Annual report
and accounts 2022
Overview
1 Welcome
2 Performance highlights
3 At a glance
4 Chair’s statement
7 Our approach
10 Energy transition
12 Digital infrastructure
14 Our business model
18 Our strategy
19 Our objectives and KPIs
Investment Manager’s review
21 Review from the Managing Partner
24 New investments
26 Our portfolio
29 Movements in portfolio value
Financial review and Risk report
57 Financial review
67 Risk report
81 Directors’ duties
Accounts and other information
126 Independent auditor’s report
to the members of 3i Infrastructure plc
138 Statement of comprehensive income
139 Statement of changes in equity
140 Balance sheet
142 Cash flow statement
144 Reconciliation of net cash flow
to movement in net debt
145 Significant accounting policies
155 Notes to the accounts
183 Investment policy (unaudited)
184 Portfolio valuation methodology (unaudited)
186 Information for shareholders
187 Glossary
Review of investments
andSustainability report
35 ESVAGT
36 Infinis
37 TCR
38 Tampnet
39 Joulz
40 Ionisos
41 Oystercatcher
42 DNS:NET
43 SRL Traffic Systems
44 Valorem
45 Attero
46 Sustainability report
Governance
84 Introduction to Governance
87 Leadership and purpose
101 Division of responsibilities
105 Composition, succession and evaluation
110 Audit, Risk and Internal Control
117 Relationship with Investment Manager
119 Remuneration
120 Directors’ statement
This Annual report and accounts contains Alternative
Performance Measures (‘APMs’), which are financial
measures not defined in International Financial
Reporting Standards (‘IFRS’). These include Total return
on opening net asset value (‘NAV’), NAV per share,
Total income and non-income cash, Investment value
including commitments and Total portfolio return
percentage. The definition of each of these measures
isshown on page 66. The Total return for the year shown
in the Performance highlights is the total comprehensive
income for the year under IFRS. The Total return on
opening NAV is a Key Performance Indicator (‘KPI’).
In previous years, in addition to the APMs, the Annual
report and accounts showed portfolio information
including cash and other net assets held within
intermediate unconsolidated holding companies.
A reconciliation of this portfolio information to the
information presented in the Financial statements
was provided. Following the partial divestment of the
Oystercatcher investment and a restructure of some
investments previously held through Luxembourg-based
subsidiaries but now held directly by the Company,
wehave aligned the basis of reporting in this section
tothe Financial statements and will no longer report
onan adjusted basis.
The Directors’ statement on pages 120 to 124 for
3i Infrastructure plc (‘3i Infrastructure’, ‘3iN’ or the
‘Company’) for the year to 31 March 2022 has been
drawn up in accordance with applicable English law
and Jersey law and the liabilities of the Company in
connection with this statement shall be subject to
thelimitations and restrictions provided by such law.
This Annual report and accounts contains statements
about the future outlook for 3i Infrastructure.
Although the Directors believe their expectations are
based on reasonable assumptions, any statements
about the future outlook may be influenced by factors
that could cause actual outcomes and results to be
materially different.
The Company is managed by 3i Investments plc
(the‘Investment Manager’ or ’3i’). The Strategic report
comprises pages 1 to 82.
Cover image: SRL Traffic Systems
Page 43
Inside this report
21
Review from
the Managing
Partner
57
Financial
review
34
Review of
investments
86
3iN Board
values
Legacy
Accountability
Integrity
Objectivity
4
Chair’s
statement
13i Infrastructure plc Annual report and accounts 2022
Our new digital approach
Welcome to the 2022 Annual report and accounts of 3i Infrastructure plc.
This year, we have taken a digital-first approach to our report. We want
this new structure to make the information that we publish more
accessible to our shareholders and other stakeholders than reading
a
weighty printed document. We will continue to print copies of the
report
for users who prefer that format, but we have found in recent
years
that fewer printed copies have been required. Reducing the
number of printed copies reduces our carbon footprint, and our printing
and posting costs. We aim to evolve and improve our report each year
and welcome feedback from stakeholders on the structure and content.
We want to
make information
more accessible
to our stakeholders.”
Richard Laing
Chair, 3i Infrastructure plc
Overview
Watch video online
www.3i-infrastructure.com
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.
Positive impactSustainable returnsInvest responsibly
Welcome
Performance highlights
Consistent delivery against our target
return of 8% to 10% per annum.
Total return for the year
£404m
March 2021: £206m
2023 Target dividend per share
11.15p
+6.7%
Total return on opening NAV
17. 2%
2018
2019
2020
2021
2022
28.6%
15.4%
11.4%
9.2%
17.2%
NAV
£2,704m
+13.1%
2018
2019
2020
2021
2022
£1,710m
£1,902m
£2,269m
£2,390m
£2,704m
Full year dividend per share
10.45p
+6.6%
2018
2019
2020
2021
2022
7.85p+
8.65p
9.20p
9.80p
10.45p
NAV per share
303.3p
+13.1%
2018
2019
2020
2021
2022
211.0p
234.7p
254.5p
268.1p
303.3p
+ Special dividend in 2018: 41.40p
2
Overview
3i Infrastructure plc Annual report and accounts 2022 3
Overview
At a glance
A well-diversified
investment portfolio.
Assets
18
Portfolio value including commitments*
£3.2bn
2021: £2.0bn
Read more in Review of investments
Pages 35 to 45
Portfolio value by investment including commitments*
17%
10%
9%
9%
8%
8%
8%
7%
6%
6%
5%
4%
3%
Megatrends**
Energy transition 44%
Digitalisation 23%
Globalisation 16%
Renewing social
infrastructure 9%
Demographic change 8%
** Refer to page 8 for details
on megatrends
* All charts at 31 March 2022 and include commitment to invest
in GCX announced on 17 November 2021 (see page 25).
This has been another excellent year,
and
we have confidence in the future
of
our Company and portfolio.”
Richard Laing
Chair, 3i Infrastructure plc
Chair’s statement
3i Infrastructure continues to meet its
strategicobjectives and deliver its purpose.
The Company aims to provide shareholders
with a total return of 8% to 10% per annum,
to be achieved over the medium term.
I am delighted to report that we achieved
a return of 17.2% in the year ended
31 March 2022, well ahead of our target
and demonstrating the attractiveness of
our portfolio. This is the eighth consecutive
yearthat we have met or exceeded our
return target; and we have increased
thedividend per share in every year
oftheCompany’s existence.
Our portfolio companies have continued
to demonstrate resilience throughout the
Covid-19 pandemic, keeping essential
infrastructure operating and supporting
customers, suppliers, employees and
their communities. None of our portfolio
companies has direct exposure to Russia
or Ukraine.
We have made good progress against
our sustainability objectives and are
pleased with the level of engagement and
enthusiasm that we see across our portfolio
companies. Our report this year includes
information on greenhouse gas (‘GHG’)
emissions for each company, which can be
found in
theSustainability report.
I am grateful to shareholders and the Board
of Directors for their support during the
year, as well as to the Investment Manager’s
team for their hard work in a year when
office life and business travel were again
restricted. We made good use of virtual
means of communication, as well as
meeting in person where possible.
Our purpose
Our purpose, as set out on page 1,
istoinvest responsibly in infrastructure,
delivering long-term sustainable returns
to shareholders and having a positive
impact on our portfolio companies and
their stakeholders. The key elements
ofour purpose are used to structure
our
Strategic report.
Sustainability iscentral to our purpose
and we create value for all stakeholders
by investing in, developing and actively
managing essential infrastructure
which responds to public needs, fosters
sustainable growth and improves the lives
of communities. We invest across a broad
range of infrastructure investment themes,
and are highlighting two in particular in this
report: energy transition and digitalisation.
As the countries in which we invest
increase their focus on climate change,
we see continued opportunities to invest
in energy transition, putting our capital
to work to generate sustainable returns
and to have a positive impact through
mitigating climate change. Similarly,
increasing demand for digital connectivity
brings opportunities to invest in building
the underlying infrastructure required to
meetthat demand.
Performance
The Company generated a total return
of£404 million in the year ended
31 March2022, or 17.2% on opening NAV,
ahead of our target of 8% to 10% per annum
to be achieved over the medium term.
4
Overview
3i Infrastructure plc Annual report and accounts 2022 5
Overview
20222007
In the 15 years since the initial
public offering (‘IPO’) the Company
has delivered an annualised total
shareholder return of
13.1%
per annum
Chair’s statement continued
The NAV per share increased to
303.3pence. We delivered a Total
Shareholder Return (‘TSR’) of 20.9%
inthe year (FTSE 250: 0.5%). Since IPO,
the Company’s annualised TSR is 13.1%,
comparing favourably with the broader
market (FTSE 250: 7.1% annualised over
thesame period).
Investment activity
This was a busy year for new investments.
In June 2021, we completed the acquisition
of a 60% stake in DNS:NET for £157 million.
DNS:NET is a leading independent
telecommunications provider in Germany.
In November 2021, we agreed to invest
c.$512 million to acquire 100% of Global
Cloud Xchange (‘GCX’). GCX is a leading
global data communications service
provider. Additional acquisition debt
was raised in March 2022, reducing
the Company’s equity commitment
toc.£300 million. The transaction is
expected to complete in summer 2022.
In December 2021, we invested £191 million,
net of a subsequent debt raise, in SRL
Traffic Systems (‘SRL’). SRL is the market
leading traffic management equipment
rental companyin the UK.
We bought out our co-investor,
AMPCapital, purchasing their stake in
ESVAGT for £258 million in February 2022.
We have continued to support growth in
our portfolio companies with an aggregate
£71 million investment into DNS:NET,
Valorem, ESVAGT and Joulz to fund
further growth.
We completed the sale of Oystercatcher’s
four European terminals in October 2021.
This resulted in a distribution of €55 million
to the Company after repaying all
of Oystercatcher’s debt facilities.
Oystercatcher retains its holding of a
45%stake in Oiltanking Singapore. At the
end of the financial year, in March 2022,
we agreed to sell our European Projects
portfolio to 3i European Operational
Projects Fund (‘3i EOPF’) for £103 million.
This transaction is expected to reach
completion by June 2022.
Dividend
Following the payment of the interim
dividend of 5.225 pence per share in
January 2022, the Board is recommending
a final dividend for the year of 5.225 pence
per share, meeting our target for the year
of 10.45 pence per share, 6.6% above
last year’s total dividend. We expect the
final dividend to be paid on 11 July 2022.
Consistent with our progressive dividend
policy, we are announcing a total dividend
target for the year ending 31 March 2023
of 11.15pence per share, representing an
increase of6.7%.
Changes to the Investment
Manager’s team
On 31 March 2022, the Investment Manager
announced that Phil White is stepping down
from his role as Managing Partner and
Headof Infrastructure, 3i Investments plc,
with effect from 1 July 2022. Scott Moseley
and Bernardo Sottomayor will be appointed
as Co-Heads of European Infrastructure
and will take on Phil’s role in relation to
the Company.
Phil has contributed enormously to the
Company’s success over many years.
During his eight-year tenure as Managing
Partner, the Company’s returns have
been consistently ahead of the FTSE 250
benchmark and, under his leadership, the
capabilities of the management team have
grown considerably. We have appreciated
Phil’s experience, wisdom and commitment
and are extremely grateful for all that he has
done for the Company.
We note that Phil will continue with the
Investment Manager on a part-time basis
and will remain a member of the Investment
Committee. We welcome the appointment
of Scott and Bernardo, knowing them well
and having worked with them over many
years. The Board is confident that under
their leadership the team will continue
to provide excellent management of
the Company.
Corporate governance
andCompany domicile
The Company’s Annual General Meeting
(‘AGM’) was held on 8 July 2021 as a purely
functional meeting only conducting the
formal business due to Government
guidance and continued restrictions
relatedto the Covid-19 pandemic
inplaceatthe time.
All resolutions were approved by
shareholders, including the re-election of
the existing Directors. I was pleased with
the high level of shareholder engagement
via proxy voting at that meeting. We also
held an interactive online shareholder
presentation two weeks before the AGM
which enabled shareholders to submit
questions for Directors to answer.
This year’s AGM will be held on 7 July 2022.
Further details are provided in the Notice
of Meeting and on the Company’s website,
www.3i-infrastructure.com. We very much
look forward to seeing shareholders in
person again at this year’s AGM.
In 2021, the UK government consulted
on proposals to implement a simplified
corporate re-domiciliation regime
that would allow overseas companies
tobecome UK domiciled. The Company
responded supporting these proposals.
If implemented, the Company would be
likely to take advantage of this route to
become a UK company. There would
be
no change in the Company’s status
as
anapproved UK investment trust.
Directors’ duties
The Directors have a duty to act honestly
and in good faith with a view to the
best interests of the Company and to
exercise the care, diligence and skill that a
reasonably prudent person would exercise
in comparable circumstances.
In accordance with the AIC Code of
Corporate Governance 2019 (the ‘AIC
Code’), the Board does this through
understanding the views of the Company’s
key stakeholders and carefully considering
how their interests and the matters set
out in section 172 Companies Act 2006 of
England and Wales have been considered
in Board discussions and decision making.
More detail can be found in the Directors’
duties and Section 172 Statement sections
later in this document.
Outlook
The Company has remained disciplined
in its investment approach, and has
succeeded in making a number of new
investments during the year. Our portfolio
consists of defensive businesses providing
essential services to their customers and the
communities they serve, often benefitting
from long-term sustainable trends.
We remain confident in our business model.
As our Company has grown, we have
increased the size of the investments we
can hold in our portfolio and the funding
options we have available to us. We are
well-placed to take advantage of new
investment opportunities and to continue to
support and grow our portfolio companies.
Richard Laing
Chair, 3i Infrastructure plc
9 May 2022
Chair’s statement continued
6
Overview
3i Infrastructure plc Annual report and accounts 2022 7
Overview
Supporting Joulz to evolve
into an integrated energy
transition solutions provider
– with solar, battery and
EVcharging technologies, and
Infinis to diversify its renewable
platform into solar power and
battery storage
Providing management
teams with support
and access to a wide
network of advisers
andindustry experts
Working with portfolio
companies to develop plans
for reducing greenhouse
gas emissions
Supporting ESVAGT in its
transition to servicing the
offshore wind sector
Investing in DNS:NET and
GCX to increase digital
connectivity both locally
and internationally
Supporting TCR in
itscontract win with
KLMRoyal Dutch Airlines
to replace a diesel fleet of
ground support equipment
(‘GSE’) with a new
electrical fleet
Encouraging each portfolio
company to include in its
sustainability strategy
afocus on its employees
and local communities
Our approach
We invest responsibly
and have a positiveimpact
Responsible investing
We believe that a responsible approach to
investment will add value to our portfolio
and that the effective assessment of
Environmental, Social and Governance (‘ESG’)
risks and opportunities has a positive effect
on the value of our investee companies.
Since 2011, the Investment Manager has
been a signatory to the UN Principles for
Responsible Investment and has embedded
a clear and comprehensive Responsible
Investment policy into its investment and
asset management processes. This policy
sets out the businesses in which the
Company will not invest, as well as minimum
standards in relation to ESG matters which
we expect new portfolio companies to
meet, or to commit to meeting over a
reasonable time period. The policy applies
to all of our investments, irrespective
oftheir country or sector.
Our influence
We use our influence as owners and active
managers to ensure that our investee
companies are run responsibly and
that they have a positive impact on the
environment and onthe communities
in
which they operate.
This includes supporting and empowering
management teams to develop business
strategies that deliver value whilst
mitigating adverse environmental and
social impacts. We create a culture where
there is an ambition to improve our
businesses and where it is known that we
value management teams spending time
and resources on sustainability initiatives.
We also seek to manage all material ESG
risks and opportunities during the period
of the Company’s investment. This includes
enhancing portfolio companies’ corporate
governance and their board reporting.
We seek to invest in opportunities that,
where appropriate, will develop solutions to
sustainability challenges. We make a limited
number of investments each year, allowing
us to be very selective inour approach to
new investment.
Invest
responsibly
Sustainable
returns
Our purpose
Positive
impact
Positive impact
Examples of where we are
makingapositive impact
on our portfolio companies
and their stakeholders:
RCF
Sustainability-linked revolving credit facility (‘RCF’)
During the year, we refinanced the Company’s
revolving credit facility as a sustainability-linked RCF.
The new facility includes stretching targets across
ESG themes aligned withour purpose.
Our approach continued
The infrastructure market
Competitive landscape
Competition for infrastructure assets
remained high with considerable capital
available in the market leading to another
record year of infrastructure assets under
management. This year has seen the
launch of several new UK listed and private
funds targeting economic infrastructure
investment opportunities. This includes
a number of funds with narrow mandates
focused on specific sub-sectors of the
infrastructure market.
Macro environment
Accelerating trends in the macro
environment have also increased investor
appetite for the infrastructure asset class.
This year has seen rising inflation followed
by expectations of rising interest rates
and a tightening of monetary policy from
central banks.
In this environment, demand for
infrastructure assets typically increases
since they can act as a hedge with revenues
directly or indirectly linked to inflation.
These trends, and our response tothem,
are discussed in more detail within the
Riskreport on page 75.
Megatrends
Megatrends are shaping the world around
us, influencing decision making and changing
the demands placed on our economy and
services. Identifying the potential for change
is a key driver of our investment decision
making – from the businesses, sectors and
countries we invest in, to the way we go
about finding opportunities.
As the Company’s portfolio continues to
grow, we seek to diversify our investments
across a range of megatrends that will
provide a supportive environment for
long-term sustainable business growth
and returns to shareholders. We also
continually assess underlying risk factors,
both when considering new investment
opportunities and in managing the existing
portfolio and its exposure to certain risks,
such as commodity prices and foreseeable
technological disruptions.
Global trade and transport
Automation,
digital operations and
increasing connectivity
Renewable energy
generation
Electrification/energy
transition
Shared resources
Waste treatment
and recycling
Demand for healthcare
Investment themeMegatrend Our portfolio
Energy transition –
low-carbon and circular economy
Digitalisation and
technology disruption
Demographic
change
Globalisation
Renewing
social
infrastructure
Urbanisation and smart cities
8
Overview
3i Infrastructure plc Annual report and accounts 2022 9
Overview
Our approach continued
A disciplined investor
Origination approach
We remain a disciplined investor and where
possible seek opportunities to transact
off-market, only participating in competitive
processes where we believe we have a
distinct advantage.
We have a large and focused investment
team, with a broad network and access
across the geographies in which we invest.
Our reputation, local presence and the
relationships we develop withmanagement
teams provide us with competitive
advantages and allowed us to be successful
in signing our new investments this year in
DNS:NET, SRL and GCX onattractive terms.
Asset management
Throughout the year we maintained a
significant focus on asset management
activities and investment stewardship.
As social restrictions due to Covid-19
began to ease, we ensured that portfolio
companies were able to continue delivering
essential services whilst focusing on the
health and safety of employees, and the
needs of customers and suppliers.
We have increased our focus on
sustainability. During the year we
worked with portfolio companies to
implement processes to collect and
analyse greenhouse gas emissions data
and are pleased to report the results in
our Sustainability report on page 55.
Portfolio companies are now developing
plans for reducing their emissions over time.
In the year we also performed a review
of each portfolio company’s cyber
security. Portfolio company management
teams are now implementing bespoke
recommendations to enhance their
cybersecurity positions.
Unique offering for shareholders
The Company remains unique, providing
shareholders with access to private
infrastructure assets across a variety of
megatrends, sectors and geographies.
£100m-£400m
Typical equity investment
9%-14%
Typical range of gross returns per annum
Whilst listed and private funds compete
against the Company for new investments,
other UK listed infrastructure funds
typically target smaller investments than
the Company or investments in operational
and greenfield Public Private Partnership
(‘PPP’) projects, which are outside our
investment focus.
Our primary investment focus remains
mid-market economic infrastructure
with controlling majority or significant
minority positions and strong governance
rights, whilst adhering to a set of core
investment characteristics and risk factors.
More information on our business model
can be found on page 14.
Market segmentation and investment focus
Operational
PPP projects
Large
core economic
infrastructure
Investment focus
Economic
infrastructure
Return
Risk
Examples
Energy transition
In conversation with Bernardo Sottomayor
onthe energy transition.
Q What is your approach to investing
inthe energy transition and why
doyou believe it will deliver good
risk-adjusted returns?
A The global effort towards
decarbonisation requires huge
investment in underlying energy
infrastructure. This strong demand
for capital and underlying growth
fundamentals create a clear opportunity
to invest and obtain superior returns in
these areas.
3iInfrastructure’s portfolio contains
a range of companies targeting this
theme in a number of different ways.
Q How are companies in the 3iN
portfolio helping to drive the
energytransition forward?
A Many of our portfolio companies
are supporting the energy transition
in some way. Some are doing that
directlyby generating renewable
energy like Infinis, Valorem and
Attero which have almost 900MW of
installed renewable capacity between
them, enough to power 60% of the
households in London.
Others are contributing indirectly
through adapting their business models
to more sustainable practices. Our
portfolio company ESVAGT is a good
example of this. ESVAGT provides
emergency rescue and response vessels
and when we acquired the company
in 2015 almost all of its business was
based around oil and gas. Under
our ownership we have encouraged
ESVAGT tofocus on vessels serving
theoffshore wind sector and today
thatis where themajority of its earnings
come from.
Q As an owner of multiple assets across
different sub-sectors, how are you
encouraging sustainability across
theportfolio as a whole?
A Sustainability is no longer a ‘nice
to have’. It’s an important part of
managing risk, maximising the potential
of an investment and doing the right
thing. All the companies in our portfolio
must have a sustainability strategy.
We encourage our companies to look
at sustainability holistically, focusing
on Social and Governance issues as
well as the Environment. For example,
at Tampnet we have worked with the
management team to further promote
improved health and wellbeing for
theiremployees.
We also facilitate the sharing of best
practice across our portfolio, and
arrange sessions on sustainability topics
with advisers and industry experts,
as many of our companies are facing
similar challenges, so they are able
tolearn from each other.
Q Do you see some infrastructure
sectors having more impact on
theenergy transition than others?
A We encourage all of our portfolio
companies to embrace the energy
transition regardless of sub-sector.
Every contribution matters.
For example, TCR, our airport ground
handling equipment business, actively
researches electrical alternatives to its
traditional diesel-powered equipment
in order to advise and fund its airport
and airline rental customers on this
transition, indirectly supporting their
GHG reduction commitments.
Another example is Joulz, whose
core activity is to install and upgrade
the electrical infrastructure for its
industrial and commercial customers,
enabling their own energy transition
efforts, which in many cases include
the installation of electric vehicle
chargingpoints, solar panels, batteries
and non-fossil fuel heating solutions.
We encourage all of our portfolio
companies to embrace the energy
transition regardless of sub-sector.”
Bernardo Sottomayor
Partner, Co-Head of Economic Infrastructure, Europe
10
Overview
3i Infrastructure plc Annual report and accounts 2022 11
Overview
Energy transition continued
Joulz is benefitting from the Dutch
government’s commitment to
decarbonise the economy. The energy
transition is further advanced than in
other European countries and leads
to an increased demand for Joulz’s
equipment and services.
Valorem is a leading developer of
renewable energy projects from
wind, solar and hydro. The company
continues to grow its asset base, now
owning 663MW of fully developed
renewable capacity.
Infinis collects environmentally
harmful landfill gas and converts it
into a consistent source of baseload
electricity for the local UK grid.
Infinis is using its platform to make new
investments in activities such as solar
power generation and battery storage.
Under our ownership, ESVAGT has
established a leading position as a
renewable offshore services provider
in the fast growing offshore wind
industry, both in Europe and the
US. ESVAGT’s vessels support the
efficient maintenance of offshore
windfarms, a key contribution to
the
energy transition.
Read more
Page 39
Read more
Page 44
Read more
Page 36
Read more
Page 35
In conversation with Scott Moseley
on digital infrastructure.
Q Which digitalisation trends have
beenaccelerated by Covid-19?
A We are all aware of the rapid shift to
a more dynamic way of working and
learning caused by the pandemic.
Many of us have also experienced
transformational growth in e-commerce
and online gaming. Perhaps less
immediately evident to our day-to-
day lives is the increasing emphasis
on industrial process digitalisation.
The consumption of data is growing
exponentially and the architecture of
network connectivity is proliferating
across increasingly diverse routes,
creating investment opportunity in
areas such as mobile communication,
data centres, and subsea and terrestrial
fibre-optic networks.
Q Can you tell us more about your
latest investments in the digital
connectivity space and your rationale
for investing?
A Our most recent investment is
a company called Global Cloud
Xchange, one of the largest private
subsea fibre
optic networks globally.
Its 66,000km of underwater cabling
provides high-bandwidth connectivity
on important routes between Europe,
Asia and North America. Its customers
range from hyper-scalers to content
streaming and telecom carriers,
and
itis well-positioned to provide bulk
transmission of data across continents
along high value routes.
At a more local level, another
recentinvestment is DNS:NET,
whichis rolling out fibre-to-the-
home connectivity in the Berlin area.
Wethink there areparticularly attractive
dynamicsinthe German market, where
fibre-to-the-home coverage at only 14%
is low compared to other markets and it
is really the only technology capable of
future-proofing demandrequirements.
We also own Tampnet, which operates
fibre networks in the North Sea and
Gulf of Mexico, providing offshore
connectivity and smart digitalisation
solutions to energy platforms and
windfarms to enable efficient utilisation
ofour offshore energy resources.
The diversification evident across these
investments helps our shareholders
benefit from digitalisation as a
megatrend in different ways.
Q What’s the outlook for digital
connectivity and what opportunities
are you seeing?
A Communications infrastructure is
arguably now as fundamental to the
prospects of our economies as energy
and water utilities.
