7975 3021
enquiries
For further information regarding the announcement of the
results for 3i Infrastructure plc, including a live webcast of the
results presentation at 10.00am, please visit
www.3i-infrastructure.com. The analyst presentation will be made
available on this website during the day.
Notes to the preliminary announcement
Note 1
The statutory accounts for the year to 31 March 2021 have not
yet been delivered to the Jersey Financial Services Commission. The
statutory accounts for the year to 31 March 2020 have been
delivered to the Jersey Financial Services Commission. The
auditor's reports on the statutory accounts for these years are
unqualified. This announcement does not constitute statutory
accounts. The preliminary announcement is prepared on the same
basis as set out in the statutory accounts for the year to 31 March
2020.
Note 2
Subject to shareholder approval, the proposed final dividend is
expected to be paid on 12 July 2021 to holders of ordinary shares
on the register on 18 June 2021. The ex-dividend date for the final
dividend will be on 17 June 2021.
Note 3
This report contains Alternative Performance Measures ('APMs'),
which are financial measures not defined in International Financial
Reporting Standards ('IFRS'). More information relating to APMs,
including why we use them and the relevant definitions, can be
found in the Company's 2021 Annual report and accounts and in the
Financial review section.
Note 4
The preliminary announcement has been extracted from the Annual
report and accounts 2021. The Annual report and accounts 2021 will
be available on the Company's website today. Printed copies of the
Annual report and accounts 2021 will be distributed to shareholders
who have elected to receive printed copy communications on or soon
after 24 May 2021.
Notes to editors
About 3i Infrastructure plc
3i Infrastructure plc is a Jersey-incorporated, closed-ended
investment company, an approved UK Investment Trust, listed on the
London Stock Exchange and regulated by the Jersey Financial
Services Commission. The Company's purpose is to deliver a
long-term sustainable return to shareholders from investing in
infrastructure.
3i Investments plc, a wholly-owned subsidiary of 3i Group plc,
is authorised and regulated in the UK by the Financial Conduct
Authority and acts as Investment Manager to 3i Infrastructure
plc.
This statement has been prepared solely to provide information
to shareholders. It should not be relied on by any other party or
for any other purpose. It and the Company's Annual report and
accounts may contain statements about the future, including certain
statements about the future outlook for 3i Infrastructure plc.
These are not guarantees of future performance and will not be
updated. Although we believe our expectations are based on
reasonable assumptions, any statements about the future outlook are
subject to a number of risks and uncertainties and could change.
Factors which could cause or contribute to such differences
include, but are not limited to, general economic and market
conditions and specific factors affecting the financial prospects
or performance of individual investments within the portfolio of 3i
Infrastructure plc.
This press release is not for distribution (directly or
indirectly) in or to the United States, Canada, Australia or Japan
and is not an offer of securities for sale in or into the United
States, Canada, Australia or Japan. Securities may not be offered
or sold in the United States absent registration under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), or an
exemption from registration under the Securities Act. Any public
offering to be made in the United States will be made by means of a
prospectus that may be obtained from the issuer or selling security
holder and will contain detailed information about 3i Group plc, 3i
Infrastructure plc, 3i India Infrastructure Fund and management, as
applicable, as well as financial statements. No public offering in
the United States is currently contemplated.
Our purpose
Our purpose is to invest responsibly
in infrastructure, delivering long-term
sustainable returns to shareholders
and having a positive impact on our
portfolio companies and their stakeholders.
Chair's statement
3i Infrastructure has a clear purpose, and
continues to deliver long-term sustainable returns.
"We are confident in our ability to deliver long-term
sustainable returns, and to have a positive impact on our portfolio
companies and their stakeholders."
Richard Laing
Chair, 3i Infrastructure plc
10 May 2021
The Company aims to provide shareholders with a total return of
8% to 10% per annum, to be achieved over the medium term. I am
pleased to report that we achieved a return of 9.2% in the year
ended 31 March 2021, in line with our target and demonstrating the
resilience of our portfolio. This is the seventh consecutive year
that we have met or exceeded our medium-term return target; and we
have increased the dividend per share in every year of the
Company's existence.
The Covid-19 pandemic has had a profound impact on many
businesses across the world and I am proud of how our portfolio
companies have responded, keeping essential infrastructure
operating smoothly and supporting employees, suppliers, customers
and their communities. Our companies continued to power businesses
and households, treat waste, keep cargo moving around the world and
sterilise medical equipment. At the same time, the management teams
have worked with our Investment Manager to establish sustainability
strategies for each portfolio company and developed their ability
to measure and report on carbon emissions.
I am grateful to shareholders and the Board of Directors for
their support during the year, as well as to the Investment Manager
for its hard work in a year when office life and business travel
remained restricted. We continued to engage meaningfully with each
other through our new ways of working.
Our purpose
We have updated our purpose, which is to invest responsibly in
infrastructure, delivering long-term sustainable returns to
shareholders and having a positive impact on our portfolio
companies and their stakeholders. This is set out above, and the
key elements of our purpose are used to help structure our
Strategic report.
Responsible investing has always been integral to our business
model, and that of our Investment Manager. Sustainability is
central to our purpose and we create value for all stakeholders by
investing in, developing and actively managing essential
infrastructure which responds to public needs, fosters sustainable
growth and improves the lives of communities. This is not new for
the Company, but we hope this report provides an insight into how
we look at these themes, how we are developing our approach to
them, and how we and our portfolio companies are making a positive
impact.
Performance
The Company generated a total return of GBP206 million in the
year ended 31 March 2021, or 9.2% on opening NAV, in line with the
target of 8% to 10% per annum to be achieved over the medium term.
The NAV per share increased to 268.1 pence. We delivered a Total
Shareholder Return ('TSR') of 23.8% in the year (FTSE 250: 45.2%).
Since IPO, the Company's annualised TSR is 12.5%, comparing
favourably with the broader market (FTSE 250: 7.6% annualised over
the same period).
New investment
I was delighted that on 1 April 2021 the Company agreed to
invest c.EUR182 million to acquire a 60% stake in DNS:NET, a
leading independent telecommunications provider in Germany. This is
a high growth asset that will further diversify our portfolio,
giving the Company sizeable exposure to the German infrastructure
market for the first time.
The Company made a further investment in ESVAGT to support the
build out of three new vessels for the wind sector. In addition, we
acquired further stakes in our Dutch PPP projects from our
co-shareholders on attractive terms, which also simplifies the
governance of those assets.
Dividend
Following the payment of the interim dividend of 4.9 pence per
share in January 2021, the Board is recommending a final dividend
for the year of 4.9 pence per share, meeting our target for the
year of 9.8 pence per share, 6.5% above last year's total dividend.
We expect the final dividend to be paid on 12 July 2021. As an
investment trust, the Company is permitted to designate dividends
wholly or partly as interest distributions for UK tax purposes. The
Board is designating 2.9 pence of the 4.9 pence final dividend as
an interest distribution. Consistent with our progressive dividend
policy, we are announcing a total dividend target for the year
ending 31 March 2022 of 10.45 pence per share, representing an
increase of 6.6%.
Corporate governance
The Company's Annual General Meeting ('AGM') was held on 9 July
2020 as a closed meeting (due to the Government's stay-at-home
restrictions in place at the time), with the minimum number of
shareholders present in order to be quorate. All resolutions were
approved by shareholders, including the re-election of the existing
Directors and the election of Samantha Hoe-Richardson as a Director
to the Board. I was encouraged by the high level of shareholder
engagement via proxy voting at that meeting.
This year's AGM will be held on 8 July 2021. At the time of
writing, it is unclear whether social distancing measures will
still be in place at the time of the AGM. We therefore intend to
hold the AGM as a formal meeting simply to conduct the business of
the meeting and without presentations or refreshments. We strongly
urge shareholders to vote by proxy (electronically or by post) in
advance of the meeting and to refrain from attending in person.
An online shareholder engagement event including presentations
from the Investment Manager and me will take place in advance of
the AGM. In line with AGM best practice guidance from the Financial
Reporting Council issued in October 2020, shareholders will be
given the opportunity to listen to those presentations and ask
questions before, during and after the event. Further details will
be provided in the notice of AGM and on the Company's website,
www.3i-infrastructure.com. We very much hope to welcome
shareholders in person again at the AGM in 2022.
Directors' duties
The Directors have a duty to act honestly and in good faith with
a view to the best interests of the Company
and to exercise the care, diligence and skill that a reasonably
prudent person would exercise in comparable circumstances. In
accordance with the AIC Code of Corporate Governance, the Board
does this through understanding the views of the Company's key
stakeholders and carefully considering how their interests and the
matters set out in section 172 Companies Act 2006 of England and
Wales have been considered in Board discussions and decision
making. More detail can be found in the Directors' duties and
Section 172 Statement sections later in this document.
Outlook
The past year has seen significant volatility in both equity and
credit markets and in oil and power prices. In this environment,
the infrastructure sector has performed relatively well,
demonstrating its value as an asset class. Against this backdrop,
the Company has remained disciplined in its investment approach,
maintaining a strong cash position and an appropriate level of
gearing in the Company's portfolio. Our portfolio consists of
defensive businesses providing essential services to their
customers and the communities they serve, often benefitting from
long-term sustainable trends.
We remain confident in our business model. We have strong
liquidity to take advantage of investment opportunities as
economies start to recover as well as to continue to support and
grow our portfolio companies.
Richard Laing
Chair, 3i Infrastructure plc
10 May 2021
2007 to 2021
In the 13 years since the initial public
offering ('IPO')
the Company has delivered an annualised
total shareholder
return of
12.5%
per annum
Our markets
Infrastructure assets held up well during the
Covid-19 pandemic, other than transportation
businesses and projects that were exposed to
a fall in demand. Investor appetite remains strong,
particularly in areas such as renewables and
digital infrastructure.
Investor sentiment for the infrastructure asset class remains
positive with increasing numbers of investors allocating capital to
this asset class or indeed increasing their allocations. Sourcing
yield from resilient businesses has remained challenging for
investors. The intense level of competition has led to high pricing
of assets. After a relatively slow market for transactions early in
the year, during the initial wave of stay-at-home restrictions due
to Covid-19, we participated in a number of competitive processes
where the ultimate pricing and resulting risk-adjusted returns did
not meet the Company's objectives. We remained disciplined
investors which resulted in lower new investment activity than in
recent years.
During the year we spent considerable time on asset management,
focusing on the need to deliver essential services, the health and
safety of portfolio company employees, customers and suppliers, and
managing liquidity. The Company benefitted from having a
diversified portfolio with appropriate levels of leverage.
Investors are able to access the investment class through both
listed and private funds. Other UK listed infrastructure funds
typically invest in operational and greenfield Public Private
Partnership ('PPP') projects and regulated assets. The Company does
not compete directly with these funds for new investments as these
assets are outside our investment focus. This year has seen the
launch of new listed vehicles targeting a narrow set of
infrastructure investment opportunities.
Private funds exist to give investors access to the full range
of infrastructure investment opportunities. Those private funds
with an economic infrastructure focus remain the Company's primary
competitors for new investment. Fundraising in this space remained
buoyant despite the pandemic and infrastructure assets under
management are at a record high, with significant amounts of dry
powder, resulting in intense competition to deploy capital.
For larger institutions, such as pension funds or sovereign
wealth funds, with dedicated investment teams, direct investment
into large core assets remains an attractive investment strategy.
Given the high demand for and low return expectation from these
assets, they remain outside the Company's investment focus.
Megatrends
Megatrends are shaping the world around us, influencing decision
making and changing the demands placed on our economy and services.
Identifying the potential for change is a key driver of our
investment decision making - from the businesses, sectors and
countries we invest in, to the way we go about finding
opportunities. We like to identify investments that benefit from
one or more megatrends, providing a supportive environment for
long-term sustainable business growth and returns to
shareholders.
These trends are often consistent with widely recognised
sustainability issues, including climate change and the circular
economy.
Outlook
The central bank interventions which have delivered aggressive
monetary policy solutions alongside unprecedented fiscal stimulus
have had a dramatic effect on public finances. A consequence of
this is likely to be rising taxes to balance deficits, even if
delayed until economies have had time to recover. Corporation tax
rises have already been announced in the UK.
Prior to the pandemic, climate change and environmental concerns
were an area of focus for investors but it is now clear that the
pandemic has heightened awareness of sustainability issues and this
can be seen in the way businesses operate and governments set
policy. This has moved the focus to investing capital in cleaner
and greener businesses. We are seeing increasing interest from
infrastructure investors in the energy transition sector as the
scale of the investment required becomes apparent, and regulations,
subsidies, market demand and project economics become more
supportive.
The pandemic has also accelerated the need for greater digital
connectivity and created ever greater data storage and usage
requirements. This is driving deal flow in areas such as mobile
communications towers, subsea fibre-optic cables, terrestrial
fibre-optic networks and data centres. Several new funds focusing
on digital infrastructure have been raised.
While competition remains intense, we will continue to seek
opportunities where we have a competitive advantage over other
bidders, where we can engage at an early stage or leverage
relationships to identify new investments that complement the
portfolio and can deliver attractive risk-adjusted returns.
The characteristics we look for in new infrastructure investments
----------------------------------------------------------------------------------------------------------------------
We look to build and maintain a diversified portfolio of assets, across a range of geographies
and sectors, whilst adhering to a set of core investment characteristics and risk factors.
The Investment Manager has a rigorous process for identifying, screening and selecting investments
to pursue. Although investments may be made into a range of sectors, the Investment Manager
typically focuses on identifying investments that meet most or all of the following criteria:
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Asset intensive business: Good visibility of future cash flows:
Owning or having exclusive access under long-term Long-term contracts or sustainable demand that allow us to
contracts to assets that are essential forecast future performance with
to deliver the service a reasonable degree of confidence
---------------------------------------------------------- ----------------------------------------------------------
Asset bases that are hard to replicate: An acceptable element of demand or market risk:
Assets that require time and significant capital or Businesses that have downside protection, but the
technical expertise to develop, with opportunity for outperformance
low risk of technological disruption
---------------------------------------------------------- ----------------------------------------------------------
Provide essential services: Opportunities for further growth:
Services that are an integral part of a customer's Opportunities to grow or to develop the business into new
business or operating requirements, or markets, either organically or
are essential to everyday life through targeted M&A
---------------------------------------------------------- ----------------------------------------------------------
Established market position: Sustainability:
Businesses that have a long-standing position, reputation Businesses that meet our Responsible Investing criteria,
and relationship with their customers with opportunities to improve sustainability
- leading to high renewal and retention rates and Environmental, Social and Governance ('ESG') standards
---------------------------------------------------------- ----------------------------------------------------------
Our investment activity remains
focused on
Economic infrastructure businesses
with
characteristics that can be managed
to enhance value over the period
of ownership, including, for example,
some level of demand or market risk.
GBP100m-GBP300m
Typical equity investment
9%-14%
Typical range of returns per annum
We focus on mid-market economic infrastructure investments with
controlling majority or significant minority investments with
strong governance rights. Such governance may include a
co-investment arrangement whereby the Investment Manager manages
the investment on behalf of the consortium. The returns from
investing in operational PPP projects and large core infrastructure
businesses continue to be below our target return levels. For some
years, we have found the opportunities to invest in greenfield
projects to be limited and the equity requirements small compared
to the size of our portfolio and therefore this also is not a focus
area for new investment.
We take a risk-based approach to investment to ensure that the
portfolio is not overly exposed to one particular risk type. We
consider carefully exposure to commodity price risk, foreseeable
technology/disruption risk, high political/regulatory risk, high
customer concentration and thematic risks. Where possible we look
to source bilateral deals through relationships we have
developed.
Examples of the sectors in which we invest and the market
dynamics are shown below.
Utilities
During the early stages of the Covid-19 pandemic we saw a fall
in electricity demand of more than 10% in the UK, but this
recovered during the second half of the year, despite the
reimposition of stay-at-home measures.
In the second half of the year we also saw a structurally higher
level of day-ahead price volatility, which we attribute to the
ongoing shift in the UK's generation mix away from baseload
capacity to intermittent renewables and the poor availability of
traditional thermal generation.
For our portfolio company Infinis, this meant an opportunity to
provide flexible generation services, with its Power Response
division delivering a record performance in the year.
Transport/Logistics
The trend towards online shopping has been established for a
number of years, but recently we have seen an e-commerce boom
driven by Covid-19 and the associated stay-at-home measures. Many
people believe this change in buying behaviour will persist. This
is likely to lead to growth in distribution centres and delivery
vehicle fleets.
Many cities (and consumers) are putting pressure on last mile
delivery operators to deploy low-carbon vehicles which is
increasing demand for electric charge points.
2
Bolt-on investments by
Joulz in electric vehicle
charging and rooftop solar
businesses
Communications
Prior to the pandemic, data connectivity was already becoming an
increasingly integral part of day-to-day life, but Covid-19 has
only served to accelerate it. As the pandemic unfolded, millions of
people switched to working remotely almost overnight and this
exposed differences in the quality of data networks both within
individual countries and across geographies.
Infrastructure investors are increasingly recognising the growth
potential of the communications infrastructure sector either
through the acquisition of existing assets or through the build-out
of new networks. The huge amount of capital required to roll-out
fixed and wireless communication networks is such that it is no
longer just incumbent telecom groups that are funding this type of
infrastructure.
EUR182m
Commitment to invest in
DNS:NET
Our strategy, objectives and KPIs
Our strategy is to maintain a balanced portfolio of
infrastructure investments delivering an attractive mix of income
yield and capital appreciation for shareholders.
Strategic priorities
Maintaining a balanced portfolio Delivering an attractive mix of income 15%
yield and capital growth for Largest single investment by value
shareholders.
Investing in a diversified portfolio
in developed markets, with a focus on
the UK and Europe.
Disciplined approach to new investment Focusing selectively on investments GBP209m
that are value enhancing to the New investments or commitments*
Company's portfolio and
with returns consistent with our
objectives.
-------------------------------------- --------------------------------------
Managing the portfolio intensively Driving value from our portfolio 2
through our engaged asset management Bolt-on acquisitions by our platform
approach. investments
Delivering growth through platform
investments.
-------------------------------------- --------------------------------------
Maintaining an efficient Minimising return dilution to GBP597m
balance sheet shareholders from holding excessive Total liquidity less investment
cash, while retaining a commitments*
good level of liquidity for future
investment.
-------------------------------------- --------------------------------------
Sustainability a key Ensuring that our investment decisions 1,028MW
driver of performance and asset management approach consider Installed renewable energy capacity
both the risks
and opportunities presented by
sustainability.
-------------------------------------- --------------------------------------
* Includes commitment to invest in DNS:NET made on 1 April
2021.
Our objectives are to provide shareholders with:
------------------------------------------------
a total return of 8% to 10% per annum,
to be achieved over the medium term
------------------------------------------------
a progressive annual dividend per share
------------------------------------------------
Our KPIs
Total return Rationale and definition Performance over the year
% on opening NAV
* Total return is how we measure the overall financial * Total return of GBP206 million in the year, or 9.2%
performance of the Company on opening NAV
* Total return comprises the investment return from the * The portfolio showed good resilience overall with
portfolio and income from any cash balances, net of strong performance in particular from Infinis, Joulz
management and performance fees and operating and and Valorem
finance costs. It also includes movement in the fair
value of derivatives and taxes
* The hedging programme continues to reduce the
volatility in NAV from exchange rate movements
* Total return, measured as a percentage, is calculated
against the opening NAV, net of the final dividend
for the previous year, and adjusted (on a * Costs were managed in line with expectations
time-weighted average basis) to take into account any
equity issued and capital returned in the year
* The level of cash held reduced the total return
2017 9.0%
---------
2018 28.6%
---------
2019 15.4%
---------
2020 11.4%
---------
2021 9.2%
---------
Target 8 - 10 %
---------
Target
To provide
shareholders
with a total
return of 8% to
10% per annum,
to be achieved
over the
medium term.
Met or exceeded
target for every
year shown
Annual Rationale and definition Performance over the year
distribution
pence per share * This measure re ects the dividends distributed to * Proposed total dividend of 9.80 pence per share, or
shareholders each year GBP87 million, is in line with the target set at the
beginning of the year
* The Company's business model is to generate returns
from portfolio income and capital returns (through * Income generated from the portfolio and cash deposits,
value growth and realised capital profits). Income, including non-income cash distributions and other
other portfolio company cash distributions and income from portfolio companies, totalled GBP117
realised capital profits generated are used to meet million for the year
the operating costs of the Company and distributions
to shareholders
* Operating costs and finance costs used to assess
dividend coverage totalled GBP30 million in the year.
* The dividend is measured on a pence per share basis, The dividend was fully covered for the year
and is targeted to be progressive
* Setting a total dividend target for FY22 of 10.45
pence per share, 6.6% higher than for FY21
------------------------------------------------------------ -------------------------------------------------------------
2017 7.55p
--------- ------------------------------------------------------------ -------------------------------------------------------------
2018 7.85p+
---------
2019 8.65p
---------
2020 9.20p
---------
2021 9.80p
---------
2022
Target 10.45p
---------
+ Special dividend
(2018: 41.40p)
Target
Progressive
dividend per
share policy.
FY21 full year
dividend target
of
9.80 pence per
share.
Dividend per
share increased
every year since
IPO
------------------------------------------------------------ -------------------------------------------------------------
Investment Manager's review
Review from the Managing Partner
The portfolio continued to be resilient during the
Covid-19 pandemic, outperforming the expectations
we set a year ago. We were pleased to announce a
new investment in DNS:NET, a successful independent
telecommunications provider and our first sizeable
investment in Germany. Competition for new
investments is higher than ever and we remain
very selective in pursuing new opportunities.
"We have a resilient, diversified portfolio providing essential
services and benefitting from long-term sustainable trends."
Phil White
Managing Partner and Head
of Infrastructure, 3i Investments plc
10 May 2021
The impact of the Covid-19 pandemic was markedly different by
sector. For example, the energy and telecoms sectors showed
resilience, but the transportation sector was severely affected. We
have built a well-balanced portfolio and are pleased to report that
while every business is affected to some extent by Covid-19, all of
our portfolio companies outperformed the expectations we set a year
ago and are providing continuity of service to their customers.
This is testament to the professionalism and adaptability of our
portfolio company management teams and staff during demanding
circumstances.
The stay-at-home and social distancing measures enacted in most
countries delayed some of our growth initiatives and in a number of
our portfolio companies capital expenditure was below budget.
Liquidity and operational costs have been well managed across the
portfolio. We have not been required to provide additional equity
support to portfolio companies, but distributions from some
companies were reduced where it was sensible for them to retain
liquidity.
Portfolio review
Infinis performed significantly ahead of expectations, primarily
due to outperformance in its captured landfill methane business,
but also from its coal mine methane and power response divisions.
The company is making good progress in developing its solar
generation business with 67MW of projects now in planning and a
further 90MW targeted for submission by the end of 2021. In
December, Infinis completed a refinancing on favourable terms,
extending the maturity of its facilities and adding long-term
institutional debt. This improved capital structure will enable it
to fund the growth in its solar business and to explore new
opportunities such as battery storage.
After a partial recovery of air traffic last summer, the latter
half of the year was marked by the imposition of further travel
restrictions and quarantine measures as new virus strains emerged
and cases rose. Despite this, TCR performed marginally ahead of our
expectations during the year with operating costs being managed
well. In the medium term, we see attractive growth opportunities
arising from the crisis as airlines and airports look for increased
efficiency, flexibility and sustainability in how they manage
ground support equipment.
Ionisos performed ahead of our expectations for the year and
benefitted from cold sterilisation being an essential service to
the healthcare and pharma industries. All sites continued operating
at normal capacity throughout the year but in February, Ionisos
discovered serious shortcomings in the safety of operations in its
Italian subsidiary, Steril Milano. Operations were stopped
immediately and the regulatory authorities and customers were
informed promptly. A criminal complaint has been filed against
certain individuals and an investigation is now underway, with the
full cooperation of Steril Milano and Ionisos management. Steril
Milano, which represented c.3% of Ionisos's 2020 EBITDA, was
acquired by Ionisos in June 2019, shortly before the Company's
acquisition of Ionisos.
Joulz performed in line with expectations for the year. The
carve-out from Stedin is now complete and we have strengthened the
management team in order to meet growing demand and opportunities.
The business is developing into an integrated Energy Transition
solutions provider and has made considerable progress during the
year, adding electric vehicle charging and rooftop solar
capabilities. We completed a successful refinancing in October on
better terms than envisaged in our previous valuation and this will
support further growth.
Tampnet's performance during the year was ahead of the prior
year but below its pre-Covid budget. Tampnet's roaming and mobile
data business was affected by the oil price collapse as operators
reduced their exploration activity and some drilling rigs were
decommissioned earlier than expected. Delays in adding contracted
customers to the network due to Covid-19 restrictions that made it
difficult to staff operations offshore, and a severe hurricane
season in the Gulf of Mexico, also impacted revenues. We are now
seeing growth resume following the lifting of restrictions and the
higher oil price. Tampnet acquired BP's fibre assets in the Gulf of
Mexico, and this represents an important milestone for our
investment, securing ownership of a key piece of subsea
infrastructure and enabling Tampnet to replicate its North Sea
business model in the Gulf of Mexico. The transaction was funded
from Tampnet's internal resources and existing credit
facilities.
Attero has performed broadly in line with our pre-Covid budget,
demonstrating its resilience. Waste production in the Netherlands
and energy prices had largely recovered by the end of the year,
although waste imports from the UK were materially below
pre-pandemic levels. Attero's Energy from Waste ('EfW') plants were
able to continue operating at full capacity during the year by
drawing waste from Attero's buffer stock of untreated waste and by
incinerating residual waste from other parts of the business which
would otherwise have been processed externally.
Oystercatcher's terminals outperformed expectations and prior
year, on the back of more favourable market conditions for oil
storage and lower operating costs. All terminals continue to show
good utilisation levels and healthy storage rates. The negative
impact of Covid-19 has been limited to lower throughput and
ancillary revenues as a result of lower end-user demand as
refineries operated below their normal output levels.
During the year, we committed further funding to support
ESVAGT's continued growth in the offshore wind segment, with three
new Service Operation Vessels ('SOV') due to commence operations in
2021. With expected strong expansion of offshore wind as a
renewable energy source, ESVAGT stands well-placed to benefit from
continued growth into the medium term. ESVAGT's Emergency Rescue
and Response Vessel ('ERRV') fleet, which supports the oil and gas
segment, was impacted by the significant weakness in the oil and
gas sector during the first half of the year but ended the year
ahead of expectations due to the recovery in oil prices, an active
cost saving programme and slightly higher utilisation than expected
across the fleet. ESVAGT's ERRV fleet is fully contracted for the
summer months.
Valorem had a strong year with revenues from electricity
generation exceeding budget, benefitting from favourable wind
conditions and good availability. All assets continued to operate
as normal during the lockdown period and a number of new projects
became operational. Valorem's development pipeline continues to
grow both in France and internationally. In December, Valorem
completed the acquisition of a further 34% stake in Force
Hydraulique Antillaise taking its total ownership to 85%.
The availability-based Projects portfolio has performed in line
with expectations. Finally, we were pleased with the significant
progress made towards realising the remaining assets in the India
Fund, with the sale of the Fund's stake in Krishnapatnam Port. This
represented almost all of the value in the India Fund.
Investment activity
On 1 April 2021 we announced our commitment to acquire a 60%
stake in DNS:NET for c.EUR182 million. DNS:NET owns the largest
independent fibre-to-the-cabinet network in the Berlin area, as
well as three data centres, and has commenced a roll-out of
fibre-to-the-home. We expect the transaction to complete in June
2021.
During the year, we acquired further stakes in our Dutch PPP
projects from our co-shareholders Fluor Infrastructure and Heijmans
Nederland for a total equity investment of c.EUR25 million, and
invested GBP15 million in ESVAGT out of a total commitment of GBP27
million to support the construction of three new SOVs.
Throughout the year, we saw an active investment pipeline that
included a broad range of potential new investment opportunities.
Competition for new investments was very high, and we are focused
on achieving an appropriate balance of risk and return. Although we
would have liked to have deployed more capital, we remain patient,
only pursuing opportunities that will enhance the portfolio while
seeking to limit abort cost risk in highly competitive sales
processes.
3i Infrastructure is a long-term investor in its portfolio.
There were no asset sales this year, although the Company received
GBP104 million of deferred proceeds, including interest, from its
sale of Wireless Infrastructure Group ('WIG') in the prior
year.
Sustainability
We continue to work closely with our portfolio company
management teams to respond to the opportunities and challenges
presented by sustainability. At the beginning of this year, we set
out to formalise each company's sustainability strategy and
objectives, as well as to review and, where necessary, build their
ability to monitor and report on their environmental impacts
including carbon emissions. All portfolio companies have responded
positively and have accomplished those objectives.
In the year ahead, we plan to build on this progress by
implementing emissions reporting for all of our portfolio
companies, in line with TCFD requirements, and by developing the
Company's longer-term position in relation to net carbon emissions.
We expect the regulatory framework in which we and our portfolio
companies operate to continue to evolve, and our approach to
sustainability will continue to develop.
Outlook
We are well positioned to continue to perform, with a weighted
average discount rate consistent with our target return, and with a
resilient, well-diversified and hard to replicate portfolio. We
have plenty of liquidity to continue to invest, both in the
existing portfolio, through organic growth and value-accretive
bolt-ons, as well as in selected new investments that enhance the
portfolio. We remain confident of delivering long-term sustainable
returns to shareholders.
Phil White
Managing Partner and Head of Infrastructure,
3i Investments plc
10 May 2021
New investment
DNS:NET is a leading independent telecommunications provider in
Germany.
Committed
EUR182m
Equity stake
60%
Investment rationale
-- Germany lags behind most other European countries in the
deployment of fibre-to-the-home ('FTTH'), despite a strong demand
for reliable, high bandwidth and low latency connectivity
-- DNS:NET has built an established workforce and systems, a
network of fibre-to-the-cabinet ('FTTC') connections and good
relationships with customers, suppliers and local decision makers
over an operating history of more than 20 years
-- The Founder and CEO will remain a significant minority
shareholder, providing high alignment of interest with the
Company
-- There is material potential for upside given the high growth
profile, and once the roll-out is complete, DNS:NET will be a
highly cash generative asset
Characteristics
-----------------------------------------------------------------------------------------------
Asset intensive business that is hard to replicate
The existing FTTC network passes 135,000 homes with 35,000 household subscriptions.
-----------------------------------------------------------------------------------------------
Good visibility on future cash flows
DNS:NET will invest substantially to grow its network in the coming years, but will provide
a healthy yield once the planned roll-out is complete.
-----------------------------------------------------------------------------------------------
Provides essential services
FTTH is the only technology capable of delivering future proof, low latency and high bandwidth
broadband services reliably to households.
-----------------------------------------------------------------------------------------------
Acceptable element of demand risk
DNS:NET benefits from an existing network, local presence and brand, which gives it a first
mover advantage over other players.
-----------------------------------------------------------------------------------------------
Established market position
DNS:NET is the leading independent provider of FTTC in Berlin and surrounding areas, which
puts it in a unique position to lead the FTTH roll-out in the region.
-----------------------------------------------------------------------------------------------
Opportunities for further growth
The FTTH market in Germany is projected to grow at 30% per annum in the period to 2025.
-----------------------------------------------------------------------------------------------
Our portfolio
The portfolio comprises a diversified, defensive set
of businesses providing essential services.
We are confident that the portfolio is well positioned
to deliver our target returns.
The Company's portfolio was valued at GBP1,802 million at 31
March 2021 (2020: GBP1,647 million), and delivered a total
portfolio return in the year of GBP232 million including income and
allocated foreign exchange hedging (2020: GBP272 million).
Table 1 below summarises the valuations and movements in the
portfolio, as well as the return for each investment, for the year.
In accordance with accounting standards, 'Investments at fair value
through profit or loss' as reported in the Balance sheet include,
in addition to the portfolio asset valuation, the cash and other
net assets held within intermediate unconsolidated holding
companies.
These amounts are set out at the foot of the table below, to
provide a reconciliation between the Directors' valuation of the
portfolio assets and 'Investments at fair value through profit or
loss' reported in the Financial statements.
Table 1: Portfolio summary (31 March 2021, GBPm)
----------------------------------------------------------------------------------------------------------------------------------
Portfolio
Directors' Directors' Allocated Underlying total
valuation Investment Foreign valuation foreign portfolio return
31 March in the Divestment Accrued Value exchange 31 March exchange income in in the
Portfolio assets 2020 year in the income movement translation 2021 hedging the year year(1)
year
---------------- ---------- ---------- ---------- ------- -------- ----------- ---------- --------- ---------- ---------
Infinis 285 - (6)(2) (4) 25 - 300 - 17 42
Tampnet 205 5(3) - - 18 2 230 (8) 5 17
Joulz 187 5(3) (1)(2) - 36 (8) 219 10 5 43
Ionisos 194 - - 2 14 (8) 202 10 9 25
TCR 195 20(3,4) - (3) (12) (1) 199 3 13 3
ESVAGT 141 36(3,4) - 1 - 11 189 (12) 22 21
Oystercatcher 154 - - - 10 (7) 157 6 13 22
Valorem 88 - - - 23 (4) 107 5 3 27
Attero 103 2(3) (4)(2) - 8 (4) 105 5 6 15
---------------- ---------- ---------- ---------- ------- -------- ----------- ---------- --------- ---------- ---------
Economic
infrastructure
portfolio 1,552 68 (11) (4) 122 (19) 1,708 19 93 215
---------------- ---------- ---------- ---------- ------- -------- ----------- ---------- --------- ---------- ---------
Projects 68 23(4) (1)(5) (1) 7 (4) 92 3 6 12
India Fund 27 - (30) - 6 (1) 2 - - 5
---------------- ---------- ---------- ---------- ------- -------- ----------- ---------- --------- ---------- ---------
Total portfolio 1,647 91 (42) (5) 135 (24) 1,802 22 99 232
---------------- ---------- ---------- ---------- ------- -------- ----------- ---------- --------- ---------- ---------
Adjustments
related to
unconsolidated
subsidiaries(6) 5 - (6) (4) 7 - 2 - (7) -
---------------- ---------- ---------- ---------- ------- -------- ----------- ---------- --------- ---------- ---------
Reported in the
Financial
statements 1,652 91 (48) (9) 118 - 1,804 22 92 232
---------------- ---------- ---------- ---------- ------- -------- ----------- ---------- --------- ---------- ---------
1 This comprises the aggregate of value movement, foreign
exchange translation, allocated foreign exchange hedging and
underlying portfolio income in the year.
2 Shareholder loan repaid.
3 Capitalised interest.
4 Follow-on investment in TCR of GBP4 million, ESVAGT of GBP15
million and Projects of GBP23 million.
5 Deferred consideration of GBP1 million was received from the sale of WODS.
6 Income statement adjustments explained in Table 16 and Balance
sheet adjustments explained in Table 17 in the Financial
review.
The total portfolio return in the year of GBP232 million is
13.7% (2020: GBP272 million, 13.1%) of the aggregate of the opening
value of the portfolio and investments in the year (excluding
capitalised interest), which total GBP1,689 million. Performance
was strong across the portfolio with particular outperformance from
Infinis, Joulz and Valorem.
Table 2 below shows the portfolio return in the year for each
asset as a percentage of the aggregate of the opening value of the
asset and investments in the asset in the year (excluding
capitalised interest).
Table 2: Portfolio return by asset (year to 31 March 2021)
Total portfolio
return 13.7%
Infinis 14.7%
------
Tampnet 8.3%
------
Joulz 23.0%
------
Ionisos 12.9%
------
TCR 1.5%
------
ESVAGT 13.5%
------
Oystercatcher 14.3%
------
Valorem 30.7%
------
Attero 14.6%
------
Projects 13.2%
------
India Fund 18.5%
------
Movements in portfolio value
The movements in portfolio value were driven principally by the
delivery of planned cash flows and other asset outperformance as
well as new follow on investments during the year. A reconciliation
of the movement in portfolio value is shown in Table 3 below. The
portfolio summary shown in Table 1 details the analysis of these
movements by asset. Changes to portfolio valuations arise due to
several factors, as shown in Table 4.
Economic infrastructure portfolio
The economic infrastructure portfolio generated a value gain of
GBP122 million in the year, alongside income of GBP93 million.
Infinis generated a value gain of GBP25 million in the year and
contributed GBP28 million of distributions. This was due to a
combination of business outperformance, the continued progress of
its solar development programme and a small reduction in the
discount rate, partially offset by changes in forecast future power
price curves and an increase in the UK corporation tax rate from
FY23.
The value gain for Tampnet of GBP18 million principally reflects
the acquisition of BP's fibre assets in the Gulf of Mexico and a
small reduction in the discount rate, partially offset by some
earlier decommissioning than we expected in the North Sea.
The value gain for Valorem was GBP23 million as the business
continued to develop its pipeline of projects into operation,
lowering the discount rate. The business completed a successful
refinancing of 11 operating wind assets and two solar assets and
received the necessary permits for a large new wind project in
Finland.
Ionisos experienced a GBP14 million gain due to higher volumes
in the medical devices and pharmaceuticals sector, particularly in
the second half of the year, and a small reduction in the discount
rate, partly offset by providing fully for the effect of the
closure of its Italian operations.
The value of ESVAGT did not change. Higher than expected
utilisation in the offshore wind market was offset by ERRV demand
being lower in the first half of the year than had been forecast.
We lowered the discount rate to reflect improved visibility in the
ERRV segment and the increased share of long-term, contracted SOV
cash flows in the business.
Joulz saw a GBP36 million gain reflecting the refinancing
completed on better terms than originally anticipated and the
limited impact that Covid-19 has had on the business to date.
TCR had a negative value movement of GBP12 million reflecting
revised business plan assumptions as we now expect the full
recovery in air traffic to pre-Covid levels to take until 2024.
Attero increased in value by GBP8 million as a number of
contracts were renewed at higher gate fees and/or for longer
periods than expected.
The value of Oystercatcher increased by GBP10 million as we
removed the discount rate premium added 12 months ago to reflect
reduced Covid-related uncertainty and resilient performance over
the year.
Table 3: Reconciliation of the movement in portfolio value (year
to 31 March 2021, GBPm)
Opening portfolio value at 1 April 2020 1,647
Investment(1) 91
Divestment/capital repaid (42)
Value movement 135
Exchange movement(2) (24)
Accrued income movement (5)
------------------------------------------ ------
Closing portfolio value at 31 March 2021 1,802
------------------------------------------ ------
1 Includes capitalised interest.
2 Excludes movement in the foreign exchange hedging programme
(see Table 10 in the Financial review).
Projects portfolio
The value gain in the Projects portfolio was due to the
reduction in the discount rate we have made, reflecting continued
high demand, and return compression, for availability-based PPP
projects.
During the year, the Company acquired further stakes in its
Dutch projects from our co-shareholders.
India Fund
The majority of the value of the India Fund was realised through
the sale of Krishnapatnam Port at a price above the Fund's previous
valuation. The India Fund now represents just 0.1% of the
portfolio.
Summary of portfolio valuation methodology
Investment valuations are calculated at the half-year and at the
financial year end by the Investment Manager and then reviewed by
the Board. Investments are reported at the Directors' estimate of
fair value at the reporting date.
The valuation principles used are based on International Private
Equity and Venture Capital ('IPEV') valuation guidelines, generally
using a discounted cash flow ('DCF') methodology (except where a
market quote is available), which the Investment Manager considers
to be the most appropriate valuation methodology for unquoted
infrastructure equity investments.
Where the DCF methodology is used, the resulting valuation is
checked against other valuation benchmarks relevant to the
particular investment, including, for example:
-- earnings multiples;
-- recent transactions; and
-- quoted market comparables.
The Company's investment in the India Fund is valued based on
the Company's share of net assets held by that fund.
In determining a DCF valuation, we consider and reflect changes
to the two principal inputs being forecast cash flows from the
investment and discount rates. We consider both the macroeconomic
environment and investment specific value drivers when deriving a
balanced base case of cash flows and selecting an appropriate
discount rate.
During the year, we saw the direct impact of Covid-19 on the
portfolio companies such as supply chain delays, enforced changes
to working practices, delays to anticipated growth investment
opportunities, renegotiation of contracts with customers and the
offsetting impact of government and central bank mitigation
measures. There have also been indirect impacts such as reduced
demand for energy which negatively affected power prices and our
energy generating portfolio companies, although the majority of our
power price exposure was hedged in the short to medium term. We
have considered both the direct and indirect effects of Covid-19 on
the individual portfolio companies and updated the cash flow
forecasts for each investment, taking a balanced view on how we
expect them to develop, for example in relation to new contract
wins and contract renewals, forecast revenue, liquidity and effects
on debtor payments, capital expenditure programmes and operating
costs.
Our largest investment, Infinis, which operates in the
electricity generation sector, is exposed to the level of, and
volatility in, UK power prices. Future power price projections are
taken from independent forecasters and changes in these assumptions
will affect the future value of this investment. TCR operates in
the aviation sector which has been severely affected by travel
restrictions, although this varies by region and domestic services
have been recovering earlier than international travel. The value
of TCR reflects revised business plan assumptions as we now expect
a partial recovery during 2021 with the full recovery in air
traffic to pre-Covid levels expected to take until 2024.
Table 4: Components of value movement (year to 31 March 2021, GBPm)
----------------------------------------------------------------------------------------------------------------------
Value movement
Value movement component in the year Description
------------------------------------- -------------- ---------------------------------------------------------------
Planned growth 124 Net value movement resulting from the passage of time,
consistent with the discount rate and
cash flow assumptions at the beginning of the year less
distributions received and capitalised
interest in the year.
------------------------------------- -------------- ---------------------------------------------------------------
Other asset performance 3 Net value movement arising from actual performance in the year
and changes to future cash
flow projections, including financing assumptions and changes
to regulatory determination
assumptions.
------------------------------------- -------------- ---------------------------------------------------------------
Discount rate movement 67 Value movement relating to changes in the discount rate
applied to the portfolio cash flows.
------------------------------------- -------------- ---------------------------------------------------------------
Macroeconomic assumptions (59) Value movement relating to changes to macroeconomic
out-turn or assumptions, eg power prices, inflation, interest
rates on deposit accounts and taxation rates. This includes
changes to regulatory returns
that are directly linked to macroeconomic variables.
------------------------------------- -------------- ---------------------------------------------------------------
Total value movement before exchange 135
------------------------------------- -------------- ---------------------------------------------------------------
Foreign exchange retranslation (24) Movement in value due to currency translation to year end date.
------------------------------------- -------------- ---------------------------------------------------------------
Total value movement 111
------------------------------------- -------------- ---------------------------------------------------------------
At March 2020, we applied a higher discount rate than we would
have applied without Covid-19 to almost all portfolio company
valuations; the highest increase applied was 1%. This reflected the
general uncertainty at the time around the economic impact of the
pandemic, future inflation, power prices and oil prices, as well as
company-specific factors. Given the lower uncertainty and increased
visibility of cash flows now, these discount rate premia have been
fully or partially removed in this latest valuation. The highest
discount rate premium for Covid-19 included in the valuations at
March 2021 is 0.5%.
As a 'through the cycle' investor with a strong balance sheet we
consider valuations in the context of the longer-term value of the
investments. This includes consideration of climate change risk and
stranded asset risk. Factors considered include physical risk,
litigation risk linked to climate change and transition risk (for
example, assumptions on the timing and extent of decommissioning of
North Sea oil fields). We take a granular approach to these risks,
for example each offshore oil and gas field has been assessed
individually to forecast the market over the long term and a low
terminal value has been assumed at the end of the forecast period.
In the case of stranded asset risk we consider long-term threats
that may impact value materially over our investment horizon, for
example, technological evolution or societal change. For ESVAGT,
which operates ERRVs in the North Sea servicing the oil and gas
market, we do not assume any new vessels or replacement vessels in
our valuation for that segment of the business. However, a number
of our portfolio companies are set to benefit from these changes.
Digitalisation in the offshore oil and gas sector in order to
reduce costs is benefitting Tampnet. The energy transition in the
Netherlands, with a focus on electrification, is benefitting Joulz.
The base case for each of our valuations takes a balanced view of
potential factors that we estimate is as likely to result in
underperformance as outperformance.
Discount rate
Table 5 below shows the movement in the weighted average
discount rate applied to the portfolio at the end of each year
since the Company's inception and the position as at March 2021.
During the year, the weighted average discount rate decreased
following the reversal of most of the premia that were added last
year as a result of the Covid-19 pandemic and volatility in public
markets; and a reduction in discount rates for the Projects
portfolio to bring them into line with evidence from recent
transaction activity in that sector.
Table 5: Portfolio weighted average discount rate (31 March,
%)
March 08 12.4
March 09 13.8
March 10 12.5
March 11 13.2
March 12 12.6
March 13 12.0
March 14 11.8
March 15 10.2
March 16 9.9
March 17 10.0
March 18 10.5
March 19 10.8
March 20 11.3
March 21 10.8
--------- ----
During the year, we witnessed a steady decline in equity risk
premia, the implied excess return over a risk-free rate of return,
in the markets in which we invest. This reflects increased
confidence in public markets, and coincides with increased
competition and pricing for assets that we are seeing from private
market participants, encouraged by the roll-out of vaccines across
the countries in which we operate. The risk-free rates in the
markets in which we invest increased slightly towards the end of
the year, but this was more than offset by the decline in equity
risk premia. We estimate that this overall reduction in returns is
consistent with the reduction in the weighted average discount rate
applied to the Company's portfolio.
Investment track record
As shown in Table 6, since its launch in 2007, 3i Infrastructure
has built a portfolio that has provided:
-- significant income, supporting the delivery of a progressive
annual dividend;
-- consistent capital growth; and
-- strong capital profits from realisations.
These have contributed to an 18% annualised asset Internal Rate
of Return ('IRR') since the Company's inception. The European
portfolio has generated strong returns, in line with, or in many
cases ahead of, expectations.
These returns were underpinned by substantial cash generation in
the form of income or capital profits.
The value created through this robust investment performance was
crystallised in a number of instances through well-managed
realisations, shown as 'Realised assets' in Table 6. While the
Company is structured to hold investments over the long term, it
has sold assets where compelling offers have generated additional
shareholder value. This was the case with WIG in 2019 which
generated an IRR of 27%, Eversholt Rail in 2015 and XLT in 2019
which both generated IRRs in excess of 40% and Elenia and AWG in
2018, which generated IRRs of 31% and 16% respectively.
Portfolio asset returns in Table 6 include an allocation of FX
hedging where applicable.
Table 6: Portfolio asset returns throughout holding period
(since inception, GBPm)
Value Proceeds on
Multiple IRR Total including disposals/ Cash
cost accrued income capital returns income
=========================== ======== === ===== ============== =============== ======
Existing portfolio
( Total return)
Infinis 1.4x 322 300 80 70
Tampnet 1.2x 187 230 0 0
Joulz 1.2x 190 219 1 15
Ionisos 1.1x 186 202 0 1
TCR 1.4x 155 199 4 19
ESVAGT 1.2x 147 189 0 0
Oystercatcher 2.1x 139 157 0 139
Valorem 2.0x 59 107 0 10
Attero 1.4x 88 105 1 17
Projects 1.5x 75 92 1 16
India Fund 0.5x 108 2 54 0
Realised assets ( Total
return)
WIG (realised December
2019) 1.7x 27% 265 0 431 21
XLT (realised March 2019) 5.9x 40% 63 0 322 38
Elenia (realised February
2018) 4.5x 31% 195 0 766 106
AWG (realised February
2018) 3.3x 16% 173 0 410 154
Eversholt (realised April
2015) 3.3x 41% 151 0 391 114
Projects (realised assets) 1.9x 22% 289 0 446 103
Others(1) 1.2x 8% 138 0 145 24
--------------------------- -------- --- ----- -------------- --------------- ------
18% Annualised asset IRR since inception to 31 March 2021
Portfolio asset returns include allocation of FX hedging where
applicable. The allocation of FX hedging movement is shown net
against cash income except in the case of ESVAGT (GBP(9)m) and
Tampnet (GBP(3)m) which do not have cash income, and is reflected
in the multiples shown for all assets.