Innovation across smart cities, industries
and devices is dependent upon data
transmission. Recent high profile
corporate activity, such as Microsoft’s
acquisition of video game maker
Activision Blizzard and Meta’s push
into the metaverse, provides further
evidence that network infrastructure
facilitating connectivity is going to be
increasingly vital.
We are confident that we are well
placed to take advantage of these
digital opportunities.
66,000km
GCX’s subsea fibre optic network
Communications infrastructure
is arguablynow as fundamental
to the prospects of our economies
as energy andwater utilities.”
Scott Moseley
Partner, Co-Head of Economic Infrastructure, Europe
Digital infrastructure
12
Overview
3i Infrastructure plc Annual report and accounts 2022 13
Overview
Digital infrastructure continued
Read more
Page 25
Read more
Page 42
Read more
Page 38
GCX owns one of the world’s largest
private subsea fibre optic networks and
is well-positioned to capitalise on the
exponential growth in data usage.
DNS:NET is rolling out the largest
fibre-to-the-home network in the Berlin
area, where demand is growing rapidly,
as consumers normalise data intensive
activities such as cloud-based remote
working, high definition streaming and
online gaming.
Tampnet’s offshore fibre optic network
provides customers with mission-critical
reliable communications in the North
Sea and Gulf of Mexico. The company is
benefitting from the growing requirement for
high speed, high bandwidth and low latency
in data links that allow customers to improve
efficiency through remote operations.
Our business model
We invest responsibly in infrastructure
to create long-term value for stakeholders.
What enables us
to create value
Characteristics we look
for in new investments
How we
create value
Asset intensive
business
Asset bases that
are hard to replicate
Provide essential
services
Established
market position
Good visibility
of future cash flows
An acceptable element
of demand or marketrisk
Opportunities
for further growth
Sustainability
Investment
Manager’s team
3i Group network
Engaged asset
management
Reputation andbrand
High ESG standards
Robust policies
and procedures
Efficient balance sheet
Financial
17. 2%
Total return on opening
netasset value
10.45p
Ordinary dividend
per share
19%
Asset IRR
(since
inception)
Non-financial
4
Further investments inportfolio
companies tofund growth
4
New Chair and non-executive
Director appointments in
portfolio companies
+5.5%
Increase in installed
renewable energy capacity
10
Portfolio companies reporting
on
greenhouse gas emissions
Buy well
Framed by our
strategic priorities
Strong governance
Define strategy
Execute plan
Realisation
Read more
Pages 15 and 16
Read more
Page 17
Read more
Page 17
Invest
responsibly
Positive
impact
Sustainable
returns
Our purpose
Value created in the year
14
Overview
3i Infrastructure plc Annual report and accounts 2022 15
Overview
Our business model explained
What enables us to create value
Investment Manager’s team
3i Group network
Engaged asset management
Strengthen
portfolio company
management
teams
Invest in and
develop companies
to support
a sustainable
future
Growing
our platform
businesses
through
acquisitions
The Company is managed by an
experienced and well-resourced team.
The European infrastructure team was
established by 3i Group in 2005 and now
comprises more than 50 people, including
over30investment professionals.
This is one of the largest and most
experienced groups of infrastructure
investment professionals in Europe,
supported by dedicated finance, tax,
legal,
operations and strategy teams.
We drive value from our investments through the Investment Manager’s engaged asset
management approach. Through this approach, the Investment Manager partners with
our portfolio management teams to develop and execute a strategy to create long-term
value in a sustainable way. Examples of this partnership include developing strategies that
support investment in the portfolio company’s asset base over the long term; continued
improvements in operational performance; and establishing governance models that
promote an alignment of interests between management and stakeholders.
We develop and supplement management teams, often bringing in a non-executive chair
early in our ownership.
Examples of this engaged asset management approach can be found on our website,
www.3i-infrastructure.com.
3i Group has a network of offices,
advisers and business relationships across
Europe. The investment management
team leverages this network to identify,
accessand assess opportunities to invest
in businesses, on a bilateral basis where
possible, and to position the Company
favourably in auction processes.
Our business model explained continued
What enables us to create value continued
Reputation and brand Robust policies and procedures
Efficient balance sheet
High ESG standards
The Investment Manager and the Company
have built a strong reputation and track
record as investors by investing responsibly,
managing their business and portfolio
sustainably and by carrying out activities
according to high standards of conduct
and behaviour. This hasbeen achieved
through upholding the highest standards
ofgovernance, at the InvestmentManager,
the Company and in investee companies.
This in turn has earned the trust of
shareholders, other investors and investee
companies, and has enabled the Investment
Manager to recruit and develop employees
who share those values and ambitions for
the future.
The Board seeks to maintain this strong
reputation through a transparent approach
to corporate reporting, including on
our progress on driving sustainability
through ouroperations and portfolio.
We are committed to communicating in
a clear, open and comprehensive manner
and to maintaining an open dialogue
with stakeholders.
Established investment and asset
management processes are supported by
the Investment Manager’scomprehensive
set of best practice policies, including
governance, conduct, cyber security
and
anti-bribery.
The Company’s flexible funding model
seeks to maintain an efficient balance
sheet with sufficient liquidity to make
newinvestments. In order to capitalise
on emerging opportunities, during the
year we extended our borrowing facilities
from
£300 million to£1 billion.
Since FY15 the Company has raised
equitytwice and returned capital
to shareholders twice following
successful realisations.
Sustainability and ESG standards are discussed throughout this report.
Please refer to Our approach on page 7, theSustainability report on
pages46 to55 and the Risk report on pages 67 to 80.
There is a strong
link between
companies that have
high ESG standards
and those that
are able to achieve
long-term sustainable
business growth.”
Anna Dellis
Partner, 3i Investments plc
”
16
Overview
3i Infrastructure plc Annual report and accounts 2022 17
Overview
Our business model explained continued
Characteristics we look for in new investments How we create value
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:
We have a rigorous approach to identify
the best investment opportunities and then
work in close partnership with our portfolio
companies to drive sustainable growth.
Asset intensive business
Owning or having exclusive access under
long-term contracts to assets that are
essentialtodeliver the service
Good visibility
of future cash flows
Long-term contracts or sustainable demand
thatallow us to forecast future performance
withareasonable degree of confidence
Asset bases that
are hard to replicate
Assets that require time and significant
capitalortechnical expertise to develop,
withlow risk oftechnological disruption
Provide essential services
Services that are an integral part of
a customer’s business or operating
requirements, or are essential to everyday life
An acceptable element
of demand or marketrisk
Businesses that have downside protection,
butthe opportunity for outperformance
Opportunities for further growth
Opportunities to grow or to develop the
business into new markets, either organically
or through targeted M&A
Established market position
Businesses that have a long-standing
position,reputation and relationship with
theircustomers – leading to high renewal
andretention rates
Sustainability
Businesses that meet our Responsible
Investing criteria, with opportunities to
improve sustainability and ESG standards
Buy well
• Comprehensive
due diligence
• Consistent with
return/yield targets
• Fits risk appetite
Execute plan
• Ongoing support and advice
• Monitor performance
• Review further investment
• Facilitate M&A
Strong governance
• Make immediate
improvements
• Board representation
• Appropriate
Board composition
• Incentivise management
Realisation
• Long-term view but
will sell tomaximise
shareholder value
Define strategy
• Agree strategic direction
• Develop action plan
• Focus on ESG
• Right capital structure
What we do is
framed by our
strategic priorities
Read more
Page 18
Our strategy
Strategic priorities
Our strategy is
to maintain a
balanced portfolio
of infrastructure
investments delivering
an attractive mix of
income yield and
capital appreciation
for shareholders.
* Includes commitment to invest in GCX, net
of debt financing, madeon17 November 2021.
Delivering an attractive mix of income yield
and capital appreciation for shareholders.
Investing in a diversified portfolio in
developed markets, with a focus on
theUKand Europe.
Minimising return dilution to shareholders
from holding excessive cash, while
retaining a good level of liquidity for
future investment.
Ensuring that our investment decisions
and asset management approach consider
both the risks and opportunities presented
by sustainability.
Focusing selectively on investments that
are value enhancing to the Company’s
portfolio and with returns consistent with
our objectives.
Driving value from our portfolio through
our engaged asset management
approach.
Delivering growth through platform
investments.
17%
Largest single investment
by value*
Read more
Pages 34 to 45
£484m
Total liquidity less investment
commitments*
Read more
Page 63
898MW
Installed renewable
energy capacity
Read more
Page 50
£980m
New investments
or commitments
Read more
Pages 24, 25 and 34 to 45
4
Follow-on investments
in portfolio companies
Read more
Pages 34 to 45
5
Portfolio
companies
refinanced*
Maintaining a
balanced portfolio
Maintaining an
efficient balance sheet
Sustainability a key
driver of performance
Disciplined approach
to new investment
Managing the
portfolio intensively
18
Overview
3i Infrastructure plc Annual report and accounts 2022 19
Overview
Our objectives and KPIs
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
2018
2019
2020
2021
2022
Target
28.6%
15.4%
11.4%
9.2%
17.2%
8-10%
Target
To provide shareholders with a total return of8%to
10%per annum, to be achieved over themedium term.
Met or exceeded target
for 2022 and every prior year shown
Total return % on opening NAV
2018
2019
2020
2021
2022
2023 Target
7.85p+
8.65p
9.20p
9.80p
10.45p
11.15p
+ Special dividend (2018: 41.40p)
Target
Progressive dividend per share policy.
FY23 full year dividend target of 11.15 pence per share.
Dividend per share increased
every year since IPO
Annual distribution pence per share
Rationale and definition
• Total return is how we measure the overall financial
performance of the Company
• Total return comprises the investment return from
theportfolio and income from any cash balances,
netof management and performance fees and
operating and finance costs. It also includes foreign
exchange movement and movement in the fair value
of derivatives and taxes
• 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
Performance over the year
• Total return of £404 million in the year, or 17.2%
onopening NAV
• The portfolio showed good resilience overall with
strong performance in particular from Oystercatcher,
TCR and ESVAGT
• The hedging programme continues to reduce the
volatility in NAV from exchange rate movements
• Costs were managed in line with expectations
Rationale and definition
• This measure reflects the dividends distributed
toshareholders each year
• The Company’s business model is to generate
returns from portfolio income and capital returns
(through value growth and realised capital profits).
Income, other portfolio company cash distributions
and realised capital profits generated are used to
meet the operating costs of the Company and to
make distributions to shareholders
• The dividend is measured on a pence per share basis,
and is targeted to be progressive
Performance over the year
• Proposed total dividend of 10.45 pence per share,
or £93 million, is in line with the target set at the
beginning of the year
• Income generated from the portfolio and cash
deposits, including non-income cash distributions
and other income from portfolio companies,
totalled£143 million for the year
• Operating costs and finance costs used to assess
dividend coverage totalled £50 million in the year
• The dividend was fully covered for the year
• Setting a total dividend target for FY23 of 11.15 pence
per share, 6.7% higher than for FY22
Investment
Manager’s
review
Joulz
Page 39
20
Investment Manager’s review
3i Infrastructure plc Annual report and accounts 2022 21
Review from the Managing Partner
We have made attractive new
investments, both in new businesses
and companies we already know
well, and successfully realised
Oystercatcher’s European terminals
and our European projects portfolio.
The portfolio continued to be resilient,
delivering strong operational and
financial performance ahead of the
expectations we set
a year ago.
Competition for new investments
remains intense, leading to high pricing
of assets, and we remain disciplined
to
invest selectively.
This was a very busy year of investment
activity. Our new investments in SRL and
GCX are both in growth sectors with strong
market positions. Increasing our stake in
ESVAGT to 100% and our injections of
additional capital into DNS:NET, Valorem
and Joulz will benefit the Company
from further growth in those platforms.
The Company has increased its credit
facilities to ensure that it continues to
have ample liquidity to make further
new investments.
The portfolio delivered strong performance
during the year and met our income
expectations. As Europe emerges from
the Covid-19 pandemic, we have seen a
pick-up in growth initiatives in a number
of our portfolio companies and we are
working closely with our portfolio company
management teams to execute on these.
Our portfolio is not immune to the
challenging current macro environment of
higher inflation, interest rate rises, tax rises,
supply side disruptions and heightened
geopolitical risks from Russia’s invasion
of Ukraine. However, theCompany has
awell-diversified portfolio, each business
operating in its established market
position and, in the majority of cases, with
predictable income and some inflation
protection. Over the past six months we
have also further reduced the portfolio’s
exposure to interest rates through extensive
financing activity. We supported five
portfolio companies through refinancing
or additional debt raises, extending debt
maturities and locking in fixed rates on
attractive terms.
It was a very good year for the
Company – a high level of new
investment, excellent realisations,
and a strong portfolio performance.”
Phil White
Managing Partner and Head
of Infrastructure, 3i Investments plc
Review from the Managing Partner continued
Portfolio review
Most portfolio companies performed
materially ahead of expectations.
The sale of Oystercatcher’s 45%
stakes in its four European terminals in
Amsterdam, Terneuzen, Ghent and Malta
drove part of the outperformance in the
year. The majority of the net proceeds
from the sale were used to prepay all
of
Oystercatcher’s debt.
The balance of the net proceeds to
Oystercatcher, €55 million, was distributed
to the Company. Oystercatcher continues
to own a 45% stake in Oiltanking Singapore
Limited alongside Oiltanking GmbH.
ESVAGT, in which we invested £258 million
to acquire the 50% stake owned by our
co-investor, AMP, had a very good year,
benefitting from higher contract rates and
utilisation levels returning to pre-Covid
levels. It also won a milestone contract
to provide the world’s first green Service
Operation Vessel, powered by batteries and
renewable e-methanol, to
theHornsea 2
wind farm in the UK.
Our French-headquartered companies,
Ionisos and Valorem, were strong
performers in the year. To sustain the
growing demand from the healthcare and
pharma industries, Ionisos is looking at
various expansion opportunities beyond
the construction of a new site at Kleve,
Germany. Valorem is progressing well
with its construction activity with a total
of 105MW of new wind and solar projects
entering into operation during the year.
It also successfully closed Viiatti, a landmark
large-scale wind project in Finland.
Tampnet and Joulz performed well during
the year. At Tampnet, customers continued
to upgrade their bandwidth requirements.
Joulz’s core businesses of Infrastructure
Services and Metering performed in line
with expectations and we saw continued
healthy growth in the order book. This was
offset by some delays in completing new
projects, mainly due to Covid-19 related
staffing issues. The Company invested
£5 million of new equity into Joulz to
support further growth.
Despite new travel restrictions imposed
during the winter, TCR continued to
demonstrate the resilience of its business
model and performed ahead of our
expectations for the year. The business
continues to grow, increasing the number
of
airports in which it operates and
increasing the number of clients it serves.
Infinis significantly exceeded its budget
due to outperformance in its captured
landfill methane business, higher UK power
prices and the frequent power supply
system imbalances in the UK that benefitted
its power response assets. Attero also
benefitted from high power prices, which,
together with higher than forecast waste
supply volumes and gate fees, helped it
to materially outperform expectations
and the prior year. In March 2022, the
business closed an additional debt raise
onfavourable terms.
Our newest assets, DNS:NET and SRL,
are performing broadly in line with our
investment cases. In February 2022 we
invested a further £33 million in DNS:NET
to
support its fibre network roll-out.
On 29 March 2022, the Company signed
an agreement to sell its European
projects portfolio, comprising four
Dutch
and two French PPP projects
across transport and social infrastructure,
to 3i EOPF, representing an uplift of
£8 million on the value at September.
Completion is
expected by June 2022 and
proceeds are estimated at £103 million.
This results in a 20% gross IRR and a 1.7x
gross money multiple for the Company.
Finally, we were pleased with the
significant progress made towards
realising
the remaining assets in the
3i
IndiaInfrastructure Fund (the ‘India
Fund’), with the sale of the India Fund’s
stake in
KMC Roads and in GVK Energy at
uplifts to the carrying value.
Investment Manager’s review
22
Investment Manager’s review
3i Infrastructure plc Annual report and accounts 2022 23
Investment activity
During the year, the Company invested
or committed £980 million into its target
markets. In November, we agreed to
invest c.$512 million to acquire 100%
of GCX. GCX is a leading global data
communications service provider and owns
one of the world’s largest private subsea
fibre optic networks. Completion is
subject
to certain regulatory approvals and
is expected mid-2022. In December,
wecompleted the £191 million acquisition
of a 92% stake in SRL and invested a further
£21 million into Valorem and £5 million into
Joulz to fund their growth. In February,
we increased our stake in ESVAGT from
50% to 100% for £258 million and invested
a further £33 million into DNS:NET to
fund the next step of its fibre roll-out.
These new investments have added further
diversification to the Company’s portfolio,
which is well-balanced by size of investment
and has exposure to a range of countries,
sectors and risk factors. This should
strengthen the Company’s ability to
meet
its return and dividend objectives
over
the medium term.
Outlook
It was a very good year for the Company,
with a high level of new investment,
excellent realisations, and a strong
portfolio performance. The market
for newinvestments remains highly
competitivebut we remain very selective
and, as we have shown consistently over
many years, are prepared to sell assets
where that generates exceptional returns
for shareholders. The Company is in
ahealthy position for the future.
Phil White
Managing Partner and Head of Infrastructure,
3i Investments plc
9 May 2022
Throughout the year, we saw an active
investment pipeline that included a
broad range of potential new investment
opportunities. Competition for new
investments was very high, and we are
focused on achieving an appropriate
balance of risk and return.
Sustainability
We took a big step forward on
sustainability during the year. We set
several sustainability-related objectives
and are pleased to have met all of these.
This includes reporting Scope 1 and
Scope 2 greenhouse gas emissions for our
portfolio companies for the first time as well
as implementing policies and entering into
financial agreements that further embed
sustainability throughout our investment
and asset management processes.
In the year ahead, we plan to build on
this progress by working with portfolio
companies to consider potential
opportunities to reduce their greenhouse
gas emissions over time and by assessing
the results of climate scenario analysis.
We will also continue to develop
our approach to sustainability as the
regulatory and commercial frameworks
in which we and our portfolio companies
operate evolve.
Review from the Managing Partner continued
New investments
Investment rationale
• Temporary Traffic Equipment (‘TTE’) is
mission-critical for the safe use of roads
• SRL fits with the Company’s strategy
of investing in companies with leading
market positions and barriers to entry,
yet with operational levers to achieve
attractive returns for shareholders
through active asset management
• SRL has sound market fundamentals
through the increasing emphasis placed
on health and safety, anda growing
propensity to rent rather than own TTE
• Outsourcing ownership of TTE makes
economic sense for traffic management
companies, as it allows them to
manage maintenance and utilisation
more efficiently
• SRL has a market leading reputation
and is trusted by its customers
Asset intensive business
that is hard to replicate
SRL rents a fleet of c.13,000 TTE under full
service contracts. The fleet is deployed
from 30 strategically located depots
throughout the UK.
Good visibility on future cash flows
There is broad political and regulatory
support for increased investment in
UKinfrastructure and TTE will be needed
tosupport this.
Provides essential services
TTE is safety critical equipment needed
to protect highway workers and segregate
traffic, cyclists and pedestrians.
Acceptable element of demand risk
Primary competition for SRL is from
customers with owned assets who often
use their own fleets to serve a baseload
ofwork and then top up with rented TTE.
Established market position
SRL is the only large rental company of
TTEin the UK. It benefits from economies
of scale through being able to provide
access to TTE nationally and 24/7.
Opportunities for further growth
The rental model is expected to increase
penetration and gain market share from
theownership model over time.
Sustainability
TTE, and in particular SRL’s smarter
products, allow for greater control of traffic
flows, which in turn reduces congestion
around roadworks and improves safety.
Characteristics
Invested
£191m
Equity stake
92%
SRL is the UK’s leading
lessor of temporary traffic
management equipment.
Investment Manager’s review
24
Investment Manager’s review
3i Infrastructure plc Annual report and accounts 2022 25
New investments continued
Investment rationale
• GCX owns one of the most
comprehensive subsea cable networks
globally, serving customers in over
180
countries
• Benefits from the rapidly expanding
data market with data usage forecast
to
grow exponentially
• Operates in a market with high barriers to
entry whilst providing anessential service
• Supported by a highly experienced
management team with astrong track
record in the sector
• Attractive entry valuation following
abilateral process
Asset intensive business
that is hard to replicate
GCX’s 66,000km of cables,spanning from
North America to Asia, would require large
upfront investments and a multi-year lead
time to replicate.
Good visibility on future cash flows
GCX’s core network benefits from high
margins and low maintenance capex
requirements, resulting in an attractive
yield profile for 3i Infrastructure.
Provides essential services
GCX is a key infrastructure provider in the
rapidly expanding data market, in particular
in high growth markets in Asia and the
Middle East.
Acceptable element of demand risk
Over 90% of GCX’s revenue is recurring
in nature, underpinned by a mixture of
medium-term (1-3 years) and long-term
(10years+) contracts.
Established market position
GCX owns one of the few networks
with significant spare capacity to serve
theexponentially growing demand for
datatrafficonthe Europe-Asia and
inter-Asia routes.
Opportunities for further growth
In a relatively fragmented market,
M&A is an upside opportunity to either
accelerate growth or to further strengthen
GCX’snetwork footprint.
Characteristics
Expected equity
commitment
c.£300m
Equity stake
10 0%
GCX owns one of the
most comprehensive subsea
cable networks globally.
The portfolio
comprises a
diversified, defensive
set of businesses
providing essential
services. We are
confident that the
portfolio is well
positioned to deliver
our target returns.
The Company’s portfolio was valued
at £2,873 million at 31 March 2022
(2021: £1,804 million) and delivered a total
portfolio return in the year of £509 million,
including income and allocated foreign
exchange hedging (2021: £232 million).
Table 1 summarises the valuations and
movements in the portfolio, as well as the
return for each investment, for the year.
In accordance with accounting standards,
‘Investments at fair value through profit
or loss’ as reported in the Balance sheet
include, in addition to the portfolio asset
valuation, the cash and other net assets
held within intermediate unconsolidated
holding companies. Due to the change
in basis of accounting described in the
Financial review on page 59, there
is
no longer any difference between
Table
1 and the amounts reported
in
theFinancial statements.
Our portfolio
Read more
Pages 35–45
Investment Manager’s review
26
Investment Manager’s review
3i Infrastructure plc Annual report and accounts 2022 27
Our portfolio continued
Table 1: Portfolio summary (31 March 2022, £m)
Portfolio assets
Directors’
valuation
31 March
2021
Investment
in the year
Divestment
in the year
Accrued
income
movement
Value
movement
Foreign
exchange
translation
Directors’
valuation
31 March
2022
Allocated
foreign
exchange
hedging
Underlying
portfolio
income
in the year
Portfolio
total return
in the year¹
ESVAGT 189 294
2,3
– 3 57 5 548 (5) 28 85
Infinis 300 – – 2 30 – 332 – 17 47
TCR 199 14
2,4
– – 67 (1) 279 1 13 80
Tampnet 230 5
2
– – – 6 241 (2) 22 26
Joulz 219 10
2,4
– – 14 (2) 241 2 6 20
Ionisos 202 5
2
– 4 28 (2) 237 2 9 37
Oystercatcher 157 – (56)
5
1 121 7 230 (5) 5 128
DNS:NET – 193
2,3
– 2 9 (2) 202 2 4 13
SRL – 274 (83)
5
5 4 – 200 – 7 11
Valorem 107 21
4
– – 17 (1) 144 1 4 21
Attero 105 – – – 12 (1) 116 1 5 17
Economic infrastructure portfolio 1,708 816 (139) 17 359 9 2,770 (3) 120 485
Projects 93 – (1)
5
– 12 (1) 103 1 7 19
India Fund 3 – (8) – 4 1 – – – 5
Total portfolio reported in the Financial statements
6
1,804 816 (148) 17 375 9 2,873 (2) 127 509
1 This comprises the aggregate of value movement, foreign exchange translation, allocated foreign exchange hedging and underlying portfolio income in the year.
2 Capitalised interest totalling £55 million.
3 New investment in ESVAGT of £258 million plus £12 million of follow-on investment and DNS:NET of £157 million plus £33 million of follow-on investment.
4 Follow-on investment in TCR of £1 million, Joulz of £5 million and Valorem of £21 million.
5 Shareholder loan repaid. The SRL divestment amount relates to the repayment of a bridge loan following the raising of a third-party acquisition debt facility.
6 Cash and other net assets held in unconsolidated subsidiaries of £2 million were distributed to the Company during the year. Due to these distributions and the change in basis of accounting described in the Financial review
onpage59, there is no longer any difference between Table 1 and the amounts reported in the Financial statements.
Our portfolio continued
Total portfolio return
E
SVAGT
Infinis
TCR
Tampnet
Joulz
Ionisos
Oystercatcher
DNS:NET*
SRL*
Valorem
Attero
Projects
Chart 1: Portfolio return by asset (year to 31 March 2022)
19.8%
18.5%
15.7%
40.0%
81.5%
6.7%
16.4%
4.0%
20.4%
16.2%
11.3%
18.3%
8.9%
The total portfolio return in the year of
£509 million is 19.8% (2021: £232 million,
13.7%) of the aggregate of the opening
value of the portfolio and investments
in
theyear (excluding capitalised interest),
which total £2,565 million.
Performance was strong across the
portfolio, driven principally by the
realisation of the European storage
terminals held by
Oystercatcher for a price
above their opening valuation and by
outperformance from a number of portfolio
companies but particularly TCR and ESVAGT.
Chart 1 below shows the portfolio return
in
the year for each asset as a percentage
of
the aggregate of the opening value of
the asset and investments in the asset in
the
year (excluding capitalised interest).
Note that this measure does not time-weight
for investments in the year.
* Acquired during the year and portfolio return not annualised.