Dates of asset realisations refer to completion dates.
1 Others includes junior debt portfolio, T2C and Novera.
Financial review and Risk
Financial review
The Company delivered another year
of growth in NAV and dividend per share.
Key financial measures (year to 31 March) 2021 2020
------------------------------------------ --------- ---------
Total return(1) GBP206m GBP224m
NAV GBP2,390m GBP2,269m
NAV per share 268.1p 254.5p
Total income(2) GBP110m GBP121m
Total income and non-income cash GBP117m GBP139m
Portfolio asset value(2) GBP1,802m GBP1,647m
Cash balances(2) GBP463m GBP418m
Total liquidity(3) GBP763m GBP718m
------------------------------------------ --------- ---------
1 IFRS Total comprehensive income for the year.
2 Reconciliation of measures to the financial statement balances
is set out in Tables 16 and 17.
3 Includes cash balances of GBP462 million (2020: GBP413
million), unrestricted cash in subsidiaries of GBP1 million (2020:
GBP5 million) and GBP300 million (2020: GBP300 million) undrawn
balances available under the Company's revolving credit
facility.
"The Company has grown its dividend per share every year of its
existence."
James Dawes
CFO, Infrastructure
10 May 2021
We have a strong balance sheet that provides liquidity for new
investments and funding for our portfolio companies, including to
finance growth initiatives. The portfolio has the income-generating
capacity to support the progressive dividend policy, and the
dividend was covered by net income this year despite the drag from
uninvested cash. The target dividend for FY22 of 10.45 pence per
share is an increase of 6.6% over FY21.
Returns
Total return
The Company generated a total return for the year of GBP206
million, representing a 9.2% return on opening NAV net of the prior
year final dividend (2020: GBP224 million, 11.4%). This performance
is consistent with the target return of 8% to 10% per annum to be
achieved over the medium term and was underpinned by a portfolio
return of 13.7% (2020: 13.1%), diluted by the cash balance held
during the year.
This return was driven by good performance from the majority of
the portfolio, and particularly from Infinis, Joulz and Valorem.
Changes in the valuation of the Company's portfolio assets are
described in the Movements in portfolio value section of the
Investment Manager's review.
Total income and non-income cash of GBP117 million in the year
was lower than last year, as liquidity was retained in portfolio
companies during these exceptional economic conditions (2020:
GBP139 million).
Non-income cash receipts reflect distributions from underlying
portfolio companies, which would usually be income to the Company,
but which are distributed as a repayment of investment for a
variety of reasons. Whilst non-income cash does not form part of
the total return shown in Table 7, it is included when considering
dividend coverage.
An analysis of the elements of the total return for the year is
shown in Table 7.
The Financial statements' classification of these components of
total return includes transactions within unconsolidated
subsidiaries as the Company adopts the Investment Entities
(Amendments to IFRS 10, IFRS 12 and IAS 27) basis for its
reporting. The non-material adjustments required to reconcile this
analysis to the Financial statements are shown in Table 16.
Table 7: Summary total return (year to 31 March, GBPm)
-----------------------------------------------------------
2021 2020
---------------------------------------------- ----- ----
Capital return (excluding exchange) 135 152
Foreign exchange movement in portfolio (24) (18)
---------------------------------------------- ----- ----
Capital return (including exchange) 111 134
Movement in fair value of derivatives 22 21
---------------------------------------------- ----- ----
Net capital return 133 155
Total income 110 121
Costs (37) (52)
---------------------------------------------- ----- ----
Total return 206 224
---------------------------------------------- ----- ----
Capital return
The capital return is the largest element of the total return.
The portfolio generated a value gain of GBP135 million in the year
to 31 March 2021 (2020: GBP152 million), as shown in Table 8. There
was a positive contribution across the majority of the portfolio
and the largest contributor was Joulz which generated GBP36
million. These value movements are described in the Movements in
portfolio value section of the Investment Manager's review.
Table 8: Reconciliation of the movement in NAV (year to 31 March
2021, GBPm)
Opening NAV at 1 April 2020(1) 2,228
Capital return 135
Net foreign exchange movement (2) (2)
Total income 110
Net costs including management fees (3) (37)
NAV before distributions 2,434
Distribution to shareholders (44)
Closing NAV at 31 March 2021 2,390
---------------------------------------- -----
1 Opening NAV of GBP2,269 million net of final dividend of GBP41 million for the prior year.
2 Foreign exchange movements are described in Table 10.
3 Includes non-portfolio related exchange movements.
Foreign exchange impact
The portfolio is diversified by currency as shown in Table 9. We
aim to deliver steady NAV growth for shareholders, and the foreign
exchange hedging programme enables us to do this by reducing our
exposure to fluctuations in the foreign exchange markets.
Portfolio foreign exchange movements, after accounting for the
hedging programme, reduced the net capital return by GBP2 million
(2020: increased by GBP3 million). As shown in Table 10, the
reported foreign exchange loss on investments of GBP24 million
(2020: loss of GBP18 million) included a loss of GBP1 million from
the Company's exposure to the Indian rupee, which is not hedged.
This was mostly offset by a GBP22 million gain on the hedging
programme (2020: gain of GBP21 million).
Table 9: Portfolio value by currency (at 31 March 2021)
EUR 60%
GBP 17%
NOK 13%
DKK 10%
---- ---
Table 10: Impact of foreign exchange ('FX') movements on
portfolio value (year to 31 March 2021, GBPm)
Hedged assets Unhedged assets
EUR/SGD/DKK/NOK GBP/rupee
----------------------- ---------------- ---------------
FX loss before hedging (23) (1)
FX loss after hedging (1) (1)
----------------------- ---------------- ---------------
Income
The portfolio generated income of GBP99 million in the year
(2020: GBP117 million). Of this amount, GBP20 million was through
dividends (2020: GBP34 million) and GBP79 million through interest
on shareholder loans (2020: GBP83 million). An additional GBP10
million of interest was accrued on the vendor loan notes issued in
lieu of WIG proceeds (2020: GBP3 million) together with a further
GBP0.4 million of interest receivable on deposits (2020: GBP1
million).
A full year of interest income from Ionisos, which was acquired
part way through the last financial year, offset the loss of
interest income contribution from the sale of WIG in the prior
year. A breakdown of portfolio income is provided in Table 11
below, together with an explanation of the change from prior
year.
Table 11: Breakdown of portfolio income (year to 31 March,
GBPm)
Dividend Interest Dividends Interest Comments
(2021) (2021) (2020) (2020)
==================== ========= ========= ========== ========= ===================================
ESVAGT - 22 - 19 Interest capitalised
-------------------- --------- --------- ---------- --------- -----------------------------------
Infinis - 17 - 18 Shareholder loan partly repaid
-------------------- --------- --------- ---------- --------- -----------------------------------
Oystercatcher 13 - 5 - Timing of distributions
-------------------- --------- --------- ---------- --------- -----------------------------------
TCR - 13 - 11 Interest capitalised
-------------------- --------- --------- ---------- --------- -----------------------------------
Ionisos - 9 - 4 New investment in FY20
-------------------- --------- --------- ---------- --------- -----------------------------------
Attero 5 1 9 2 Liquidity retained
-------------------- --------- --------- ---------- --------- -----------------------------------
Joulz - 5 13 5 Liquidity retained
-------------------- --------- --------- ---------- --------- -----------------------------------
Tampnet - 5 - 4 Interest capitalised
-------------------- --------- --------- ---------- --------- -----------------------------------
Valorem - 3 1 3 Liquidity retained
-------------------- --------- --------- ---------- --------- -----------------------------------
WIG - - - 8 Realisation in FY20
-------------------- --------- --------- ---------- --------- -----------------------------------
Projects Portfolio 2 4 6 9 Realisation of UK projects in FY20
-------------------- --------- --------- ---------- --------- -----------------------------------
Interest income from the economic infrastructure portfolio was
broadly consistent year-on-year, with the fall in income from
projects relating to the sale of the UK projects portfolio in the
prior year.
Dividends from Oystercatcher were higher than the prior year
partly due to the timing of distributions, but also due to an
improvement in the oil storage market. We were prudent in our
approach to taking dividends in order to preserve liquidity in
portfolio companies during the Covid-19 pandemic, but distributions
to the Company were sufficient to cover this year's target
dividend.
Costs
Management and performance fees
During the year to 31 March 2021, the Company incurred
management fees of GBP24 million (2020: GBP28 million). The fees,
payable to 3i plc, consist of a tiered management fee, and a
one-off transaction fee of 1.2% payable in respect of new
investments. The management fee tiers range from 1.4%, reducing to
1.2% for any proportion of gross investment value above GBP2.25
billion.
An annual performance fee is also payable by the Company,
amounting to 20% of returns above a hurdle of 8% of the total
return. This performance fee is payable in three equal annual
instalments, with the second and third instalments only payable if
certain future performance conditions are met. This hurdle was
exceeded for the year ended 31 March 2021 resulting in a
performance fee payable to 3i plc in respect of the year ended 31
March 2021 of GBP7 million (2020: GBP17 million). The first
instalment, of GBP2 million, will be paid in May 2021 along with
the second instalment of GBP6 million relating to the previous
year's performance fee. For a more detailed explanation of how
management and performance fees are calculated, please refer to
Note 18 to the accounts.
Fees payable
Fees payable on investment activities include costs for
transactions that did not reach, or have yet to reach, completion
and the reversal of costs for transactions that have successfully
reached completion and were subsequently borne by the portfolio
company. For the year to 31 March 2021, fees payable totalled less
than GBP1 million (2020: less than GBP1 million).
Other operating and finance costs
Operating expenses, comprising Directors' fees, service provider
costs and other professional fees, totalled GBP3 million in the
year (2020: GBP3 million).
Finance costs of GBP2 million (2020: GBP3 million) in the year
comprised arrangement and commitment fees for the Company's GBP300
million revolving credit facility ('RCF'). Finance costs were lower
than in FY20 as the RCF was not used in the year.
Ongoing charges ratio
The ongoing charges ratio measures annual operating costs, as
disclosed in Table 12 below, against the average NAV over the
reporting period.
The Company's ongoing charges ratio is calculated in accordance
with the Association of Investment Companies ('AIC') recommended
methodology and was 1.16% for the year to 31 March 2021 (2020:
1.42%). The ongoing charges ratio is higher in periods where new
investment levels are high and new equity is raised or capital is
returned to shareholders. Realisation of assets reduces the ongoing
charges ratio. The cost items that contributed to the ongoing
charges ratio are shown below.
The AIC methodology does not include performance fees or finance
costs. However, the AIC recommends that the impact of performance
fees on the ongoing charges ratio is noted, where performance fees
are payable. The ratio including the performance fee was 1.45%
(2020: 2.24%). The total return of 9.2% for the year is after
deducting this performance fee and ongoing charges.
Table 12: Ongoing charges (year to 31 March, GBPm)
-------------------------------------------------------
2021 2020
-------------------------------------- ------- ------
Investment Manager's fee 23.7 25.8
Auditor's fee 0.5 0.4
Directors' fees and expenses 0.5 0.5
Other ongoing costs 2.2 2.4
-------------------------------------- ------- ------
Total ongoing charges 26.9 29.1
-------------------------------------- ------- ------
Ongoing charges ratio 1.16% 1.42%
-------------------------------------- ------- ------
Balance sheet
The NAV at 31 March 2021 was GBP2,390 million (2020: GBP2,269
million). The principal components of the NAV are the portfolio
assets, cash holdings, the vendor loan notes from the sale of WIG,
the fair value of derivative financial instruments and other net
assets and liabilities. A summary balance sheet is shown in Table
13 below.
The accounting standards require cash or other net assets and
liabilities held within intermediate holding companies to be
presented as part of the fair value of the investments. The
Directors consider that it is helpful for users of the accounts to
be able to consider the valuation of the Company's portfolio assets
and total aggregate cash and net assets/liabilities within the
Company and its unconsolidated subsidiaries. The non-material
adjustments required to provide this analysis are shown in Table
17.
At 31 March 2021, the Company's net assets after the deduction
of the final dividend were GBP2,346 million (2020: GBP2,228
million).
Cash and other assets
Cash balances at 31 March 2021 totalled GBP463 million (2020:
GBP418 million), including GBP1 million (2020: GBP5 million) of
unrestricted cash balances held within intermediate unconsolidated
holding companies.
Cash on deposit was managed actively by the Investment Manager
and there are regular reviews of counterparties and their limits.
Cash is principally held in AAA-rated money market funds.
The movement in Other net assets represents the repayment of
half of the WIG vendor loan notes. The remaining amount is due to
be received in December 2021.
Borrowings
The Company has a GBP300 million RCF in order to maintain a good
level of liquidity for further investment whilst minimising returns
dilution from holding excessive cash balances. This is a three-year
facility, with a maturity date of April 2023. At 31 March 2021 the
full GBP300 million facility was available.
NAV per share
The total NAV per share at 31 March 2021 was 268.1 pence (2020:
254.5 pence). This reduces to 263.2 pence (2020: 249.9 pence) after
the payment of the final dividend of 4.9 pence (2020: 4.6 pence).
There are no dilutive securities in issue.
Table 13: Summary balance sheet (at 31 March, GBPm)
---------------------------------------------------- ----- -----
2021 2020
---------------------------------------------------- ----- -----
Portfolio assets 1,802 1,647
Cash balances 463 418
Derivative financial instruments 37 21
Other net assets (including vendor loan notes) 88 183
---------------------------------------------------- ----- -----
NAV 2,390 2,269
---------------------------------------------------- ----- -----
Dividend and dividend cover
The Board has proposed a dividend for the year of 9.8 pence per
share, or GBP87 million in aggregate (2020: 9.2 pence; GBP82
million). This is in line with the Company's target announced in
May last year.
When considering the coverage of the proposed dividend, the
Board assesses the income earned from the portfolio, interest
received on cash balances and any additional non-income cash
distributions from portfolio assets which do not follow from a
disposal of the underlying assets, as well as the level of ongoing
operational costs incurred in the year. The Board also takes into
account any surpluses retained from previous years, and net capital
profits generated through asset realisations, which it considers
available as dividend reserves for distribution.
Table 14 below shows the calculation of dividend coverage and
dividend reserves. The dividend was fully covered for the year with
no surplus (2020: surplus of GBP23 million). The retained amount
available for distribution, following the payment of the final
dividend, will be GBP868 million (2020: GBP876 million). This is a
substantial surplus, which is available to support the Company's
progressive dividend policy, particularly should dividends not be
fully covered by income in a future year. A shortfall could arise,
for example, due to holding substantial uninvested cash or through
lower distributions being received from portfolio companies in
order to preserve liquidity. Table 15 below shows that the Company
has consistently maintained a good level of dividend cover over the
last five years.
Table 14: Dividend cover (year to 31 March, GBPm)
-------------------------------------------------------- ---- ----
2021 2020
-------------------------------------------------------- ---- ----
Total income, other income and non-income cash 117 139
Operating costs including management fees (30) (34)
Dividends paid and proposed (87) (82)
-------------------------------------------------------- ---- ----
Dividend surplus for the year - 23
Dividend reserves brought forward from prior year 876 678
Realised profits or losses over cost on disposed assets (1) 192
Performance fees (7) (17)
-------------------------------------------------------- ---- ----
Dividend reserves carried forward 868 876
-------------------------------------------------------- ---- ----
Table 15: Dividend cover (five years to 31 March 2021, GBPm)
Net Dividend
income(1)
============= =========== =========
Mar 2017 74 77
------------- ----------- ---------
Mar 2018(2) 116 72
------------- ----------- ---------
Mar 2019 165 70
------------- ----------- ---------
Mar 2020 105 82
------------- ----------- ---------
Mar 2021 87 87
------------- ----------- ---------
1 Net income is Total income, other income and non-income cash less operating costs.
2 A return of capital to shareholders in 2018 reduced the FY18 final dividend payment.
Alternative Performance Measures ('APMs')
We assess our performance using a variety of measures that are
not specifically defined under IFRS and are therefore termed APMs.
The APMs that we use may not be directly comparable with those used
by other companies.
These APMs are used to present a clearer picture of how the
Company has performed over the year and are all financial measures
of historical performance. The APMs are consistent with those
disclosed in prior years.
-- Total return on opening NAV reflects the performance of the
capital deployed by the Company during the year. This measure is
not influenced by movements in share price or ordinary dividends to
shareholders.
-- The NAV per share is a common measure of the underlying asset
base attributable to each ordinary share of the Company and is a
useful comparator to the share price.
-- Total income and non-income cash is used to assess dividend
coverage based on distributions received from the investment
portfolio.
-- Investment value including commitments measures the total
value of shareholders' capital deployed by the Company.
-- Total portfolio return percentage reflects the performance of
the portfolio assets during the year.
The definition and reconciliation to IFRS of the APMs is shown
below.
APM Purpose Calculation Reconciliation to IFRS
---------------------------- ---------------------------- ---------------------------- ----------------------------
Total return on opening NAV A measure of the overall It is calculated as the The calculation uses
financial performance of the total return of GBP206 IFRS measures.
Company. million, as shown in the
Statement of comprehensive
For further information see income, as a percentage of
the KPI section. the opening NAV of GBP2,269
million net of the final
dividend for
the previous year of GBP41
million.
---------------------------- ---------------------------- ---------------------------- ----------------------------
NAV per share A measure of the NAV per It is calculated as the NAV The calculation uses IFRS
share in the Company. divided by the total number measures and is set out in
of shares in issue at the Note 14 to the accounts.
balance
sheet date.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Total income and A measure of the income and It is calculated as the The reconciliation of Total
non-income cash other cash receipts by the total income from the income to IFRS is shown in
Company which support the underlying portfolio and Table 16.
payment of other assets plus non-income
expenses and dividends. cash being the repayment of The proceeds from partial
shareholder loans not realisations of investments
resulting from the disposal are shown in the Cash flow
of an underlying statement.
portfolio asset. The realisation proceeds
which result from a partial
sale of an underlying
portfolio asset
are not included within
non-income cash.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Investment A measure of the size of the It is calculated as the The calculation uses
value including investment portfolio portfolio asset value plus portfolio assets shown in
commitments including the value of the amount of the contracted the reconciliation in Table
further contracted commitment. 17, together with
future investments committed the value of future
by the Company. commitments as set out in
Note 16 to the accounts.
Undrawn loan commitments
to the India Fund are not
included as these are not
expected to be drawn.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Total portfolio return A measure of the financial It is calculated as the The calculation uses capital
percentage performance of the total portfolio return in return (including exchange),
portfolio. the year movement in fair value of
of GBP232 million, as shown derivatives,
in Table 1, as a percentage underlying portfolio income,
of the sum of the opening opening portfolio value and
value of investment in the year. The
the portfolio and reconciliation
investments in the year of all these items to IFRS
(excluding capitalised is shown in Table 1.
interest) of GBP1,689
million.
---------------------------- ---------------------------- ---------------------------- ----------------------------
In addition to the APMs, the Annual report and accounts shows
portfolio information including cash and other net assets held
within intermediate unconsolidated holding companies. Tables 16 and
17 show a reconciliation of this portfolio information to the
information presented in the Financial statements. Table 18 shows
the calculation of Total income and non-income cash.
Reconciliation to Financial statements
The tables below reconcile the analysis in this financial
review, which reflects the aggregate returns, costs, assets and
liabilities of the underlying portfolio assets and the Financial
statements. The differences arise from transactions with
unconsolidated subsidiaries, with the total return for, and NAV of,
the Company being the same under either basis.
Table 16: Reconciliation of summary total return (year to 31 March 2021, GBPm)
------------------------------------------------------------------------------------------------------------------
Underlying portfolio asset Adjustments for transactions in Financial
aggregate returns and costs unconsolidated subsidiaries statements
-------------------------------------- ---------------------------- ------------------------------- -----------
Capital return (including exchange) 111 7 118
Movement in fair value of derivatives 22 - 22
-------------------------------------- ---------------------------- ------------------------------- -----------
Net capital return 133 7 140
Total income 110 (7)(1) 103
Costs (37) - (37)
-------------------------------------- ---------------------------- ------------------------------- -----------
Total return 206 - 206
-------------------------------------- ---------------------------- ------------------------------- -----------
1 Dividend income, received by unconsolidated subsidiaries from
portfolio assets but paid up to the Company as repayment of loan
principal and previously accrued interest. This is reflected in
capital return as it has reduced the carrying value of these
subsidiaries.
Table 17: Reconciliation of summary balance sheet (at 31 March 2021, GBPm)
----------------------------------------------------------------------------------------------------------------------
Underlying portfolio asset Adjustments for transactions in Financial statements
aggregate returns and costs unconsolidated subsidiaries(1)
--------------------------------- ---------------------------- ------------------------------- --------------------
Portfolio assets 1,802 2 1,804(2)
Cash balances 463 (1)(3) 462
Derivative financial instruments 37 - 37
Other net assets (including
vendor loan notes) 88 (1) 87
--------------------------------- ---------------------------- ------------------------------- --------------------
NAV 2,390 - 2,390
--------------------------------- ---------------------------- ------------------------------- --------------------
1 'Investments at fair value through profit or loss' in the
Financial statements includes GBP1 million of unrestricted cash
balances held within intermediate unconsolidated holding companies.
The adjustments reclassify these balances to show the underlying
value of the total cash holdings as monitored by the Board.
2 Described as 'Investments at fair value through profit or
loss' in the Financial statements.
3 Cash balances held in unconsolidated subsidiaries totalled
GBP1 million.
Table 18: Total income and non-income cash (year to 31 March, GBPm)
-------------------------------------------------------------------- ---- ----
2021 2020
-------------------------------------------------------------------- ---- ----
Total income 110 121
Non-income cash 7 18
-------------------------------------------------------------------- ---- ----
Total 117 139
-------------------------------------------------------------------- ---- ----
Risk report
"Effective risk management underpins the delivery of our
strategy and objectives."
Wendy Dorman
Chair, Audit and Risk Committee
Introduction
At the start of the year, the Audit and Risk Committee (the
'Committee'), alongside the Investment Manager, conducted a robust
assessment of the Company's emerging, key and principal risks in
light of the Covid-19 pandemic. Market and economic risk was
considered then to be the top risk facing the Company, and this
remains the case at the date of this report. The Committee
undertook a further review of the risk register during the year,
with a particular focus on emerging risks.
The following sections explain how we identify and manage risks
to the Company. They outline the key risks, our assessment of their
potential impact on the Company and our portfolio in the context of
the current environment and how we seek to mitigate them. It is
important to note that under the current working from home
conditions, which have been in place for the past year, the Company
and our Investment Manager continued to maintain a strong control
environment. Staff at 3i, together with your Board, successfully
adapted to remote working, demonstrating positive engagement and
the ability to use technology in effective ways.
Approach to risk governance
The Board is ultimately responsible for the risk management of
the Company. It seeks to achieve an appropriate balance between
mitigating risk and generating long-term sustainable risk-adjusted
returns for shareholders. Integrity, objectivity and accountability
are embedded in the Company's approach to risk management.
The Board exercises oversight of the risk framework, methodology
and process through the Committee. The risk framework is designed
to provide a structured and consistent process for identifying,
assessing and responding to risks. The Committee ensures that there
is a consistent approach to risk across the Company's strategy,
business objectives, policies and procedures.
The Company is also reliant on the risk management frameworks of
the Investment Manager and other key service providers, as well as
on the risk management operations of each portfolio company.
The Board manages risks through reports from the Investment
Manager and other service providers and through representation on
portfolio companies' boards by the Investment Manager's team
members.
Risk related reporting
Internal External - Annual report
------------------------------------------ ---------------------------------------
* Monthly management accounts * Risk appetite
* Internal and external audit reports * Viability statement
* Service provider control reports * Internal controls
* Risk logs * Going concern
* Compliance reports * Statutory/accounting disclosures
* Risk related reporting
------------------------------------------ ---------------------------------------
Risk review process
The Company's risk review process includes the monitoring of key
strategic and financial metrics considered to be indicators of
potential changes in its risk profile. The review includes, but is
not limited to, the following:
-- infrastructure and broader market overviews;
-- key macroeconomic indicators and their impact on the
performance and valuation of portfolio companies;
-- regular updates on the operational and financial performance of portfolio companies;
-- experience of investment and divestment processes;
-- compliance with regulatory obligations;
-- analysis of new and emerging regulatory initiatives;
-- liquidity management;
-- assessment of climate risks to the portfolio, including
physical, transition and litigation risks;
-- consideration of scenarios that may impact the viability of the Company;
-- assessment of emerging risks; and
-- review of the Company's risk log.