Investment Manager’s review
28
Investment Manager’s review
3i Infrastructure plc Annual report and accounts 2022 29
Movements in portfolio value
The movements in portfolio value were
driven principally by the delivery of planned
cash flows and other asset outperformance
as well as new and follow-on investments
made during the year. A reconciliation of
the movement in portfolio value is shown
in Chart 2 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 2.
The value increase in TCR of £67 million
reflects: the outperformance of the
business during the year; cost savings
delivered and expected from its cost
optimisation programme; and a reduction
in the discount rate to remove the Covid-19
premium previously applied. This increased
valuation is further supported by increased
interest in TCR’s full service rental model and
our confidence in the long-term value of its
asset base and market opportunity.
Economic infrastructure portfolio
The economic infrastructure portfolio
generated a value gain of £359 million in
the
year, alongside income of £120 million.
The £121 million value increase in
Oystercatcher reflects: the uplift achieved
from the sale of the European terminals;
the
prepayment of Oystercatcher’s debt;
and a reduced discount rate to reflect
higher quality cash flows from Singapore
and low leverage.
ESVAGT increased in value by £57 million,
as
we revised our investment case following
the completion of the acquisition of
our co-investor’s 50% stake in ESVAGT.
We revised our growth assumptions for
the business and made a small reduction
in the discount rate to reflect the reduction
in risk following the signing of significant
new contracts and the
completion of
the newbuild programme for three
new MHIVestas Service Operation
Vessels. In March 2022 we completed
arefinancing on improved terms to
supportfuture growth.
Infinis generated a value gain of £30
million
in the year and contributed £15 million
of cash distributions. This was due to a
combination of business outperformance,
the continued progress of its solar
development programme and changes
in
forecast futurepower prices.
Ionisos experienced a £28 million gain due
to significant outperformance, particularly
from strong demand in the medical devices
and pharmaceuticals sectors.
Chart 2: Reconciliation of the movement in portfolio value (year to 31 March 2022, £m)
3,000
2,500
2,000
1,500
1,000
500
Value
movement
Accrued
income
movement
Exchange
movement
2
Opening
portfolio value at
1 April 2021
Closing
portfolio value at
31 March 2022
Divestment/
capital repaid
Investment
1
9
2,873
1,804
(148)
816
375
17
1 Includes capitalised interest.
2 Excludes movement in the foreign exchange hedging programme (see Chart 7 in the Financial review).
Table 2: Components of value movement (year to 31 March 2022, £m)
Value movement component
Value movement
in the year Description
Planned growth 109 Net value movement resulting from the passage of time, consistent
with
the discount rate and cash flow assumptions at the beginning of
the year less distributions received and capitalised interest in the year.
Other asset performance 188 Net value movement arising from actual performance in the year
and changes to future cash flow projections, including financing
assumptions and changes to regulatory assumptions. Includes the
uplift on the sale of Oystercatcher’s European terminals and the
Projects
portfolio.
Discount rate movement 43 Value movement relating to changes in the discount rate applied
to
theportfolio cash flows.
Macroeconomic assumptions 35 Value movement relating to changes to macroeconomic out-turn or
assumptions, eg power prices, inflation, interest rates and taxation
rates. This includes changes to regulatory returns
that are directly
linked
to macroeconomic variables.
Total value movement before exchange 375
Foreign exchange retranslation 9 Movement in value due to currency translation to year end date.
Total value movement 384
Movements in portfolio value continued
Projects portfolio
The value gain in the Projects portfolio of
£12 million reflects the proceeds expected
from the agreement to sell the holdings to
3i EOPF which is expected to complete by
June 2022.
India Fund
During the year we divested KMC Roads
and GVK Energy at
an uplift to the
carrying value.
Summary of portfolio
valuation methodology
Investment valuations are calculated at the
half-year and at the financial year end by
the Investment Manager and then reviewed
by the Board. Investments are reported at
the Directors’ estimate of fair value at the
relevant reporting date.
The valuation principles used are
based on International Private Equity
and Venture Capital (‘IPEV’) valuation
guidelines, generally using a discounted
cash flow (‘DCF’) methodology (except
where a market quote is available),
whichthe Investment Manager considers
to be the most appropriate valuation
methodology for unquoted infrastructure
equity investments.
Investment Manager’s review
30
Investment Manager’s review
3i Infrastructure plc Annual report and accounts 2022 31
Movements in portfolio value continued
Where the DCF methodology is used,
the resulting valuation is checked against
other valuation benchmarks relevant
to the particular investment, including,
for example:
• earnings multiples;
• recent transactions; and
• quoted market comparables.
In determining a DCF valuation, we
consider
and reflect changes to the two principal
inputs, being forecast cash flows from the
investment and discount rates. We consider
both the macroeconomic environment
and investment-specific value drivers when
deriving a balanced base case of cash flows
and selecting an appropriate discount rate.
A prevalent theme this year has been
inflationary pressures on supply chain costs
and employee costs. The ability to pass cost
inflation to customers varies by portfolio
company so we took a granular approach
to
modelling the effects of inflation.
As a ‘through the cycle’ investor with
a strong balance sheet we consider
valuations in the context of the longer-term
value of the investments. This includes
consideration of climate change risk and
stranded asset risk. Factors considered
include physical risk, litigation risk linked
to climate change and transition risk
(for
example, assumptions on the timing
and extent of decommissioning of
North
Sea oil fields, which affects Tampnet
and ESVAGT). We take a granular approach
to these risks, for example each relevant
offshore oil and gas field has been assessed
individually to forecast the market over the
long term and a low terminal value has been
assumed at the end of the forecast period.
In the case of stranded asset risk,
we consider long-term threats that
may impact value materially over our
investment horizon, for example,
technological evolution, climate change,
or
societal change.
The current impact on the portfolio of
the war in Ukraine is, in our assessment,
not material.
The volatility in power prices has
positively affected our energy generating
portfolio companies, although the
majority of our power price exposure
was
hedged in the short to medium term.
Future power price
projections are taken
from independent forecasters and changes
in these assumptions will affect the future
value of these investments.
TCR operates in the aviation sector,
which
has been severely affected by travel
restrictions. The value of TCR assumes a full
recovery in air
traffic to pre-Covid-19 levels
in 2024, consistent with the assumptions
made in the prior year.
For ESVAGT, which operates Emergency
Rescue and Response Vessels (‘ERRVs’) in
the North Sea servicing sectors including
the oil and gas market, we do not
assume any new vessels or replacement
vessels in our valuation for that
segment
of
the business.
However, a number of our portfolio
companies are set to benefit from these
changes. Digitalisation in the offshore
oil and gas sector in order to reduce
costs is benefitting Tampnet. The energy
transition in the Netherlands, with a focus
on electrification, is benefitting Joulz.
The base case for each of our valuations
takes a balanced view of potential factors
that we estimate are as likely to result in
underperformance as outperformance.
Movements in portfolio value continued
Discount rate
Chart 3 shows the movement in the
weighted average discount rate applied to
the portfolio at the end of each year since
the Company’s inception and the position
as at March 2022. During the year, the
weighted average discount rate increased
modestly as the introduction of the new
investments in SRL and DNS:NET to the
portfolio at a higher than average discount
rate was mostly offset by small reductions
in discount rates for
Oystercatcher, TCR,
ESVAGT and Valorem.
During the year, we witnessed an increase
in risk-free rates across Europe as central
banks started to take action in response
to higher inflation. The increase in risk-free
rates was offset by reductions in equity
risk premia, the implied excess return over
a risk-free rate of return, in the countries
in which we invest. We are not yet seeing
any upward pressure on discount rates
as
aresult of higher interest rates.
Investment track record
As shown in Chart 4, since its launch in 2007,
3i Infrastructure has built a portfolio that
has provided:
• significant income, supporting the
delivery of a progressive annual dividend;
• consistent capital growth; and
• strong capital profits from realisations.
These have contributed to a 19% annualised
asset Internal Rate of Return (‘IRR’) since
the Company’s inception. The European
portfolio has generated strong returns,
in line with, or in many cases ahead of,
expectations.
These returns were underpinned by
substantial cash generation in the
form
ofincome or capital profits.
13.8
12.4
12.5
12.0
10.2
9.9
10.0
10.5
11.8
13.2
12.6
11.3
10.8
10.8
Chart 3: Portfolio weighted average discount rate (31 March, %)
Mar
09
Mar
08
Mar
10
Mar
11
Mar
12
Mar
13
Mar
14
Mar
15
Mar
16
Mar
17
Mar
18
Mar
19
Mar
20
Mar
22
Mar
21
10.9
The value created through this robust
investment performance has been
crystallised
ina number of instances
through well-managed realisations, shown
as ‘Realised assets’ in Chart 4. While the
Company is structured to hold investments
over the long term, it has sold assets where
compelling offers will generate additional
shareholder value.
This was the case with WIG in 2019 which
generated an IRR of 27%, Eversholt Rail in
2015 and XLT in 2019 which both generated
IRRs in excess of 40% and Elenia and AWG
in 2018, which generated IRRs of 31% and
16%
respectively.
Portfolio asset returns in Chart 4 include an
allocation of FX hedging where applicable.
Investment Manager’s review
32
Investment Manager’s review
3i Infrastructure plc Annual report and accounts 2022 33
Chart 4: Portfolio asset returns throughout holding period (since inception, £m)
Existing portfolio (Total return) Realised assets (Total return)
Multiple Multiple IRR
1.3x
1.5x
1.9x
1.4x
1.3x
1.3x
3.1x
1.1x
1.1x
2.0x
1.6x
1.7x
1.7x
5.9x
4.5x
3.3x
3.3x
1.9x
1.2x
0.6x
27%
40%
31%
16%
41%
22%
8%
(6%)
Total cost Value including accrued income
Proceeds on disposals/capital returns Cash income
Portfolio asset returns include allocation of FX hedging
where applicable. Dates of asset realisations refer
to completion dates.
1 Others includes junior debt portfolio, T2C and Novera.
548
332 80 85
279 224
241
13
2 20
237 6
241
230 47 157
202 3
200 2
191
80
88
190
139
186
195
187
156
144
16
116 25
322
417
265
21431
63
38332
195
173
151
289
138
766 106
154
114391
24145
446
410
103
ESVAGT
Infinis
TCR
Tampnet
Ionisos
Joulz
Oystercatcher
DNS:NET
SRL
Valorem
Attero
WIG
(realised December 2019)
Elenia
(realised February 2018)
XLT
(realised March 2019)
AWG
(realised February 2018)
Eversholt
(realised April 2015)
Projects
(realised assets)
Others
1
75
103
252
1
Projects
108
61
India Fund
Asset IRR to 31 March 2022
19%
Since inception
Total cost Value including accrued income
Proceeds on disposals/capital returns Cash income
Portfolio asset returns include allocation of FX hedging
where applicable. Dates of asset realisations refer
to completion dates.
1 Others includes junior debt portfolio, T2C and Novera.
548
332 80 85
279 224
241
13
2 20
237 6
241
230 47 157
202 3
200 2
191
80
88
190
139
186
195
187
156
144
16
116 25
322
417
265
21431
63
38332
195
173
151
289
138
766 106
154
114391
24145
446
410
103
ESVAGT
Infinis
TCR
Tampnet
Ionisos
Joulz
Oystercatcher
DNS:NET
SRL
Valorem
Attero
WIG
(realised December 2019)
Elenia
(realised February 2018)
XLT
(realised March 2019)
AWG
(realised February 2018)
Eversholt
(realised April 2015)
Projects
(realised assets)
Others
1
75
103
252
1
Projects
108
61
India Fund
Movements in portfolio value continued
Review of
investments and
Sustainability
Valorem
Page 44
34
Review of investments and Sustainability
3i Infrastructure plc Annual report and accounts 2022 35
Review of investments
Developments in the year
Following the acquisition of our
co-investor AMP’s 50% stake in ESVAGT,
3i Infrastructure now owns 100% of
the business. ESVAGT has established
a leading position in the offshore
wind service operation vessels (‘SOV’)
market. Despite increasing interest
from competitors, the business recently
signed a contract with Ørsted for the
world’s first green SOV which will service
the Hornsea 2 wind park in the UK.
In the US, ESVAGT and its joint venture
partner, Crowley, are exploring several
SOV opportunities to service existing
European customers.
ESVAGT’s emergency rescue and
response
vessel segment is also
generating momentum due to
increasingly attractive supply/demand
dynamics and a renewed focus on
security of energy supply in Europe.
An important multi-vessel contract was
signed with Total Energies in Denmark
in
the year.
We recently appointed Soren Poulsgaard
Jensen, ex-CEO of Scandlines, to the
ESVAGT Board. He brings significant
experience in the maritime sector and
knowledge of
working with 3i.
Sustainability
ESVAGT is maintaining its market position
as the leading offshore wind service
vessel provider. It has clear emissions
reductions goals which tie back to the
company’s aim of becoming CO
2
-neutral
by 2035. ESVAGT’s strategy has been
further advanced by the latest SOV
design, powered by batteries and dual fuel
engines, capable of sailing on renewable
e-methanol.
Ownership
100%
Megatrend
Energy Transition
Country
Denmark, Norway,
UK and USA
Management
team HQ
Esbjerg, Denmark
Currency
DKK
Date invested
September 2015 and
February 2022
Performance (£m)
417
548
Total cost Closing value Cash distributions
Review of investments continued
Developments in the year
Infinis performed strongly in the year,
thanks to good operating performance,
higher power prices and price volatility
which benefitted the power response
assets in particular. It has faced some
challenges in its Captured Mineral
Methane business due to lower engine
availability and reliability. Infinis’s
cashflows are positively correlated
with UK RPI inflation through the
index-linked Renewables Obligations
Certificate regime.
Infinis continues to deliver on its strategy
to grow into a diversified and low-carbon
renewable energy player: on the solar
front Infinis now has 117MW of consented
sites with 97MW expected to commence
construction in FY23.
An additional 100MW is currently in
the
planning process with a longer-term
potential for
afurther 200MW+. It has
experienced some delays in solar project
development together with higher
development costs.
In parallel, Infinis is developing a
complementary pipeline of potential
battery sites to capitalise on expected
continued power price volatility. Infinis has
36MW of projects expected to commence
construction in FY23.
Sustainability
Infinis continues to make good progress
on
its sustainability agenda. Its targets have
been aligned to its ambition to meet the
growing energy demand whilst reducing
industry emissions, support the transition
to new renewable energy sources and grow
a clean low-carbon economy whilst also
taking care to safeguard biodiversity and
manage natural resources responsibly.
Ownership
100%
Megatrend
Energy Transition
Country
UK
Management
team HQ
Northampton, UK
Currency
GBP
Date invested
December 2016
Performance (£m)
322
332 165
Total cost Closing value Cash distributions
Review of investments and Sustainability
36
Review of investments and Sustainability
3i Infrastructure plc Annual report and accounts 2022 37
Review of investments continued
Developments in the year
TCR’s good performance in the year
continues to evidence the resilience
of its business model. Despite further
travel restrictions during the winter
season, TCR performed ahead of our
expectations, although equipment
off
lease is still above pre-Covid levels.
Its footprint has continued to grow,
now covering 164 airports globally.
New contracts were signed in the year,
including with important new customers
such as Finnair and Gate Gourmet as
well as more recent sale and rent back
contracts in Europe and Australia.
TCR has a very active pipeline of new
projects with a variety of airlines, airports
and ground handlers, confirming our
thesis that the Covid-induced crisis in
the aviation industry should increase
the attractiveness of the leasing model
for GSE.
Sustainability
A key part of TCR’s sustainability strategy
is the transition to electrical or green
GSE, both in terms of managing its fleet’s
residual value risk and as a significant
market opportunity to win new business
and to strengthen and extend its business
model. TCR recently signed an agreement
with long-term customer KLM to replace
diesel equipment with electrical.
TCR has also established itself as a market
leader in providing pooled GSE at airports,
which can enable material reductions in
the amount of equipment operated on an
airfield, thereby reducing overall emissions.
Performance (£m)
156
279 26
Total cost Closing value Cash distributions
Ownership
48%
Megatrend
Globalisation
Currency
EUR
Date invested
July 2016
Country
13 European countries, Malaysia,
Middle East, Australasia and USA
Management
team HQ
Brussels, Belgium
Review of investments continued
Developments in the year
Tampnet performed strongly in the year
and materially above 2021 levels. Its core
business in the North Sea performed
well as customers continued to upgrade
their bandwidth requirements and
invest in digital initiatives. Furthermore,
we are seeing increasing momentum
in the basin due to the higher oil price
and a renewed focus on security of
energy supply from European nations.
During the year, Tampnet renewed
an important contract with Equinor,
providing long-term visibility and
de-risking future cashflows.
Beyond its historic oil and gas customers,
Tampnet is developing a number of new
initiatives to provide digital connectivity
to other players in the region such
as government services, offshore
agriculture and carbon capture.
In the Gulf of Mexico, Tampnet is seeing
good momentum. There were some delays
in installations, due to Covid-19 and severe
weather conditions, but the management
team is in discussions on several new
projects and data demand is
continuing
to
increase steadily.
Sustainability
The core of Tampnet’s approach to
sustainability is to make a positive
contribution to the underlying industry,
by
enabling oil and gas producers to extract
more efficiently from existing resources.
Tampnet is also providing connectivity
and digital services in the offshore
wind segment.
Ownership
45%
Megatrend
Digitalisation
Country
Norway and USA
Management
team HQ
Stavanger, Norway
Currency
NOK
Date invested
March 2019
Performance (£m)
187
241 13
Total cost Closing value Cash distributions
Review of investments and Sustainability
38
Review of investments and Sustainability
3i Infrastructure plc Annual report and accounts 2022 39
Review of investments continued
Developments in the year
Financial performance for Joulz was
broadly in line with expectations in the
year. The carve-out from Stedin and
implementation of a new ERP system
are now complete. The Infrastructure
Services business is seeing strong order
intake ahead of expectations, which
is partially offset by some delays to
project completions and by some churn
in the Metering business. A new head
of Metering was appointed during the
year, and
performance has improved
inrecent
months.
Following the innovative micro-grid
solution developed for a customer
near Schiphol Airport, Joulz continues
to see strong interest in the larger
integrated projects which bring together
Infrastructure Services, Metering, Solar
and other storage/generation products
to solve customers’ increasingly complex
power requirements.
In December 2021, the Company invested
£5 million of further equity in Joulz to fund
growth projects, including the acquisition
of further commercial transformers
from Stedin.
Sustainability
Sustainability is a key element of Joulz’s
business strategy: it has expanded
its customer offering into new energy
transition solutions with solar and
EV
charging products, and is exploring
opportunities in low-carbon heating
solutions and energy storage.
Ownership
99%
Megatrend
Energy Transition
Country
Netherlands
Management
team HQ
Delft, Netherlands
Currency
EUR
Date invested
April 2019
Performance (£m)
195
241 22
Total cost Closing value Cash distributions
Review of investments continued
Developments in the year
Ionisos delivered strong performance in
the year, exceeding expectations with
market growth outperforming and with
a favourable product mix. The business
is working on plans to increase capacity
to meet the additional demand, through
a combination of expanding existing
facilities, exploring further greenfield
investments and monitoring potential
M&A opportunities. The construction
of the new sterilisation site in Kleve,
Germany, is progressing in line with
budget and is expected to start
operating in Summer 2022.
In January 2022, we appointed Michel
Darnaud as Independent Chair of the
board of Ionisos. Michel is the former
President of Europe for Baxter and
Boston Scientific, and Chair of
MedTech
Europe. Ionisos will benefit from his
expertise and network to continue
its
European development.
Sustainability
As part of its sustainability strategy,
Ionisos
aims to reduce its GHG footprint
over the next five years through green
initiatives. The other key priorities to its
sustainability strategy include providing a
great place to work for its employees: the
board is focused on promoting a good
culture and awareness of health and safety
across the business. Ionisos is also striving
to build valuable partnerships with its
stakeholders, through an active engagement
programme with customers, key suppliers,
regulators and local authorities.
Ownership
96%
Megatrend
Demographic Change
Country
France, Spain,
Germany, Estonia
Management
team HQ
Dagneux, France
Currency
EUR
Date invested
September 2019
Performance (£m)
186
237 6
Total cost Closing value Cash distributions
Review of investments and Sustainability
40
Review of investments and Sustainability
3i Infrastructure plc Annual report and accounts 2022 41
Review of investments continued
Developments in the year
The Company and Oiltanking (our
co-shareholder and operating partner)
completed the sale of their stakes in
four European terminals at an attractive
price during the year. The transaction
generated a strong return for the
Company, increasing Oystercatcher’s
unrealised money multiple to 3.1x
and unrealised IRR to 13.9% over the
Company’s 14 year ownership period.
Our investment now consists of a
45%
stake in Oiltanking Singapore.
Market conditions for oil storage were
mixed in the past year: high oil prices
have
resulted in a backwardated market.
On the other hand a resumption in
demand has meant increased levels of
customer activity at storage terminals.
In the year Oiltanking Singapore
renewed contracts, maintaining its high
utilisation levels and increasing storage
rates secured, but accepting shorter
contract
tenors in some instances.
Financial performance for the year was in
line with expectations and, looking ahead,
we remain confident that, as demand for
oil
products in the Asia Pacific region grows
post Covid, the supply/demand balance for
oil storage will tighten and storage rates will
step up.
Sustainability
Oiltanking has long placed significant focus
on sustainability, including high standards
of environmental management and a strong
focus on health and safety. During the year
it has announced the results of a strategic
review which will see the company rebranded
and focusing on supporting its customers
in the energy industry to achieve their
sustainability ambitions, for example by
supporting them to grow their renewable
fuels businesses.
Performance (£m)
139
230 204
Total cost Closing value Cash distributions
Ownership
45%
Megatrend
Globalisation
Country
Singapore
Management
team HQ
Singapore
Currency
SGD
Date invested
August 2007 and
June 2015
Review of investments continued
Developments in the year
Following our initial investment,
3i
Infrastructure injected £33 million
of further equity in DNS:NET to fund
the next phase of its fibre network
build-out. The Company’s stake in
the business increased to 64% as a
result, the
remainder being owned
by
Alexander Lucke, founder and
CEO
ofthe business.
Since our investment, DNS:NET has
performed in line with our expectations.
Although the roll-out began slower than
anticipated initially, the management
team has since accelerated the build
programme, signing agreements with
two contractors to increase capacity.
Customer take up remains high
and build
costs are in line with our
expectations. More broadly, German
market fundamentals continue to
be
favourable, with a 30% growth
in
fibre-to-the-home connections
in
the year.
In line with our best practice for newer
investments, we have strengthened
the
board with the appointment of a
non-executive Chair, Charles Frankl,
who brings a background in sales and
technology management functions
for larger corporates and of scaling
growth businesses.
Sustainability
DNS:NET’s business has a very low GHG
footprint once the network is deployed.
Fibre is a greener alternative to copper,
requiring significantly less energy to
transport data and less repair work
to maintain. Additionally, enhanced
connectivity can lead to a reduction in
GHG emissions related to business travel
and commuting as well as enable smart
building energy management systems,
which will further drive energy efficiency
and GHG reduction.
Ownership
64%
Megatrend
Digitalisation
Country
Germany
Management
team HQ
Berlin, Germany
Currency
EUR
Date invested
June 2021
Performance (£m)
190
202 3
Total cost Closing value Cash distributions
Review of investments and Sustainability
42
Review of investments and Sustainability
3i Infrastructure plc Annual report and accounts 2022 43
Review of investments continued
Developments in the year
SRL has performed in line with our
investment case to date, both financially
and operationally. The fundamentals
of
addressing the road network
maintenance backlog and strategic
initiatives such as the UK fibre roll-out
plan continue to provide a strong
underpinning rationale for further
expansion of the equipment as a
service model.
On acquisition, the Company provided
an £83 million bridge loan. This was
repaid in February 2022, when we
secured a third-party acquisition
debt facility.
Sustainability
Sustainability and safety form a cornerstone
of our value creation plan. TTE allows for
greater segregation and control of traffic
flows, which in turn reduces congestion
around roadworks. Greater rigour is being
placed on health and safety through the
use of more sophisticated methods of
traffic management to protect highway
workers and segregate traffic, cyclists
and pedestrians.
Ownership
92%
Megatrend
Renewing
Social Infrastructure
Country
UK
Management
team HQ
Cheshire, UK
Currency
GBP
Date invested
December 2021
Performance (£m)
191
200 2
Total cost Closing value Cash distributions
Review of investments continued
Developments in the year
Valorem’s asset base has continued to
increase, with 663MW of fully owned
capacity having reached financial close,
compared to 179MW at acquisition.
Despite lower than anticipated revenue
from electricity generation due to low
wind conditions in the year, the core
business in France continues to perform
in line with expectations. The successful
closing of the Viiatti wind project in
Finland represents a key milestone for
the company. It is over four times the size
of Valorem’s previous project in Finland
and almost 10 times its largest project in
France. Approximately half of this project
was sold in the year.
In December 2021, the Company
completed a follow-on investment of
£21 million in Valorem and increased its
equity stake in the company to 33.1%
in
order to continue funding the pipeline
across Valorem’s fast growing markets.
In France, both the solar and wind pipelines
are progressing well, with an increased focus
on larger projects, and Valorem is trialling
projects in the hydrogen sector, with two
projects in Rouen and Saint-Brieux. In Finland,
Valorem will focus on the construction of the
Viiatti project and progress planning for the
MegatuuIi wind project (313MW), expected
to be financed by 2024. A first wind project
in
Greece is expected to close this year.
Sustainability
As a producer of renewable energy, the
business is net carbon negative. Beyond its
core mission as a contributor to the energy
transition and GHG emissions reduction,
Valorem strives to promote protecting
biodiversity, sustainable procurement and
employee wellbeing. This was demonstrated
by Valorem becoming an Entreprise à Mission
in December 2021.