The Committee uses the risk framework to identify emerging and
key risks, and to evaluate changes in risks over time. Developments
during the year in the more significant key risks or 'principal
risks' are discussed later in this document. These are risks that
have the potential to impact materially the delivery of our
strategic objectives.
The Committee evaluates the probability of each identified risk
materialising and the impact it may have, with reference to the
Company's strategy and business model. The evaluation of these key
risks is then shown on a risk matrix. Mitigation actions have been
developed for each risk and the adequacy of the mitigation plans
and controls is then assessed and, if necessary, additional actions
are agreed and reviewed at a subsequent meeting.
The Committee considers the identified principal risks in
greater detail in the assessment of the Company's viability. A
number of scenarios have been developed to reflect plausible
outcomes should the principal risks be experienced, as well as
consideration of stressed scenarios that could result in the
Company ceasing to be viable. The Company is an investment company,
therefore the stressed scenarios reflect cash flow from investments
being reduced, such that debt covenants are breached and
liabilities not met. The Investment Manager models the impact of
these scenarios on the Company and reports the results to the
Committee. The modelling relates to the Company's investment
portfolio, as the Company is an investment company and this is
therefore most relevant to an assessment of viability. The
resulting assessment of viability is included in this Risk
report.
Risk appetite
The Committee reviewed the risk matrix and set out the Company's
appetite for each of the key risks. As an investment company, the
Company seeks to take investment risk. The appetite for investment
risk is described previously in the Our markets section, and in the
Investment policy towards the end of this document. Investments are
made subject to the Investment Manager's Responsible Investment
policy, which is an important element of our appetite for
investment risk. The Company seeks to limit or manage exposure to
other risks to acceptable levels.
The Company's strategy, including the appetite for investment
risk, was updated in the year ending March 2015. This narrowed the
Company's investment risk focus away from 'large core'
infrastructure assets and onto mid-market economic infrastructure
assets and greenfield projects. The financial returns, political
risk and regulatory risk of 'large core' assets were considered not
to fit the target risk-adjusted returns of the Company following a
period of return compression for such assets.
This strategy has served the Company well and has helped us to
meet or exceed the return objectives in every year since 2015.
The Company already invested in economic infrastructure assets
such as Oystercatcher and Eversholt Rail so had an investment track
record and strong understanding of the risk profile of such assets.
We recognise that focusing on mid-market economic infrastructure
assets will over time result in a greater level of economic risk in
the portfolio with the potential for greater volatility in returns
on an individual asset basis. The benefits of diversification
across sectors, countries and types of underlying economic risk
will mitigate this volatility, and the Company has sought to build
such a diverse portfolio.
The Covid-19 pandemic provided a severe test of the
appropriateness of the Company's risk appetite, and its
attractiveness to investors. The portfolio overall has been
resilient, and benefitted from diversification across the
infrastructure subsectors. In October 2020, the Committee concluded
that the risk appetite of the Company for economic infrastructure
investments has not changed, and remains appropriate for our
investment mandate and target returns.
Review during the year
In January 2021, the Committee reviewed the risk matrix and set
out the Company's appetite for each of the key risks. The
assessment of emerging risks is described in more detail below. The
assessment of impact and likelihood of several of the key risks was
updated.
We have a relatively diverse spread of assets in the portfolio
and it is important that risk diversity is maintained as we evolve
the portfolio through new investments and realisations. Future
realisations may continue the evolution of risk in the portfolio in
line with our strategy and allow the Company to manage its exposure
to more sensitive assets, or to take account of where the risk
profile of an asset has changed over time.
We are confident that the portfolio remains defensive and
resilient, and in a position to benefit from asymmetric returns in
rising or declining markets (taking more of the upside in a rising
market, and benefitting from protection in a downside). We believe
the current appetite for risk is appropriate.
Emerging risks
The Company is a long-term investor and therefore needs to
consider the impact of both identified key risks, as detailed
below, and risks that are considered emerging or longer-term.
Emerging risks are newly developing or identified risks that cannot
yet be fully assessed but that could in future affect the Company's
strategy, performance and viability. This emerging risk category
includes 'megatrends' such as demographic change, new ways of
working and shopping, urbanisation, resource scarcity and technical
disruptions.
Risk categorisation
The Committee uses the following categorisation to describe risks
that are identi ed during the risk review process.
Emerging risks Key risks Principal risks
----------------------------- --------------------------
An emerging risk is one A key risk is considered The Committee maintains
that may currently to pose the a risk matrix, onto which
in future be likely risk of a material impact the key risks are mapped
to have a material impact on the Company. Risks by impact and likelihood.
on the performance of may be identi ed as emerging The principal risks are
the Company and the achievement risks and subsequently identi ed on the risk
of our long-term objectives, become key risks. Identi matrix as those with
but that is not yet considered ed key risks may cease the highest combination
to be a key risk. to be considered key of impact and likelihood
over time. scores.
----------------------------- --------------------------
These powerful long-term trends will shape business, society and
communities around the globe and could have a material impact on
the performance and resilience of the portfolio.
The Board and the Investment Manager consider these factors when
reviewing the performance of the portfolio and when evaluating new
investments, seeking to identify which factors present a potential
risk and can either be mitigated or converted into opportunities.
As part of the ongoing risk identification and management of the
Company, the Committee considers whether these emerging risks
should be added to the Company's risk register. The risk register
is a 'live' document that is reviewed and updated regularly by the
Committee as new risks emerge and existing risks change. Examples
of emerging risks that were considered during the year include the
impact of changes in technology on our portfolio companies, a
future pandemic, divergence between the UK and the EU regulation
increasing friction over trade in goods and services, and
escalating regulatory reporting requirements.
Key risks
A key risk is considered to pose the risk of a material effect
on the Company. These are mapped by impact and likelihood on a risk
matrix. During the year the Committee considered the development of
a number of these key risks in detail, and considered the impact of
Covid-19 and climate risk on all the key risks. Within the category
of key risks, the principal risks identified by the Committee in
the financial year are set out in the Principal risks and
mitigation table below, alongside how the Company seeks to mitigate
these risks.
Climate risk
There is an increased focus on sustainability and ESG amongst
our shareholders and in the wider market. Although there is still
much uncertainty around the extent and timing of the impact of
climate change, government and societal action, and future
regulations, we recognise that climate-related risk is a key risk
as well as an investment theme for the Company.
Whilst the outcomes from climate change remain uncertain, we
have increased our focus on analysing these risks and how to
mitigate them. The elements of climate-related risk include greater
frequency and severity of weather conditions possibly leading to
rising sea levels, flooding, storms and other environmental
impacts. Our assessment includes possible changes to market
dynamics especially in sectors such as oil and gas, the risk of
climate-related litigation, consumer behavioural changes and the
resilience and flexibility of our portfolio companies' business
models.
We have increased our disclosures and reporting on climate risk
and our Investment Manager has evolved its proprietary ESG tool to
allow us to assess this and other risks in more detail across the
portfolio. The Task Force on Climate-Related Financial Disclosures
('TCFD') established by the Financial Stability Board provides a
framework and a set of standards to report against. Our progress in
TCFD reporting is described in our Annual report and accounts 2021,
available on our website.
All of the companies in our portfolio recognise the importance
of considering climate change and of evolving a sustainable
business model. As discussed in the Sustainability report of the
Annual report and accounts 2021, the physical and transition
climate-related risks are also seen as opportunities for all
companies in our portfolio. Further work was undertaken at
portfolio company level to assess climate-related risk during the
year, and we expect this to continue to evolve and become more
sophisticated over time.
There are no acute physical nor transition risks identified in
the portfolio that would suggest that climate-related risk is a
principal risk, although an example of the impact of a transition
risk is the introduction of a tax on imported waste or a CO(2) tax
in the Netherlands, which impacts Attero, and the risk of early
decommissioning of oil and gas assets which impacts some customers
of Tampnet and ESVAGT.
Covid-19
The Covid-19 pandemic was a major test of the business models of all
companies. The resilient response of our portfolio companies was consistent
with our strategy and with the characteristics that we look for in
infrastructure investments. During the year, the Committee received
regular reports from the Investment Manager on the operational and
financial performance of all portfolio companies. We have seen that
not all industries or companies have been affected to the same degree,
but all portfolio companies have been affected to some extent, either
directly or indirectly, for example through the reduction in air traffic,
volatility in oil and power prices, or changes in customer demand.
Operationally, the portfolio was highly resilient. More detail can
be found in the Investment Manager's review and elsewhere in this Risk
report.
The Committee reviewed the impact of Covid-19 on all key risks. The
experience of the past year has helped us understand the current and
potential effects on our portfolio. While the risks identified are
considered to remain the material ones, the ultimate impact on the
Company and our portfolio will only be fully understood over time.
The risk exposure from market/economic risk remains elevated. This
remains the top risk facing the Company. While government bond yields
and bank base rates remain low, there may be an impact on the appetite
of lenders to provide acquisition finance or to refinance existing
debt facilities.
The continued increase in working from home may lead to an increase
in cyber security incidents, such as 'phishing' attempts. The Investment
Manager and portfolio companies are aware of this risk, and have taken
steps to mitigate it.
The Committee and the Investment Manager continue to monitor and follow
closely the pace of the roll-out of vaccinations and the information
released from governments, regulatory bodies and health organisations
in the countries in which the Company invests.
Principal risks and mitigations
E xternal
Principal risk Risk description Risk mitigation
Market/economic
* Macroeconomic or market volatility, such as the * Resources and experience of the Investment Manager on
Risk exposure impact of Covid-19, ows through to pricing, deal-making, asset management and hedging solutions
movement in the year valuations and portfolio performance to market volatility
Increased
Link to Strategic * Fiscal tightening impacts market environment * Periodic legal and regulatory updates on the
priorities Company's markets and in-depth market and sector
Manage portfolio research from the Investment Manager and other
intensively * Risk of sovereign default lowers market sentiment and advisers
increases volatility
* Portfolio diversi cation to mitigate the impact of a
* Misjudgement of in ation and/or interest rate outlook downturn in any geography or sector
* The permanent capital nature of an investment trust
allows us to look through market volatility and the
economic cycle
----------------------------------------------------------- -----------------------------------------------------------
Competition
* Increased competition for the acquisition of assets * Continual review of market data and review of Company
Risk exposure in the Company's strategic focus areas return target compared to market returns
movement in the year
Increased
* Deal processes become more competitive and prices * Origination experience and disciplined approach of
Link to Strategic increase Investment Manager
priorities
Disciplined approach
* New entrants compete with a lower cost of capital * Strong track record and strength of 3i Infrastructure
brand
----------------------------------------------------------- -----------------------------------------------------------
Debt
markets * Debt becomes increasingly expensive, eroding returns * The Investment Manager maintains close relationships
deteriorate with a number of banks and monitors the market
Risk through transactions and advice
exposure * Debt availability is restricted
movement in
the year * Regular reporting of Company liquidity and portfolio
No * The Company's RCF or portfolio company debt cannot be company re nancing requirements
significant re nanced due to lack of appetite from banks
change
* Investment Manager has an in-house Treasury team to
Link to provide advice on treasury issues
Strategic
priorities
Manage
portfolio
intensively
----------------------------------------------------------- -----------------------------------------------------------
Operational
Principal risk Risk description Risk mitigation
Loss of senior
Investment * Members of the deal team at the Investment Manager * Benchmarked compensation packages and deferred
Manager staff leave and 'deal-doing' and portfolio management remuneration
capability in the short to medium term is restricted
Risk exposure
movement in * Notice periods within employment contracts
the year
No significant
change * Size of the senior team and strength of the 3i Group
brand
Link to
Strategic
priorities
Invest
responsibly
Sustainability
key driver
---------------------------------------------------------- ----------------------------------------------------------
Strategic
Principal risk Risk description Risk mitigation
Unbalanced
portfolio * Invested to minimise concentration risks (eg by * Investment process explicitly addresses questions of
geography, sector, demand driver, regulator) and f geographical and sector balance in the portfolio
Risk exposure ul
movement in l investment policy
the year * Portfolio concentration measures are reviewed
No significant periodically by the Board
change * Dif culty in maintaining geographical diversity, o
r
Link to sale of large assets, may lead to an unbalanced * The Investment Manager is selective when making new
Strategic portfolio investment commitments
priorities
Disciplined
approach * Misjudgement of risk when entering new sectors, * Portfolio diversity has remained stable over the year
industries or geographies
----------------------------------------------------------- -----------------------------------------------------------
Deliverability
of * Failure to ensure the investment strategy can deliver * Market returns are reviewed regularly
return target the return target and dividend policy of the Company
Risk exposure * The Investment Manager and other advisers to the
movement in * Failure to adapt the strategy of the Company to Company report on market positioning
the year changing market conditions
No significant
change * Investment process addresses expected return on new
investments and the impact on the portfolio
Link to
Strategic
priorities * Covid-19 pandemic effects were considered in the
Invest March 2021 valuation of the portfolio
responsibly
Sustainability
key driver
----------------------------------------------------------- -----------------------------------------------------------
Investment
Principal risk Risk description Risk mitigation
Inappropriate
rate * Failure to achieve new investment impacts shareholder * Good ow of new investment opportunities, although th
of investment perception, returns and growth prospects e
rate of new investment in FY21 was relatively low
Risk exposure
movement in * Excess 'vintage risk' magni es the impact of poor
the year performance from a vintage of investments * Portfolio concentration measures, including vintage
Increased diversi cation, are reviewed periodically by the
Board
Link to * Poor management of investment pipeline
Strategic
priorities * The Investment Manager undertakes a concentration
Invest review for each new investment
responsibly
Sustainability
key driver * Balance sheet and liquidity monitored regularly by
the Board
----------------------------------------------------------- ----------------------------------------------------------
Security of
assets * An incident, such as a cyber or terrorist attack * Regular review of the Company and key service
Risk exposure providers
movement in
the year * Unauthorised access of information and operating
Increased systems * Regular review and update of cyber due diligence for
potential investments
Link to * Regulatory and legal risks from failure to comply
Strategic with cyber related laws and regulations, including * Review of portfolio companies for cyber risk
priorities data protection management and incident readiness
Invest
responsibly
Sustainability
key driver
----------------------------------------------------------- ----------------------------------------------------------
Review of significant key risks
The disclosures in the Risk report are not an exhaustive list of
risks and uncertainties faced by the Company, but rather a summary
of significant key risks which are under active review by the
Board. These significant key risks have the potential to affect
materially the achievement of the Company's strategic objectives
and impact its financial performance. This disclosure shows
developments in these significant key risks for the year. The risks
that have been identified as principal risks are described in more
detail in the Principal risks and mitigations table.
External risks - market and competition
The markets in which the Company seeks to invest, and in
particular the European economic infrastructure market, are more
competitive than ever, with strong demand for new investments.
Competition continued to increase as the infrastructure sector has
demonstrated its resilience during the pandemic. In this
challenging environment, the Investment Manager continues to
leverage its network and skills to look for investments that can
deliver attractive and sustainable risk-adjusted returns to the
Company's shareholders.
The agreement on future EU-UK relations that concluded in
December 2020 said little relating directly to financial services.
The regulatory environment in which the Company operates may
change, but it is not yet clear how. The majority of the Company's
investments are in domestic businesses with limited cross-border
trading. In the case of Attero, which imports waste from the UK, we
identified a risk of short-term logistics disruption but we now
consider the potential impact of this risk to be low and Attero has
a significant buffer stock of untreated waste which mitigates this
risk.
Inflation remains low across Europe and the UK but the
longer-term impact of the Covid-19 pandemic increases the risk that
we will move to a period of inflation above our long-term
assumption. Higher inflation would generally be positive for the
Company, particularly for assets which have revenues at least
partially linked to inflation, although higher inflation may also
result in increased costs.
Short-term interest rates and future interest rate expectations
in the UK and Europe have remained close to historically low levels
during the year. The Company has taken advantage of this favourable
environment through continued debt refinancing activity in the
portfolio, most recently in the case of Infinis, and the majority
of the portfolio has been refinanced in recent years with medium to
long-term facilities, which mitigates this risk. Ongoing access to
debt markets is important to assets in the portfolio, particularly
as existing debt matures. Changes in the terms and availability of
debt finance, including from underlying performance of portfolio
assets, could impact valuations.
The Company is exposed to movements in sterling exchange rates
against a number of currencies, most significantly the euro. In the
first half of the year sterling depreciated against the euro,
primarily driven by continued uncertainty concerning the terms of
the UK's departure from the EU and the Covid-19 pandemic, which
resulted in foreign exchange gains in the portfolio. In the second
half of the year these gains reversed and sterling has appreciated
to levels above those at the beginning of the year. The Company
operates a hedging programme which substantially offsets this
volatility. The Board monitors the effectiveness of the Company's
hedging policy on a regular basis.
The exposure to the Indian rupee remains unhedged but following
the sale of Krishnapatnam Port the remaining exposure is
immaterial.
Gas and carbon prices increased in the second half of the
financial year following positive news around Covid-19 vaccines,
tighter capacity margins and higher commodity prices. This
benefitted our portfolio companies that generate electricity:
Infinis, Valorem and Attero. The valuation of those businesses are
affected by the evolution of long-term power price forecasts and by
fluctuations in the spot power price. Volatility in prices is
expected to continue as thermal and nuclear plants are retired,
there is a growth in intermittent renewables and increasing demand
due to the electrification of transport and heating.
The oil price was volatile in the year but appears to have
stabilised for now. Low oil prices delayed some expected growth for
Tampnet and reduced demand for ESVAGT vessels operating in the oil
and gas sector. For Oystercatcher, the drop in oil prices caused a
contango market structure which led to storage rate improvements
and customers keen to renew contracts earlier. However, this
benefit was partially offset by reduced throughput and ancillary
revenues driven by the decline in end-user demand.
Air traffic movements and passenger numbers remain substantially
below prior year levels, and the timing and extent of future
recovery is uncertain. During the year we saw a recovery in air
travel during the summer following the easing of restrictions, but
the renewed imposition of restrictions during the final quarter saw
another decline in activity. This affects TCR, as discussed in the
Investment Manager's review and the Financial review. We have
reflected current market conditions and expectations in our
projections for TCR. We expect that the roll-out of vaccines should
allow for a partial recovery during the summer, particularly for
short-haul travel to which TCR is predominantly exposed, and
supports our assumption of a longer-term return to pre-pandemic
levels of air travel by 2024.
Ionisos is a provider of cold sterilisation and ionising
radiation treatment services to the medical, pharmaceutical,
plastics and cosmetics industries. Gamma radiation, one of the
three methods of cold sterilisation used, relies on the radioactive
decay of Cobalt-60, a scarce resource. Ionisos has secured its
Cobalt-60 requirement for the next two years. All methods of
sterilisation require stringent operating procedures and safety
standards. Breaches of these can result in the closure of
facilities, fines and reputational damage if not dealt with in an
appropriate manner. During the year Ionisos shut down operations in
its Italian subsidiary due to safety concerns. This is discussed in
more detail in the Review from the Managing Partner section earlier
in this document.
External risks - regulatory and tax
The Company's investment in Infinis is exposed to electricity
market regulation risk around the future of network access charging
arrangements and the level of post-Brexit carbon price support. It
is possible that this could affect the valuation of Infinis, and we
are closely monitoring the position. The direction of network
access charging reform is for more location-based charging which in
principle should benefit generators such as Infinis with sites
predominantly in demand-dominated areas. Carbon taxes are an
important driver of UK power prices and there are two main schemes:
the UK ETS (a levy on large users which replaced the EU ETS
following the end of the Brexit transition) and the UK Carbon Price
Support (a tax on coal and gas generators). The future of both
schemes and their interaction (if any) with the EU ETS is
uncertain.
The unprecedented fiscal stimulus that we have seen over the
past year has increased sovereign debt levels and a probable
consequence of this will be higher taxes to balance the deficit.
The announced increase in the UK corporation tax rate from April
2023 is reflected in the valuation of Infinis, our only investment
in the UK.
Strategic risks
The Company manages its balance sheet and liquidity position
actively, seeking to maintain adequate liquidity to pursue new
investment opportunities, while not diluting shareholder returns by
holding surplus cash balances. At 31 March 2021 there was GBP463
million available in cash and a further GBP300 million from the
Company's undrawn RCF available for future investment. The RCF
includes an additional GBP200 million accordion feature which the
Company could seek to exercise if required. Current investment
commitments will deploy c.GBP166 million of this cash balance,
improving balance sheet efficiency.
The portfolio is diversified across sector and geography with no
investment above 15% of portfolio value.
Operational risks
The key areas of operational risk include attracting and
retaining key personnel at the Investment Manager, and whether the
Investment Manager's team can continue to support the delivery of
the Company's objectives. The team has strength and depth and
remained stable in the year. The Board monitors the performance of
the Investment Manager through the Management Engagement Committee.
It also monitors the performance of key service providers,
receiving reports of any significant control breaches.
Portfolio companies continue to experience fraud attempts, some
of which are successful, but none of which has had a material
impact on any of our companies. In the year, we followed up with
our portfolio companies on actions identified in a review of cyber
controls by an independent IT security provider. No significant
weaknesses in cyber security were identified and the majority of
more minor issues have been addressed. We remain vigilant and
continue to focus on effective operations of controls against
possible cyber-attack, particularly as working practices have
adapted in response to Covid-19.
Viability statement
The Directors consider the long-term prospects of the Company to
be favourable. The Company has a diverse portfolio of
infrastructure investments, producing good and reasonably
predictable levels of income which cover the dividend and costs.
The defensive nature of the portfolio and of the essential services
that the businesses in which we invest provide to their customers
are being demonstrated in the current climate. The Investment
Manager has a strong track record of investing in carefully
selected businesses and projects and of driving value through an
engaged asset management approach. The Directors consider that this
portfolio can continue to meet the Company's objectives.
The Directors have assessed the viability of the Company over a
three-year period to March 2024. The Directors have taken account
of the current position of the Company, including its strong
liquidity position with GBP463 million of cash and GBP300 million
of undrawn credit facilities, its commitment of c.GBP166 million to
further investment described in the Going concern section below,
and the principal risks it faces which are documented in this Risk
report.
The Directors have considered the potential impact on the
Company of a number of scenarios in addition to the Company's
business plan and recent forecasts, which quantify the nancial
impact of the principal risks occurring. These scenarios represent
severe yet plausible circumstances that the Company could
experience, including a signi cant impairment in the value of the
portfolio and a reduction in the cash ows available from portfolio
companies from a variety of causes.
The assessment was conducted over several months, during which
the proposed scenarios were evaluated by the Board, the assumptions
set, and the analysis produced and reviewed. Analysis included the
impact of additional and prolonged restrictions on movement due to
Covid-19 on the customer base of our portfolio companies and the
impact of a resulting economic downturn. Despite improved
visibility in our cash flows, this is an area where greater
uncertainty remains. Other considerations included the possible
impact of climate-related events and transition risks, widespread
economic turmoil, a reduction in cash distributions from portfolio
companies to the Company, a tightening of debt markets and the
failure of a large investment.
The assumptions used to model these scenarios included a fall in
value of some or all of the portfolio companies, a reduction in
cash ows from portfolio companies, a reduction in the level of new
investment, the imposition of additional taxes on distributions
from or transactions in the portfolio companies, an increase in the
cost of debt and restriction in debt availability, and an inability
for the Company to raise equity. The implications of changes in the
in ation, interest rate and foreign exchange environment were also
considered, separately and in combination.
The results of this stress testing showed that the Company would
be able to withstand the impact of these scenarios occurring over
the three-year period. The Directors also considered scenarios that
would represent a serious threat to its liquidity and viability in
that time period. These scenarios were considered to be remote,
such as a fall in equity value of the portfolio of materially more
than 50% whilst being fully drawn on the RCF including the
accordion, or an equivalent fall in income. Whilst the eventual
impact of Covid-19 on the portfolio is uncertain, and may not be
known for some time, the Company is in a strong liquidity position
and our portfolio companies are proving to be resilient.
The Directors consider that a three-year period to March 2024 is
an appropriate period to review for assessing the Company's
viability. This re ects greater predictability of the Company's
cash ows over that time period and increased uncertainty
surrounding economic, political and regulatory changes over the
longer term.
Based on this assessment, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the three-year
period to March 2024.
Going concern
The Company's business activities, together with the factors likely
to affect its future development, performance and position are set
out in the Strategic report and in the Financial statements and related
Notes to our Annual report and accounts to 31 March 2021. The nancial
position of the Company, its cash ows, liquidity position and borrowing
facilities are described in the Financial statements and related Notes
to the accounts. In addition, Note 9 to the accounts includes the
Company's objectives, policies and processes for managing its capital,
its nancial risk management objectives, details of its nancial instruments
and hedging activities, and its exposures to credit risk and liquidity
risk.
The Directors have made an assessment of going concern, taking into
account the Company's cash and liquidity position, current performance
and outlook, which considered the impact of the Covid-19 pandemic,
using the information available up to the date of issue of these nancial
statements. The assessment modelled a number of adverse scenarios
to assess the potential impact that Covid-19 may have on the Company's
operations and portfolio companies, in addition to the scenarios mentioned
in the Viability statement above. The assessment reviewed the Company's
supplier base, considering any single points of failure and the possibility
of suppliers experiencing nancial stress. The assessment included
the consideration of contingency plans for the key suppliers including
the Investment Manager, the Registrar, the Jersey administrator and
the brokers.
The Company has liquid nancial resources and a strong investment portfolio
providing a predictable income yield and an expectation of medium-term
capital growth. The Company manages and monitors liquidity regularly,
ensuring that it is suf cient.
At 31 March 2021, liquidity remained strong at GBP763 million (2020:
GBP718 million). Liquidity comprised cash and deposits of GBP463 million
(2020: GBP418 million) and undrawn facilities of GBP300 million (2020:
GBP300 million). In addition, the Company is due to receive the second
tranche of the deferred consideration from the realisation of WIG
of GBP98 million in December 2021.
The Company had investment commitments of GBP11 million to new or
existing investments at 31 March 2021, with a further investment commitment
of c.GBP155 million for DNS:NET made on 1 April 2021. As in previous
periods, the Company does not expect the $37.5 million commitment
to the India Fund to be drawn. The Company had ongoing charges of
GBP26.9 million in the year to 31 March 2021, detailed in Table 12
in the Financial review, which are indicative of the ongoing run rate
in the short term. In addition, the FY21 performance fee of GBP7 million
(2020: GBP17 million) is due in three equal instalments with the rst
instalment payable in the next 12 months along with the second instalment
of FY20's performance fee, and a proposed nal dividend for FY21 of
GBP44 million which is expected to be paid in July.
Although not a commitment, the Company has announced a dividend target
for FY22 of 10.45 pence per share. Whilst a signi cant amount of income
is expected to be received from the portfolio investments during the
coming year, the Company has suf cient liquidity to meet its nancial
commitments even if no income were received and has suf cient resources
to make equity investments in existing portfolio companies where required.
The Directors have acknowledged their responsibilities in relation
to the Financial statements for the year to 31 March 2021. After making
the assessment on going concern, the Directors considered it appropriate
to prepare the Financial statements of the Company on a going concern
basis, having considered the impact of Covid-19 on its operations
and on its portfolio.
The Company has suf cient nancial resources and liquidity and is well-positioned
to manage business risks in the current economic environment and can
continue operations for a period of at least 12 months from the date
of this report. Accordingly, the Directors continue to adopt the going
concern basis in preparing the Annual report and accounts.
Directors' duties
Section 172 Statement
The Directors are obliged to act honestly and in good faith with
a view to the best interests of the Company; and to exercise the
care, diligence and skill that a reasonably prudent person would
exercise in comparable circumstances.
The Directors fulfil their duties through the Company's
governance framework and through their delegation of discretionary
investment management authority to the Investment Manager, other
than in respect of transactions which exceed certain financial
thresholds and matters reserved to the Board.
The Company adheres to the AIC Code of Corporate Governance 2019
(the 'AIC Code') and it is the intention of the AIC Code that the
matters set out in section 172 Companies Act 2006 ('s172') are
reported on to the extent they do not conflict with Jersey law. The
Directors exercise their duties by understanding the views of the
Company's key stakeholders and considering all of the matters set
out in s172 in both their discussions and in decision making.
The Board acknowledges that not every decision made will
necessarily result in a positive outcome for every stakeholder
group. By considering the Company's purpose together with its
strategic priorities and having a clear process in place for
decision making, we can factor into Board discussion the potential
impact of our decisions on each stakeholder group and consider
their needs and concerns in accordance with s172.
Under s172 a director of a company must act in a way he
considers in good faith would be most likely to promote the success
of the company for the benefit of its members as a whole, and in
doing so have regard to:
The likely consequences of any decision in the long term
Our purpose and strategy combined with the responsible
investment approach of the Investment Manager focuses on long-term
sustainable returns and outcomes.
The interests of the Company's employees
Whilst we do not have any employees, we have a vested interest
in the employees of portfolio companies and of the Investment
Manager.
The need to foster the Company's business relationships with
suppliers, customers and others
We engage with all our stakeholders either directly or through
the Investment Manager.
The impact of the Company's operations on the community and the
environment
We use our influence to promote a commitment in our portfolio
companies to mitigate any adverse environmental and social impacts,
and to enhance positive effects on their communities and the
environment.
The desirability of maintaining a reputation for high standards
of business conduct
Our success relies on maintaining a strong reputation and our
values and ethics are aligned to our purpose and our ways of
working.
The need to act fairly towards all members of the Company
The Board actively engages with its shareholders and balances
their interests when implementing our strategy.
Read more in our Annual report and accounts 2021, available on
our website
Statement of comprehensive income
For the year to 31 March
Year to Year to
31 March 31 March
2021 2020
Notes GBPm GBPm
----------------------------------------------------------------- ------ --------- ---------
Net gains on investments 7 118 128
Investment income 7 92 123
Fees payable on investment activities (1) (1)
Interest receivable 11 4
----------------------------------------------------------------- ------ --------- ---------
Investment return 220 254
Movement in the fair value of derivative financial instruments 5 22 21
Management and performance fees payable 2 (31) (45)
Operating expenses 3 (3) (3)
Finance costs 4 (2) (3)
Profit before tax 206 224
----------------------------------------------------------------- ------ --------- ---------
Income taxes 6 - -
----------------------------------------------------------------- ------ --------- ---------
Profit after tax and profit for the year 206 224
----------------------------------------------------------------- ------ --------- ---------
Total comprehensive income for the year 206 224
================================================================= ====== ========= =========
Earnings per share
Basic and diluted (pence) 14 23.1 26.4
---------------------------------------------------------------- ------ --------- ---------
Statement of changes in equity
For the year to 31 March
Stated Total
capital Retained Capital Revenue shareholders'
account reserves(1) reserve(1) reserve(1) equity
For the year to 31 March 2021 Notes GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ------ -------- -------------- ------------- ----------- --------------
Opening balance at 1 April 2020 779 1,282 196 12 2,269
Total comprehensive income for the year - - 134 72 206
Dividends paid to shareholders of the
Company during the year 15 - - - (85) (85)
---------------------------------------- ------ -------- -------------- ------------- ----------- --------------
Closing balance at 31 March 2021 779 1,282 330 (1) 2,390
---------------------------------------- ------ -------- -------------- ------------- ----------- --------------
Stated Total
capital Retained Capital Revenue shareholders'
account reserves(1) reserve(1) reserve(1) equity
For the year to 31 March 2020 Notes GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ------ -------- -------------- ------------- ----------- --------------
Opening balance at 1 April 2019 560 1,282 64 (4) 1,902
Issue of shares(2) 219 - - - 219
Total comprehensive income for the year - - 132 92 224
Dividends paid to shareholders of the
Company during the year 15 - - - (76) (76)
---------------------------------------- ------ -------- -------------- ------------- ----------- --------------
Closing balance at 31 March 2020 779 1,282 196 12 2,269
---------------------------------------- ------ -------- -------------- ------------- ----------- --------------
1 The Retained reserves, Capital reserve and Revenue reserve are distributable reserves. Retained
reserves relate to the period prior to 15 October 2018. Further information can be found in
Accounting policy H.
2 Net of issue costs of GBP4 million.
Balance sheet
As at 31 March
2021 2020
Notes GBPm GBPm
--------------------------------------------------- ------ ------ ------
Assets
Non-current assets
Investments at fair value through profit or loss 7 1,804 1,652
Trade and other receivables 8 - 99
Derivative financial instruments 10 18 7
--------------------------------------------------- ------ ------ ------
Total non-current assets 1,822 1,758
--------------------------------------------------- ------ ------ ------
Current assets
Derivative financial instruments 10 25 26
Trade and other receivables 8 106 101
Cash and cash equivalents 462 413
--------------------------------------------------- ------ ------ ------
Total current assets 593 540
--------------------------------------------------- ------ ------ ------
Total assets 2,415 2,298
--------------------------------------------------- ------ ------ ------
Liabilities
Non-current liabilities
Derivative financial instruments 10 (2) (4)
Trade and other payables 12 (10) (11)
Total non-current liabilities (12) (15)
--------------------------------------------------- ------ ------ ------
Current liabilities
Derivative financial instruments 10 (4) (8)
Trade and other payables 12 (9) (6)
--------------------------------------------------- ------ ------ ------
Total current liabilities (13) (14)
--------------------------------------------------- ------ ------ ------
Total liabilities (25) (29)
--------------------------------------------------- ------ ------ ------
Net assets 2,390 2,269
--------------------------------------------------- ------ ------ ------
Equity
Stated capital account 13 779 779
Retained reserves 1,282 1,282
Capital reserve 330 196
Revenue reserve (1) 12
--------------------------------------------------- ------ ------ ------
Total equity 2,390 2,269
--------------------------------------------------- ------ ------ ------
Net asset value per share
Basic and diluted (pence) 14 268.1 254.5
-------------------------------------------------- ------ ------ ------
The Financial statements and related Notes were approved and
authorised for issue by the Board of Directors on 10 May 2021 and
signed on its behalf by:
Richard Laing
Chair
Cash flow statement
For the year to 31 March
Year to Year to
31 March 31 March
2021 2020
GBPm GBPm
--------------------------------------------------------------------------------- --------- ---------
Cash flow from operating activities
Purchase of investments (43) (389)
Proceeds from other financial assets 104 -
Proceeds from partial realisations of investments 14 24
Proceeds from full realisations of investments 30 376
Investment income(1) 51 83
Fees paid on investment activities - (1)
Operating expenses paid (3) (3)
Interest received 1 1
Management and performance fees paid (29) (60)
Amounts received/(paid) on the settlement of derivative contracts 6 (16)
Payments for transfer of investments from unconsolidated subsidiaries (2) - (18)
Distributions from transfer of investments from unconsolidated subsidiaries (2) 5 17
Temporary loan to unconsolidated subsidiaries - 2
Net cash flow from operating activities 136 16
--------------------------------------------------------------------------------- --------- ---------
Cash flow from financing activities
Proceeds from issue of share capital - 223
Transaction costs for issue of share capital - (4)
Fees and interest paid on financing activities (2) (3)
Dividends paid (85) (76)
Drawdown of revolving credit facility - 192
Repayment of revolving credit facility - (192)
--------------------------------------------------------------------------------- --------- ---------
Net cash flow from financing activities (87) 140
--------------------------------------------------------------------------------- --------- ---------
Change in cash and cash equivalents 49 156
--------------------------------------------------------------------------------- --------- ---------
Cash and cash equivalents at the beginning of the year 413 257
Effect of exchange rate movement - -
--------------------------------------------------------------------------------- --------- ---------
Cash and cash equivalents at the end of the year 462 413
--------------------------------------------------------------------------------- --------- ---------
1 Investment income includes dividends of GBP6 million (2020: GBP32 million), interest of GBP43
million (2020: GBP44 million) and distributions of GBP2 million (2020: GBP7 million) received
from unconsolidated subsidiaries.
2 Following the change of tax residence of the Company from Jersey to the UK, several of the
investments held in unconsolidated subsidiaries domiciled outside the UK have been transferred
to be held directly by the Company.
Reconciliation of net cash flow to movement in net cash
For the year to 31 March
Year to Year to
31 March 31 March
2021 2020
Notes GBPm GBPm
============================================== ====== ========= =========
Change in cash and cash equivalents 49 156
Drawdown of revolving credit facility 11 - 192
Repayment of revolving credit facility 11 - (192)
---------------------------------------------- ------ --------- ---------
Change in net cash resulting from cash flows 49 156
---------------------------------------------- ------ --------- ---------
Movement in net cash 49 156
Net cash at the beginning of the year 413 257
Effect of exchange rate movement - -
---------------------------------------------- ------ --------- ---------
Net cash at the end of the year 462 413
---------------------------------------------- ------ --------- ---------
In the above reconciliation there were no non-cash
movements.
Significant accounting policies
Corporate information
3i Infrastructure plc (the 'Company') is a company incorporated
in Jersey, Channel Islands. The Financial statements for the year
to 31 March 2021 comprise the Financial statements of the Company
as defined in IFRS 10 Consolidated Financial Statements.
The preliminary results for the year ended 31 March 2021 have
been extracted from audited accounts which have not yet been
delivered to the Jersey Financial Services Commission. The
Financial statements set out in this announcement do not constitute
statutory accounts for the year ended 31 March 2021 or 31 March
2020. The financial information for the year ended 31 March 2020 is
derived from the statutory accounts from that year. The report of
the auditors on the statutory accounts for the year ended 31 March
2021 and the year ended 31 March 2020 were unqualified.
The Financial statements included in this announcement were
authorised for issue by the Board of Directors on 10 May 2021.
Statement of compliance
These Financial statements have been prepared in accordance with
International Financial Reporting Standards, International
Accounting Standards and their interpretations issued as adopted
for use in the European Union ('IFRS').
These Financial statements have also been prepared in accordance
with and in compliance with the Companies (Jersey) Law 1991.
Basis of preparation
In accordance with IFRS 10 (as amended), entities that meet the
definition of an investment entity are required to fair value
certain subsidiaries through profit or loss in accordance with IFRS
9 Financial Instruments, rather than consolidate their results.
However, those subsidiaries that are not themselves investment
entities and provide investment-related services to the Company are
consolidated.
The Company previously had one consolidated subsidiary, 3i
Infrastructure Seed Assets GP Limited, which was dissolved on 17
March 2020. The Company no longer has any consolidated
subsidiaries. There are no consolidation adjustments in relation to
transactions between the Company and subsidiaries held at fair
value.
The Financial statements of the Company are presented in
sterling, the functional currency of the Company, rounded to the
nearest million except where otherwise indicated.
The preparation of financial statements in conformity with IFRS
requires the Board to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on experience and other factors
that are believed to be reasonable under the circumstances, the
results of which form the basis of determining the carrying values
of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
Going concern
The Financial statements are prepared on a going concern basis
as disclosed in the Risk report, as the Directors are satisfied
that the Company has the resources to continue in business for the
foreseeable future. The Directors have made an assessment of going
concern, taking into account a wide range of information relating
to present and future conditions, including the Company's cash and
liquidity position, current performance and outlook, which has
considered the impact of the ongoing Covid-19 pandemic, and current
and expected financial commitments using information available to
the date of issue of these financial statements. As part of this
assessment the Directors considered:
-- the analysis of the adequacy of the Company's liquidity,
solvency and capital position. The Company manages and monitors
liquidity regularly ensuring it is adequate and sufficient. At 31
March 2021, liquidity remained strong at GBP763 million (2020:
GBP718 million). Liquidity comprised cash and deposits of GBP463
million (2020: GBP418 million) and undrawn facilities of GBP300
million (2020: GBP300 million) with a maturity date of April 2023.
In addition, the Company is due to receive GBP98 million in
December 2021 from the second tranche of deferred consideration
from the sale of WIG;
-- uncertainty around the valuation of the Company's assets as
set out in the Key estimation uncertainties section. The valuation
policy and process was consistent with prior years. All of our
portfolio companies have been impacted by the increased market
volatility and uncertainty brought on by Covid-19 but to differing
degrees. This year a key focus of the portfolio valuations at 31
March 2021 was an assessment of the operational and financial
performance of each portfolio company during the economic downturn,
and the expected shape of the economic recovery and the impact this
would have on each company. We were prudent in our approach to
taking dividends in order to preserve liquidity in portfolio
companies during the Covid-19 pandemic and we have incorporated
into our cash flow forecasts a balanced view of future income
receipts;
-- the Company's financial commitments. The Company had one
investment commitment at 31 March 2021 totalling GBP11 million. As
in previous periods, we do not expect the $37.5 million commitment
to the India fund to be drawn. The Company had ongoing charges of
GBP27 million in the year to 31 March 2021, detailed in Table 12 in
the Financial review, which are indicative of the ongoing run rate
in the short term, a FY21 performance fee accrual of GBP7 million,
a third of which is payable within the next 12 months, a FY20
performance fee accrual of GBP11 million relating to the second and
third instalments of last year's fee, half of which is payable
within the next 12 months and a proposed final dividend for FY21 of
GBP44 million. In addition, while not a commitment at 31 March
2021, the Company has a dividend target for FY22 of 10.45 pence per
share and has agreed to invest c.EUR182 million in DNS:NET, a
German telecommunications provider. Whilst a significant amount of
income is expected to be received from the investment portfolio
during the coming year, the Company has sufficient liquidity to
meet its financial commitments even if no income were received and
has sufficient resources to make equity investments in existing
portfolio companies where required.
Having performed the assessment of going concern, the Directors
considered it appropriate to prepare the Financial statements of
the Company on a going concern basis. The Company has sufficient
financial resources and liquidity and is well placed to manage
business risks in the current economic environment and can continue
operations for a period of at least 12 months from the date of
these financial statements.
Key judgements
The preparation of financial statements in accordance with IFRS
requires the Directors to exercise judgement in the process of
applying the accounting policies defined below. The following
policies are areas where a higher degree of judgement has been
applied in the preparation of the Financial statements.
(i) Assessment as investment entity - Entities that meet the
definition of an investment entity within IFRS 10 are required to
measure their subsidiaries at fair value through profit or loss
rather than consolidate them unless they provided
investment-related services to the Company. To determine that the
Company continues to meet the definition of an investment entity,
the Company is required to satisfy the following three
criteria:
(a) the Company obtains funds from one or more investors for the
purpose of providing those investor(s) with investment management
services;
(b) the Company commits to its investor(s) that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income, or both; and
(c) the Company measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Company meets the criteria as follows:
-- the stated strategy of the Company is to deliver stable
returns to shareholders through a mix of income yield and capital
appreciation;
-- the Company provides investment management services and has
several investors who pool their funds to gain access to
infrastructure related investment opportunities that they might not
have had access to individually; and
-- the Company has elected to measure and evaluate the
performance of all of its investments on a fair value basis. The
fair value method is used to represent the Company's performance in
its communication to the market, including investor presentations.
In addition, the Company reports fair value information internally
to Directors, who use fair value as the primary measurement
attribute to evaluate performance.
The Directors are of the opinion that the Company has all the
typical characteristics of an investment entity and continues to
meet the definition in the standard. This conclusion will be
reassessed on an annual basis.
(ii) Assessment of investments as structured entities - A
structured entity is an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity. Additional disclosures are required by
IFRS 12 for interests in structured entities, whether they are
consolidated or not. The Directors have assessed whether the
entities in which the Company invests should be classified as
structured entities and have concluded that none of the entities
should be classified as structured entities as voting rights are
the dominant factor in deciding who controls these entities.
(iii) Assessment of consolidation requirements - The Company
holds significant stakes in the majority of its investee companies
and must exercise judgement in the level of control of the
underlying investee company that is obtained in order to assess
whether the Company should be classified as a subsidiary.
The Company must also exercise judgement in whether a subsidiary
provides investment-related services or activities and therefore
should be consolidated or held at fair value through profit or
loss. Further details are shown in significant accounting policy 'A
Classification' below.
During the year, the Company set up seven wholly owned
subsidiary entities for potential new investments, including
DNS:NET, and invested in a joint venture entity to acquire further
stakes in the A9 and A27/A1 PPP projects. The Directors have
assessed whether any of these entities provide investment-related
services and have concluded that they should not be consolidated
and that they should all be held at fair value through profit or
loss.
The adoption of certain accounting policies by the Company also
requires the use of certain critical accounting estimates in
determining the information to be disclosed in the Financial
statements.
Key estimation uncertainties
Valuation of the investment portfolio
The key area where estimates are significant to the Financial
statements and have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year is in the valuation of the investment
portfolio. The portfolio is well-diversified by sector, geography
and underlying risk exposures. The key risks to the portfolio are
discussed in further detail in the Risk report.
The majority of assets in the investment portfolio are valued on
a discounted cash flow basis which requires assumptions to be made
regarding future cash flows, terminal value and the discount rate
to be applied to these cash flows. Uncertainty around the duration
and the long-term effect of the Covid-19 pandemic and the pace and
extent of the recovery has resulted in increased estimation
uncertainty in respect of the future cash flows of the portfolio
companies. However, the Directors have better visibility over the
cash flows compared with the previous year and continue to receive
regular updates on their operational and financial performance and
therefore the relative level of estimation uncertainty is lower
than the prior year.
The methodology for deriving the fair value of the investment
portfolio, including the key estimates, is set out in the Portfolio
valuation methodology section. Refer to Note 7 for further details
of the valuation techniques, significant inputs to those techniques
and sensitivity of the fair value of these investments to the
assumptions that have been made.
The discount rate applied to the cash flows in each investment
portfolio company is a key source of estimation uncertainty. The
acquisition discount rate is adjusted to reflect changes in
company-specific risks to the deliverability of future cash flows
and is calibrated against secondary market information and other
available data points, including comparable transactions. The
discount rates applied to the investment portfolio at 31 March 2021
range from 7% to 12% (2020: 7.5% to 12.5%) and the weighted average
discount rate applied to the investment portfolio is 10.8% (2020:
11.3%). At March 2020, we applied a higher discount rate than we
would have applied without Covid-19 to almost all portfolio company
valuations; the highest increase applied was 1%. Given the lower
uncertainty and increased visibility of cash flows now, these
discount rate premia applied at March last year have been fully or
partially removed in this latest valuation. The highest discount
rate premium for Covid-19 included in the valuations at March 2021
is 0.5%.
The cash flows on which the discounted cash flow valuation is
based are derived from detailed financial models. These incorporate
a number of assumptions with respect to individual portfolio
companies, including: forecast new business wins or new orders;
cost-cutting initiatives; liquidity and delays to debtor payments;
delays to non-committed capital expenditure and construction
activity; the terms of future debt refinancing; government and
central bank mitigation measures and macroeconomic assumptions such
as inflation and oil and power prices. Future power price
projections are taken from independent forecasters and changes in
these assumptions will affect the future value of our energy
generating portfolio companies . The Summary of portfolio valuation
methodology provides further details on some of the assumptions
that have been made in deriving a balanced base case of cash
flows.
The terminal value attributes a residual value to the portfolio
company at the end of the projected discrete cash flow period based
on market comparables. The terminal value assumptions consider
climate change risk and stranded asset risk. The valuation of each
asset has significant estimation in relation to asset specific
items but there is also consideration given to the impact of wider
megatrends such as the transition to a lower carbon economy and
climate change. The effects of climate change, including extreme
weather patterns or rising sea levels in the longer term could
impact the valuation of the assets in the portfolio in different
ways. The Summary of portfolio valuation methodology section
earlier in this document provides further details on some of the
assumptions that have been made in deriving terminal values and
some of the risk factors considered in the cash flow forecasts
relating to climate change.