Ownership
33%
Megatrend
Energy Transition
Country
France, Finland
Management
team HQ
Bègles, France
Currency
EUR
Date invested
September 2016
Performance (£m)
80
144 16
Total cost Closing value Cash distributions
Review of investments and Sustainability
44
Review of investments and Sustainability
3i Infrastructure plc Annual report and accounts 2022 45
Review of investments continued
Developments in the year
Attero outperformed expectations in
the year, on the back of higher waste
volumes, gate fees and power prices.
The core Energy from Waste business
unit benefitted from these favourable
market conditions and was able to renew
and extend a number of key commercial
and industrial waste supply contracts,
and lock-in current high electricity
prices for the coming year. Organics and
Plastics also outperformed expectations,
while Minerals slightly underperformed
due to
lower construction activity due
to
Covid-19 in the second half of 2021.
The company is currently looking at a
number of investment opportunities,
including a new post-separation recycling
line, a new anaerobic digestion (biogas)
facility and solar installations at its closed
landfill sites.
On the back of several years of strong
growth and highly resilient performance,
despite Covid-19, Attero raised additional
long-term debt on attractive terms and
refinanced existing facilities.
Sustainability
Attero’s activities primarily relate to recycling
and recovery of energy from waste produced
by society, and as such it plays a key role in
helping to deliver on the Netherlands’ and
European environmental and sustainability
objectives. Since 2019, Attero has fully offset
its CO
2
emissions by the volume of emissions
avoided. It is committed to increase its
avoided emissions to one million tonnes
CO
2
by 2025 by increasing the production
of renewable energy and recycled materials.
Attero is also
exploring CO
2
capture at its
main facilities.
Ownership
25%
Megatrend
Energy Transition
Country
Netherlands
Management
team HQ
Apeldoorn,
Netherlands
Currency
EUR
Date invested
June 2018
Performance (£m)
88
116 26
Total cost Closing value Cash distributions
Sustainability report
The Board of Directors is responsible for
sustainability with day-to-day accountability
resting with the Investment Manager.
We are rigorous in assessing and managing
sustainability-related risks in our portfolio
and identifying opportunities to improve
the sustainability of the businesses we
invest in. Equally, we are keen to invest in,
and actively seek, opportunities arising
from the development of solutions to global
sustainability challenges. These long-term
trends are aligned with our strategy and
investment mandate.
We continue to see a strong link between
companies with high ESG standards and
those that are able to achieve long-term
sustainable business growth. As owners
of a portfolio of infrastructure assets,
we recognise our ability to influence our
portfolio companies, their
management
teams, employees, customers
and suppliers.
The Company has made significant
progress on ESG topics during the year.
The policy applies to all ofour
investments, irrespective of their
countryor sector.
For more information on the
InvestmentManager’s sustainability
policies, pleaserefer to the 3i Group
website: www.3i.com/sustainability.
The Board has reviewed these policies
and is satisfied that the adoption
of thesepolicies by the Investment
Manager meets the Company’s
objectives in this area.
The Company has a long track record
of investing in sustainable businesses
and of working with portfolio company
management teams to improve
governanceand operating standards
and to develop growth strategies that
align with long-term trends. Long-term
trends such as the energy transition or
climate change are considered both a
risk and an opportunity for the portfolio,
and are an increasingly important part
ofdecision making for the Company.
We have a responsibility to our shareholders
to deliver long-term sustainable returns,
and to the communities and environment
in which we operate to manage essential
infrastructure in a responsible manner.
We operate with the highest level of
stewardship standards and use our position
as a shareholder in the businesses we own
to influence and support management
tooperate responsibly.
Through our engaged asset management
approach and representation on the boards
of our investee companies we integrate
stewardship and investment, including
the consideration of material ESG and
climate change issues, to make decisions
that balance the requirements ofall
stakeholders. We require our businesses
to review regularly their approach to,
andambition for, sustainability.
Investing responsibly
We believe that a responsible approach
to investment will add value to our
portfolio. Responsibility starts when
wefirst consider investing in a company.
It isvital that we seek to identify all
material ESG risks and opportunities
at the point we invest, and that we put
in place appropriate and robust plans
to mitigate risks or capitalise on the
opportunities. The Investment Manager
is a signatory to the UN Principles
for Responsible Investment and has
embedded a Responsible Investment
policy into its investment and asset
management processes. This sets
out the types of business in which the
Company will not invest, as well as
minimum standards in relation to ESG
matters which we expect new portfolio
companies to meet, or to commit to
meeting over a reasonable time period.
This matters to us as individuals, to the people
managing and working within ourportfolio
companies and to their customers, suppliers
and local communities. As investors,
wedepend onall of these stakeholders
for
our investments to be successful.
We act as a conduit for institutional and
retail savings into these assets, helping our
shareholders to achieve their own return
objectives in a sustainable way with low
levels of volatility and little correlation
towider equity markets.
Review of investments and Sustainability
46
Review of investments and Sustainability
3i Infrastructure plc Annual report and accounts 2022 47
Sustainability report continued
Our influence and approach
to
ESG management
Individual portfolio company ESG-related
performance is monitored on a regular
basis and progress towards a broad set of
objectives is reviewed in detail each year
using the Investment Manager’s proprietary
ESG assessment tool, as shown on page 48.
The Investment Manager completes this
assessment for all economic infrastructure
investments in the portfolio and prepares
and prioritises, alongside management,
anaction plan for the business based on
therecommendations from this assessment.
ESG value creation opportunities are
also reviewed and prioritised with the
portfolio company management teams.
Management incentives are aligned
with achievement of these plans,
where appropriate.
At the start of this financial year the Board
of Directors and the Investment Manager
setseveral specific sustainability objectives,
with the desire to take a big step forward
inthis area. We are pleased to have met
allof these objectives, as set out in the
table opposite.
For further information
www.3i-infrastructure.com/sustainability
Category Outcome
Greenhouse
gas emissions
We supported portfolio companies with implementing GHG emissions reporting and worked with a third-party
specialist firm to review and refine the data and calculations, ensuring the methodologies and results are robust,
consistent across the portfolio and reflect best practice for GHG accounting. Scope 1 and Scope 2 GHG emissions
for each portfolio company are presented in our TCFD disclosures on page 55. We are now working with portfolio
companies to consider potential opportunities to reduce their GHG emissions over time.
Investment
process
The Investment Manager introduced an ESG assessment earlier in its investment process in order to assess
thepotential ESG risk of early-stage investment opportunities and identify where specialist due diligence may
berequired.
Climate scenario
analysis
The Investment Manager developed its approach to climate scenario analysis, in line with the TCFD’s
recommendations, tohelp it assess the impacts on our portfolio companies from different climate-related
scenarios. This analysis is discussed in more detail in our TCFD disclosures on pages 51 to 55.
Governance
and reporting
We continued to assess ESG and climate-related reporting frameworks and evolved the Company’s risk
governance to incorporate different climate-related risks.
Suppliers We set a policy outlining the minimum sustainability standards the Company will expect from its suppliers and
assessed our current key suppliers against these criteria.
Financial
agreements
In November 2021 we refinanced the Company’s revolving credit facility (‘RCF’) as a sustainability-linked RCF.
Thenew facility follows the Loan Market Association’s Sustainability Linked Loan Principles and includes stretching
targets across Environmental, Social and Governance themes aligned with our purpose.
During the year, the Company also entered into sustainability-linked FX hedging agreements with some of
its hedge counterparties. The Company can receive ‘sustainability rebates’ dependent on meeting the same
sustainability targets as set for the Company’s RCF.
We are also considering the appropriateness of sustainability-linked credit facilities across the portfolio. ESVAGT
has recently signed a facility with ESG targets across several themes aligned with its sustainability strategy.
Assessment
completion
Deal team
Proprietary
Assessment Tool
Developed over
a number of years.
Regularly refined and
benchmarked against
external tools
and research
Aggregation &
Analysis
Developed and calibrated
against historic
portfolio performance
Comparison to 3i
minimum standards
Trend analysis
Risk scoring
and categorisation
Investment decision
support
Output
Asset review
dashboard
Action log
Portfolio dashboard
3i-wide output
Feedback loop
Action plan and strategy development
Assessment
databank
Investment case
Risk log
We aim to act lawfully and with integrity,
including complying with all regulatory
and statutory obligations and disclosure
requirements. We maintain open and
constructive relationships with regulators,
including the UK Financial Conduct
Authority (‘FCA’) and the Jersey Financial
Services Commission. We require that
ourportfolio companiescomply with
their legalandregulatory obligations.
Details of the Company’s policies relating
to the UK Bribery Act, Modern Slavery
Act, Procurement, Prompt Payment,
Whistleblowing and EqualOpportunities
and Diversity canbe found on our
website www.3i-infrastructure.com.
Sustainability report continued
ESG assessment framework
Review of investments and Sustainability
48
Review of investments and Sustainability
3i Infrastructure plc Annual report and accounts 2022 49
Sustainability report continued
UN Sustainable
Development Goals
In order to assess the impact of our
portfolio companies on the environment
and the communities in which they operate,
the Board and the Investment Manager
reference a number of frameworks,
including the UN’s Sustainable
Development Goals (‘SDGs’).
The Board and the Investment Manager
consider each of the portfolio companies
against the SDGs periodically and
soon after we acquire a new company.
This process, alongside the conversations
between the portfolio companies and the
Investment Manager around sustainability,
helps us to understand the impact that
each of the investments makes, to identify
improvements and to help develop their
sustainability objectives.
Many of our portfolio companies have
embraced this framework, conducting
their own assessment against the SDGs
and incorporating that assessment in their
sustainability strategies. Where relevant
wehave incorporated those assessments
inthe table opposite.
We believe that each of our portfolio
companies is able to make a positive
contribution to one or more of the SDGs.
In particular our approach to governance,
and to labour and health and safety, makes
a positive contribution to the employees,
customers, suppliers and the local
communities in which they operate.
Additionally, through their operations,
several of our businesses also make
positive contributions to the provision of
renewable energy, to the development of
infrastructure to support economic growth,
to managing and minimising the waste
of precious resources and to providing
high
quality and safe healthcare.
Our assessment of where we are having the
biggest impact through the portfolio is also
shown in the table opposite. We believe the
work we do to ensure that comprehensive
and high quality policies are implemented
by our portfolio companies is a step
towards the objectives of SDG 16 Peace,
Justice and Strong Institutions. We also
believe our focus on health and safety
governance and employee engagement
at our portfolio companies is aligned with
the objectives of SDG 3 Good Health and
Well-being.
Where we are having
the biggest impact
Sustainability report continued
Climate change and the transition
to a low-carbon economy
Through its investment portfolio the
Company supports the transition towards
a low-carbon economy. Since 2016, the
Company has invested in three businesses
(Infinis, Attero and Valorem) that generate
electricity from renewable resources.
The installed capacity across these
businesses is now almost 900MW, enough
to power more than 60% of the households
in London.
We have a strong pipeline of new
potential generatingcapacity for future
development. The chart shows the growth
in renewable energy generating capacity
over the last six financial years, since we
firstinvested in Valorem and Infinis.
Infinis is the UK’s leading generator of
low-carbon power from captured methane
and has begun installing solar panels across
its sites to further expand its renewable
energy generation capabilities. By capturing
methane from landfill sites, Infinis is not
only able to generate renewable electricity,
butit also prevents methane from escaping
into the atmosphere, a greenhouse gas
which is 25 times more potent than CO
2
.
In GHG footprint terms, it prevents
emissions equivalent to 7.1 million tonnes
of CO
2
annually, which is comparable
to that of over 750,000 UK households.
Infinis generates nearly 1,300 GWh of
electricity a year and is developing battery
projects to store energy for usage during
periods of low supply.
Valorem, our renewable energy
development company, has grown its
renewable assets base from 179MW to
663MW (of which 483MW is in operation)
since our acquisition in September 2016.
Under our ownership, Valorem has moved
from solely owning wind farms in France
to now developing wind, solar and hydro
assets in France, Finland and Greece.
Attero, one of the largest waste treatment
companies in Europe, produces renewable
electricity for 350,000 households by
recovering energy from waste. Attero’s
recycling activities also help avoid GHG
emissions by reducing the need for
extraction or mining of virgin materials.
Valorem Infinis
1
Attero
Mar 2018Mar 2017 Mar 2019 Mar 2020 Mar 2021 Mar 2022
Renewable energy installed capacity
(at 31 March, MW)
157
287
216
294
177
177
483
238
177
233
304
350
289
177
387
287
1,000
900
800
700
600
500
400
300
200
100
0
1 Excludes Infinis Power Response business which is not deemed to be renewable for these purposes.
Review of investments and Sustainability
50
Review of investments and Sustainability
3i Infrastructure plc Annual report and accounts 2022 51
Sustainability report continued
The Company is making good progress
in its voluntary climate-related financial
disclosures as recommended by the
TCFD. As a listed investment company,
these are not required by the UK Listing
Rules. We expect that the Company’s
reporting of TCFD disclosures will
evolve over time, consistent with the
forthcoming requirement for the
Investment Manager to publish a
TCFD product report in respect of
the Company.
The following should be
read
inconjunction with the rest
of
theAnnualreport and accounts.
We have cross-referenced the relevant
sections under each of the headings below.
As an investment company, the majority
of the disclosures relate to the Company’s
portfolio of investments rather than to the
Company itself.
Governance
The Board’s oversight of
climate-related risks and opportunities
The Board is responsible for the Company’s
overall approach to sustainability, ESG and
related policies. The Board has adopted
the Responsible Investment policy of the
Investment Manager.
The Board discharges its responsibilities
for the assessment and monitoring of
sustainability and climate-related risks
and opportunities through the Company’s
Audit and Risk Committee. The Audit and
Risk Committee, amongst other areas,
is
responsible for internal controls and risk
management, including the assessment
and management of ESG risks and
opportunities in the portfolio, considering
physical and transition climate change risks
including on terminal value assumptions,
and for ensuring compliance with
applicable ESG legislation and regulation.
The Audit and Risk Committee is also
responsible for reviewing and approving
theCompany’s voluntary disclosures under
the TCFD framework.
Day-to-day accountability for sustainability,
including climate change-related issues,
rests with the Investment Manager.
Further detail on risk governance can be
found in the Risk report on page 67.
The Investment Manager’s role in
assessingandmanaging climate-
related risksand opportunities
The Investment Manager is responsible
for
the implementation of the Responsible
Investment policy, as well as being
responsible for making decisions concerning
the acquisition, management, ongoing
monitoring and sale of investments,
and
formaking decisions concerning
major
investments made by our portfolio
companies. In evaluating new and existing
investments, the Investment Manager takes
account of climate-related risks, including
the impact of climate change on the
markets each company serves and
demand
for its products; the climate
change resilience of each company’s
assets
and supply chain; and, in the caseof
emissions-intensive industries, the feasibility
and potential cost of greenhouse gas
emissions abatement. The 3i Group
Risk
Committee oversees the Investment
Manager’s risk management framework.
TCFD disclosures
This section of the Strategic report sets out
how we incorporate climate-related risks and
opportunities into our governance, strategy,
risk management and targets, and is guided
by the recommendations of the TCFD.
Sustainability report continued
Strategy
Climate-related risks and opportunities
identified over the short, medium,
and long term and the
impact on
businesses, strategy, and financial
planning
Climate-related risk and climate regulation
risk have been identified as key risks as well
as investment themes for
the Company.
This is further discussed in our Risk report
on page 71. There are physical risks that
arise directly
from changing climate
conditions and transition risks that occur
as a result of the necessary transition
to
alower-carbon economy. These risks
exist for the Company and its portfolio.
The Board and the Investment Manager
are increasingly considering the impact
of climate-related risks and opportunities
on our portfolio companies, investment
strategy and financial planning.
Our investment strategy is to make a
limited number of new investments each
year, selected within our target sectors
and geographies on the basis of their
compatibility with our return targets
and
fit with the existing portfolio.
Whilst the Company does not
operate
asustainability-driven
investment strategy, it does seek to
identify investments that benefit from
long-term trends, many of which link
to sustainability themes including the
energy transition. As set out earlier in
this section the Company, through its
Investment Manager, carries out its
investment activities under 3i Group’s
Responsible Investment policy, which is
embedded in the Investment Manager’s
investment and portfolio management
processes and is considered rigorous
by industry standards. We will not invest
in businesses that have unsustainable
environmental practices or an
unsustainable impact on the society
inwhich they operate.
Once invested, we use our influence at
portfolio companies to encourage the
monitoring of environmental impacts,
development of more environmentally
sustainable behaviours and investments
to mitigate portfolio companies’
environmental impacts. We are
continuously evolving our approach as
a responsible investor by undertaking
initiatives to improve our assessment
of sustainability risks and opportunities
within our investment and portfolio
management processes.
Each of the portfolio companies we
owned at the start of the year has set
a
formal sustainability strategy and
identified a responsible individual to
drive
the strategy and to set and
measure
objectives for the company.
Having a sustainability strategy in
place
provides a framework for setting specific
objectives, and driving performance
toachieve them.
During the year, the Investment
Manager worked with portfolio
companies to implement GHG
emissions reporting and worked
with a third-party specialist firm
to review and refine the data and
calculation methodologies.
We are now working with portfolio
companies to consider potential
opportunities to reduce their
GHG
emissions over time.
Resilience of the organisation’s
strategy, taking into consideration
different climate-related scenarios,
including a2°Corlower scenario
As a company that invests over the
medium to long term we recognise
the
importance of investing in the
low-carbon energy transition and that
this will ultimately impact all sectors
in which we invest. The Investment
Manager has recently completed
its first climate scenario analysis
to help it assess the impact on
portfolio companies from
different
climate scenarios.
TCFD disclosures continued
Review of investments and Sustainability
52
Review of investments and Sustainability
3i Infrastructure plc Annual report and accounts 2022 53
Sustainability report continued
TCFD disclosures continued
The approach was developed with the
support of a third-party climate modelling
specialist firm and
considers three climate
pathways:
i) Orderly net zero by 2050,
ii)Disorderly net zero by 2050 and iii)
Failed
transition. The pathways differ in terms of
policy and technological changes, physical
risks and pricing-in mechanisms. The inputs,
assumptions and macroeconomic
modelling utilised draw from established
academic and industry sources.
The assessment of the results from climate
scenario analysis will be a focus for the
Investment Manager in the coming year.
This includes understanding how different
climate scenarios will impact each portfolio
company’s strategy and help prioritise our
areas of focus and engagement.
3i Infrastructure itself has no employees
and a very limited direct impact on the
environment and is not a significant
producer of greenhouse gas emissions.
We continue to monitor this position and
will consider reporting if the emissions
footprint increases materially.
Risk management
Processes for identifying and assessing
climate-related risks
The Investment Manager monitors
all
relevant portfolio risks, including
climate-related risks and changing
consumer preferences in response to
environmental issues, through its rigorous
investment assessment and portfolio
monitoring processes and using its
proprietary ESG assessment tool. This is
critical to protecting and enhancing the
value of our assets and is at the core of
our
investment management process.
The Investment Manager always
undertakesESG due diligence, including
environmental due diligence, before
making new investments, and monitors ESG
risks throughout the life of our investments.
If appropriate this includes the engagement
of specialist external firms to provide advice
on specific sectors or topics.
During the year, the Investment Manager
introduced an ESG assessment earlier in its
investment process in order to assess the
potential ESG risk of early-stage investment
opportunities and identify where specialist
due diligence may be required.
We continue to develop our governance and
risk management framework to ensure that
sustainability-related risks in our portfolio
are treated as a priority by our portfolio
company management teams.
We also assess the potential financial
impact of climate change on the Company
through our annual viability assessment
(see page 79). Our analysis shows that the
Company remains viable over the medium
term from a climate change stress scenario
on our portfolio.
As the regulatory environment is constantly
evolving, the Investment Manager
actively considers and monitors existing
and emerging regulatory requirements
related
to climate change (eg limits on
emissions and carbon taxes) as these
requirements may pertain both to the
Company and to our portfolio companies.
Processes for managing climate-
related risks and integration into
overall risk management
The processes for managing
climate-related risks are determined
by
the Audit and Risk Committee.
The main focus area for the Committee
and the Investment Manager is the
development and integration of the
data, tools and capabilities needed to
support disclosure, risk identification
and monitoring
for ESG-related risks,
including climate-related risks across
the
whole portfolio.
3i Infrastructure itself is not exposed
to material environmental risks.
The Company has no employees.
The business of the Company is
conducted through the Investment
Manager and Jersey administrator
who do not have any office locations
dedicated to the Company.
The Company has a comprehensive risk
governance framework and compliance
processes and procedures to ensure
that all risks, including ESG risks, are
monitored and managed with due care
and diligence and that the Company is fully
compliant with all applicable environmental
legislation. This is further described in the
Risk report on pages 67 to 69.
Metrics and targets
Metrics used to assess climate-related
risks and opportunities
We manage the environmental
sustainability of each portfolio company
as we would any other critical business
activity in an integrated and consistent
manner. Due to the changing nature of our
portfolio, the Company does not carry out
portfolio level scenario analyses, and we do
not publish aggregated resource intensity
or
GHGintensity data.
Sustainability report continued
As the portfolio is subject to continuous
change as a result of investment and
divestment activity, such portfolio level
scenario analyses and data aggregation
would
notbe meaningful or comparable
year-on-year. The Investment Manager
monitors the environmental performance
of
our portfolio companies, and uses its
influence as an investor to promote a
commitment in our
portfolio companies
to
minimise their environmental footprint,
invest in the mitigation of their environmental
impact and implement energy efficiency
measures. This is an important part not
only
of our portfolio risk management
procedures, but
also of the value creation
plan for each
of our investments.
During the year, the Investment Manager
worked with all of our portfolio
company
management teams to identify and report
their GHG footprint. There is a legal
requirement for UK
listedcompanies
and UK large unquoted companies to
provide certain climate-related disclosures,
including in relation to GHG emissions.
This applies to Infinis, which provides this
reporting as part of its own annual report
and accounts, which can be found on
www.infinis.com.
Our portfolio companies include in
their sustainability strategies long-term
objectives for reducing GHG intensity.
The objectives for each portfolio company
will differ depending on the sector in
which
they operate.
Emissions reporting
As noted above, 3i Infrastructure itself
has a very limited direct impact on the
environment and is not a significant
producer of greenhouse gas emissions.
The Company consumed less than
40,000
kilowatt hours of energy in the
financial year and is therefore exempt from
the UK Streamlined Energy and Carbon
Reporting disclosure requirements.
We are pleased to report Scope 1 and
Scope 2 GHG emissions for our portfolio
companies below for the first time.
These are being disclosed voluntarily in
order to provide a useful view on emissions
across our portfolio.
We supported portfolio companies with
implementing GHG emissions reporting
and worked with a third-party specialist
firm during the year to
review and refine
the data and calculations, ensuring that
the methodologies and results are robust,
consistent across the portfolio and reflect
best practice for GHG accounting.
TCFD disclosures continued
Review of investments and Sustainability
54
Review of investments and Sustainability
3i Infrastructure plc Annual report and accounts 2022 55
We expect to continue to work with
portfolio company management teams to
refine their data collection and calculation
methodologies over time, including the
calculation of Scope 3 emissions. We are
also working with portfolio companies
to consider potential opportunities to
reduce
their GHG emissions over time.
The work performed to collect Scope 1
and
Scope 2 emissions helped identify
several potential areas for reduction across
the portfolio.
Emissions data are not currently available
for
our two most recent investments:
SRL
Traffic Systems, which was signed
and completed in December 2021, and
Global Cloud Xchange, which was signed in
November 2021 and has not yet completed.
Sustainability report continued
We will work with their management teams
to implement processes for emissions data
collection in order to report their emissions
in the next Annual Report.
Tonnes of CO
2
equivalent Scope 1 Scope 2
Oystercatcher
1
14 1,717
2
ESVAGT 99,248 331
3
TCR 1,656 2,031
2
Infinis 66,591 2,822
2
Valorem 13 106
3
Attero 792,245 37,72 9
2
Tampnet 31 103
2
Joulz 533 98
2
Ionisos 3,502 1,952
2
DNS:NET 418 1,880
2
1 Represents GHG emissions from Oystercatcher’s
terminal in Singapore. Excludes GHG emissions
fromOystercatcher’s European terminals,
whichweredivested during the year.
2 Location-based, using grid-average
emissions factors.
3 Market-based, using contract-specific
emissions factors.
The most significant sources of Scopes
1 and 2 emissions across the portfolio
relate to specific operations that support
the essential nature of the businesses in
our portfolio.
Attero is the largest direct emitter in the
portfolio. Its emissions are primarily a result
of Attero’s waste processing activities
and from the landfills that Attero owns
and operates. However, Attero’s recycling
operations help to avoid waste being sent
to landfills and emitting more greenhouse
gases than Attero emits through its own
processing activities, thereby reducing
netGHG emissions in the Netherlands.
Attero’s operations help further to
avoid emissions through its production
of renewable energy from the waste it
processes and from the sale of secondary
materials. During calendar year 2021, the
emissions that these two activities helped
offset its Scope 1 and Scope 2 emissions.
ESVAGT’s Scope 1 emissions relate to the
fuels used in its vessels. ESVAGT aims to
transition its vessels to renewable sources
of fuel and electrical power, and has set
itself an environmental goal to become
carbon neutral by 2035 and to have zero
carbon emissions by 2050.
ESVAGT has several innovations in
progress, including a recent agreement
with Ørsted for a new SOV powered
by dual-fuel engines capable of sailing
on renewable e-methanol as well
as batteries.