In respect of TCR, which operates in the aviation industry,
there is a greater level of estimation uncertainty compared to the
other portfolio investments. The valuation of TCR, which represents
8% of the total net asset value of the Company, is subject to the
estimation uncertainty in respect of the extent and duration of the
disruption to air traffic movements caused by Covid-19. We have
reflected current market conditions and expectations in our
projections for TCR. It is expected that the pace and efficacy of
the vaccine roll-out should allow for a partial recovery during the
summer. The cash flows have been adjusted to reflect the
performance of TCR during the downturn in air traffic alongside a
more gradual recovery than previously assumed, with domestic
services recovering faster than international travel, but with no
return to pre-Covid passenger number levels until 2024. TCR has
largely fixed rental contracts, rather than direct exposure to
passenger numbers. These contracts have been renegotiated with all
of TCR's main customers, with the revised terms reflected in the
cash flow forecast. TCR is actively managing its balance sheet and
liquidity and has undertaken a number of cost reduction
initiatives. TCR signed a number of rental contracts with new
customers during the year. The discount rate premium applied in
March 2020 has been partially reduced as a result of reduced cash
flow uncertainty, reflecting renegotiated contract terms and
supported by financial outperformance to date against previous
projections, and the improved outlook for air travel recovery as a
result of the roll-out of vaccines. The valuation of TCR is
considered to reflect a balanced base case of cash flows and
appropriate discount rate.
During the year, Ionisos discovered serious shortcomings in the
safety of operations in its Italian subsidiary, Steril Milano. This
is described previously in the Review from the Managing Partner
section. The valuation of Ionisos at March 2021 fully provides for
the effect of the closure of its Italian operations, which is
assumed to be contained within Steril Milano. Ionisos had invested
approximately EUR15 million to acquire Steril Milano in 2019 and on
capital expenditure since acquisition, and it contributed c.3% of
Ionisos group EBITDA in 2020. Were Steril Milano to become
insolvent, that would give rise to a breach of the debt financing
facilities provided to the Ionisos group. We consider that
replacement financing facilities would be available to Ionisos on
similar terms if required.
New and amended standards adopted for the current year
Standards and amendments to standards applicable to the Company
that became effective during the year and were adopted by the
Company on 1 April 2020 are listed below.
Amendments to IAS 1 and IAS 8 Definition of Material (1 January
2020)
Amendments to IFRS 3 Business Combinations: Definition of a
Business (1 January 2020)
Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark
Reform (1 January 2020)
Amendments to References to the Conceptual Framework in IFRS
standards (1 January 2020)
None of these amendments has had a material impact on the
Financial statements.
Standards and amendments issued but not yet effective
As at 31 March 2021, the following new or amended standards,
which have not been applied in these Financial statements, had been
issued by the International Accounting Standards Board ('IASB') but
are yet to become effective.
Amendments to IAS 1 Classification of Liabilities as Current or
Non-current (1 January 2023)
Amendments to IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors (1 January 2023)
Amendments to IAS 16 Property, Plant and Equipment - Proceeds
before Intended Use (1 January 2023)
Amendments to IAS 37 Provisions, Contingent Liabilities and
Contingent Assets - Onerous Contracts (1 January 2022)
Amendments to IFRS 3 Business Combinations (1 January 2022)
Amendments to IFRS 17 Insurance contracts (1 January 2022)
Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 resulting from
Annual Improvements to IFRS 2018-2020 Cycle
(1 January 2022)
The Company intends to adopt these standards when they become
effective, however does not currently anticipate the standards will
have a significant impact on the Company's financial statements.
Current assumptions regarding the impact of future standards will
remain under consideration in light of interpretation notes as and
when they are issued.
A Classification
(i) Subsidiaries - Subsidiaries are entities controlled by the
Company. Control exists when the Company is exposed, or has rights,
to variable returns from its involvement with the subsidiary entity
and has the ability to affect those returns through its power over
the subsidiary entity. In accordance with the exception under IFRS
10 Consolidated Financial Statements, the Company only consolidates
subsidiaries in the Financial statements if they are deemed to
perform investment-related services and do not meet the definition
of an investment entity. Investments in subsidiaries that do not
meet this definition are accounted for as Investments at fair value
through profit or loss with changes in fair value recognised in the
Statement of comprehensive income in the year. The Directors have
assessed all entities within the structure and concluded that 3i
Infrastructure Seed Assets GP Limited was the only subsidiary of
the Company that provides investment-related services or
activities. In prior years this subsidiary was consolidated with
the Company to form 'the Group'. 3i Infrastructure Seed Assets GP
Limited was dissolved during the financial year to 31 March
2020.
(ii) Associates - Associates are those entities in which the
Company has significant influence, but not control, over the
financial and operating policies. Investments that are held as part
of the Company's investment portfolio are carried in the Balance
sheet at fair value even though the Company may have significant
influence over those entities.
(iii) Joint ventures - Interests in joint ventures that are held
as part of the Company's investment portfolio are carried in the
Balance sheet at fair value. This treatment is permitted by IFRS 11
and IAS 28, which allows interests held by venture capital
organisations where those investments are designated, upon initial
recognition, as at fair value through profit or loss and accounted
for in accordance with IFRS 9 with changes in fair value recognised
in the Statement of comprehensive income in the year.
B Exchange differences
Transactions entered into by the Company in a currency other
than its functional currency are recorded at the rates ruling when
the transactions occur. Foreign currency monetary assets and
liabilities are translated to the functional currency at the
exchange rate ruling at the balance sheet date. Foreign exchange
differences arising on translation to the functional currency are
recognised in the Statement of comprehensive income. Foreign
exchange differences relating to investments held at fair value
through profit or loss are shown within the line Net gains on
investments. Foreign exchange differences relating to other assets
and liabilities are shown within the line Exchange movements.
Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated using the
exchange rate at the date of the transactions. Non-monetary assets
and liabilities denominated in foreign currencies that are stated
at fair value are translated to the functional currency using
exchange rates ruling at the date the fair value was determined
with the associated foreign exchange difference being recognised
within the unrealised gain or loss on revaluation of the asset or
liability.
C Investment portfolio
Recognition and measurement - Investments are recognised and
de-recognised on a date where the purchase or sale of an investment
is under a contract whose terms require the delivery or settlement
of the investment. The Company manages its investments with a view
to profiting from the receipt of investment income and obtaining
capital appreciation from changes in the fair value of investments.
Therefore, all quoted investments and unquoted investments are
measured at fair value through profit or loss upon initial
recognition and subsequently carried in the Balance sheet at fair
value, applying the Company's valuation policy. Acquisition related
costs are accounted for as expenses when incurred.
Net gains or losses on investments are the movement in the fair
value of investments between the start and end of the accounting
period, or investment disposal date, or the investment acquisition
date and the end of the accounting period, including divestment
related costs where applicable, converted into sterling using the
exchange rates in force at the end of the period; and are
recognised in the Statement of comprehensive income.
Income
Investment income is that portion of income that is directly
related to the return from individual investments. It is recognised
to the extent that it is probable that there will be an economic
benefit and the income can be reliably measured.
The following specific recognition criteria must be met before
the income is recognised:
-- dividends from equity investments are recognised in the
Statement of comprehensive income when the Company's rights to
receive payment have been established. Special dividends are
credited to capital or revenue according to their
circumstances;
-- interest income from loans that are measured at fair value
through profit or loss is recognised as it accrues by reference to
the principal outstanding and the effective interest rate
applicable, which is the rate that exactly discounts the estimated
future cash flows through the expected life of the financial asset
to the asset's carrying value or principal amount. The remaining
changes in the fair value movement of the loans are recognised
separately in the line Net gains on investments in the Statement of
comprehensive income;
-- distributions from investments in Limited Partnerships are
recognised in the Statement of comprehensive income when the
Company's rights as a Limited Partner to receive payment have been
established; and
-- fees receivable represent amounts earned from investee
companies on completion of underlying investment transactions and
are recognised on an accruals basis once entitlement to the revenue
has been established.
D Fees
(i) Fees - Fees payable represent fees incurred in the process
of acquiring an investment and are measured on the accruals
basis.
(ii) Management fees - A management fee is payable to 3i plc,
calculated as a tiered fee based on the Gross Investment Value of
the Company and is accrued in the period it is incurred. Further
details on how this fee is calculated are provided in Note 18.
(iii) Performance fee - 3i plc is entitled to a performance fee
based on the total return generated in the period in excess of a
performance hurdle of 8%. The fee is payable in three equal annual
instalments and is accrued in full in the period it is incurred.
Further details are provided in Note 18.
(iv) Finance costs - Finance costs associated with loans and
borrowings are recognised on an accruals basis using the effective
interest method.
E Treasury assets and liabilities
Short-term treasury assets and short- and long-term treasury
liabilities are used to manage cash flows and the overall costs of
borrowing. Financial assets and liabilities are recognised in the
Balance sheet when the relevant company entity becomes a party to
the contractual provisions of the instrument.
(i) Cash and cash equivalents - Cash and cash equivalents in the
Balance sheet and Cash flow statement comprise cash at bank,
short-term deposits with an original maturity of three months or
less and AAA rated money market funds. Money market funds are
accounted for at amortised cost under IFRS 9. However due to their
short-term and liquid nature, this is the same as fair value.
Interest receivable or payable on cash and cash equivalents is
recognised on an accruals basis.
(ii) Bank loans, loan notes and borrowings - Loans and
borrowings are initially recognised at the fair value of the
consideration received, net of issue costs associated with the
borrowings. Where issue costs are incurred in relation to arranging
debt finance facilities these are capitalised and disclosed within
Trade and other receivables and amortised over the life of the
loan. After initial recognition, loans and borrowings are
subsequently measured at amortised cost using the effective
interest method, which is the rate that exactly discounts the
estimated future cash flows through the expected life of the
liabilities. Amortised cost is calculated by taking into account
any issue costs and any discount or premium on settlement.
(iii) Derivative financial instruments - Derivative financial
instruments are used to manage the risk associated with foreign
currency fluctuations in the valuation of the investment portfolio.
This is achieved by the use of forward foreign currency contracts.
Such instruments are used for the sole purpose of efficient
portfolio management. All derivative financial instruments are held
at fair value through profit or loss.
Derivative financial instruments are recognised initially at
fair value on the contract date and subsequently remeasured to the
fair value at each reporting date. All changes in the fair value of
derivative financial instruments are taken to the Statement of
comprehensive income. The maturity profile of derivative contracts
is measured relative to the financial contract settlement date of
each contract and the derivative contracts are disclosed in the
Financial statements as either current or non-current
accordingly.
F Other assets
Assets, other than those specifically accounted for under a
separate policy, are stated at their consideration receivable less
impairment losses. Such assets are short-term in nature and the
carrying value of these assets is considered to be approximate to
their fair value. Assets are reviewed for recoverability and
impairment using the expected credit loss model simplified
approach. The Company will recognise the asset's lifetime expected
credit losses at each reporting period where applicable in the
Statement of comprehensive income. An impairment loss is reversed
at subsequent financial reporting dates to the extent that the
asset's carrying amount does not exceed its carrying value, had no
impairment been recognised.
Assets with maturities less than 12 months are included in
current assets, assets with maturities greater than 12 months after
the Balance sheet date are classified as non-current assets.
G Other liabilities
Liabilities, other than those specifically accounted for under a
separate policy, are stated based on the amounts which are
considered to be payable in respect of goods or services received
up to the financial reporting date. Such liabilities are short-term
in nature, the carrying value of these liabilities is considered to
be approximate to their fair value.
H Equity and reserves
(i) Share capital - Share capital issued by the Company is
recognised at the fair value of proceeds received and is credited
to the Stated capital account. Direct issue costs net of tax are
deducted from the fair value of the proceeds received.
(ii) Equity and reserves - The Stated capital account of the
Company represents the cumulative proceeds recognised from share
issues or new equity issued on the conversion of warrants made by
the Company net of issue costs and reduced by any amount that has
been transferred to Retained reserves, in accordance with Jersey
Company Law, in previous years. Share capital is treated as an
equity instrument, on the basis that no contractual obligation
exists for the Company to deliver cash or other financial assets to
the holder of the instrument.
On 15 October 2018, the Company became UK tax domiciled and,
with effect from that date, was granted UK approved investment
trust status. Financial statements prepared under IFRS are not
strictly required to apply the provisions of the Statements of
Recommended Practice issued by the UK Association of Investment
Companies for the financial statements of Investment Trust
Companies (the 'AIC SORP'). However, where relevant and
appropriate, the Directors have looked to follow the
recommendations of the SORP. From this date, the retained profits
of the Company have been applied to two new reserves being the
Capital reserve and the Revenue reserve. These are in addition to
the existing Retained reserves which incorporate the cumulative
retained profits of the Company (after the payment of dividends)
plus any amounts that have been transferred from the Stated capital
account of the Company to 15 October 2018.
The Directors have exercised their judgement in applying the AIC
SORP and a summary of these judgements are as follows:
-- Net gains on investments are applied wholly to the Capital
reserve as they relate to the revaluation or disposal of
investments.
-- Dividends are applied to the Revenue reserve except under
specific circumstances where a dividend arises from a return of
capital or proceeds from a refinancing, when they are applied to
the Capital reserve.
-- Fees payable are applied to the Capital reserve where the
service provided is, in substance, an intrinsic part of an
intention to acquire or dispose of an investment.
-- Movement in the fair value of derivative financial
instruments is applied to the Capital reserve as the derivative
hedging programme is specifically designed to reduce the volatility
of sterling valuations of the non-sterling denominated
investments.
-- Management fees are applied to the Revenue reserve as they
reflect ongoing asset management. Where a transaction fee element
is due on the acquisition of an investment it is applied to the
Capital reserve.
-- Performance fees are applied wholly to the Capital reserve as
they arise mainly from capital returns on the investment
portfolio.
-- Operating costs are applied wholly to the Revenue reserve as
there is no clear connection between the operating expenses of the
Company and the purchase and sale of an investment.
-- Finance costs are applied wholly to the Revenue reserve as
the existing borrowing is not directly linked to an investment.
-- Exchange movements are applied to the Revenue reserve where
they relate to exchange on non-portfolio assets.
(iii) Dividends payable - Dividends on ordinary shares are
recognised in the period in which the Company's obligation to make
the dividend payment arises and are deducted from Retained reserves
for the period to 15 October 2018 and from the Revenue reserve for
subsequent periods.
I Income taxes
Income taxes represent the sum of the tax currently payable,
withholding taxes suffered and deferred tax. Tax is charged or
credited in the Statement of comprehensive income, except where it
relates to items charged or credited directly to equity, in which
case the tax is also dealt with in equity.
The tax currently payable is based on the taxable profit for the
year. This may differ from the profit included in the Statement of
comprehensive income because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible.
To enable the tax charge to be based on the profit for the year,
deferred tax is provided in full on temporary timing differences,
at the rates of tax expected to apply when these differences
crystallise. Deferred tax assets are recognised only to the extent
that it is probable that sufficient taxable profits will be
available against which temporary differences can be set off. In
practice, some assets that are likely to give rise to timing
differences will be treated as capital for tax purposes. Given
capital items are exempt from tax under the Investment Trust
Company rules, deferred tax is not expected to be recognised on
these balances. All deferred tax liabilities are offset against
deferred tax assets, where appropriate, in accordance with the
provisions of IAS 12.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Notes to the accounts
1 Operating segments
The Directors review information on a regular basis that is
analysed by portfolio segment; being Economic infrastructure
businesses, the Projects portfolio and the India Fund, and by
geography. These segments are reviewed for the purpose of resource
allocation and the assessment of their performance. In accordance
with IFRS 8, the segmental information provided below uses these
segments for the analysis of results as it is the most closely
aligned with IFRS reporting requirements. The Company is an
investment holding company and does not consider itself to have any
customers.
The following is an analysis of the Company's investment return,
profit before tax, assets, liabilities and net assets by portfolio
segment for the year to 31 March 2021:
Economic
infrastructure Projects India
businesses portfolio Fund Unallocated(1) Total
For the year to 31 March 2021 GBPm GBPm GBPm GBPm GBPm
------------------------------- --------------- ---------- ------ --------------- ------
Investment return 196 8 5 11 220
=============================== =============== ========== ====== =============== ======
Profit/(loss) before tax 215 11 5 (25) 206
=============================== =============== ========== ====== =============== ======
For the year to 31 March 2020
------------------------------- --------------- ---------- ------ --------------- ------
Investment return/(loss) 192 60 (2) 4 254
=============================== =============== ========== ====== =============== ======
Profit/(loss) before tax 213 60 (2) (47) 224
=============================== =============== ========== ====== =============== ======
As at 31 March 2021
Assets 1,748 96 3 568 2,415
Liabilities (6) - - (19) (25)
============= ====== === ===== ======
Net assets 1,742 96 3 549 2,390
============= ====== === ===== ======
As at 31 March 2020
Assets 1,582 76 27 613 2,298
Liabilities (11) (1) - (17) (29)
============= ====== ==== === ===== ======
Net assets 1,571 75 27 596 2,269
============= ====== ==== === ===== ======
1 Unallocated includes cash, management and performance fees payable,
RCF drawn and other payables and receivables which are not directly
attributable to the investment portfolio.
The following is an analysis of the Company's investment return,
profit before tax, assets, liabilities and net assets by geography
for the year to 31 March 2021:
UK and Continental
Ireland(1) Europe(2) Asia Total
For the year to 31 March 2021 GBPm GBPm GBPm GBPm
------------------------------- ----------- ------------ ----- ------
Investment return 53 162 5 220
=============================== =========== ============ ===== ======
Profit before tax 17 184 5 206
=============================== =========== ============ ===== ======
For the year to 31 March 2020
------------------------------- ----------- ------------ ----- ------
Investment return/(loss) 190 66 (2) 254
=============================== =========== ============ ===== ======
Profit/(loss) before tax 139 87 (2) 224
=============================== =========== ============ ===== ======
As at 31 March 2021
Assets 868 1,544 3 2,415
Liabilities (19) (6) - (25)
============= ===== ====== ======
Net assets 849 1,538 3 2,390
============= ===== ====== ======
As at 31 March 2020
Assets 898 1,373 27 2,298
Liabilities (17) (12) - (29)
============= ===== ====== === ======
Net assets 881 1,361 27 2,269
============= ===== ====== === ======
1 Including Channel Islands. All centrally incurred costs have been deemed to be incurred in
the UK and Ireland while recognising these costs support
allocations across geographies.
2 Continental Europe includes all returns generated from, and investment portfolio value relating
to, the Company's investments in Oiltanking, including those derived from its underlying business
in Singapore.
The Company generated 24% (2020: 75%) of its investment return
in the year from investments held in the UK and Ireland and 74%
(2020: 26%) of its investment return from investments held in
continental Europe. During the year, the Company generated 94%
(2020: 77%) of its investment return from investments in Economic
infrastructure businesses, 4% (2020: 24%) from investments in
Projects and 2% (2020: (1)%) from its investment in the India Fund.
Given the nature of the Company's operations, the Company is not
considered to be exposed to any operational seasonality or
cyclicality that would impact the financial results of the Company
during the year or the financial position of the Company at 31
March 2021.
2 Management and performance fees payable
Year to Year to
31 March 31 March
2021 2020
GBPm GBPm
----------------- --------- ---------
Management fee 24 28
Performance fee 7 17
----------------- --------- ---------
31 45
----------------- --------- ---------
Total management and performance fees payable by the Company for
the year to 31 March 2021 were GBP31 million (2020: GBP45 million).
Note 18 provides further details on the calculation of the
management fee and performance fee.
3 Operating expenses
Operating expenses include the following amounts:
Year to Year to
31 March 31 March
2021 2020
GBPm GBPm
------------------------------ --------- ---------
Audit fees 0.4 0.3
Directors' fees and expenses 0.5 0.5
------------------------------ --------- ---------
In addition to the fees described above, audit fees of GBP0.07
million (2020: GBP0.09 million) were paid by unconsolidated
subsidiary entities for the year to 31 March 2021 to the Company's
auditor.
Services provided by the Company's auditor
During the year, the Company obtained the following services
from the Company's auditor, Deloitte LLP.
Year to Year to
31 March 31 March
2021 2020
Audit services GBPm GBPm
------------------------------------------------------------ --------- ---------
Statutory audit Company 0.30 0.26
UK unconsolidated subsidiaries(1) 0.04 0.04
Overseas unconsolidated subsidiaries(1) 0.03 0.05
----------------------------------------------------------- --------- ---------
0.37 0.35
----------------------------------------------------------- --------- ---------
1 These amounts were paid from unconsolidated subsidiary entities and
do not form part of operating expenses but are included in the net
gains on investments.
Non-audit services
Deloitte LLP and their associates provided non-audit services
for fees totalling GBP52,700 for the year to 31 March 2021 (2020:
GBP65,173). This related to agreed-upon procedures work in respect
of the management and performance fees (GBP7,200) and the review of
the interim financial statements (GBP45,500). In line with the
Company's policy, Deloitte LLP provided non-audit services to
certain investee companies. The fees for these services are
ordinarily borne by the underlying investee companies or
unconsolidated subsidiaries, and therefore are not included in the
expenses of the Company. Details on how such non-audit services are
monitored and approved can be found in the Governance section of
the Annual report and accounts.
4 Finance costs
Year to Year to
31 March 31 March
2021 2020
GBPm GBPm
----------------------------------------------------------------------------- --------- ---------
Finance costs associated with the debt facilities 2 2
Professional fees payable associated with the arrangement of debt financing - 1
----------------------------------------------------------------------------- --------- ---------
2 3
----------------------------------------------------------------------------- --------- ---------
5 Movement in the fair value of derivative financial
instruments
Year to Year to
31 March 31 March
2021 2020
GBPm GBPm
------------------------------------------------------------------ --------- ---------
Movement in the fair value of forward foreign exchange contracts 22 21
------------------------------------------------------------------ --------- ---------
The movement in the fair value of derivative financial
instruments is included within profit before tax but not included
within investment return.
6 Income taxes
Year to Year to
31 March 31 March
2021 2020
GBPm GBPm
----------------------------------------------------------------- --------- ---------
Current taxes
Current year - -
----------------------------------------------------------------- --------- ---------
Total income tax charge in the Statement of comprehensive income - -
----------------------------------------------------------------- --------- ---------
Reconciliation of income taxes in the Statement of comprehensive
income
The tax charge for the year is different from the standard rate
of corporation tax in the UK, currently 19% (2020: 19%), and the
differences are explained below:
Year to Year to
31 March 31 March
2021 2020
GBPm GBPm
--------------------------------------------------------------------------------------- --------- ---------
Profit before tax 206 224
Profit before tax multiplied by rate of corporation tax in the UK of 19% (2020: 19%) 39 43
Effects of:
Non-taxable capital profits due to UK approved investment trust company status (26) (28)
Non-taxable dividend income (1) (6)
Dividend designated as interest distributions (12) (9)
Total income tax charge in the Statement of comprehensive income - -
--------------------------------------------------------------------------------------- --------- ---------
The Company's affairs are directed so as to allow it to meet the
requisite conditions to continue to operate as an approved
investment trust company for UK tax purposes. The approved
investment trust status allows certain capital profits of the
Company to be exempt from tax in the UK and also permits the
Company to designate the dividends it pays, wholly or partly, as
interest distributions. These features enable approved investment
trust companies to ensure that their investors do not ultimately
suffer double taxation of their investment returns, ie once at the
level of the investment fund vehicle and then again in the hands of
the investors.
In the Spring Budget 2021, the UK Government announced that the
main rate of UK corporation tax would remain at 19% until April
2023 when it will increase to 25%. Should the Company recognise
deferred tax assets and liabilities, a rate of 19% or 25% would
therefore be used depending on when the assets and liabilities are
expected to be crystallised.
7 Investments at fair value through profit or loss and financial
instruments
All financial instruments for which fair value is recognised or
disclosed are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
Level Fair value input description Financial instruments
-------- ------------------------------------------------------ ----------------------------------------------------
Level 1 Quoted prices (unadjusted and in active markets) Quoted equity investments
Level 2 Inputs other than quoted prices included in Level 1 Derivative financial instruments held at fair value
that are observable in the market either
directly (ie as prices) or indirectly (ie derived
from prices)
Level 3 Inputs that are not based on observable market data Unquoted investments and unlisted funds
-------- ------------------------------------------------------ ----------------------------------------------------
For assets and liabilities that are recognised in the Financial
statements on a recurring basis, the Company determines whether
transfers have occurred between levels in the hierarchy by
reassessing the categorisation (based on the lowest level input
that is significant to the fair value measurement as a whole) for
each reporting period.
The table below shows the classification of financial
instruments held at fair value into the fair value hierarchy at 31
March 2021. For all other assets and liabilities, their carrying
value approximates to fair value. During the year ended 31 March
2021, there were no transfers of financial instruments between
levels of the fair value hierarchy (2020: none).
Trade and other receivables in the Balance sheet includes GBP1
million of deferred finance costs relating to the arrangement fee
for the revolving credit facility (2020: GBP1 million). This has
been excluded from the table below as it is not categorised as a
financial instrument.
Financial instruments classification
As at 31 March 2021
----------------------------------------------------------------------------------------
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
-------------------------------------------------- --------- -------- -------- ------
Financial assets
Investments at fair value through profit or loss - - 1,804 1,804
Trade and other receivables - 105 - 105
Derivative financial instruments - 43 - 43
-------------------------------------------------- --------- -------- -------- ------
- 148 1,804 1,952
------------------------------------------------------------ -------- -------- ------
Financial liabilities
Derivative financial instruments - (6) - (6)
-------------------------------------------------- --------- -------- -------- ------
- (6) - (6)
------------------------------------------------------------ -------- -------- ------
As at 31 March 2020
----------------------------------------------------------------------------------------
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
-------------------------------------------------- --------- -------- -------- ------
Financial assets
Investments at fair value through profit or loss - - 1,652 1,652
Trade and other receivables - 199 - 199
Derivative financial instruments - 33 - 33
-------------------------------------------------- --------- -------- -------- ------
- 232 1,652 1,884
------------------------------------------------------------ -------- -------- ------
Financial liabilities
Derivative financial instruments - (12) - (12)
-------------------------------------------------- --------- -------- -------- ------
- (12) - (12)
------------------------------------------------------------ -------- -------- ------
Reconciliation of financial instruments categorised within Level
3 of fair value hierarchy
As at
31 March
2021
Level 3 fair value reconciliation GBPm
---------------------------------------------------- ---------
Opening fair value 1,652
Additions 91
Disposal proceeds and repayment (48)
Movement in accrued income (9)
Fair value movement (including exchange movements) 118
Closing fair value 1,804
---------------------------------------------------- ---------
As at
31 March
2020
Level 3 fair value reconciliation GBPm
---------------------------------------------------- ---------
Opening fair value 1,697
Additions 423
Disposal proceeds and repayment (597)
Movement in accrued income 1
Fair value movement (including exchange movements) 128
Closing fair value 1,652
---------------------------------------------------- ---------
The fair value movement (including exchange movements) is equal
to the Net gains on investments showing in the Statement of
comprehensive income. All unrealised movements on investments and
foreign exchange movements are recognised in profit or loss in the
Statement of comprehensive income during the year and are
attributable to investments held at the end of the year.
The holding period of the investments in the portfolio is
expected to be greater than one year. Therefore, investments are
classified as non-current unless there is an agreement to dispose
of the investment within one year and all relevant regulatory
approvals have been received. It is not possible to identify with
certainty whether any investments may be sold within one year.
Investment income of GBP92 million (2020: GBP123 million)
comprises dividend income of GBP6 million (2020: GBP32 million),
interest of GBP83 million (2020: GBP85 million) and distributions
of GBP3 million (2020: GBP6 million) from unconsolidated
subsidiaries.
Unquoted investments
The Company invests in private companies which are not quoted on
an active market. These are measured in accordance with the
International Private Equity Valuation guidelines with reference to
the most appropriate information available at the time of
measurement. Further information regarding the valuation of
unquoted investments can be found in the Portfolio valuation
methodology section.
The Company's policy is to fair value both the equity and
shareholder debt investments in infrastructure assets together
where they will be managed and valued as a single investment, were
invested at the same time and cannot be realised separately. The
Directors consider that equity and debt share the same
characteristics and risks and they are therefore treated as a
single unit of account for valuation purposes and a single class
for disclosure purposes. As at 31 March 2021, the fair value of
unquoted investments was GBP1,802 million (2020: GBP1,647 million).
Individual portfolio asset valuations are shown within the
Portfolio summary earlier in this document.
For the March 2020 valuations a broad set of general assumptions
in relation to the Covid-19 pandemic were made across the whole
portfolio. This included that the general stay-at-home policies,
closed borders and major restrictions on travel would continue for
four months from 1 April 2020, followed by a gradual recovery over
the remainder of 2020. The Directors considered the impact on the
portfolio of the restrictions extending for nine months from 1
April 2020 followed by a gradual recovery throughout 2021 and
disclosed this as an additional sensitivity. The experience of the
last year has demonstrated that the impact on the portfolio is
company specific and in many cases the impact was limited. We have
updated the cash flow forecasts for each investment and, in
relation to the impact of Covid-19, we now have better visibility
of the short to medium-term impact than we had in March 2020, with
operations continuing largely without interruption across large
parts of the portfolio, but the recovery will vary widely by
sector. The asset most affected by Covid-19 was TCR which operates
in the aviation sector and this is discussed further in the
Significant accounting policies section.
The fair value of the investments is sensitive to changes in the
macroeconomic assumptions used as part of the portfolio valuation
process. As part of its analysis, the Board has considered the
potential impact of a change in a number of the macroeconomic
assumptions used in the valuation process. By considering these
potential scenarios, the Board is well positioned to assess how the
Company is likely to perform if affected by variables and events
that are inherently outside of the control of the Board and the
Investment Manager.
The majority of the assets held within Level 3 are valued on a
discounted cash flow basis, hence, the valuations are sensitive to
the discount rate assumed in the valuation of each asset. Other
significant unobservable inputs include the long-term inflation
rate assumption, the interest rates assumption used to project the
future cash flows and the forecast cash flows themselves. The
sensitivity to the long-term inflation rate and interest rates is
described below and the sensitivity to the forecast cash flows is
captured in the Market risk section in Note 9.
A discussion of discount rates applied can be found in the
Summary of portfolio valuation methodology section. Increasing the
discount rate used in the valuation of each asset by 1% would
reduce the value of the portfolio by GBP152 million (2020: GBP136
million). Decreasing the discount rate used in the valuation of
each asset by 1% would increase the value of the portfolio by
GBP176 million (2020: GBP157 million).
The majority of assets held within Level 3 have revenues that
are linked, partially linked or in some way correlated to
inflation. The long-term inflation rate assumptions for the country
of domicile of the investments in the portfolio range from 5.0%
(India) (2020: 5.0%) to 2.0% (the Netherlands) (2020: 2.0%). The
long-term RPI assumption for the UK is 2.5% (2020: 2.5%). Changing
the inflation rate assumption may result in consequential changes
to other assumptions used in the valuation of each asset. The
impact of increasing the inflation rate assumption by 1% for the
next two years would increase the value of the portfolio by GBP25
million (2020: GBP16 million). Decreasing the inflation rate
assumption used in the valuation of each asset by 1% for the next
two years would decrease the value of the portfolio by GBP25
million (2020: GBP15 million).
The valuations are sensitive to changes in interest rates, which
may result from: (i) unhedged existing borrowings within portfolio
companies; (ii) interest rates on uncommitted future borrowings
assumed within the asset valuations; and (iii) cash deposits held
by portfolio companies. These comprise a wide range of interest
rates from short-term deposit rates to longer-term borrowing rates
across a broad range of debt products. Increasing the cost of
borrowing assumption for unhedged borrowings and any future
uncommitted borrowing and the cash deposit rates used in the
valuation of each asset by 1% would reduce the value of the
portfolio by GBP88 million (2020: GBP76 million). Decreasing the
interest rate assumption used in the valuation of each asset by 1%
would increase the value of the portfolio by GBP82 million (2020:
GBP71 million). This calculation does not take account of any
offsetting variances which may be expected to prevail if interest
rates changed, including the impact of inflation discussed
above.
Intermediate holding companies
The Company invests in a number of intermediate holding
companies that are used to hold the unquoted investments, valued as
referred to above. All other assets and liabilities of the
intermediate holding companies are held either at fair value or a
reasonable approximation to fair value. The fair value of these
intermediate holding companies therefore approximates to their NAV
and the Company classifies the fair value as Level 3. As at 31
March 2021, the fair value of the other assets and liabilities
within these intermediate holding companies was GBP2 million (2020:
GBP5 million).
Over-the-counter derivatives
The Company uses over-the-counter foreign currency derivatives
to hedge foreign currency movements. The derivatives are held at
fair value which represents the price that would be received to
sell or transfer the instruments at the balance sheet date. The
valuation technique incorporates various inputs including foreign
exchange spot and forward rates, and uses present value
calculations. For these financial instruments, significant inputs
into models are market observable and are included within
Level 2.
Valuation process for Level 3 valuations
The valuations on the Balance sheet are the responsibility of
the Board of Directors of the Company. The Investment Manager
provides a valuation of unquoted investments, debt and unlisted
funds held by the Company on a half-yearly basis. This is performed
by the valuation team of the Investment Manager and reviewed by the
valuation committee of the Investment Manager. The valuations are
also subject to quality assurance procedures performed within the
valuation team. The valuation team verifies the major inputs
applied in the latest valuation by agreeing the information in the
valuation computation to relevant documents and market information.
The valuation committee of the Investment Manager considers the
appropriateness of the valuation methods and inputs, and may
request that alternative valuation methods are applied to support
the valuation arising from the method chosen. On a half-yearly
basis, the Investment Manager presents the valuations to the Board.
This includes a discussion of the major assumptions used in the
valuations, with an emphasis on the more significant investments
and investments with significant fair value changes. Any changes in
valuation methods are discussed and agreed with the Audit and Risk
Committee before the valuations on the Balance sheet are approved
by the Board.
8 Trade and other receivables
Year to Year to
31 March 31 March
2021 2020
GBPm GBPm
------------------------------------------------------------ --------- ---------
Non-current assets
Vendor loan notes - 99
Current assets
Vendor loan notes 105 99
Other receivables including prepayments and accrued income - 1
Capitalised finance costs 1 1
------------------------------------------------------------ --------- ---------
106 200
------------------------------------------------------------ --------- ---------
Vendor loan notes ('VLNs') of GBP196 million were received from
the purchaser following the sale of WIG in December 2019. These are
repayable unconditionally in two equal instalments. The first
instalment was received in December 2020 and the second instalment
is due in December 2021 and carries an interest rate of 6%. These
are measured at amortised cost using the effective interest method.
Accrued interest on the vendor loan notes is included in the table
above.
9 Financial risk management
A full review of the Company's objectives, policies and
processes for managing and monitoring risk is set out in the Risk
report. This Note provides further detail on financial risk
management, cross-referring to the Risk report where applicable and
providing further quantitative data on specific financial
risks.
Each investment made by the Company is subject to a full risk
assessment through a consistent investment approval process. The
Board's Management Engagement Committee, Audit and Risk Committee
and the Investment Manager's investment process are part of the
overall risk management framework of the Company.
The funding objective of the Company is that each category of
investment ought to be broadly matched with liabilities and
shareholders' funds according to the risk and maturity
characteristics of the assets, and that funding needs are to be met
ahead of planned investment.
Capital structure
The Company has a continuing commitment to capital efficiency.
The capital structure of the Company consists of cash held on
deposit in AAA rated money market funds, borrowing facilities and
shareholders' equity. The Company's Articles require its
outstanding borrowings, including any financial guarantees to
support subsequent obligations, to be limited to 50% of the gross
assets of the Company. The type and maturity of the Company's
borrowings are analysed in Note 11 and the Company's equity is
analysed into its various components in the Statement of changes in
equity. Capital is managed so as to maximise the return to
shareholders, while maintaining a strong capital base that ensures
that the Company can operate effectively in the marketplace and
sustain future development of the business. The Board is
responsible for regularly monitoring capital requirements to ensure
that the Company is maintaining sufficient capital to meet its
future investment needs.
The Company is regulated by the Jersey Financial Services
Commission under the provisions of the Collective Investment Funds
(Jersey) Law 1988 as a listed closed-ended collective investment
fund and is not required as a result of such regulation to maintain
a minimum level of capital.
Capital is allocated for investment in utilities,
communications, healthcare, transportation, energy and natural
resources and social infrastructure across the UK, continental
Europe and Asia. As set out in the Company's investment policy, the
maximum exposure to any one investment is 25% of gross assets
(including cash holdings) at the time of investment.
Credit risk
The Company is subject to credit risk on the debt component of
its unquoted investments, cash, deposits, derivative contracts and
receivables. The maximum exposure to credit risk as a result of
counterparty default equates to the current carrying value of these
financial assets. Throughout the year and the prior year, the
Company's cash and deposits were held with a variety of
counterparties, principally in AAA rated money market funds, as
well as in short-term bank deposits with a minimum of a BBB+ credit
rating. The counterparties selected for the derivative financial
instruments were all banks with a minimum of a BBB+ credit rating
with at least one major rating agency. Following the sale of WIG in
December 2019, the Company received VLNs from the purchaser,
Brookfield Infrastructure Fund IV, that are reported within Trade
receivables. The credit risk on these VLNs has been assessed
through calculating an expected credit loss using the credit
ratings of underlying investors in the Brookfield fund and the
amount of undrawn commitments to the fund to calculate a
probability of default.
The credit quality of unquoted investments, which are held at
fair value and include debt and equity elements, is based on the
financial performance of the individual portfolio companies. The
credit risk relating to these assets is based on their enterprise
value and is reflected through fair value movements. This
incorporates the impact of the Covid-19 pandemic, the volatility in
the oil prices and power prices and other macroeconomic factors.
The performance of underlying investments is monitored by the Board
to assess future recoverability.
For those assets and income entitlements that are not past due,
it is believed that the risk of default is small and capital
repayments and interest payments will be made in accordance with
the agreed terms and conditions of the investment. If the portfolio
company has failed and there is no expectation to recover any
residual value from the investment, the Company's policy is to
record an impairment for the full amount of the loan. When the net
present value of the future cash flows predicted to arise from the
asset, discounted using the effective interest rate method, implies
non-recovery of all or part of the Company's investment a fair
value movement is recorded equal to the valuation shortfall.
As at 31 March 2021, the Company had no loans or receivables or
debt investments considered past due (2020: nil).
The Company actively manages counterparty risk. Counterparty
limits are set and closely monitored by the Board and a regular
review of counterparties is undertaken by the Investment Manager
and reported to the Board. As at 31 March 2021, the Company did not
consider itself to have a significant exposure to any one
counterparty and held deposits and derivative contracts with a
number of different counterparties to reduce counterparty risk
(2020: same).
Due to the size and nature of the investment portfolio there is
the potential for concentration risk. This risk is managed by
diversifying the portfolio by sector and geography.
Liquidity risk
Further information on how liquidity risk is managed is provided
in the Risk report. The table below analyses the maturity of the
Company's contractual liabilities.
Payable Due within Due between Due between
on demand 1 year 1 and 2 years 2 and 5 years Total
2021 GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ---------- ----------- -------------- -------------- ------
Liabilities
Loans and borrowings(1) - (2) (2) - (4)
Trade and other payables (9) - (8) (2) (19)
Derivative contracts - (4) (2) - (6)
Financial commitments(2) (38) - - - (38)
------------------------------------------ ---------- ----------- -------------- -------------- ------
Total undiscounted financial liabilities (47) (6) (12) (2) (67)
------------------------------------------ ---------- ----------- -------------- -------------- ------
1 Loans and borrowings relate to undrawn commitment fees and interest
payable on the RCF referred to in Note 11.
2 Financial commitments are described in Note 16 and are not recognised
in the Balance sheet.
Payable Due within Due between Due between
on demand 1 year 1 and 2 years 2 and 5 years Total
2020 GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ---------- ----------- -------------- -------------- ------
Liabilities
Loans and borrowings(1) - (2) (2) - (4)
Trade and other payables (6) - (6) (5) (17)
Derivative contracts - (8) (2) (2) (12)
Financial commitments(2) (30) - - - (30)
------------------------------------------ ---------- ----------- -------------- -------------- ------
Total undiscounted financial liabilities (36) (10) (10) (7) (63)
------------------------------------------ ---------- ----------- -------------- -------------- ------
1 Loans and borrowings relate to undrawn commitment fees and interest
payable on the RCF referred to in Note 11.
2 Financial commitments are described in Note 16 and are not recognised
in the Balance sheet.
The derivative contracts liability shown is the net cash flow
expected to be paid on settlement.
In order to manage the contractual liquidity risk the Company is
not dependent on the cash flows from financial assets as it has
free cash and debt facilities in place.
Market risk
The valuation of the Company's investment portfolio is largely
dependent on the underlying trading performance of the companies
within the portfolio, but the valuation of the portfolio and the
carrying value of other items in the Financial statements can also
be affected by interest rate, currency and market price
fluctuations. The Company's sensitivities to these fluctuations are
set out below.
(i) Interest rate risk
Further information on how interest rate risk is managed is
provided in the Risk report.
An increase of 100 basis points in interest rates over 12 months
(2020: 100 basis points) would lead to an approximate increase in
net assets and to the net profit of the Company of GBP5 million
(2020: GBP4 million). This exposure relates principally to changes
in interest receivable on cash on deposit held at the year end. The
average cash balance of the Company, which is more representative
of the cash balance during the year, was GBP405 million (2020:
GBP157 million) and the weighted-average interest earned was 0.1%
(2020: 0.62%). The risk exposure at this year end is considered to
be representative of this year as a whole.
In addition, the Company has indirect exposure to interest rates
through changes to the financial performance of portfolio companies
caused by interest rate fluctuations as disclosed in Note 7. This
risk is considered a component of market risk described in section
(iii). The Company does not hold any fixed rate debt investments or
borrowings and is therefore not exposed to fair value interest rate
risk.
(ii) Currency risk
Further information on how currency risk is managed is provided
in the Risk report. The currency denominations of the Company's net
assets are shown in the table below. The sensitivity analysis
demonstrates the exposure of the Company's net assets to movements
in foreign currency exchange rates. The hedging strategy is
discussed in the Financial review.
As at 31 March 2021
---------------------------------------------------------
Sterling(1) Euro NOK DKK US dollar Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------------------------- ------------ ------- ------ ------ ---------- ------
Net assets 848 1,116 234 189 3 2,390
Sensitivity analysis
Assuming a 10% appreciation in sterling against the
euro, NOK, DKK and US dollar exchange
rates:
Impact of exchange movements on net profit and net
assets 109 (101) (21) (17) - (30)
-------------------------------------------------------- ------------ ------- ------ ------ ---------- ------
1 Sterling impact relates to the impact of fair value movement in derivatives
held by the Company to hedge foreign currency fluctuations in the
valuation of the investment portfolio. The notional amount of the
derivatives is disclosed in Note 10.
As at 31 March 2020
--------------------------------------------------------
Sterling(1) Euro NOK DKK US dollar Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------------- ------------ ------ ------ ------ ---------- ------
Net assets 883 1,012 208 139 27 2,269
Sensitivity analysis
Assuming a 10% appreciation in sterling against the euro,
NOK, DKK and US dollar exchange
rates:
Impact of exchange movements on net profit and net
assets 101 (92) (19) (13) (2) (25)
--------------------------------------------------------- ------------ ------ ------ ------ ---------- ------
1 Sterling impact relates to the impact of fair value movement in derivatives
held by the Company to hedge foreign currency fluctuations in the
valuation of the investment portfolio. The notional amount of the
derivatives is disclosed in Note 10.
The impact of an equivalent depreciation in sterling against the
euro, NOK, DKK and US dollar exchange rates has the inverse impact
on net profit and net assets from that shown above. There is an
indirect exposure to the rupee through the investment in the India
Fund which is denominated in US dollars but it is only the direct
exposure that is considered here. The risk exposure at the year end
is considered to be representative of this year as a whole.
(iii) Market risk
Further information about the management of external market risk
and its impact on price or valuation, which arises principally from
unquoted investments, is provided in the Risk report. A 10%
increase in the fair value of those investments would have the
following direct impact on net profit and net assets. The impact of
a change in all cash flows has an equivalent impact on the fair
value, as set out below.
As at As at
31 March 31 March
2021 2020
Investments Investments
at fair value at fair value
GBPm GBPm
--------------------------------------- -------------- --------------
Increase in net profit and net assets 180 165
--------------------------------------- -------------- --------------
The impact of a 10% decrease in the fair value of those
investments would have the inverse impact on net profit and net
assets, from that shown above. The risk exposure at the year end is
considered to be representative of this year as a whole.
By the nature of the Company's activities, it has large
exposures to individual assets that are susceptible to movements in
price. This risk concentration is managed within the Company's
investment strategy as discussed in the Risk report.
(iv) Fair values
The fair value of the investment portfolio is described in
detail in the Portfolio valuation methodology section and in Note
7. The fair values of the remaining financial assets and
liabilities approximate to their carrying values (2020: same).
The sensitivity analysis in respect of the interest rate,
currency and market price risks is considered to be representative
of the Company's exposure to financial risks throughout the period
to which they relate (2020: same).
10 Derivative financial instruments
As at As at
31 March 31 March
2021 2020
GBPm GBPm
------------------------------------ --------- ---------
Non-current assets
Forward foreign exchange contracts 18 7
Current assets
Forward foreign exchange contracts 25 26
------------------------------------ --------- ---------
Non-current liabilities
Forward foreign exchange contracts (2) (4)
Current liabilities
Forward foreign exchange contracts (4) (8)
------------------------------------ --------- ---------
Forward foreign exchange contracts
The Company uses forward foreign exchange contracts to minimise
the effect of fluctuations in the investment portfolio from
movements in exchange rates and also to fix the value of certain
expected future cash flows arising from distributions made by
investee companies.
The fair value of these contracts is recorded in the balance
sheet. No contracts are designated as hedging instruments and
consequently all changes in fair value are taken through profit or
loss.
As at 31 March 2021, the notional amount of the forward foreign
exchange contracts held by the Company was GBP1,090 million (2020:
GBP1,160 million).
11 Loans and borrowings
On 30 April 2018, the Company entered into a three-year, GBP300
million RCF with a syndicate of banks. The RCF is secured by a
fixed and floating charge over directly held assets of the Company.
Interest is payable at LIBOR plus a fixed margin on the drawn
amount. As at 31 March 2021, the Company had not drawn cash from
the RCF (2020: nil).
The RCF has certain loan covenants, including a debt service
coverage ratio and loan to value ratio. The Company has the right
to increase the size of the RCF by up to a further GBP200 million,
provided that existing lenders have a right of first refusal. In
May 2020, the Company agreed the second one-year extension to the
maturity date, to 27 April 2023.
There was no change in total financing liabilities for the
Company during the year as the cash flows relating to the
financing
liabilities were equal to the income statement expense.
Accordingly, no reconciliation between the movement in
financing
liabilities and the cash flow statement has been presented.
12 Trade and other payables
As at As at
31 March 31 March
2021 2020
GBPm GBPm
--------------------------------- --------- ---------
Non-current liabilities
Performance fee 10 11
Current liabilities
Management and performance fees 8 6
Accruals and other creditors 1 -
--------------------------------- --------- ---------
19 17
--------------------------------- --------- ---------
The carrying value of all liabilities is representative of fair
value (2020: same).
13 Issued capital
As at 31 March 2021 As at 31 March 2020
----------------------------------- ====================== ======================
Number GBPm Number GBPm
----------------------------------- -------------- ------ -------------- ------
Authorised, issued and fully paid
Opening balance 891,434,010 1,496 810,434,010 1,273
Issued as part of Placing - - 81,000,000 223
----------------------------------- -------------- ------ -------------- ------
Closing balance 891,434,010 1,496 891,434,010 1,496
----------------------------------- -------------- ------ -------------- ------
Aggregate issue costs of GBP24 million arising from IPO and
subsequent share issues have been offset against the stated capital
account in previous years. In addition, the stated capital account
was reduced by Court order on 20 December 2007 with an amount of
GBP693 million transferred to a new, distributable reserve which
has been combined with retained reserves in these accounts.