Infinis’s Scope 1 emissions primarily
relate
to the natural gas used in its
Power
Response business, which
provides highly responsive power during
times of peak demand. This is a critical
activity to help overcome the current
gaps in supply from renewable power
sources. Infinis has begun developing
battery projects that will allow renewable
energy to be stored in order to meet
peaks in demand. This will lessen the
reliance on natural gas to fill gaps in
supply. In addition, Infinis’s Captured
Landfill Methane (‘CLM’) and Captured
Mineral Methane (‘CMM’) operations
contributed to the capture of 258,000
tonnes of methane in FY22, equivalent
to preventing the emission of
6,400,000
tonnes of CO
2
.
TCFD disclosures continued
ESVAGT
Page 35
Financial
review and
Risk report
56
Financial review and Risk report
3i Infrastructure plc Annual report and accounts 2022 57
Financial review
The Company has continued to
grow
income and NAV per share
alongside managing liquidity
to
fundnewinvestments.”
James Dawes
CFO, Infrastructure
The Company delivered another year of
outperformance which was underpinned
by strong income and capital returns
from the portfolio. A total of £980 million
of new investments and commitments
were made and the Company actively
managed its liquidity position through
its RCF and an additional £600 million
of
committed facilities.
The portfolio has the income-generating
capacity to support the progressive
dividend policy, and the dividend was
covered by net income this year despite
some drag from uninvested cash earlier
inthe year. The target dividend for
FY23of11.15 pence per share is an
increaseof 6.7% over FY22.
Returns
Total return
The Company generated a total return
for the year of £404 million, representing
a 17.2% return on opening NAV net of the
prior year final dividend (2021: £206 million,
9.2%). This performance is significantly
ahead of the target return of 8% to
10%per annum to be achieved over
themedium term.
This outperformance was driven by
the strong return from the sale of
Oystercatcher’s four European terminals
and good performance across the
economic infrastructure portfolio,
particularly from TCR and ESVAGT.
Changes in the valuation of the Company’s
portfolio assets are described in the
Movements in portfolio value section
oftheInvestment Manager’s review.
The Company delivered another
year of outperformance.
Key financial measures
1
(year to 31 March) 2022 2021
Total return
2
£404m £206m
NAV £2,704m £2,390m
NAV per share 303.3p 268.1p
Total income £133m £110m
Total income and non-income cash £143m £117m
Portfolio asset value £2,873m £1,802m
Cash balances £17m £463m
Total liquidity
3
£786m £763m
1 Prior year figures contain non-material adjustments to the Financial statements as reported in the prior year
Annual report and accounts. These adjustments are no longer required as explained on page 59.
2 IFRS Total comprehensive income for the year.
3 Includes cash balances of £17 million (2021: £463 million) and £769 million (2021: £300 million) undrawn
balances available under the Company’s revolving credit facility including additional committed facilities
which total £1 billion.
Total income and non-income cash of
£143 million in the year was higher than last
year, due to income from new investments
and some portfolio companies resuming
distributions after preserving liquidity in
the previous year due to Covid-19 risks
(2021: £117 million).
Non-income cash receipts reflect
distributions from underlying portfolio
companies, which would usually be income
to the Company, but which are distributed
as a repayment of investment for a variety
of reasons. Whilst non-income cash does
not form part of the total return shown in
Table 3, it is included when considering
dividend coverage.
An analysis of the elements of the total
return for the year is shown in Table 3.
Financial review continued
Derivatives
£18m
Loans and
borrowings
£231m
Other net
liabilities
£68m
Portfolio
assets
£2,873m
Derivatives
£26m
Other
net assets
£105m
Cash
£17m
Shareholders’
equity
£2,704m
Capital return
£375m
Portfolio income
£127m
Movements
in derivatives
£2m
Costs
£111m
Total return
£404m
Dividends
£90m
Available for
reinvestment
when realised
£314m
Other
income
£6m
Foreign
exchange
£9m
Balance sheet (as at 31 March 2022) Income statement (year to 31 March 2022)
Composition of balance sheet and income statement (year to 31 March 2022)
Portfolio return
Composition of balance sheet and income statement (year to 31 March 2022)
Financial review and Risk report
58
Financial review and Risk report
3i Infrastructure plc Annual report and accounts 2022 59
The Financial statements’ classification of
these components of total return includes
transactions within unconsolidated
subsidiaries as the Company adopts
the Investment Entities (Amendments
to IFRS 10, IFRS 12 and IAS 27) basis for
its reporting. In previous years we have
shown the non-material adjustments
required to reconcile this analysis to
theFinancial statements.
Following the partial divestment of the
Oystercatcher investment and a restructure
of some investments previously held
through Luxembourg-based subsidiaries
but now held directly by the Company,
wehave aligned the basis of reporting in
this section to the Financial statements and
willno longer report on anadjusted basis.
Capital return
The capital return is the largest element
ofthe total return. The portfolio generated
a value gain of £375 million in the year to
31 March 2022 (2021: £135 million), as shown
in Chart 5. There was a positive contribution
across the majority of the portfolio and
the largest contributor was Oystercatcher
which generated £121 million.These value
movements are described in the
Movements in portfolio value section
oftheInvestment Manager’s review.
Table 3: Summary total return (year to 31 March, £m)
2022 2021
Capital return (excluding exchange) 375 135
Foreign exchange movement in portfolio 9 (24)
Capital return (including exchange) 384 111
Movement in fair value of derivatives (2) 22
Net capital return 382 133
Total income 133 110
Costs (111) (37)
Total return 404 206
Financial review continued
3,000
2,800
2,600
2,400
2,200
2,000
1,800
Chart 5: Reconciliation of the movement in NAV (year to 31 March 2022, £m)
Opening NAV at
1 April 2021
1
Capital
return
Net foreign
exchange
movement
2
Total
income
Net costs
including
management fees
3
NAV
before
distributions
Distribution
to shareholders
Closing NAV at
31 March 2022
2,346
375
7
133
(111)
2,750
(46)
2,704
1 Opening NAV of £2,390 million net of final dividend of £44 million for the prior year.
2 Foreign exchange movements are described in Chart 7.
3 Includes non-portfolio related exchange movements of £3 million.
Financial review continued
Table 4: Total income and non-income cash
(year to 31 March, £m)
2022 2021
Total income 133 110
Non-income cash 10 7
Total 143 117
Income
The portfolio generated income of
£127 million in the year (2021: £99 million).
Of this amount, £24 million was through
dividends (2021: £20 million) and
£103 million through interest on
shareholderloans (2021: £79 million).
An additional £6 million of interest was
accrued on the vendor loan notes issued
in lieu of WIG proceeds (2021: £10 million)
together with a further £0.1 million
of interest receivable on deposits
(2021: £0.4 million). Total income and
non-income cash is shown in Table 4.
A strong income contribution from Tampnet
and higher non-income cash receipts offset
the reduction in income fromOystercatcher
following divestment of the European
terminals. A breakdown of portfolio income
is provided in Chart 8, together with an
explanation of the change from prior year.
Interest income from the portfolio was
significantly higher than prior year due
to the new investments in SRL, DNS:NET
and ESVAGT.
Dividend and non-income cash distributions
increased this year as liquidity preserved for
risks associated with the Covid-19 pandemic
in the prior year was released.
Foreign exchange impact
The portfolio is diversified by currency as
shown in Chart 6. We aim to deliver steady
NAV growth for shareholders, and the
foreign exchange hedging programme
helps us to do this by reducing our
exposure to fluctuations in the foreign
exchange markets.
Portfolio foreign exchange movements,
after accounting for the hedging
programme, increased the net capital
return by £7 million (2021: reduced by
£2 million).
As shown in Chart 7, the reported foreign
exchange gain on investments of £9 million
(2021: loss of £24 million) included a gain
of £1 million from the Company’s exposure
to the Indian rupee, which is not hedged.
This was partially offset by a £2 million loss
on the hedging programme (2021: gain of
£22 million).
Chart 6: Portfolio value by currency
(
at 31 March 2022)
EUR 54%
19%
19%
8%
DKK
GBP
NOK
8
1
1
6
Hedged assets (€/SGD/DKK/NOK)
Unhedged assets (£/rupee)
Chart 7: Impact of foreign exchange (‘FX’) movements
onportfolio value
(year to 31 March 2022, £m)
FX gain before hedging FX gain after hedging
9
6
3
0
Financial review and Risk report
60
Financial review and Risk report
3i Infrastructure plc Annual report and accounts 2022 61
Financial review continued
28
22
13
13
7
6
5
17
17
5
4
13
1
1
5
4
9
517
5
9
ESVAGT
Infinis
Tampnet
SRL
TCR
Ionisos
Joulz
Oystercatcher
Attero
Projects Portfolio
Chart 8: Breakdown of portfolio income (year to 31 March, £m)
Explanation of variances
Further investment in February 2022
Divestment of European terminals
New investment in FY22
Liquidity retained in prior year
Interest (FY22) Interest (FY21)Dividend (FY22) Dividend (FY21)
DNS:NET
New investment in FY22
1
3
3
2
2
Valorem
4
5
Liquidity retained in prior year
Financial review continued
Costs
Management and performance fees
During the year to 31 March 2022, the
Company incurred management fees,
including transaction fees of £10 million,
of £43 million (2021: £24 million). The fees,
payable to 3i plc, consist of a tiered
management fee, and a one-off transaction
fee of 1.2% payable in respect of new
investments. The management fee tiers
range from 1.4%, reducing to 1.2% for any
proportion of gross investment value above
£2.25 billion.
An annual performance fee is also payable
by the Company, amounting to 20% of
returns above a hurdle of 8% of the total
return. This performance fee is payable in
three equal annual instalments, with the
second and third instalments only payable
if certain future performance conditions
are met. This hurdle was exceeded for
the year ended 31 March 2022 resulting
in a performance fee payable to 3i plc in
respect of the year ended 31 March 2022
of£54 million (2021: £7 million).
The first instalment, of £18 million, will be
paid in May 2022 along with the second
instalment of £2 million relating to the
previous year’s performance fee and
thethird instalment of £6 million relating
tothe FY20 performance fee.
For a more detailed explanation of how
management and performance fees are
calculated, please refer to Note 18 to
the accounts.
Fees payable
Fees payable on investment activities
include costs for transactions that did not
reach, or have yet to reach, completion and
the reversal of costs for transactions that
have successfully reached completion and
were subsequently borne by the portfolio
company. For the year to 31 March
2022,
fees payable totalled £3 million
(2021:
lessthan £1 million).
Other operating and finance costs
Operating expenses, comprising Directors’
fees, service provider costs and other
professional fees, totalled £3 million in
the
year (2021: £3 million).
Finance costs of £5 million (2021: £2 million)
in the year comprised arrangement and
commitment fees for the Company’s RCF.
Finance costs were higher than in FY21
as the size of the RCF was increased and
drawn in the year.
Ongoing charges ratio
The ongoing charges ratio measures annual
operating costs, as disclosed in Table 5
below, against the average NAV over the
reporting period.
The Company’s ongoing charges ratio
is calculated in accordance with the
Association of Investment Companies
(‘AIC’) recommended methodology and
was 1.41% for the year to 31 March 2022
(2021: 1.16%). The ongoing charges ratio
ishigher in periods where new investment
levels are high and new equity is raised
or capital is returned to shareholders.
Realisation of assets reduces the
ongoingcharges ratio. The cost items
thatcontributed to the ongoing charges
ratio are shown below.
The AIC methodology does not
include transaction fees, performance
fees or finance costs. However, the
AIC recommends that the impact of
performance fees on the ongoing charges
ratio is noted, where performance fees
are payable. The ratio including the
performance fee was 3.52% (2021: 1.45%).
The total return of 17.2% for the year is
after deducting this performance fee
andongoing charges.
Table 5: Ongoing charges (year to 31 March, £m)
2022 2021
Investment Manager’s fee 32.6 23.7
Auditor’s fee 0.6 0.5
Directors’ fees and expenses 0.5 0.5
Other ongoing costs 2.4 2.2
Total ongoing charges 36.1 26.9
Ongoing charges ratio 1.41% 1.16%
Financial review and Risk report
62
Financial review and Risk report
3i Infrastructure plc Annual report and accounts 2022 63
Balance sheet
The NAV at 31 March 2022 was
£2,704 million (2021: £2,390 million).
The principal components of the NAV
arethe portfolio assets, cash holdings and
borrowings under the RCF, the vendor loan
notes from the sale of WIG, thefair value
of derivative financial instruments and
other net assets and liabilities. A summary
balance sheet is shown in Table 6.
At 31 March 2022, the Company’s net assets
after the deduction of the final dividend
were £2,657 million (2021: £2,346 million).
Cash and other assets
Cash balances at 31 March 2022 totalled
£17 million (2021: £463 million).
Cash on deposit was managed actively
by the Investment Manager and there are
regular reviews of counterparties and their
limits. Cash is principally held in AAA-rated
money market funds.
The decrease in Other net assets is due to
an increase in
the performance fee payable.
Borrowings
The Company has a £400 million RCF in
order to maintain a good level of liquidity
for further investment whilst minimising
returns dilution from holding excessive
cash balances. This is a three-year facility,
with a maturity date of November 2024.
In December 2021, the Company increased
its existing facility by £200 million to
£600 million and in January 2022 an
additional one-year credit facility of
£400 million was agreed. Aggregate credit
facilities totalled £1 billion at 31 March 2022.
At 31 March 2022 the total amount drawn
was £231 million.
NAV per share
The total NAV per share at 31 March 2022
was 303.3 pence (2021: 268.1 pence).
This reduces to 298.1 pence (2021: 263.2
pence) after the payment of the final
dividend of 5.225 pence (2021: 4.9 pence).
There are no dilutive securities in issue.
Dividend and dividend cover
The Board has proposed a dividend for the
year of 10.45 pence per share, or £93 million
in aggregate (2021: 9.8 pence; £87 million).
This is in line with the Company’s target
announced in May last year.
When considering the coverage of the
proposed dividend, the Board assesses
the income earned from the portfolio,
interest received on cash balances and any
additional non-income cash distributions
from portfolio assets which do not follow
from a disposal of the underlying assets,
as well as the level of ongoing operational
costs incurred in the year. The Board also
takes into account any surpluses retained
from previous years, and net capital profits
generated through asset realisations,
whichit considers available as dividend
reserves for distribution.
Financial review continued
Table 6: Summary balance sheet (year to 31 March, £m)
2022 2021
Portfolio assets 2,873 1,802
Cash balances 17 463
Derivative financial instruments 8 37
Borrowings (231) –
Other net assets (including vendor loan notes) 37 88
NAV 2,704 2,390
Financial review continued
Table 7: Dividend cover (year to 31 March, £m)
2022 2021
Total income, other income and non-income cash 143 117
Operating costs including management fees (50) (30)
Dividends paid and proposed (93) (87)
Dividend surplus for the year – –
Dividend reserves brought forward from prior year 868 876
Realised loss over cost on disposed assets (20) (1)
Performance fees (54) (7)
Dividend reserves carried forward 794 868
Table 7 shows the calculation of dividend
coverage and dividend reserves.
The dividend was fully covered for the
year
with no surplus (2021: no surplus).
The retained amount available for
distribution, following the payment
of the final dividend, the realised loss
over cost relating to the India Fund
that was previously unrealised and the
performance fee will be £794 million
(2021: £868 million). This is a substantial
surplus, which is available to support the
Company’s progressive dividend policy,
particularly should dividends not be
fully covered by income in a future year.
A shortfall could arise, for example, due
to holding substantial uninvested cash or
through lower distributions being received
from portfolio companies in order to
preserve liquidity.
Chart 9 shows that the Company has
consistently covered the dividend over
the
lastfive years.
1
80
1
60
1
40
1
20
1
00
80
60
40
20
0
116
72
165
70
105
82
87 87
Chart 9: Dividend cover (five years to 31 March 2022, £m)
March 2018
2
March 2019 March 2020 March 2021 March 2022
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.
Net income
1
Dividend
93 93
Financial review and Risk report
64
Financial review and Risk report
3i Infrastructure plc Annual report and accounts 2022 65
Sensitivities
The sensitivity of the portfolio to key inputs
to our valuations is shown in Chart 10 and
described in more detail in Note 7 to the
accounts. The portfolio valuations are
positively correlated to inflation. The
longer-term inflation assumptions beyond
two years remain consistent with central
bank targets, eg UK CPI at 2%.
The sensitivities shown in Chart 10 are
indicative and are considered in isolation
holding all other assumptions constant.
Timing and quantum of price increases
will vary across the portfolio and the
sensitivity may differ from that modelled.
Changing the inflation rate assumption
may necessitate consequential changes
toother assumptions used in the valuation
ofeach asset.
Alternative Performance
Measures (‘APMs’)
We assess our performance using a variety
of measures that are not specifically defined
under IFRS and are therefore termed APMs.
The APMs that we use may not be directly
comparable with those used by other
companies. These APMs provide additional
information of how the Company has
performed over the year and are all financial
measures ofhistorical performance.
The APMs are consistent with those
disclosed in prior years.
• Total return on opening NAV reflects
the performance of the capital
deployed by the Company during the
year. This measure is not influenced
by movements in share price or
ordinary dividends to shareholders.
This is a common APM used by
investment companies.
• The NAV per share is a measure of the
underlying asset base attributable to
each ordinary share of the Company
and is a useful comparator to the share
price. This is a common APM used by
investment companies.
Chart 10: Portfolio sensitivities (year to 31 March 2022)
Discount rate
Inflation
(for two years)
Interest rate
£(158m) (5.5%)
£156m 5.4%
£43m 1.5%
£(46m) (1.6%)
£(258m) (9.0%)
£297m 10.3%
+1%
-1%
+1%
-1%
+1%
-1%
8%0 2%-2%-4%-6%-8% 4% 6%
Financial review continued
• Total income and non-income cash is
used to assess dividend coverage based
on distributions received and accrued
from the investment portfolio.
• Investment value including commitments
measures the total value of shareholders’
capital deployed by the Company.
• Total portfolio return percentage reflects
the performance of the portfolio assets
during the year.
The definition and reconciliation to IFRS
ofthe APMs is shown below.
The table below defines our APMs.
APM Purpose Calculation Reconciliation to IFRS
Total return on
opening NAV
A measure of the overall financial
performance of the Company.
For further information see the
KPIsection.
It is calculated as the total return
of £404 million, as shown in the
Statement of comprehensive income,
as a percentage of the opening
NAV of £2,390 million net of the
finaldividend for the previous year
of£44 million.
The calculation uses IFRS measures.
NAV per share A measure of the NAV per share
intheCompany.
It is calculated as the NAV divided
bythe total number of shares in
issueat the balance sheet date.
The calculation uses IFRS measures and is set out in Note 14 to the accounts.
Total income and
non-income cash
A measure of the income and other
cash receipts by the Company which
support the payment of expenses
and dividends.
It is calculated as the total income
from the underlying portfolio and
other assets plus non-income cash
being the repayment of shareholder
loans not resulting from the disposal
of an underlying portfolio asset.
Total income uses the IFRS measures Investment income and Interest
receivable. The
non-income cash, being the proceeds from partial
realisations of investments are shown in the Cashflow statement.
Therealisation proceeds which result from a partial sale of an underlying
portfolio asset are not included within non-income cash.
Investment
value including
commitments
A measure of the size of the
investment portfolio including
the value of further contracted
future investments committed
bytheCompany.
It is calculated as the portfolio
asset value plus the amount of
thecontracted commitment.
The portfolio asset value uses IFRS measures. The value of future
commitments is set out in Note 16 to the accounts.
Total portfolio
return percentage
A measure of the financial
performance of the portfolio.
It is calculated as the total portfolio
return in the year of £509 million,
asshown in Table 1, as a percentage
of the sum of the opening value of
the portfolio and investments in the
year (excluding capitalised interest)
of£2,565 million.
The calculation uses capital return (including exchange), movement in fair
value of derivatives, underlying portfolio income, opening portfolio value
and investment in the year. The reconciliation of all these items to IFRS
is
shown in Table 1 including in the footnotes.
Financial review continued
Financial review and Risk report
66
Financial review and Risk report
3i Infrastructure plc Annual report and accounts 2022 67
Risk report
Introduction
At the start of the year, the Audit and Risk
Committee (the ‘Committee’), alongside
the Investment Manager, began a new
three-year cycle of risk reviews to identify
and consider the impact and likelihood of
the key, principal and emerging risks facing
the Company today. A number of risks
were reassessed to reflect developments
in the year, and the list of emerging risks
was refreshed. The Committee updated
the risk register and risk matrix as a result
of the analysis conducted during the
year, and considered the alignment of the
principal risks identified to the Company’s
strategic objectives.
The following sections explain how we
identify and manage risks to the Company.
We outline the key risks, our assessment
of their potential impact on the Company
and our portfolio in the context of the
current environment and how we seek
tomitigate them.
Approach to risk governance
The Board is ultimately responsible for
the risk management of the Company.
It seeks to achieve an appropriate balance
between mitigating risk and generating
long-term sustainable risk-adjusted returns
for shareholders. Integrity, objectivity
and accountability are embedded in the
Company’s approach to risk management.
The Board exercises oversight of the
risk framework, methodology and
process through the Committee.
The risk frameworkis designed to provide
a structured and consistent process for
identifying, assessing and responding to
risks. The Committee ensures that there
is a consistent approach to risk across the
Company’s strategy, business objectives,
policies and procedures.
The Company is also reliant on the risk
management frameworks of the Investment
Manager and other key service providers,
aswell as on the risk management
operations of each portfolio company.
The Board manages risks through
reports from the Investment Manager
and other service providers and through
representation on portfolio companies’
boards by the Investment Manager’s
team members.
Risk framework
Risk related reporting
Internal
• Monthly
management accounts
• Internal and external
audit reports
• Service provider
control reports
• Risk logs
• Compliance reports
• Risk related reporting
External – Annual report
• Risk appetite
• Viability statement
• Internal controls
• Going concern
• Statutory/accounting
disclosures
E
ff
ective risk management
isatthe heart o
f
everything
we
d
o as a Boar
d
.”
Wendy Dorman
Chair
,
Audit and Risk Committee
strat
e
The
f
iden
t
We
o
o
f
th
e
and
o
curr
e
tom
i
Risk report continued
Risk appetite
During the year, the Committee discussed
the Company’s risk appetite and concluded
that it remained broadly stable. As an
investment company, the Company seeks
to take investment risk. The appetite for
investment risk is described previously
in the Our approach section, and in the
Investment policy towards the end of
this document. Investments are made
subject to the Investment Manager’s
Responsible Investment policy, which
addresses an important element of our
appetite for investment risk. Given the
strong competition for new investments,
investment discipline remains a key
consideration. The target risk-adjusted
objective of delivering 8% to 10% return
per annum over the medium term remains
consistent with our current portfolio
investment cases, including our
recent
new investments. It is expected that
as the
portfolio expands, the range
ofexpected returns in individual
investmentcases may also expand to
include higher risk/return ‘value add’ cases
and lower risk/return ‘core’ investments.
We recognise that this has the potential
to result in greater volatility in returns
onanindividual asset basis.
The benefits of diversification across
sectors, countries and types of underlying
economic risk will mitigate this volatility,
and the Company has sought to build
a diverse portfolio while considering
carefully the underlying risks to which
our portfolio companies are exposed.
The Committee concluded that the risk
appetite of the Company for economic
infrastructure investments has not changed,
and remains appropriate for our investment
mandate and target returns. The Covid-19
pandemic provided a severe test of
the appropriateness of the Company’s
risk appetite, and its attractiveness to
investors. The portfolio overall has been
resilient, and benefitted from diversification
across
infrastructure subsectors and types
of underlying risks.
The key tools used by the Committee to
define the Company’s risk appetite and
to determine the appetite for key risks
are the risk register and the risk matrix.
The process of creating and reviewing the
risk register and risk matrix is described
below, together with a discussion of the
Company’s appetite for each of the key
risks. Beyond the appetite for investment
risk discussed above, the Company seeks
tolimit or manage exposure to other risks
to acceptable levels.
Risk review process
The Company’s risk review process includes
the monitoring of key strategic and financial
metrics considered to be indicators
of
potential changes in its risk profile.
The review includes, but is not limited to,
the following:
• infrastructure and broader
market overviews;
• key macroeconomic indicators and their
impact on the performance and valuation
of portfolio companies;
• regular updates on the operational
and financial performance of
portfolio companies;
• experience of investment and
divestment processes;
• compliance with regulatory obligations,
including climate-related regulation;
• analysis of new and emerging
regulatory initiatives;
• liquidity management;
• assessment of climate risks to the
portfolio, including physical, transition
and litigation risks;
• consideration of scenarios that may
impact the viability of the Company;
• assessment of emerging risks; and
• review of the Company’s risk log.
Risk register review process
October 2021
Directors identify and score
the principal, key and
emerging risks facing 3iN
December 2021
Analysis and
interpretation
of responses
January 2022
Impact and likelihood
of the identified
risks considered
April 2022
Risk register and
risk matrix updated
Financial review and Risk report
68
Financial review and Risk report
3i Infrastructure plc Annual report and accounts 2022 69
Risk report continued
The Committee uses the risk framework
to identify emerging and key risks, and
to evaluate changes in risks over time.
Developments during the year in the more
significant key risks or ‘principal risks’ are
discussed later in this document. These are
risks that the Committee considers to
have the potential to materially impact
the
delivery of our strategic objectives.
The Committee evaluates the probability
of each identified risk materialising and the
impact it may have, with reference to the
Company’s strategy and business model.
An emerging risk is one that may in future
be likely to have a material impact on the
performance of the Company and the
achievement of our long-term objectives,
but that is not yet considered to be a
key risk.
A key risk is considered currently to
pose the risk of a material impact on
theCompany. Risks may be identified as
emerging risks and subsequently become
key risks. Identified key risks may cease
tobe considered key over time.
The Committee maintains a risk matrix,
onto which the key risks are mapped by
impact and likelihood. The principal risks
are identified on the risk matrix as those
with the highest combination of impact
and likelihood scores.