Therefore, as at 31 March 2021, the residual value on the stated
capital account was GBP779 million.
14 Per share information
The earnings and net assets per share attributable to the equity
holders of the Company are based on the following data:
Year to Year to
31 March 31 March
2021 2020
-------------------------------------------- --------- ---------
Earnings per share (pence)
Basic and diluted 23.1 26.4
Earnings (GBPm)
Profit after tax for the year 206 224
-------------------------------------------- --------- ---------
Number of shares (million)
Weighted average number of shares in issue 891.4 847.6
-------------------------------------------- --------- ---------
Number of shares at the end of the year 891.4 891.4
-------------------------------------------- --------- ---------
As at As at
31 March 31 March
2021 2020
------------------------------ --------- ---------
Net assets per share (pence)
Basic and diluted 268.1 254.5
Net assets (GBPm)
Net assets 2,390 2,269
------------------------------ --------- ---------
15 Dividends
Year to 31 March 2021 Year to 31 March 2020
--------------------------------------------------- ======================== ========================
Pence per share Pence per
Declared and paid during the year GBPm share GBPm
--------------------------------------------------- ---------------- ------ -------------- --------
Interim dividend paid on ordinary shares 4.900 44 4.600 41
Prior year final dividend paid on ordinary shares 4.600 41 4.325 35
--------------------------------------------------- ---------------- ------ -------------- --------
9.500 85 8.925 76
--------------------------------------------------- ---------------- ------ -------------- --------
The Company proposes paying a final dividend of 4.9 pence per
share (2020: 4.6 pence) which will be payable to those shareholders
that are on the register on 18 June 2021. On the basis of the
shares in issue at year end, this would equate to a total final
dividend of GBP44 million (2020: GBP41 million).
The final dividend is subject to approval by shareholders at the
AGM in July 2021 and has therefore not been accrued in these
Financial statements.
16 Commitments
As at As at
31 March 31 March
2021 2020
GBPm GBPm
---------------------- --------- ---------
Unquoted investments 38 30
---------------------- --------- ---------
As at 31 March 2021, the Company was committed to investing a
further US$38 million (GBP27 million) (2020: US$38 million, GBP30
million) of loan commitment in the India Fund. This commitment is
not expected to be drawn. In addition, the Company committed to
invest a further DKK 100 million (GBP11 million) in ESVAGT.
17 Contingent liabilities
As at 31 March 2021, the Company had no contingent liabilities
(2020: nil).
18 Related parties
Transactions between 3i Infrastructure and 3i Group
3i Group plc ('3i Group') holds 30.2% (2020: 30.2%) of the
ordinary shares of the Company. This classifies 3i Group as a
'substantial shareholder' of the Company as defined by the Listing
Rules. During the year, 3i Group received dividends of GBP26
million (2020: GBP24 million) from the Company.
In 2007 the Company committed US$250 million to the 3i India
Infrastructure Fund (the 'India Fund') to invest in the Indian
infrastructure market. 3i Group also committed US$250 million to
the India Fund. No commitments (2020: nil) were drawn down by the
India Fund from the Company during the year. In total, commitments
of US$184 million or GBP133 million re-translated (2020: US$184
million or GBP148 million) had been drawn down at 31 March 2021 by
the India Fund from the Company. As the India Fund has reached the
end of its investment period, the Company's outstanding commitment
to the India Fund is limited to 15% of the original US$250 million
commitment. At 31 March 2021, the outstanding commitment was US$38
million, or GBP27 million re-translated (2020: US$38 million or
GBP30 million).
3i Investments plc, a subsidiary of 3i Group, is the Company's
Alternative Investment Fund Manager and provides its services under
an Investment Management Agreement ('IMA'). 3i Investments plc also
acts as the investment manager of the India Fund. 3i plc, another
subsidiary of 3i Group, together with 3i Investments plc, provides
support services to the Company (which are ancillary and related to
the investment management service) which it is doing pursuant to
the terms of the IMA.
Fees under the IMA consist of a tiered management fee and time
weighting of the management fee calculation and a one-off
transaction fee of 1.2% payable in respect of new investments. The
applicable tiered rates are shown in the table below. The
management fee is payable quarterly in advance.
Gross investment value Applicable tier rate
----------------------- --------------------
Up to GBP1.25bn 1.4%
GBP1.25bn to GBP2.25bn 1.3%
Above GBP2.25bn 1.2%
----------------------- ----------------------
For the year to 31 March 2021, GBP24 million (2020: GBP28
million) was payable and advance payments of GBP24 million were
made resulting in an amount due to 3i plc of less than GBP1 million
at 31 March 2021 (2020: less than GBP1 million due from 3i plc). A
one-off transaction fee of GBP1 million (2020: GBP2 million) was
paid to 3i plc in respect of new investments and there was no
outstanding balance payable as at 31 March 2021 (2020: nil). In
consideration of the provision of support services under the IMA,
the Company pays the Investment Manager an annual fixed fee. The
cost for the support services incurred for the year to 31 March
2021 was GBP1 million (2020: GBP1 million). There was no
outstanding balance payable as at 31 March 2021 (2020: nil).
Under the IMA, a performance fee is payable to the Investment
Manager equal to 20% of the Company's total return in excess of 8%,
payable in three equal annual instalments. The second and third
instalments will only be payable if either (a) the Company's
performance in the year in which that instalment is paid also
triggers payment of a performance fee in respect of that year, or
(b) if the Company's performance over the three years starting with
the year in which the performance fee is earned exceeds the 8%
hurdle on an annual basis. There is no high water mark
requirement.
The performance hurdle requirement was exceeded for the year to
31 March 2021 and therefore a performance fee of GBP7 million was
recognised (2020: GBP17 million). The outstanding balance payable
as at 31 March 2021 was GBP18 million (2020: GBP17 million), which
includes the second and third instalments of the prior year
fee.
Performance fee Outstanding balance Payable in FY22
Year (GBPm) (GBPm) (GBPm)
----- --------------- ------------------- ---------------
FY21 7 7 2
FY20 17 11 6
----- --------------- ------------------- ---------------
Under the IMA, the Investment Manager's appointment may be
terminated by either the Company or the Investment Manager giving
the other not less than 12 months' notice in writing, but subject
to a minimum term of four years from 15 October 2018, unless 3i
Investments plc has previously ceased to be a member of 3i Group,
or with immediate effect by either party giving the other written
notice in the event of insolvency or material or persistent breach
by the other party. The Investment Manager may also terminate the
agreement on two months' notice given within two months of a change
of control of the Company.
Regulatory information relating to fees
Under the Alternative Investment Fund Managers Regulations 2013,
3i Investments plc is the Alternative Investment Fund Manager
('AIFM') to the Company. In performing the activities and functions
of the AIFM, the AIFM or another 3i company may pay or receive
fees, commissions or non-monetary benefits to or from third parties
of the following nature:
-- Payments for third-party services : The Company may retain
the services of third-party consultants; typically this is for an
independent director or other investment management specialist
expertise. The amount paid varies in accordance with the nature of
the service and the length of the service period and is usually,
but not always, paid or reimbursed by the portfolio companies. The
payment may involve a flat fee, retainer or success fee. Such
payments, where borne by the Company, are included within Operating
expenses. In some circumstances, the AIFM may retain the services
of third-party consultants which are paid for by the AIFM and not
recharged to the Company.
-- Payments for services from 3i companies : Other 3i companies
may provide investment advisory and other services to the AIFM or
other 3i companies and receive payment for such service.
19 Unconsolidated subsidiaries and related undertakings
Place of incorporation
Name and operation Ownership interest
----------------------------------------- ----------------------- ------------------
3i Infrastructure (Luxembourg) S.à
r.l. Luxembourg 100%
3i Infrastructure (Luxembourg) Holdings
S.à r.l. Luxembourg 100%
Oystercatcher Luxco 1 S.à r.l. Luxembourg 100%
Oystercatcher Luxco 2 S.à r.l. Luxembourg 100%
Oystercatcher Holdco Limited UK 100%
3i Osprey LP UK 69%
3i India Infrastructure Fund A LP UK 100%
BIF WIP LP UK 100%
BIF WIP Dutch Holdco B.V. The Netherlands 100%
3i Infrastructure (Netherlands) B.V.
(formerly Heijmans Capital B.V.) The Netherlands 100%
NMM Company B.V. The Netherlands 100%
Heijmans A12 B.V. The Netherlands 100%
3i ERRV Denmark Limited Jersey 100%
3i WIG Limited Jersey 100%
3i Envol Limited Jersey 100%
3i Tampnet Holdings Limited UK 100%
3iN Attero Holdco Limited UK 100%
Blitz F21-368 GmbH Germany 100%
Blitz F21-369 GmbH Germany 100%
Joulz Group:
----------------------------------------- ----------------------- ------------------
Joulz Holdco B.V. The Netherlands 99%
Joulz Bidco B.V. The Netherlands 99%
Joulz Diensten B.V. The Netherlands 99%
Joulz Meetbedrijf B.V. The Netherlands 99%
Joulz Infradiensten B.V. The Netherlands 99%
Joulz Laadoplossingen B.V. The Netherlands 99%
Ionisos Group:
----------------------------------------- ----------------------- ------------------
Epione Holdco SAS France 96%
Epione Bidco SAS France 96%
Ionisos Mutual Services SAS France 96%
Ionisos SAS France 96%
Ionisos GmbH Germany 96%
Ionmed Esterilizacion SA Spain 96%
Scandinavian Clinics Estonia OÜ Estonia 96%
Steril Milano Srl Italy 96%
Infinis Group:
----------------------------------------- ----------------------- ------------------
3i LFG Topco Limited Jersey 100%
Infinis Energy Group Holdings Limited UK 100%
Infinis Energy Management Limited UK 100%
Infinis Limited UK 100%
Infinis (Re-Gen) Limited UK 100%
Novera Energy (Holdings 2) Limited UK 100%
Novera Energy Generation No. 1 Limited UK 100%
Novera Energy Operating Services Limited UK 100%
Gengas Limited UK 100%
Novera Energy Generation No. 2 Limited UK 100%
Renewable Power Generation Limited UK 100%
Novera Energy Generation No. 3 Limited UK 100%
Costessey Energy Limited UK 100%
Mayton Wood Energy Limited UK 100%
Infinis Alternative Energies Limited UK 100%
Infinis Energy Services Limited UK 100%
Novera Energy Services UK Limited UK 100%
Infinis China (Investments) Limited UK 100%
Infinis (COE) Limited UK 100%
Infinis Hydro Holdings Limited UK 100%
Infinis Energy Storage Limited UK 100%
Novera Energy Pty Limited UK 100%
Novera Energy Limited UK 100%
Barbican Holdco Limited UK 100%
Barbican Bidco Limited UK 100%
Alkane Energy Limited UK 100%
Alkane Biogas Limited UK 100%
Alkane Energy UK Limited UK 100%
Alkane Services Limited UK 100%
Seven Star Natural Gas Limited UK 100%
MW Renewables Limited UK 100%
Regent Park Energy Limited UK 100%
Leven Power Limited UK 100%
Rhymney Power Limited UK 100%
Alkane Energy CM Holdings Limited UK 100%
Alkane Energy CM Limited UK 100%
Infinis Solar Holdings Limited UK 100%
Infinis Solar Developments Limited UK 100%
Infinis Solar Limited UK 100%
----------------------------------------- ----------------------- ------------------
The list above comprises the unconsolidated subsidiary
undertakings of the Company as at 31 March 2021.
There are no current commitments or intentions to provide
financial or other support to any of the unconsolidated
subsidiaries, including commitments or intentions to assist the
subsidiaries in obtaining financial support except for those
disclosed in Note 16 (2020: none). No such financial or other
support was provided during the year (2020: none).
There are no significant restrictions on the ability of any of
the unconsolidated subsidiaries to transfer funds to the Company in
the form of cash dividends or to repay loans or advances made to
the unconsolidated subsidiaries.
Oystercatcher Luxco 2 S.à r.l. has total borrowings of EUR228
million or GBP194 million (2020: EUR227 million, GBP201 million).
These consist of three euro denominated term loans (EUR Private
Placement ('PP') tranches) totalling EUR183 million or GBP156
million and a Singapore dollar denominated term loan (SGD PP
tranche) of SGD 71 million or GBP38 million. The EUR and SGD PP
tranches are with financial institutions.
The three EUR PP tranches are repayable between March 2026 and
December 2027 and the SGD PP tranche in March 2029. The facilities
have certain loan covenants including interest cover ratios and a
leverage ratio which may restrict the future payment of cash
dividends from the subsidiary. RBC Europe Ltd, as security agent,
has security over the equity investments held by Oystercatcher
Luxco 2 S.à r.l. The value of this security at 31 March 2021 was
GBP347 million (2020: GBP347 million).
Investment policy (unaudited)
The Company aims to build a diversified portfolio of equity
investments in entities owning infrastructure businesses and
assets. The Company seeks investment opportunities globally, but
with a focus on Europe, North America and Asia.
The Company's equity investments will often comprise share
capital and related shareholder loans (or other financial
instruments that are not shares but that, in combination with
shares, are similar in substance). The Company may also invest in
junior or mezzanine debt in infrastructure businesses or
assets.
Most of the Company's investments are in unquoted companies.
However, the Company may also invest in entities owning
infrastructure businesses and assets whose shares or other
instruments are listed on any stock exchange, irrespective of
whether they cease to be listed after completion of the investment,
if the Directors judge that such an investment is consistent with
the Company's investment objectives. The Company will, in any case,
invest no more than 15% of its total gross assets in other
investment companies or investment trusts which are listed on the
Official List.
The Company may also consider investing in other fund structures
(in the event that it considers, on receipt of advice from the
Investment Manager, that that is the most appropriate and effective
means of investing), which may be advised or managed either by the
Investment Manager or a third party. If the Company invests in
another fund advised or managed by 3i Group, the relevant
proportion of any advisory or management fees payable by the
investee fund to 3i plc will be deducted from the annual management
fee payable under the Investment Management Agreement and the
relevant proportion of any performance fee will be deducted from
the annual performance fee, if payable, under the Investment
Management Agreement.
For the avoidance of doubt, there will be no similar set-off
arrangement where any such fund is advised or managed by a third
party.
For most investments, the Company seeks to obtain representation
on the board of directors of the investee company (or equivalent
governing body) and in cases where it acquires a majority equity
interest in a business, that interest may also be a controlling
interest.
No investment made by the Company will represent more than 25%
of the Company's gross assets, including cash holdings, at the time
of making the investment. It is expected that most individual
investments will exceed GBP50 million. In some cases, the total
amount required for an individual transaction may exceed the
maximum amount that the Company is permitted to commit to a single
investment. In such circumstances, the Company may consider
entering into co-investment arrangements with 3i Group (or other
investors who may also be significant shareholders), pursuant to
which 3i Group and its subsidiaries (or such other investors) may
co-invest on the same financial and economic terms as the Company.
The suitability of any such co-investment arrangements will be
assessed on a transaction-by-transaction basis. Depending on the
size of the relevant investment and the identity of the relevant
co-investor, such a co-investment arrangement may be subject to the
related party transaction provisions contained in the Listing Rules
and may therefore require shareholder consent.
The Company's Articles require its outstanding borrowings,
including any financial guarantees to support subsequent
obligations, to be limited to 50% of the gross assets of the
Company (valuing investments on the basis included in the Company's
accounts).
In accordance with Listing Rules requirements, the Company will
only make a material change to its investment policy with the
approval of shareholders.
Statement of Directors' responsibilities
In accordance with the FCA's Disclosure Guidance and
Transparency Rules, the Directors confirm to the best of their
knowledge that:
(a) the Financial statements, prepared in accordance with
applicable accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company taken as a whole; and
(b) the Annual report and accounts include a fair review of the
development and performance of the business and the position of the
Company taken as a whole, together with a description of the
principal risks and uncertainties faced by the Company.
The Directors of the Company and their functions are listed
below. The Directors have acknowledged their responsibilities in
relation to the Financial statements for the year to 31 March
2021.
Richard Laing
Chair
10 May 2021
Board of Directors and their functions
Richard Laing
Non-executive Chair and Chair of the Nominations Committee and
the Management Engagement Committee.
Doug Bannister
Non-executive Director.
Wendy Dorman
Non-executive Director and Chair of the Audit and Risk
Committee.
Samantha Hoe-Richardson
Non-executive Director.
Robert Jennings CBE
Non-executive Director.
Ian Lobley
Non-executive Director.
Paul Masterton
Senior Independent Director and Chair of the Remuneration
Committee.
Portfolio valuation methodology (unaudited)
A description of the methodology used to value the investment
portfolio of 3i Infrastructure ('the Company') is set out below in
order to provide more detailed information than is included within
the accounting policies and the Investment Manager's review for the
valuation of the portfolio. The methodology complies in all
material aspects with the International Private Equity and Venture
Capital valuation guidelines which are endorsed by the British
Private Equity and Venture Capital Association and Invest
Europe.
Basis of valuation
Investments are reported at the Directors' estimate of fair
value at the reporting date in compliance with IFRS 13 Fair Value
Measurement. Fair value is defined as 'the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date'.
General
In estimating fair value, the Directors seek to use a
methodology that is appropriate in light of the nature, facts and
circumstances of the investment and its materiality in the context
of the overall portfolio. The methodology that is the most
appropriate may consequently include adjustments based on informed
and experience-based judgements, and will also consider the nature
of the industry and market practice. Methodologies are applied
consistently from period to period except where a change would
result in a better estimation of fair value. Given the
uncertainties inherent in estimating fair value, a degree of
caution is applied in exercising judgements and making necessary
estimates.
Investments may include portfolio assets and other net
assets/liabilities balances. The methodology for valuing portfolio
assets is set out below. Any net assets/liabilities within
intermediate holding companies are valued in line with the Company
accounting policy and held at fair value or approximate to fair
value.
Quoted investments
Quoted equity investments are valued at the closing bid price at
the reporting date. In accordance with International Financial
Reporting Standards, no discount is applied for liquidity of the
stock or any dealing restrictions. Quoted debt investments will be
valued using quoted prices provided by third-party broker
information where reliable or will be held at cost less fair value
adjustments.
Unquoted investments
Unquoted investments are valued using one of the following
methodologies:
Discounted Cash Flow ('DCF');
Proportionate share of net assets;
Sales basis; and
Cost less any fair value adjustments required.
DCF
DCF is the primary basis for valuation. In using the DCF basis,
fair value is estimated by deriving the present value of the
investment using reasonable assumptions and estimation of expected
future cash flows, including contracted and uncontracted revenues,
expenses, capital expenditure, financing and taxation, and the
terminal value and date, and the appropriate risk-adjusted discount
rate that quantifies the risk inherent to the investment. The
terminal value attributes a residual value to the investee company
at the end of the projected discrete cash flow period. The discount
rate will be estimated for each investment derived from the market
risk-free rate, a risk-adjusted premium and information specific to
the investment or market sector.
Proportionate share of net assets
Where the Company has made investments into other infrastructure
funds, the value of the investment will be derived from the
Company's share of net assets of the fund based on the most recent
reliable financial information available from the fund. Where the
underlying investments within a fund are valued on a DCF basis, the
discount rate applied may be adjusted by the Company to reflect its
assessment of the most appropriate discount rate for the nature of
assets held in the fund. In measuring the fair value, the net asset
value of the fund is adjusted, as necessary, to reflect
restrictions on redemptions, future commitments, illiquid nature of
the investments and other specific factors of the fund.
Sales basis
The expected sale proceeds will be used to assign a fair value
to an asset in cases where offers have been received as part of an
investment sales process. This may either support the value derived
from another methodology or may be used as the primary valuation
basis. A marketability discount is applied to the expected sale
proceeds to derive the valuation where appropriate.
Cost less fair value adjustment
Any investment in a company that has failed or, in the view of
the Board, is expected to fail within the next 12 months, has the
equity shares valued at nil and the fixed income shares and loan
instruments valued at the lower of cost and net recoverable
amount.
Glossary
Alternative Investment Fund ('AIF') 3i Infrastructure plc is an
AIF managed by 3i Investments plc.
Alternative Investment Fund Manager ('AIFM') is the regulated
manager of an AIF. For 3i Infrastructure plc, this is 3i
Investments plc.
Approved Investment Trust Company This is a particular UK tax
status maintained by 3i Infrastructure plc. An approved Investment
Trust company is a UK tax resident company which meets certain
conditions set out in the UK tax rules which include a requirement
for the company to undertake portfolio investment activity that
aims to spread investment risk and for the company's shares to be
listed on an approved exchange. The 'approved' status for an
investment trust must be agreed by the UK tax authorities and its
benefit is that certain profits of the company, principally its
capital profits, are not taxable in the UK.
Association of Investment Companies ('AIC') The Association of
Investment Companies is a UK trade body for closed-ended investment
companies.
Board The Board of Directors of the Company.
Capital reserve recognises all profits that are capital in
nature or have been allocated to capital. These profits are
distributable by way of a dividend.
Company 3i Infrastructure plc.
Discounting The reduction in present value at a given date of a
future cash transaction at an assumed rate, using a discount factor
reflecting the time value of money.
External auditor The independent auditor, Deloitte LLP.
Fair value through profit or loss ('FVTPL') is an IFRS
measurement basis permitted for assets and liabilities which meet
certain criteria. Gains and losses on assets and liabilities
measured as FVTPL are recognised directly in the Statement of
comprehensive income.
FY15, FY18, FY20, FY21, FY22 refers to the financial years to 31
March 2015, 31 March 2018, 31 March 2020, 31 March 2021 and 31
March 2022 respectively.
Initial Public Offering ('IPO') is the mechanism by which a
company admits its stock to trading on a public stock exchange. 3i
Infrastructure plc completed its IPO in March 2007.
International Financial Reporting Standards ('IFRS') are
accounting standards issued by the International Accounting
Standards Board ('IASB'). The Company's financial statements are
required to be prepared in accordance with IFRS, as endorsed by the
EU.
Investment income is that portion of income that is directly
related to the return from individual investments and is recognised
as it accrues. It is comprised of dividend income, income from
loans and receivables and fee income. It is recognised to the
extent that it is probable that there will be an economic benefit
and the income can be reliably measured.
Key Performance Indicator ('KPI') is a measure by reference to
which the development, performance or position of the Company can
be measured effectively.
Money multiple is calculated as the cumulative distributions or
realisation proceeds plus any residual value divided by invested or
paid-in capital.
Net asset value ('NAV') is a measure of the fair value of all
the Company's assets less liabilities.
Net assets per share ('NAV per share') is the NAV divided by the
total number of shares in issue.
Net gains on investments is the movement in the fair value of
investments between the start and end of the accounting period, or
investment disposal date, or the investment acquisition date and
the end of the accounting period, including divestment related
costs where applicable, converted into sterling using the exchange
rates in force at the end of the period.
Ongoing charges A measure of the annual recurring operating
costs of the Company, expressed as a percentage of average NAV over
the reporting period.
Public Private Partnership ('PPP') is a government service or
private business venture which is funded and operated through a
partnership of government and one or more private sector
companies.
Retained reserves recognise the cumulative profits to 15 October
2018, together with amounts transferred from the Stated capital
account.
Revenue reserve recognises all profits that are revenue in
nature or have been allocated to revenue.
Revolving credit facility ('RCF') A GBP300 million facility
provided by the Company's lenders with a maturity date in April
2023.
SORP means the Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and Venture Capital
Trusts.
Stated capital account The Stated capital account of the Company
represents the cumulative proceeds recognised from share issues or
new equity issued on the conversion of warrants made by the Company
net of issue costs and reduced by any amount that has been
transferred to Retained reserves, in accordance with Jersey Company
Law, in previous years.
TCFD is the Task Force on Climate-related Financial
Disclosures.
Total return measured as a percentage, is calculated against the
opening NAV, net of the final dividend for the previous year, and
adjusted (on a time weighted average basis) to take into account
any equity issued and capital returned in the year.
Total shareholder return ('TSR') is the measure of the overall
return to shareholders and includes the movement in the share price
and any dividends paid, assuming that all dividends are reinvested
on their ex-dividend date.
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END
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