Emerging risks Key risks Principal risks
Risk categorisation
The Committee uses the following categorisation to describe risks that are identified during the risk review process.
The review process was updated this year
to assess the likelihood and impact of each
risk over two timeframes, within threeyears
and beyond three years. The evaluation
of these key risks is then presented on a
risk matrix. Mitigating controls have been
developed for each risk and the adequacy
of the mitigation is then assessedand,
if necessary, additional controls are
implemented and reviewed by the
Committee at a subsequent meeting.
The Committee considers the identified
principal risks in greater detail in the
assessment of the Company’s viability.
A number of scenarios have been
developed to reflect plausible outcomes
should the principal risks be experienced,
as well as consideration of stressed
scenarios that could result in the
Company
ceasing to be viable.
As the Company is an investment
company, the stressed scenarios reflect
reduced cash flows from the Company’s
investment portfolio, such that debt
covenants are breached and liabilities
not
met. Following the invasion of Ukraine,
a scenario was developed this year for a
new emerging risk of an escalation of this
conflict in Europe.
The Investment Manager models the
impact of these scenarios on the Company
and reports the results to the Committee.
The resulting assessment of viability is
included in this Risk report.
Review during the year
Early in the financial year, the Committee
engaged EY to benchmark the Company’s
risk review process and to facilitate
a workshop with the Committee to
consider improvements to the process.
Presentation of the results of the
benchmarking exercise and the workshop
took place in September 2021. The risk
review process was subsequently updated
to consider the likelihood and impact
ofthe key risks over two timeframes.
The‘blank sheet of paper’ element of
the risk review process, conducted at the
start of each three-year cycle of reviews,
wasconsidered to be best practice against
the benchmarking undertaken.
Risk report continued
In October 2021, the Committee instigated
a process designed to identify and score
the key risks and update the list of emerging
risks currently facing the Company.
This started with the ‘blank sheet of paper’
exercise where each Director, and several
members of the Investment Manager’s
team, identified the top risks facing the
Company. In December 2021, the Committee
analysed the data collected and identified
the principal risks facing the Company,
scoring each for impact and likelihood
(within a three-year period and
beyond a
three-year period). In January
2022, the
results of the principal risk scoring were
considered and assessed and additional
changes made.
In March and April 2022, the Committee
reviewed the updated risk register and risk
matrix and the Company’s appetite for each
of the key risks.
We have a relatively diverse spread of
assets in the portfolio and it is important
that risk diversity is maintained as we evolve
the portfolio through new investments
and realisations.
Future realisations may continue the
evolution of risk in the portfolio in line
with our strategy and allow the Company
to manage its exposure to more sensitive
assets, or to take account of where the risk
profile of an asset has changed over time.
We are confident that the portfolio remains
defensive and resilient, and in a position
to
benefit from asymmetric returns in rising
or declining markets (taking more of the
upside in a rising market, and benefitting
from protection in a downside). We believe
the current appetite for risk is appropriate.
Emerging risks
The Company is a long-term investor and
therefore needs to consider the impact of
both identified key risks, as detailed below,
and risks that are considered emerging or
longer-term. Risk categorisation, including
the definition of emerging risk, is shown
on
page 69.
The Board and the Investment Manager
consider these factors when reviewing
the
performance of the portfolio and when
evaluating new investments, seeking to
identify which factors present a potential
risk and can either be mitigated or
converted into opportunities.
As part of the ongoing risk identification
and management of the Company, the
Committee considers whether these
emerging risks should be added to the
Company’s risk register. The risk register
is a ‘live’ document that is reviewed and
updated regularly by the Committee
as new risks emerge and existing risks
change. Examples of emerging risks that
were considered during the year include
the impact of changes in technology
on our portfolio companies, a future
pandemic, divergence between the
UK and the EU
regulation increasing
friction over trade
in goods and services,
and escalating
regulatory reporting
requirements. The risk
of an escalation
of
the war in Ukraine was added to the
list of emerging risks this year.
Key risks
Key risks are mapped by impact and
likelihoodon a risk matrix. During the
year, the Committee considered the
development of all the key risks in detail.
Within the category of key risks, the
principal risks identified by the Committee
in the financial year are set out in the
Principal risks and mitigation table on pages
72 to 74, alongside how the Company seeks
to mitigate these risks.
Market and economic risk was considered
the top risk facing the Company.
This includes the consequences of
sanctions on Russia and Russian companies,
the recovery from the Covid-19 pandemic,
increased commodity and energy prices,
rising inflation and interest rates, supply
chain constraints and a heightened risk
of recession.
Financial review and Risk report
70
Financial review and Risk report
3i Infrastructure plc Annual report and accounts 2022 71
Risk report continued
The risk review showed a high level of
consistency with the prior year, with a
small number of changes in the key risks
identified. The assessment of likelihood
and impact of the key risks resulted in
some changes to the principal risks facing
the Company.
The risk of having an unbalanced portfolio
is considered to have decreased following
the new investments made in the year
which have increased the diversity of the
portfolio. Following that high level of new
investment, the management of liquidity
risk is considered to have increased and
become a principal risk.
The risk of poor investment performance
is considered to have increased such that
it is now a principal risk, reflecting the
risk at individual portfolio company level
of increased market and economic risk
alongside the evolution of underlying
risks in our portfolio consistent with
our investment strategy to focus on
economic infrastructure assets. The risk
of an inappropriate rate of investment
is considered to have decreased this
year, with a good flow of new investment
opportunities through the pipeline which
converted into a good number of new and
follow-on investments.
Exposure to competition risk is considered
to have increased further reflecting the level
of fund raising by other asset managers
including several new listed funds.
These changes are reflected in the
Principal
risks and mitigations table
on
pages 72 to 74.
Covid-19
The Covid-19 pandemic was a major test
of the business models of all companies.
The resilient response of our portfolio
companies was consistent with our
strategy and with the characteristics that
we look for in infrastructure investments.
We are encouraged by the strength of the
performance of our portfolio this year as
Europe recovers from the pandemic and
restrictions are eased in the countries in
which we invest. More detail can be found
in the Investment Manager’s review and
elsewhere in this Risk report.
Climate risk
There is an increased focus on
sustainability and ESG amongst our
shareholders and in the wider market.
Although there is still much uncertainty
around the extent and timing of the
impact of climate change, government
and societal action, and future regulations,
we recognise that climate-related risk is a
key risk as well asaninvestment theme for
the Company. In our review this year, we
decided to separate climate-related risk
into two distinct but related risks.
Climate regulation risk has been added
tothe risk register, to address the
regulatory risk to the Company and the
portfolio associated with the transition
to alow-carbon economy. The existing
climate risk was amended to address the
physical and transition risks from climate
change on the portfolio.
We have increased our disclosures
and reporting on climate risk and our
Investment Manager has evolved its
proprietary ESG tool to allow us to
assess this and other risks in more
detail across the portfolio. This year, the
Investment Manager added consideration
of ESGrisks, including climate risks,
earlierintheinvestment process.
Our progress in TCFD reporting is
described on pages 51 to 55, and this
nowincludes GHG emissions reporting for
scopes 1 and 2 for our portfolio companies.
All of the companies in our portfolio
recognise the importance of considering
climate change and of evolving a
sustainable business model. As discussed
in the Sustainability report, the physical
and transition climate-related risks are also
seen as opportunities for all companies in
our portfolio.
There are no acute physical nor transition
risks identified in the portfolio that would
suggest that climate risk is a principal
risk, although an example of the impact
of a transition risk is the introduction of a
tax on imported waste or a carbon tax in
the Netherlands, which impacts Attero,
and the risk of early decommissioning of
oil and gas assets which impacts some
customers of Tampnet and ESVAGT.
We consider that the mitigating controls at
the Company and the Investment Manager
over climate regulation risk prevent this from
being a principal risk at the moment.
Risk report continued
Principal risks and mitigations
Our Strategic priorities
Invest
responsibly
Disciplined
approach
Efficient
balance sheet
Manage portfolio
intensively
Sustainability
key driver
External
Principal risk Risk description Risk mitigation
Market/economic
• Macroeconomic or market volatility, such as may arise from the consequences
of the invasion of Ukraine and from the effects on economies of the Covid-19
pandemic, flows through to pricing, valuations and portfolio performance
• Fiscal tightening impacts market environment
• Risk of sovereign default lowers market sentiment and increases volatility
• Misjudgement of inflation and/or interest rate outlook
• Resources and experience of the Investment Manager on deal-making,
asset
management and hedging solutions to market volatility
• Periodic legal and regulatory updates on the Company’s markets and in-depth
market and sector research from the Investment Manager and other advisers
• Portfolio diversification to mitigate the impact of a downturn in any geography
or sector or portfolio company-specific effects
• The permanent capital nature of an investment trust allows us to look through
market volatility and the economic cycle
Risk exposure
movement in
the year
Increased
Link to Strategic
priorities
Manage portfolio
intensively
Competition
• Increased competition for the acquisition of assets in the Company’s
strategicfocus areas
• Deal processes become more competitive and prices increase
• New entrants compete with a lower cost of capital
• Continual review of market data and review of Company return target
comparedto market returns
• Origination experience and disciplined approach of Investment Manager
• Strong track record and strength of 3i Infrastructure brand
Risk exposure
movement in
the year
Increased
Link to Strategic
priorities
Disciplined approach
Debt markets deteriorate
• Debt becomes increasingly expensive, eroding returns
• Debt availability is restricted
• The Company’s RCF or portfolio company debt cannot be refinanced
due
tolack of appetite from banks
• The Investment Manager maintains close relationships with a number of banks
and monitors the market through transactions and advice
• Regular reporting of Company liquidity and portfolio company
refinancing requirements
• Investment Manager has extensive experience in raising debt finance for
portfolio companies, alongside an in-house Treasury team to provide advice
ontreasury issues
• Active management of portfolio company debt facilities, with fixed rates and
long duration of debt
Risk exposure
movement in
the year
No significant
change
Link to Strategic
priorities
Manage portfolio
intensively
Financial review and Risk report
72
Financial review and Risk report
3i Infrastructure plc Annual report and accounts 2022 73
Risk report continued
Principal risks and mitigations continued
Our Strategic priorities
Invest
responsibly
Disciplined
approach
Efficient
balance sheet
Manage portfolio
intensively
Sustainability
key driver
Strategic
Principal risk Risk description Risk mitigation
Management of liquidity
• Failure to manage the Company’s liquidity, including cash and available
credit facilities
• Insufficient liquidity to pay dividends and operating expenses or to make
new investments
• Hold excessive cash balances, introducing cash drag on the Company’s returns
• Regular reporting of current and projected liquidity
• Investment and planning processes consider sources of liquidity
• Flexible funding model, where liquidity can be sought from available cash
balances including reinvestment of proceeds from realisations, committed
credit facilities which can be increased with approval from our lenders,
andtheissue of new share capital
Risk exposure
movement in
the year
Increased
Link to Strategic
priorities
Disciplined approach
Deliverability
ofreturn target
• Failure to ensure the investment strategy can deliver the return target and
dividend policy of the Company
• Failure to adapt the strategy of the Company to changing market conditions
• Market returns are reviewed regularly
• The Investment Manager and other advisers to the Company report on
market positioning
• Investment process addresses expected return on new investments and the
impact on the portfolio
• Consideration of risks, including ESG and climate risks, in the
investment process
Risk exposure
movement in
the year
No significant
change
Link to Strategic
priorities
Invest responsibly
Sustainability
key driver
Operational
Principal risk Risk description Risk mitigation
Loss of senior
Investment Manager staff
• Members of the deal team at the Investment Manager leave and
‘deal-doing’ and portfolio management capability in the short to
medium term is restricted
• Benchmarked compensation packages and deferred remuneration
• Notice periods within employment contracts
• Strength and depth of the senior team and strength of the 3i Group brand
• Careful management of senior management transition
Risk exposure
movement in
the year
No significant
change
Link to Strategic
priorities
Invest responsibly
Sustainability
key driver
Risk report continued
Principal risks and mitigations continued
Our Strategic priorities
Invest
responsibly
Disciplined
approach
Efficient
balance sheet
Manage portfolio
intensively
Sustainability
key driver
Investment
Principal risk Risk description Risk mitigation
Security of assets
• An incident, such as a cyber or terrorist attack
• Unauthorised access of information and operating systems
• Regulatory and legal risks from failure to comply with cyber related laws
andregulations, including data protection
• Regular review of the Company and key service providers
• Regular review and update of cyber due diligence for potential investments
• Review of portfolio companies for cyber risk management and
incident readiness
Risk exposure
movement in
the year
No significant
change
Link to Strategic
priorities
Invest responsibly
Sustainability
key driver
Poor investment
performance
• Misjudgement of the risk and return attributes of a new investment
• Material issues at a portfolio company
• Poor judgement in the realisation of an asset
• Robust investment process with thorough challenge of the investment case
supported by detailed due diligence
• Investment Manager’s active asset management approach including proactive
management of issues arising at portfolio company level
• Experience of the Investment Manager’s team in preparing for and executing
realisations of investments
Risk exposure
movement in
the year
Increased
Link to Strategic
priorities
Invest responsibly
Sustainability
key driver
Financial review and Risk report
74
Financial review and Risk report
3i Infrastructure plc Annual report and accounts 2022 75
Risk report continued
Development of significant
keyrisks in the year
The disclosures in the Risk report are not
an exhaustive list of risks and uncertainties
faced by the Company, but rather a
summary of significant key risks which
are under active review by the Board.
These significant key risks have the potential
to affect materially the achievement of the
Company’s strategic objectives and impact
its financial performance. This disclosure
shows developments in these significant
keyrisks for the year. The risks that have
been identified as principal risks are
described in more detail in the Principal
risks and mitigations table.
External risks – market
and competition
The markets in which the Company
seeks to invest, and in particular the
European economic infrastructure market,
are more competitive than ever, with
strong demand for new investments.
Competition continued to increase as
the
infrastructure sector has demonstrated
its resilience during the pandemic.
Central bank base rates increased during
the year, and these increases are likely to
continue in the coming year. This would
increase debt financing costs for our
portfolio companies and could also lead
to increases in required rates of return
on equity, both of which would decrease
portfolio company valuations. Long-term
fixed rate debt is in place across the
majority of our portfolio which mitigates the
risk from interest rate changes in the shorter
term. The increase in competition noted
above has led to required rates of return
on
equity remaining at historic low levels.
The Company is exposed to movements
in
sterling exchange rates against a number
of currencies, most significantly the
euro. The Company operates a hedging
programme which substantially offsets
volatility in returns from exchange rate
movements. The Board monitors the
effectiveness of the Company’s hedging
policy on a regular basis.
In this environment, the Investment Manager
continues to leverage its network and skills
to look forinvestments that can deliver
attractive and sustainable risk-adjusted
returns to the Company’s shareholders.
The Company achieved a high level of
new investment in the year, while avoiding
the most heavily competed processes in
the market.
Inflation in the UK and Europe has risen
sharply in the year, driven by rising energy
costs, supply chain bottlenecks, labour and
raw material shortages and the reopening
of economies from pandemic-related
lockdowns. Higher inflation is generally
positive for the Company, particularly for
assets which have revenues at least partially
linked to inflation, although higher inflation
may also result in increased costs.
There are actual and potential indirect
effects on portfolio companies of the
Russian invasion of Ukraine and the
imposition of sanctions on Russia and
Russian businesses, including increasing
cost and wage inflation, availability of
resources and disruptions to normal market
activities. However, the impact to date on
portfolio companies has been limited.
The valuation of our portfolio companies
that generate electricity, Infinis, Valorem
and Attero, is affected by the evolution
of long-term power price forecasts and
by fluctuations in the spot power price.
Volatility in prices is expected to continue
as thermal and nuclear plants are retired,
there is growth in intermittent renewables
and increasing demand due to the
electrification of transport and heating,
and due to the the war in Ukraine. Infinis’s
electricity offtake arrangements include
contracts with Gazprom Marketing &
Trading Ltd, a large supplier in the UK
non-domestic energy market. Whilst these
contracts are not currently affected by
sanctions, Infinis is actively replacing
contracts where permitted and others
will
run off over time.
Risk report continued
We do not expect Infinis to be adversely
affected by any extension of sanctions or an
insolvency process for Gazprom Marketing
& Trading Ltd.
Sanctions on Russia and Russian companies,
together with the recovery from the
Covid-19 pandemic, has led to an increase
in oil prices. For Oystercatcher, the increase
in oil prices has led to a backwardation
market structure which, together with
recent market volatility, may maintain some
short-term downward pressure on pricing
ofcontract renewals.
Ionisos is a provider of cold sterilisation
andionising radiation treatment services
tothe medical, pharmaceutical, plastics
andcosmetics industries. Gamma radiation,
one of the three methods of cold sterilisation
used, relies on the radioactivedecay of
Cobalt-60, a scarce resource. Ionisos’s
Estonian business has inthe past sourced
Cobalt-60 from a Russian-owned company,
JSC. Whilst JSC is not currently subject
tosanctions, Ionisos will not source new
Cobalt-60 from JSC for the foreseeable
future and is seeking alternative sources
ofsupply. The capacity of the Estonian
business would reduce over time until
new
Cobalt-60 is sourced.
Ofgem is progressing a series of reviews
and consultations following its recent
Significant Code Review, resulting
ina
degree of regulatory uncertainty
for
theforeseeable future.
The unprecedented fiscal stimulus that we
have seen during the Covid-19 pandemic
has increased sovereign debt levels and
a
consequence of this is likely to be higher
taxes to balance the deficit. The increase
in the UK corporation tax rate from
April2023 is reflected in the valuations of
Infinis, SRLand Tampnet and the increase
in theDutch corporation tax rate from
April2022 is reflected in the valuations
ofJoulz and Attero.
Strategic risks
The Company manages its balance sheet
and liquidity position actively, seeking
to maintain adequate liquidity to pursue
new investment opportunities, while not
diluting shareholder returns by holding
surplus cashbalances. At 31 March 2022
there was £17 million available in cash,
with
drawings of £231 million under the
RCF. The Company increased the size of the
committed credit facilities during the year,
with aggregate facilities of £1 billion at the
date of this report.
Air traffic movements and passenger
numbers remain substantially below the
levels seen before the Covid-19 pandemic,
although they are now showing signs of
recovery. The timing and extent of future
recovery remains uncertain. This affects
TCR more than other companies in our
portfolio, although we are pleased with the
performance of TCR over the duration of
the pandemic and the strong performance
this year as the industry starts to recover.
We have maintained our assumption
ofalonger-term return to pre-pandemic
levels of air travel by 2024.
External risks – regulatory and tax
The Company’s investment in Infinis is
exposed to electricity market regulation
risk around the future of network access
and charging arrangements. It is possible
that this could affect the valuation of Infinis,
and we are closely monitoring the position.
The direction of network access charging
reform is for more location-based charging
which in principle should benefit generators
such as Infinis with sites predominantly in
demand-dominated areas.
The portfolio is diversified across sector
and geography with no investment above
17% of portfolio value.
Investment risks
Portfolio companies continue to experience
fraud attempts, some of which are successful,
but none of which has had a material impact
on any of our companies. In the year the
Investment Manager commissioned a
review of cyber controls by an independent
IT security provider, building upon a
previous review by the same company.
No significant weaknesses in cyber security
were identified and the majority of more
minor issues noted in the review have been
addressed. We remain vigilant and continue
to focus on effective operations of controls
against possible cyber-attack, particularly
as this risk continues to increase following
the outbreak of war in Ukraine.
Further to the announcement in March
2021 that the facilities of Steril Milano,
a
subsidiary of Ionisos, had been closed,
Steril Milano was placed into voluntary
liquidation during the period. This was fully
provided for in the March 2021 valuation
of
Ionisos. Steril Milano represented c.3%
of
Ionisos’s 2020 EBITDA.
Financial review and Risk report
76
Financial review and Risk report
3i Infrastructure plc Annual report and accounts 2022 77
Risk report continued
Operational risks
The key areas of operational risk include
attracting and retaining key personnel at
the Investment Manager, and whether the
Investment Manager’s team can continue
to support the delivery of the Company’s
objectives. The team has strength
and depth and the transition in senior
management has been carefully managed.
The Board monitors the performance
of the Investment Manager through the
Management Engagement Committee.
It also monitors the performance of key
service providers, receiving reports of
anysignificant control breaches.
Resilience statement
Our resilience comes from the effective
implementation of our business model,
described on pages 14 to 17. Key elements
of our business model relating to resilience
include the Investment Manager’s
disciplined approach to new investment
and engaged asset management, the
defensive characteristics of our portfolio
of investments, high ESG standards, our
flexible funding model and efficient balance
sheet, and the capability of
the Investment
Manager’s team.
The resilience of key suppliers, including
the Investment Manager, is considered
annually or more frequently if appropriate.
The Audit and Risk Committee is provided
with relevant extracts of reports from the
Investment Manager’s internal audit team,
which includes an annual report on the
European infrastructure investment team.
Further detail is included in the Governance
section on page 115.
The Directors manage the Company’s
liquidity actively, reviewing reports
on current and forecast liquidity from
the Investment Manager, alongside
recommendations for seeking
additional liquidity when appropriate.
Further discussion on the RCF can be found
in the Financial review section on page 63.
The identification of material uncertainties
that could cast significant doubt over the
ability of the Company to continue as
a going concern forms the basis of the
Goingconcern statement below.
This is underpinned by the strong
institutional culture and values of our
Investment Manager, high standards
of corporate governance, and effective
risk management.
Over the life of the Company, the
Investment Manager has built a resilient
and diversified portfolio with good growth
potential and downside protection that
delivers an attractive mix of income yield
and capital appreciation for shareholders.
This has been achieved through consistent
delivery of our strategic priorities,
described on page 18.
Short-term resilience
The Directors assess the Company’s
short-term resilience through monitoring
portfolio, pipeline and finance reports.
These are prepared monthly, and discussed
at quarterly scheduled Board meetings and
Board update calls held between scheduled
meetings. Six-monthly detailed investment
reviews are prepared by the Investment
Manager and discussed with the Board, as
part of the half-yearly and annual valuation
and reporting processes. These reviews
describe sources of risk at portfolio
company level, and mitigating actions
being taken or considered.
Risk report continued
Going concern
The Company’s business activities,
together with the factors likely to affect
its future development, performance
and position are set out in the Strategic
report and in the Financial statements
and related Notes to our Annual
report and accounts to 31 March 2022.
The financial position of the Company,
its cash flows, liquidity position and
borrowing facilities are described in the
Financial statements and related Notes
to the accounts. In addition, Note 9 to
the accounts includes the Company’s
objectives, policies and processes for
managing its capital, its financial risk
management objectives, details of
its financial instruments and hedging
activities, and its exposures to credit risk
and liquidity risk.
The Directors have made an assessment
of going concern, taking into account the
Company’s cash and liquidity position,
current performance and outlook, which
considered the impact of the Covid-19
pandemic and the war in Ukraine, using
the information available up to the date
of issue of these Financial statements.
The Company has liquid financial
resourcesand a strong investment
portfolioproviding a predictable income
yield and an expectation of medium-term
capital growth. The Company manages
andmonitors liquidity regularly, ensuring
that it is sufficient.
At 31 March 2022, liquidity remained
strong at £786 million (2021: £763 million).
Liquidity comprised cash and deposits
of £17 million (2021: £463 million)
and undrawn facilities of £769 million
(2021: £300 million). The £200 million
accordion and £400 million additional
facility both mature within 12 months
of the date of this report. In addition,
the Company is able to call the second
tranche of the deferred consideration
fromthe realisation of WIG,
£98 million
with sixweeks’ notice and, in June 2022,
is
expecting to receive £103 million from
thesale of
its Projects portfolio.
The Company had an expected
investmentcommitment of c.£300 million
at 31 March 2022, relating to the equity cost
for the acquisition of GCX expected to
close
in the summer. The Company expects to
receive the WIG deferred consideration
and the proceeds from the sale of the
Projects portfolio prior to the completion
ofthis investment.
The Company had ongoing charges
of£36 million in the year to 31 March2022,
detailed in Table 5 in the Financial review,
which are indicative of the ongoing run
rate in the short term. In addition, the
FY22 performance fee of £54 million
(2021: £7 million) is due in three equal
instalments with the first instalment payable
in the next 12 months along with the second
instalment of FY21’s performance fee and
the third instalment of FY20’s performance
fee, and a proposed final dividend for
FY22
of £47 million which is expected
to
be paid in July.
Although not a commitment, the
Companyhas announced a dividend
target for FY23 of 11.15 pence per share.
Income and non-income cash is expected
to be received from the portfolio
investments during the coming year, some
of which will be required to support the
payment of this dividend target and the
Company’s other financial commitments.
The Directors have acknowledged
theirresponsibilities in relation to
the Financial statements for the year
to 31 March 2022. After making the
assessment on going concern, the Directors
considered it appropriate to prepare
theFinancial statements of the Company
on a going concern basis.
The Company has sufficient
financial
resources and liquidity and is
well-positioned to manage business risks
in the current economic environment
and can continue operations for a
period of at least 12 months from the
date of this report. This is supported by
the scenario analysis and stress testing
described in the medium-term resilience
section and the viability statement on
page 79. Accordingly, the Directors
continue to adopt the going concern
basis in preparing the Annual report
and accounts.
Financial review and Risk report
78
Financial review and Risk report
3i Infrastructure plc Annual report and accounts 2022 79
Risk report continued
Medium-term resilience
The assessment of medium-term
resilience, which includes modelling of
stressed scenarios and reverse stress tests,
considers the viability and performance
of the Company in the event of specific
stressed scenarios which are assumed to
occur over a three-year horizon. This stress
testing forms the basis of the Viability
statement below.
The Directors consider that a three-year
period to March 2025 is an appropriate
period to review for assessing the
Company’s viability. This reflects greater
predictability of the Company’s cash
flows over that time period and increased
uncertainty surrounding economic,
political and regulatory changes over
thelonger term.
The stress testing focuses on the principal
risks, but also reflects those new and
emerging risks that are considered to
be of sufficient importance to require
active monitoring by the Audit and Risk
Committee. The scenarios used are
described in the Viability statement
below. The medium-term resilience of the
Company is assessed through analysing
the impact of these scenarios on key
metrics such as total return, income yield,
net asset value, covenants on the RCF
andavailable liquidity.
The Directors have considered the potential
impact on the Company of a number of
scenarios in addition to the Company’s
business plan and recent forecasts, which
quantify the financial impact of the principal
risks occurring. These scenarios represent
severe yet plausible circumstances that the
Company could experience, including a
significant impairment in the value of the
portfolio and a reduction in the cash flows
available from portfolio companies from
avariety of causes.
The assessment was conducted over
several months, during which the proposed
scenarios were evaluated by the Board,
the assumptions set, and the analysis
produced and reviewed. Analysis included
the impact of an escalation of the war in
Ukraine on our portfolio companies and the
impact of a resulting economic downturn.
Other considerations included the possible
impact of climate-related events and
transition risks, widespread economic
turmoil, a reduction in cash distributions
from portfolio companies to the Company,
a tightening of debt markets and the failure
of a large investment.
Viability statement
The Directors consider the medium-term
prospects of the Company to be favourable.
The Company has a diverse portfolio of
infrastructure investments, producing
good and reasonably predictable levels of
income which cover the dividend and costs.
The defensive nature of the portfolio and of
the essential services that the businesses in
which we invest provide to their customers
are being demonstrated in the current
climate. The Investment Manager has a
strong track record of investing in carefully
selected businesses and projects and of
driving value through an engaged asset
management approach. The Directors
consider that this portfolio can continue
tomeet the Company’s objectives.
The Directors have assessed the viability
of the Company over a three-year period
to March 2025. The Directors have taken
account of the current position of the
Company, including its strong liquidity
position with £17 million of cash and
£769 million of undrawn credit facilities,
its
commitment of c.£300 million to
the new
investment in GCX described
in the Going concern section above,
and the principal risks it faces which
are
documented in this Risk report.
The assumptions used to model these
scenarios included a fall in value of some or
all of the portfolio companies, a reduction
in cash flows from portfolio companies,
areduction in the level of new investment,
the imposition of additional taxes on
distributions from, or transactions in, the
portfolio companies, an increase in the cost
of debt and restriction in debt availability,
and an inability for the Company to raise
equity. The implications of changes in the
inflation, interest rate and foreign exchange
environment were also considered,
separately and in combination.
The results of this stress testing showed that
the Company would be able to withstand
the impact of these scenarios occurring
over the three-year period. The Directors
also considered scenarios that would
represent a serious threat to its liquidity and
viability in that time period. These scenarios
were considered to be remote, such as
a fall in equity value of the portfolio of
materially more than 50% whilst being fully
drawn on the RCF including the accordion,
oranequivalent fall in income.
Based on this assessment, the Directors
have a reasonable expectation that the
Company will be able to continue in
operation and meet its liabilities as they
fall due over the three-year period to
March 2025.
Risk report continued
Long-term resilience
As described above, the long-term
resilience of the Company, beyond the
Viability statement period, comes from the
effective implementation of our business
model and consistent delivery of our
strategic objectives.
Our approach to origination and portfolio
construction, focus on price discipline and
engaged asset management approach
enable us to adapt in response to new and
emerging risks and challenges including
climate change and developments
in megatrends.
The characteristics that we look for in
infrastructure investments, described on
page 17, support the long-term resilience
ofthe Company. The performance
of the portfolio through the Covid-19
pandemic provided good evidence of this.
The underlying megatrends supporting
the longer-term resilience of each portfolio
company are identified in the Our approach
section on page 8.
We have a long-term investment time
horizon made possible by our permanent
capital base that is unconstrained
by the fixed investment period and
fundraising cycle seen in private limited
partnership funds.
Although the scenarios and stress testing
to support the viability statement are
modelled over a three-year time horizon,
the resilience shown by the Company, and
its ability to recover from these stressed
situations, supports the assessment of
our resilience over a longer term than
three years.
Financial review and Risk report
80
Financial review and Risk report
3i Infrastructure plc Annual report and accounts 2022 81
Directors’ duties
Section 172 statement
The Directors are obliged to act
honestly and in good faith with a view
to the best interests of the Company;
and to exercise the care, diligence
andskill that a reasonably prudent
person would exercise in
comparable circumstances.
The Directors fulfil their duties through
theCompany’s governance framework and
through their delegation of discretionary
investment management authority to the
Investment Manager.
The Company adheres to the AIC Code and
it is the intention of the AIC Code thatthe
matters set out in section 172 Companies
Act 2006 (‘s172’) arereported on to the
extent they do not conflict with Jersey
law. The Directors exercise their duties by
understanding the views of the Company’s
key stakeholders and considering all of
the matters set out ins172 in both their
discussions and in decision making.
Under s172 a director of a company must act in a way they consider in good faith would be most likely to promote the success
of the company for the benefit of its members as a whole, and in doing so have regard to:
The likely consequences of
any decision in the long term
Our purpose and strategy combined
withtheresponsible investment approach
ofthe Investment Manager focuses
onsustainable returns and outcomes.
Read more
Pages 4 to 6 and 67 to 80
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.
Read more
Pages 46 to 55
The interests of the
Company’s employees
Whilst we do not have any employees,
ourpurpose includes the intention to
havea positive impact on our portfolio
companies and their stakeholders,
whichincludes the employees of those
portfolio companies.
Read more
Pages 35 to 45
The desirability of maintaining
areputation for high standards
ofbusiness conduct
Our success relies on maintaining a strong
reputation and our values and ethics are
aligned to our purpose, our strategy and
ourways of working.
Read more
Pages 15 and 17
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.
Read more
Pages 97 to 100
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
Pages 97 to 100
Directors’ duties continued
Section 172 statement continued
Our s172 approach
Outcomes of
decisions assessed.
Board performance evaluated
annually to ensure Board
has performed effectively,
in accordance with its values.
Further engagement
and dialogue with stakeholders
where appropriate.
Actions taken to implement
Board decisions.
Board culture and values,
along with Investment Manager
input, facilitate discussion
on the impact of decisions.
Board challenges the quality
and fullness of information received
and receives appropriate assurance
prior to taking decisions.
s172 factors considered in
discussions and in relation to the
overall delivery of the Company’s
purpose and strategy.
Chair ensures discussion and
decision making takes into account
relevant s172 factors.
Ongoing engagement
with stakeholders, including
the Investment Manager.
Board papers and Investment
Manager presentations take into
account relevant s172 factors
for consideration.
Board Information
Board Decisions
Director induction programme,
ongoing Director training
and individual Director skills
and experience.
Board Meetings
andDiscussion
This Strategic report, on pages 1 to 82,
is approved by order of the Board.
Authorised signatory
3i plc
Company Secretary
9 May 2022
Board decisions are guided by the
Company’s purpose. The Board
acknowledges that not every decision
made will necessarily result in a positive
outcome for every stakeholder group.
Board decisions often involve complex
interactions of factors and require Directors
to understand and have regard to a range
of stakeholder interests and concerns.
By considering the Company’s purpose
together with its strategic priorities
and having a clear process in place for
decision making, we can ensure that Board
discussion has regard to the potential
impact of our decisions on each stakeholder
group in accordance with s172.
Governance structure
Pages 84 to 124
Financial review and Risk report
82
83
Governance
DNS NET
Page 42
Introduction to Governance
The Board has continued its focus
on strong and effective corporate
governance. A key part of this
is our stakeholder engagement
which remains fundamental to the
Company’s purpose of investing
responsibly in infrastructure,
delivering long-term sustainable
returns to shareholders and having
a positive impact on our portfolio
companies and their stakeholders.
Our corporate governance framework
underpins the Company’s purpose and
the delivery of our strategy. This section of
our Annual report provides details of our
corporate governance framework and the
approach the Board has taken over the last
12 months to promote the standards of
good corporate governance that are rightly
expected by all our stakeholders. This year
we have continued to face a number of
pandemic-related challenges, but the
return
to the office and in-person meetings
in the summer of 2021 was welcomed.
The Board and its Committees have been
able to meet in person since July 2021
and
prior to that met through video
conferencing for all of our meetings.
This has worked well but nothing can quite
replace in-person meetings and we hope
that as the pandemic subsides, we can
continue to do so whilst using video
conferencing for ad hoc meetings.
How we have engaged with our stakeholders
Pages 97 to 100
With economic, geopolitical and societal
challenges ahead, the Board is mindful
of its responsibilities to a wide group of
stakeholders and seeks to manage those
responsibilities and support the long-term
success of the Company through strong
corporate governance.”
Richard Laing
Chair, 3i Infrastructure plc
Governance
84
Governance
3i Infrastructure plc Annual report and accounts 2022 85
Introduction to Governance continued
Principal governance
activities during the year
Meetings
During the year, there were six scheduled
meetings of the Board of Directors and two
additional ad hoc Board meetings arranged
at short notice. Further details can be found
on page 96. In addition, the Board held two
standalone Strategy sessions (in addition
to the strategy issues which are considered
at every Board meeting) where the Board
worked with the Investment Manager
toconsider matters of a strategic or
wide-ranging nature. The Board has regular
telephone or video calls with the Investment
Manager which provides updates on
activities between Board meetings.
Decisions and s172
When making decisions, the Directors
consider the requirements of s172 and
further details of this are set out in our
Section 172 Statement on pages 81 and
82. The Directors are also reminded of
their s172 duties in the papers for each
scheduledBoard meeting.
The Board reviewed its key decisions during
the year to ensure that lessons are learnt
from such decisions and this acts as a way
of ensuring continuous improvement.
The Board monitors and assesses the
manner in which it reached such decisions
and provides feedback to the Investment
Manager on how it engaged with the Board
and kept them informed throughout the
process that led to a decision.
Investment Manager
3i Investments plc acts as the Investment
Manager of the Company and has
discretionary investment management
authority other than in respect of certain
transactions which must be referred to the
Board. The Management Engagement
Committee oversees the relationship with
the Investment Manager and monitors
its performance. Further details on the
Investment Management Agreement
(‘IMA’), theleadership of the Investment
Manager and the oversight by the
Management Engagement Committee can
be found onpages 91, 92, 98, 117 and 118.
Compliance with the AIC Code
The Board confirms that the Company has
continued to meet all of its obligations
under the AIC Code and inrespect of the
associated disclosures under the applicable
provisions ofparagraph 9.8.6 of the Listing
Rules. Details of how the Company has
complied with the relevant principles and
provisions of
theAIC Code are setout below.
Board leadership and purpose
The Board is responsible for leading the
business in a way which supports its purpose
of investing responsibly in infrastructure,
delivering long-term sustainable returns
to shareholders and having a positive
impact on our portfolio companies
andtheir stakeholders.
Read more
Pages 87 to 100
Division of responsibilities
We ensure we have the right combination
ofChair and non-executive Directors to
leadthe Company effectively, supported
byboth strong governance arrangements
andthe workof the Investment Manager.
Read more
Pages 101 to 104
Composition, succession
and evaluation
We aim to have a balanced Board with the
appropriate skills and experience to govern
the business. We have an effective board
evaluation process anda succession plan
monitored bytheNomination Committee.
Read more
Pages 105 to 109
Audit, Risk and Internal Control
The Audit and Risk Committee, supported
by the Investment Manager and other key
stakeholders, identifies potential risks and
how best to mitigate them. The Audit and
Risk Committee is appointed to oversee
thisprocess on behalf of the Board.
Read more
Pages 110 to 116
Remuneration
The Remuneration Committee
ensures afair reward structure
forthenon-executive Directors.
Read more
Page 119
Board values
The Board’s values of Integrity, Objectivity,
Accountability and Legacy underpin its
open and collaborative culture and are
supplemented by the skills and experience
that each individual Director brings to
the Company. For further information
seethe Nomination Committee report on
pages108 and 109. The values support the
delivery of the Company’s purpose and
reflect the commitment of the Board to
the success of the Company for the benefit
of its members as a whole, whilst taking
into account the views of stakeholders.
The Investment Manager applies the
3iGroup plc values as the basis of how
itdoes business (see
www.3i.com).
The values of the Board and the
Investment Manager are complementary
and consistent.
Stakeholders
The Board recognises the importance
of engaging with stakeholders and
details of that engagement programme
are set out on pages 98 and 99. As an
investment trust, shareholders are one of
our key stakeholders and it is the Chair’s
responsibility to ensure that there is the
opportunity for shareholders to engage
with the Board on strategy, corporate
governance and any other matters they
wish to raise. The Chair welcomes the
opportunity to meet with shareholders as
required. Day-to-day engagement with
shareholders is managed by the Investment
Manager through a comprehensive annual
engagement programme. This year, the
Board commissioned an Investor Perception
Study and further details on this can be
found on page 98. The Board is grateful to
all shareholders for their continued support
and to those who have given feedback.
Where shareholders have expressed
concern over particular issues, the Board
seeks to understand those concerns and
address them where appropriate.
Introduction to Governance continued
3iN
Board
values
Legacy
Accountability
Integrity
Objectivity
Integrity
The Board acts with honesty, dedication
and consistency, with the courage to
do the right thing in every situation.
The Board manages its relationships
based on trust and respect.
Objectivity
The Board applies a fair, transparent and
balanced approach to decision making.
The Board values diversity of opinion
and encourages different perspectives
to bring constructive challenge as it
discharges its responsibilities.
Accountability
The Board acts in the interest of all
stakeholders of the Company, ensuring
that obligations to shareholders are
understood and met. It is mindful of its
responsibility to act as a good steward
of its portfolio and of the influence and
impact that the Company can have on
society, the communities in which it
operates and the environment.
Legacy
The Board seeks to develop a company
and portfolio that delivers long-term,
sustainable value for our shareholders
and society.
Governance
86
Governance
3i Infrastructure plc Annual report and accounts 2022 87
Leadership and purpose
Board of Directors
In 2021, due to uncertainty on the next
steps of the UK government’s easing
of lockdown restrictions, the Company
held an online interactive shareholder
engagement event two weeks before
holding a purely functional AGM (where
shareholders were encouraged not
to attend and to vote by proxy) which
conducted the business of the meeting
and where there were no presentations.
The Board recognises that this limited the
ability of some shareholders, in particular
retail shareholders, to engage with the
Directors and the Company but we did not
feel it appropriate to encourage travel to
and attendance at an indoor meeting at
that stage of the pandemic. This year, we
anticipate returning to the more usual form
of AGM where shareholders will be able to
attend in person and ask questions directly
of the
Board and the Investment Manager.
Committees
The Board, working with the Audit and
Risk
Committee, is responsible for ensuring
that its Annual report and accounts are
fair, balanced and understandable, and for
establishing, maintaining and exercising
oversight over the risk management
and internal control frameworks.
Further detailson the work of the Audit
andRisk Committee can be found on
pages110 to 116.
The role of the Remuneration Committee
is to determine and maintain a fair reward
structure for Directors to attract and retain
the right talent to deliver the Company’s
strategic objectives. Further details on the
work of the Remuneration Committee can
be found on page 119.
The Nomination Committee has continued
to develop the Board succession plan.
The Board will ensure that in making
appointments it, and any search firm that
assists it, will consider a wide range of
candidates from different backgrounds
while making appointments on merit and
which meet the objectives ofits policy
on diversity, including gender, social and
ethnic background, cognitive and personal
strengths. Further details on the work of
theNomination Committee can be found
on pages 108 and 109.
Having the right balance of skills and
experience amongst the Directors ensures
that the Board can be responsible to
shareholders for the overall management
and oversight of the Company, for agreeing
its strategy, monitoring its financial
performance, setting and monitoring
its
riskappetite and maintaining an
effective
system of internal controls.
This year, Robert Jennings stepped down
from the Board and we thank him for
his contribution.
Board evaluation
During the year, a Board performance
evaluation was conducted by Satori,
anexternal Board evaluator and the findings
provided a further opportunity to continue
to enhance the Board’s contribution to
the long-term success of theCompany.
Further details of the evaluation can be
found on page 105.
I hope that this Governance section
provides you with an insight into our work
as a Board on your behalf. The Board
welcomes feedback on all our activities,
governance being a key one of those.
Richard Laing
Chair, 3i Infrastructure
9 May 2022
Leadership and purpose continued
Board of Directors continued
From left to right:
Wendy Dorman
Paul Masterton
Richard Laing
Samantha Hoe-Richardson
Doug Bannister
Ian Lobley
Governance
88
Governance
3i Infrastructure plc Annual report and accounts 2022 89
Richard Laing
Appointed January 2016. Chair of Nomination,
Disclosure and Management Engagement Committees,
and member of Remuneration Committee. UK resident.
Skills and experience contributing to the Board
• As an experienced non-executive Director and
seniorexecutive, has broad strategic insights
• Long-standing experience of investing in
international infrastructure
• Deep knowledge of investment companies
• As a previous CFO, understands complex financial
and funding matters
• Fellow of the Institute of Chartered Accountants
inEngland and Wales.
Current roles
• Non-executive Director of Tritax Big Box REIT plc
• Non-executive Director of JP Morgan Emerging
Markets Investment Trust plc
• Trustee and Deputy Chair of Leeds
Castle Foundation.
Past roles
• Non-executive Director and Chair of Perpetual
Income and Growth Investment Trust plc
• Non-executive Director of Murray Income Trust plc
• Non-executive Director and Chair of Miro Forestry
Company Limited
• Non-executive Director of London Metal Exchange
• 11 years at CDC Group plc with the last seven years
asChief Executive
• 15 years at De La Rue latterly as Group
Finance Director
• Commercial roles in agribusiness and Marks & Spencer
• Chartered accountant at PricewaterhouseCoopers
(‘PwC’).
Paul Masterton
Senior Independent Director
Appointed April 2013. Chair of the Remuneration
Committee and member of Audit and Risk,
Management Engagement, Nomination and Disclosure
Committees. Jersey resident.
Skills and experience contributing to the Board
• Extensive experience in leading and developing large
companies, and of mergers and acquisitions
• Particularly experienced from an international
business perspective
• Knowledge of digital technology
• Deep experience as a non-executive director,
including board governance and remuneration
• Leadership and team development, including
coaching and mentoring
• Focus on corporate social responsibility.
Current roles
• Chair of Insurance Corporation CI
• Chair of States of Jersey Development Company
• Senior Independent Director of Jersey Competition
& Regulatory Authority
• Trustee of Digital Jersey
• Chair of Governors for Jersey College of Higher
Education and University of Jersey.
Past roles
• Over 25 years at RR Donnelley including as president
of company’s businesses in Europe, Russia and India
• Chief Executive of Durrell Wildlife Conservation Trust.
Wendy Dorman
Appointed March 2015. Chair of the Audit and Risk
Committee and member of Management Engagement,
Nomination, Remuneration and Disclosure
Committees. Jersey resident.
Skills and experience contributing to the Board
• Over 27 years’ experience as a chartered accountant
and tax adviser
• Particular expertise in the taxation of UK and offshore
investment funds, including the tax aspects of
fund structuring
• Extensive knowledge of risk mitigation, compliance
and corporate governance.
Current roles
• Non-executive Director and Chair of Audit & Risk
Committee of Jersey Electricity plc
• Non-executive Director and Chair of Audit &
Risk Committee of CQS New City High Yield
Fund Limited.
Past roles
• Head of PwC Channel Islands tax practice for
seven years
• Non-executive Director of Jersey Finance Limited
• President of Jersey Society of Chartered and
Certified Accountants
• Chair of Jersey Institute of Directors.
Chair Independent non-executive Directors
Leadership and purpose continued
Board of Directors continued
Leadership and purpose continued
Board of Directors continued
Doug Bannister
Appointed January 2015. Member of Audit and
Risk, Management Engagement, Remuneration
andDisclosure Committees. UK resident.
Skills and experience contributing to the Board
• Over 30 years’ experience in the international
transportation and distribution sectors
• In-depth knowledge of leading asset intense
operational businesses
• Experienced senior executive with broad
international experience
• Knowledge in turnaround, mergers and acquisition
integration, restructuring and transformation
ofcapital intensive businesses.
Current roles
• Chief Executive of Dover Harbour Board
• Council Member of British Ports Association.
Past roles
• Group CEO of Ports of Jersey (Airports & Harbours)
• Commercial roles at P&O Nedlloyd and Maersk Line.
Samantha Hoe-Richardson
Appointed February 2020. Member of Audit and
Risk, Management Engagement, Remuneration
andDisclosure Committees. UK resident.
Skills and experience contributing to the Board
• Senior executive with 18 years’ experience in global
mining and infrastructure
• In-depth understanding of environmental and
sustainability issues
• Broad based non-executive Director experience
• Chartered accountant.
Current roles
• Non-executive Director of Assured Guaranty UK Ltd
• Independent Group Adviser on Climate Change &
Sustainability to Laing O’Rourke.
Past roles
• Non-executive Director and Chair of the Audit
Committees at Lancashire Holdings Limited and
Lancashire Insurance UK Limited
• Non-executive Director and Chair of Audit
Committee of Unum Limited
• Head of Environment and Sustainable Development
of Network Rail
• Head of Environment at Anglo American plc
• Trustee of the Royal School of Needlework.
Ian Lobley
Appointed May 2014 as the 3i Group plc nominated
Director. UK resident.
Skills and experience contributing to the Board
• Valuable experience and insight into the assessment
of new investments and management of the portfolio
• Extensive knowledge on ESG matters
• Experienced non-executive Director across sectors,
continents and ownership models
• Significant experience, as an investor and engineer,
ofdisruptive technologies across multiple
end markets.
Current roles
• 3i Group plc Managing Partner – Asset Management
• Non-executive Director of AES Engineering Ltd
• Non-executive Director of Cirtec Medical Holdco LLC
• Non-executive Director BSI Group
• Non-executive Director of Tato Holdings Ltd
• Non-executive Director of Boketto Holdco Limited
(Audley Travel).
Past roles
• Long-term member of 3i Group plc
Investment Committee
• Active investor and experienced board member
in a variety of companies across Europe, Asia and
the USA
• Leadership of technology investing and portfolio
management activities
• Engineer at BOC Speciality Gases.
Independent non-executive Directors Non-executive Director
Governance
90
Governance
3i Infrastructure plc Annual report and accounts 2022 91
Leadership and purpose continued
Investment Management team
From left to right:
Phil White
Matt Barker
James Dawes
John Cavill
Tim Short
Anna Dellis
Aaron Church
Stéphane Grandguillaume
Bernardo Sottomayor
Thomas Fodor
Scott Moseley
Leadership and purpose continued
Investment Management team continued
Phil White
Joined 3i Group plc in 2007. Managing Partner and
Head of 3i’s Infrastructure business. Phil will step down
as Head of Infrastructure from 1 July 2022 and become
Vice Chair of 3i’s Infrastructure business.
Current roles
• Member of 3i Group’s Executive Committee,
Investment Committee and Group Risk Committee
• Non-executive Director of Ionisos.
Past roles
• Division Director of Macquarie’s Infrastructure
Funds business managing investments in the
transport sector
• Over 25 years of experience of infrastructure
investment, advisory and finance fromroles at
Barclays and WestLB.
James Dawes
Joined 3i Group in 2016. CFO of 3i’s
Infrastructure business.
Current roles
• Performs CFO duties for 3i Infrastructure
• Manages the operational, financial and reporting
requirements for 3i Group’s infrastructure business.
Past roles
• Finance Director of LGV Capital from 2007-2015
• Senior finance roles with Legal & General
Investment Management.
Scott Moseley
Joined 3i Group in 2007 and is a currently a partner and
Co-Head of Economic Infrastructure, Europe. He will
become Managing Partner and Co-Head of European
Infrastructure from 1 July 2022.
Current roles
• With Bernardo leads the team’s origination and
execution platform
• Extensive experience in European infrastructure,
spanning utilities, transportation and
social infrastructure
• Investments include Global Cloud Xchange,
Tampnet, ESVAGT, Elenia, CrossLondon Trains and
Eversholt Rail Group
• Led the successful divestments of Elenia and XLT
as well as previously being responsible for junior
debt investments in Arqiva, Associated British Ports,
Télédiffusion de France, Thames Water and Viridian
• Non-executive Director of Tampnet and ESVAGT.
Bernardo Sottomayor
Joined 3i Group in 2015 and is a currently a partner and
Co-Head of Economic Infrastructure, Europe. He will
become Managing Partner and Co-Head of European
Infrastructure from 1 July 2022.
Current roles
• With Scott leads the team’s origination and
execution platform
• Led or co-led investments by the Company in Joulz,
TCR, Infinis, Attero, Alkane Energy, Ionisos and SRL
Traffic Systems
• Non-executive Director of TCR and 3i board observer
at Attero and Joulz.
Past roles
• Over 20 years’ experience of investing and advising
in infrastructure
• Partner at Antin Infrastructure, which managed
funds investing in infrastructure opportunities
across Europe
• Managing Director, Head of Acquisitions for
Deutsche Bank’s European infrastructure fund
• Head of M&A at Energias de Portugal public
utilities company
• M&A advisory with UBS and Citigroup.
Managing Partners CFO
Governance
92
Governance
3i Infrastructure plc Annual report and accounts 2022 93
Matt Barker
Joined 3i Group in 2010 and is a partner in the London
infrastructure business.
Current roles
• Focuses on new investments and the asset
management of a number of 3i Infrastructure’s
portfolio assets
• Senior team member on 3i Infrastructure’s current
investments in SRL Traffic Systems, DNS:NET,
TCRand Tampnet
• Led the successful divestments of WIG, AWG
and Eversholt
• Non-executive Director of SRL Traffic Systems,
TCRand Tampnet.
Past roles
• Team member at Macquarie’s Infrastructure Funds
business and part of the team responsible for the
management of the Australian Stock Exchange listed
fund, Macquarie Airports.
John Cavill
Joined 3i Group in 2013 and is a partner in the London
infrastructure business.
Current roles
• Non-executive Director of SRL Traffic Systems.
• Leads the assets management activity for the
Projects portfolio
• Responsible for setting the strategy oversight of
asset management activities
• Overseas the implementation of value protection and
enhancement activities, and performance reporting.
Past roles
• Non-executive Director of WIG and XLT
• Director at Barclays Infrastructure, St Modwen
Properties plc, Land Securities Trillium and
Vinci Investments.
Aaron Church
Joined 3i Group in 2013 and is a partner in the London
infrastructure business.
Current roles
• Focuses on origination, execution and asset
management of economic infrastructure investments
• Extensive infrastructure investing experience across
the transport, utilities, energy and waste sectors
• Senior deal team member on the acquisitions
ofJoulz, Attero, Tampnet, Infinis and ESVAGT,
andthe sale of the Oystercatcher European terminals
• Non-executive Director of Joulz, Attero and
Oiltanking Singapore.
Past roles
• Infrastructure investor at HRL Morrison & Co
inEurope and Australasia
• Started career at Boston Consulting Group.
Stéphane Grandguillaume
Joined 3i Group in 2013 and is a partner in the Paris
infrastructure business.
Current roles
• Leads 3i’s Infrastructure business in France
• Responsible for origination, execution and
fundraising in relation to project opportunities
across Europe
• Non-executive Director of Valorem and Ionisos.
Past roles
• Headed Barclays Infrastructure in Paris
• Headed Egis Investment Partners.
Anna Dellis
Joined 3i Group in 2006 and is a partner in the London
infrastructure business.
Current roles
• Leads asset management for the portfolio of
economic infrastructure investments
• Led the successful exit of Oystercatcher’s
investments in Oiltanking terminals in Amsterdam,
Terneuzen, Ghent and Malta
• Non-executive Director of Oiltanking Singapore
• Focused on new deals over the period 2006–2017,
prior to assuming current portfolio focus.
Past roles
• Advised on infrastructure transactions and financing
at PwC in London
• Fellow of the Institute of Chartered Accountants
ofEngland and Wales.
Thomas Fodor
Joined 3i Group in 2016 and is a partner in the London
infrastructure business.
Current roles
• Leads investor relation and fundraising efforts across
the 3i European infrastructure business
• First point of contact for shareholders in
3iInfrastructure plc
• Oversees co-investment activities in the
3iinfrastructure portfolio.
Past roles
• Private Capital Advisory at HSBC
• Started career at Lehman Brothers.
Tim Short
Joined 3i Group in 2007 and is a partner in the London
infrastructure business.
Current roles
• Focuses on the origination, execution and debt
financing of infrastructure investments
• Transaction experience includes the acquisitions
and financing of Attero, Elenia, ESVAGT, Global
Cloud Xchange, Infinis, Ionisos, Joulz, Oystercatcher,
Tampnet, TCR and WIG
• Non-executive Director of Infinis.
Past roles
• Financial restructuring at Houlihan Lokey.
Partners
Leadership and purpose continued
Investment Management team continued
Leadership and purpose continued
Role of the Board
Overview
The Board is ultimately accountable
to our shareholders and the Directors
ensure that both their decisions and the
actions ofthe Investment Manager are
aligned withthe Company’s and wider
stakeholders’interests.
The Board’s role is to lead the Company
in achieving its purpose of investing
responsibly in infrastructure, delivering
long-term sustainable returns to
shareholders and having a positive impact
on our portfolio companies and their
stakeholders. The Board is also responsible
for overseeing the implementation of 3iN’s
strategy of maintaining a balanced portfolio
of infrastructure investments delivering an
attractive mix of income yield and capital
appreciation to shareholders.
The Company has no employees and
its investment and portfolio monitoring
activities have been delegated by the
Board to 3i Investments plc in its role
as
Investment Manager.
The Board ensures that the Investment
Manager has the resources and capabilities
to support the delivery of the Company’s
purpose and strategy. The Board’s
core values of Integrity, Accountability,
Objectivity and Legacy underpin its
open and collaborative culture and are
supplemented by the skills that each
individual Director brings to the Company,
for further information see pages 89 and
90.
The Chair is responsible for the leadership
of the Board and ensuring its effectiveness.
In addition to the Chair, there are currently
four independent non-executive Directors
and one 3i Group plc nominated Director,
who is not considered independent.
As detailed below, under the terms of
the IMA investment and divestment
decisions which exceed certain thresholds
are reserved for decision to the Board.
The IMA also includes a schedule of matters
reserved for decision of the Board which are
considered significant to the Company due
to their strategic, financial or reputational
implications and consequences. Details of
key Board decisions and how the interests
of stakeholders were considered by the
Board when making these decisions are
setout on pages 97 to 100 and 104.
As explained in the Introduction to
Governance, during the pandemic the
Board has adapted its ways of working in
order to continue to operate effectively and
to ensure effective corporate governance.
As the world has emerged from the
pandemic the Board and the Investment
Manager will continue to focus on ways
of working which align with the corporate
governance framework and ensure that
it
operates effectively.
The Board has direct access to the Company’s
external advisers, including the Company’s
external auditor (Deloitte LLP), corporate
brokers (JP Morgan Cazenove and
RBCCapital Markets), financial adviser
(Rothschild & Co), financial corporate
communications adviser (Headland
Consultancy), UK tax adviser
(PricewaterhouseCoopers LLP) and legal
advisers (Hogan Lovells International LLP
and other law firms as appropriate).
The Board receives advice on a range of
subjects, but particularly on
the
infrastructure market, taxation, ESG
issues,
UK and Jersey legal and compliance
matters and equity market issues.
Board committees
The Board is assisted in its activities
by a number of standing committees
of the Board and, in undertaking its
duties, it
delegates certain authorities
and decisions to these committees.
The Board reviews the membership of these
committees on a regular basis. The Board
committee structure, together with a
summary of the roles and composition
of the committees, is outlined in the
table onpage 95. All committees have
terms of reference, which are available on
www.3i-infrastructure.com. The Board,
on the advice of the Company Secretary,
annually reviews the committees’ terms
of reference and the Schedule of Matters
Reserved to the Board to ensure they
remain appropriate and compliant with
thelegal and regulatory environment.
Further details on the areas of focus of
the Board Committees, as well as details
of attendance at scheduled full Board
meetings, are set out on pages 95, 101
to103 and 108to 119.
Changes to the Board of Directors
In July 2021 Robert Jennings stepped down
from the Board.
Governance
94
Governance
3i Infrastructure plc Annual report and accounts 2022 95
The Board’s responsibilities
andprocesses
The Board is responsible to shareholders
for the overall strategy and management
of the Company. It determines the
investment policy, the appointment of
theInvestment Manager, financial strategy
and planning, approval of the results and
dividends, and oversees the maintenance of
internal controls and the risk management
framework, membership of the Board,
Director remuneration and adherence
to
the corporate governance framework.
The Investment Manager has sole discretion
to make decisions on investments and
divestments, other than those decisions
which relate to transactions which reach
certain financial thresholds, in particular
in relation to investments or divestments
which represent 15% or more of the gross
assets of the Company, which require
Board approval. The Investment Manager
prepares reports and papers that are
circulated to the Directors electronically
in
advance of Board and Board Committee
meetings. These papers are supplemented
by information specifically requested by
the Directors and additional papers the
Investment Manager provides to the Board.
3i Infrastructure plc
Audit and Risk
Committee
Remuneration
Committee
Nomination
Committee
Management
Engagement Committee
Disclosure
Committee
Financial reporting,
risk and
internal controls
Director
remuneration
Board appointments
and size and
composition of the Board
Monitoring of the
performance of the
Investment Manager
Monitoring compliance
with disclosure
requirements
Wendy Dorman
(Chair)
Doug Bannister
Samantha Hoe-Richardson
Paul Masterton
Paul Masterton
(Chair)
Doug Bannister
Wendy Dorman
Samantha Hoe-Richardson
Richard Laing
Richard Laing
(Chair)
Wendy Dorman
Paul Masterton
Richard Laing
(Chair)
Doug Bannister
Wendy Dorman
Samantha Hoe-Richardson
Paul Masterton
Richard Laing
(Chair)
Doug Bannister
Wendy Dorman
Samantha Hoe-Richardson
Paul Masterton
All committee members listed above served throughout the year, other than Robert Jennings who stood down from the relevant Committees when he left the Board in
July 2021.
Board
Committees
Leadership and purpose continued
Role of the Board continued
Leadership and purpose continued
Role of the Board continued
Meetings of the Board
The table below sets out the attendance of the Directors at the scheduled Board meetings (excluding ad hoc Board meetings) and the attendance of Committee members at the
relevant Committee meetings held during the financial year. In addition, two ad hoc Board meetings were held at short notice.
Board
Audit and Risk
Committee
Remuneration
Committee
Nomination
Committee
Management
Engagement
Committee
Richard Laing 6 (6) – 1 (1) 3 (3) 2 (2)
Doug Bannister 6 (6) 3 (3) 1 (1) – 2 (2)
Wendy Dorman 6 (6) 3 (3) 1 (1) 3 (3) 2 (2)
Samantha Hoe-Richardson 6 (6) 3 (3) 1 (1) – 2 (2)
Robert Jennings* 3 (3) 1 (1) – – 1 (1)
Ian Lobley 6 (6) – – – –
Paul Masterton 6 (6) 3 (3) 1 (1) 3 (3) 2 (2)
The table above indicates the number of meetings attended and in brackets, the number of meetings the Director was eligible to attend. Non-executive Directors also attended a number of the other meetings, strategy sessions
and telephone calls to increase their understanding of the principal risks in, and activities of, the business and the Investment Manager. Richard Laing and Ian Lobley are invited to attend the Audit and Risk Committee. No Disclosure
Committee meetings were convened during the year as relevant matters were considered in Board Meetings.
* Robert Jennings left the Board in July 2021.
Governance
96
3i Investments plc
(Investment Manager)
3i plc
(Company Secretary)
3i Infrastructure plc
Shareholders
Brokers
External auditor
Financial advisers
Government and
regulatory bodies
Lenders
Registrars
Apex Financial Services
Alternative Funds Ltd
(Jersey administrator)
Citibank UK Limited
(Depositary)
Portfolio companies
Communities
Governance
3i Infrastructure plc Annual report and accounts 2022 97
As explained in the Introduction to Governance, the Board recognises the importance of engaging with its stakeholders
and has identified its key stakeholders, as shown in the diagram below:
Shareholders
Shareholders are keystakeholders in the
Company. The Board recognises the
importance of maintaining a purposeful
relationship with shareholders through
a comprehensive Investor Relations
programme led by the Investment Manager.
This programme provides existing and
potential investors with relevant information
to enable them to understand the
Company’s activities, strategy and financial
performance. The Investment Manager
briefs the Board on a regular basis on the
implementation of the Investor Relations
programme and on feedback received from
analysts and investors. Major shareholders
are invited to meet with the Chair and
the Senior Independent Director in order
to share their views on governance and
the Company’s performance against its
purpose and strategy. Any significant
concern raised by shareholders in relation
to the Company is communicated to the
Board. Directors are invited to attend the
Company’s presentations to analysts and in
normal circumstances have the opportunity
to meet shareholders at the AGM.
Leadership and purpose continued
Engaging with stakeholders
Leadership and purpose continued
Engaging with stakeholders continued
Investment Manager
The key service provider to the Company
isthe Investment Manager. Senior members
of the Investment Manager’s team present
to the Board and Board Committees
on regular agenda items and the Board
also receives presentations from a wider
group of the Investment Manager’s team.
Through this engagement the Board is
able to evaluate the Investment Manager’s
performance against the Company’s
strategy and to understand any risks
and opportunities this may present to
the Company. The relationship with,
and the performance of, the Investment
Manager is monitored by the Management
Engagement Committee, for further details
see pages 117 and 118.
Outcomes – this engagement ensures
that the Company and its portfolio of
investments is well-managed, adheres to
its strategy and that the Board receives
appropriate and timely management
and support services from the
Investment Manager.
Portfolio companies
The companies in which we invest are
the source of returns to shareholders.
We drive value though our engaged asset
management approach as detailed in our
Business model on page 14.
Annual General Meeting – the Company
uses its AGM as an opportunity to
communicate with its shareholders. At the
meeting, business presentations are made
by the Chair and the Investment Manager.
The Senior Independent Director and
chairof the Audit and Risk Committee
are also generally available to answer
shareholders’ questions.
The Board recognised that holding the
2021 AGM as a functional meeting only
for conducting the formal business of
the meeting limited communication
opportunities between shareholders and
Directors and so held an interactive online
shareholder presentation two weeks
before the AGM. This gave shareholders
the opportunity to submit questions
in advance or during the presentation,
which Directors were then able to answer.
Further information regarding the proposed
arrangements for the 2022 AGM (which
will return to a full AGM with shareholders
able to attend) can be found in the
Chair’s
statement on page 6 and in the
Notice ofAnnual General Meeting 2022.
Annual and half-yearly results
presentations – the Chair and Investment
Manager present the annual and
half-yearly results to a broad group of
analysts and in the past year these have
been presented both in person and virtually
ascircumstances have allowed.
Individual investors – individual investors
are encouraged to engage with the
Company and provide feedback through
the Investor Relations team, who can be
contacted at thomas.fodor@3i.com or
bytelephone on +44 (0)20 7975 3469.
Institutional investors – in May following
the release of the Company’s annual results
and in November following the release
of the half-year results, the Investment
Manager meets with existing and potential
investors in the UK and internationally to
communicate the performance and strategy
of the Company. These meetings continue
throughout the year as required.
The Board seeks to hold more detailed
engagement with its institutional
shareholders on a periodic basis and these
views inform the Board on the development
of its strategy and performance.
This year Rothschild & Co (Investor
Advisory) (“Rothschild”) organised an
investor perception study where they held
in depth discussions with 15 investors
representing 23.4% of the Company’s
sharecapital and including seven of the
top10 shareholders.
The feedback received was extremely
positive with investors supportive of
the Company’s strategy, its unique
differentiated approach and delivery
ofattractive returns. Investors noted
theCompany’s good stewardship by the
Investment Manager in overseeing the
evolution of the portfolio to include assets
that aligned with increased investor focus
on ESG and sustainability.
In October 2021, the Investment Manager
organised a Capital Markets Event for
institutional shareholders where they
received presentations on the Company’s
approach to sustainability and investing in
the current market, along with presentations
from the senior management of two portfolio
companies – Oystercatcher and DNS:NET.
The Company’s website provides details
of forthcoming events for shareholders
and analysts. In addition, videos of results
presentations and presentations from
the Capital Markets Event are on the
Company’s website which all shareholders
can access and view.
Outcomes – this extensive engagement
means that investors are able to make
informed decisions about their investment
in the Company.
Governance
98
Governance
3i Infrastructure plc Annual report and accounts 2022 99
The Company is committed to achieving
its investment objectives in a sustainable
way and our success as an investor relies
on us maintaining a strong reputation
for managing our portfolio sustainably.
Further details are contained in the
Sustainability report on pages 46 to
55. The principal engagement with
the portfolio companies is through the
Investment Manager’s team. One or more
of its investment professionals sits on the
board of each portfolio company (or acts
as a board observer) and engagement
with a portfolio company takes place both
formally at board level and informally by
the Investment Manager’s team on an
ongoing basis.
Outcomes – this engagement enhances
the value of the portfolio companies for
the
benefit of their, and our, stakeholders.
Communities
The Company is committed to contributing
positively to the communities in which it
operates and details of this are contained in
the Sustainability report on pages 46 to55.
Outcomes – by investing in, developing and
actively managing essential infrastructure
which responds to public needs, we foster
sustainable growth and improve the lives
of the communities in which our portfolio
companies operate.
Third-party service providers
The Company contracts with third parties
for other services including the external
auditor, the depositary, legal advisers, the
financial adviser, the financial PR adviser,
the Registrar, the Jersey administrator
and with 3i plc for company secretarial,
treasury, accounting and internal audit
services. Provision of these services is
necessary to ensure the Company’s
compliance with its legal and regulatory
obligations. The key third-party service
providers work closely day-to-day with
the Investment Manager. This interaction
provides an environment where issues can
be dealt with efficiently. The Board reviews
annually both the arrangements that are
in place with all key third-party service
providers and monitors their performance.
In addition, the Audit and Risk Committee
reviews the performance and services
provided by the external auditor and the
Jersey administrator. Key service providers
attend Board and Committee meetings
as appropriate to advise the Board on
specific matters.
Outcomes – the work of the key third-party
service providers ensures compliance by
the Company with its legal and regulatory
obligations in addition to the maintenance
of the Company’s reputation and high
standards of business conduct.
Brokers
The Board and the Investment Manager
work with the brokers to provide access
to markets and liquidity in the Company’s
shares. The brokers meet the Board at
least annually to advise on all aspects of
their remit and reports from the brokers,
particularly in relation to feedback from
shareholders and potential investors, are
presented to the Board. The Investment
Manager meets regularly with the
brokers who keep them up to date on
both Company and wider market-related
matters. This year the brokers have
provided advice to the Board and the
Investment Manager on the Company’s
access to liquidity as it moved from having
significant cash available for investment to
having made a number of acquisitions and
utilising its revolving credit facility.
Outcomes – the brokers promote the
Company as an attractive investment
trust and work to ensure liquidity in the
Company’s shares.
Lenders
The Investment Manager’s treasury team
manages the engagement with the lenders
in the Company’s revolving credit facility.
This year, with the support of its lenders,
the Company was able to renew its existing
revolving credit facility on favourable terms
and put in place an additional committed
facility to support the acquisition pipeline.
For further details see page 122.
Outcomes – access to bank borrowing
provides important flexibility and resilience
to the Company’s financial structure and
helps the Company to maintain an efficient
balance sheet.
Government and
regulatorybodies
The Company works in a regulated
environment and through the Jersey
administrator the Company engages with
the Jersey regulators to ensure compliance.
In addition, the Company adheres to the
AIC Code and so engages with the AIC on
matters related to corporate governance.
Outcomes – the Company continues to
operate in compliance with relevant law
and regulation and ensures the highest
standards of corporate governance.
Leadership and purpose continued
Engaging with stakeholders continued
Leadership and purpose continued
Engaging with stakeholders continued
How stakeholder interests have influenced decision making and areas of focus in the year
The Board carefully considers the interests of all of its stakeholders as well as the other factors referred to in section 172 Companies Act 2006 in deciding what actions would
belikely
topromote the success of the Company for the benefit of its members as a whole. Set out below are examples of the Board’s key decisions and areas of focus over the
lastyear with
details of how the interests of stakeholders were taken into account.
Decision/Area of focus: Liquidity Management
Context Over the course of the year the Company was able to invest in a number of new portfolio companies. These investments utilised the Company’s existing funds available to invest and required a drawdown under
the revolving credit facility (‘RCF’) and accordion feature. It was therefore appropriate to approach the lending banks to refinance and extend the RCF. In addition, as further investment opportunities become
available, it was considered appropriate to put in place an additional one-year tranche embedded into the new RCF.
Stakeholder
considerations
The Board considered the Company’s overall balance sheet strategy along with the terms of the RCF and the additional facility. Having appropriate levels of liquidity available supports the Company
in delivering on its purpose for the benefit of all stakeholders.
Impact on the success
of the Company
The Company was able to complete the acquisitions of DNS:NET and SRL, agree to invest in GCX, buy out our co-investors stake in ESVAGT and make further investments in DNS:NET, Valorem,
ESVAGT and Joulz.
Outcome Access to bank borrowing provides important flexibility and resilience to the Company’s financial structure and helps the Company to maintain an efficient balance sheet.
Decision/Area of focus: Stakeholder Engagement through the Investor Perception Study
Context The Company wished to engage with its largest shareholders in order to understand their views more fully.
Stakeholder
considerations
This study was focused on the Company’s key stakeholders, its shareholders and it was appropriate that those investors who were asked to participate in the study were those representing thelargest holdings.
The Board and the Investment Manager worked with Rothschild to create an appropriate set of questions in order to seek the fullest answers from investors.
Impact on the success
of the Company
Understanding the views of investors enables the Company to take account of such views when developing future strategy. It is vital for the success of the Company to have the support of itsshareholders
and this engagement enables those shareholders who participated in the study to express their views on a range of topics, including the Company’s differentiated approach toinvestment, its return target,
the strength of the Investment Management team, its portfolio of investments, the approach to sustainability and the Company’s balance sheet strategy.
Outcome The feedback received was extremely positive with investors supportive of the Company’s strategy, its unique differentiated approach and delivery of attractive returns. Investors noted the Company’s
good stewardship by the Investment Manager in overseeing the evolution of the portfolio to include assets that aligned with increased investor focus on ESG and sustainability.
Decision/Area of focus: Sustainability
Context The Board is responsible for sustainability, with day-to-day accountability resting with the Investment Manager. At the beginning of the year, the Board of Directors and the Investment Manager setseveral
specific sustainability objectives, with the desire to take a big step forward in this area.
Stakeholder
considerations
As owners of infrastructure assets, the Board recognises the Company’s ability to influence our portfolio companies, their management teams, employees, customers and suppliers. The Board has
a responsibility toshareholders to deliver long-term sustainable returns, and to communities and the environment in which we operate to manage essential infrastructure in a responsible manner.
Impact on the success
of the Company
The Company is now reporting Scope 1 and Scope 2 greenhouse gas emissions for its portfolio companies and has implemented policies and entered into financial agreements that embed sustainability
throughout our investments and asset management processes.
Outcome Having high sustainability standards helps us achieve long-term sustainable business growth for the benefit of all our stakeholders.
Governance
100
Governance
3i Infrastructure plc Annual report and accounts 2022 101
Division of responsibilities
The Chair of the Board
The Chair, Richard Laing, leads the Board
in the determination and implementation
of its purpose and strategy, and ensures
that the views of all stakeholders are
understood and considered appropriately
in Board discussions and decision making.
The Chair is responsible for organising
the business of the Board, ensuring its
effectiveness and setting its agenda.
He facilitates the effective contribution of
all the Directors and constructive relations
between the Company’s advisers, the
Investment Manager, and the Directors.
The Chair maintains direct links with the
Company’s advisers and ensures that
regular reports from them are circulated
to the Directors to enable the Directors
to consider their views. The Chair and the
Senior Independent Director are available
to meetwith shareholders throughout the
course ofthe year.
The Chair also acted as the Company’s
appointed member to the Advisory
Board for the India Fund. He received
no
additional remuneration for this role.
Senior Independent Director
Paul Masterton is the Senior Independent
Director who supports the Chair in the
delivery of his objectives. The Senior
Independent Director leads the appraisal
of the Chair’s performance with the
non‑executive Directors.
Any shareholder concerns can be conveyed
to the Senior Independent Director and
his contact details are available on the
Company’s website.
Directors
The Board comprises the Chair and five
non‑executive Directors. All Directors,
other than Robert Jennings, served
throughout the year under review and were
re‑elected at the Company’s AGM in 2021.
Robert Jennings stepped down from the
Board in July 2021.
The Directors monitor the delivery of
the Company’s strategy set by the Board
and constructively challenge and assist
in the development of that strategy.
They bring independent judgement to
the consideration of issues of strategy,
performance, investment appraisal,
communication matters and standards
of conduct.
They are also expected to ensure high
standards of financial probity on the part of
the Company. As well as papers for Board,
Board Committees and strategy meetings,
the Directors receive monthly management
accounts, reports and information which
enable them to scrutinise the Company’s
performance against agreed objectives.
Each of the Directors has an appointment
letter and these were updated in July 2019,
with the subsequent appointment letter
for Samantha Hoe‑Richardson on the same
terms as those agreed in 2019. No Director
has a contract of employment with the
Company, nor are any such contracts
proposed. Copies of the appointment
letters are available from the Company
Secretary upon request.
Following the formal appraisal process of
Directors, and in accordance with Provision
7.2, paragraph 23 of the AIC Code, the
re‑election of all current Directors will be
proposed at the forthcoming 2022 AGM.
The Directors’ appointments can be
terminated, without compensation for loss
of office, in accordance with the Company’s
Articles of Association (the ‘Articles’).
Under the Articles, their appointments can
be terminated by an ordinary resolution
of the Company, on notice signed by all
the other Directors, or on ceasing to be
a Director if they fail to be re‑elected
at any AGM. The office of director is
vacated if (i)the Director resigns, becomes
bankrupt or is prohibited by law from
being a Director; or (ii) where the Board so
resolves following the Director suffering
from ill health or being absent from Board
meetings for sixmonths without the
Board’s permission.
Directors’ independence
All the Directors, with the exception of the
Chair and Ian Lobley, who is the 3i Group
nominated Director, are considered by the
Board to be independent for the purposes
of the AIC Code. The Board assesses and
reviews the independence of each of the
Directors at least annually, having regard
tothe potential relevance and materiality
ofa
Director’s interests and relationships.
Division of responsibilities continued
The Chair was considered independent
on appointment and has no relationships
which might create a conflict of interest
between his interests and those of the
shareholders. No Director, other than
IanLobley, was materially interested in any
contract or arrangement subsisting during
or at the end of the financial year in relation
to the business of the Company. Ian Lobley,
as3iGroup’s nominated Director has a
pre‑approved conflict in relation to the IMA.
The Board has noted that Paul Masterton,
who is a Jersey resident Director, will, at
the time of the 2022 AGM, have served
a term beyond nine years from the date
of his appointment. The Board and the
Nominations Committee have carefully
reviewed provision 13 of the AIC Code and
considered factors which are likely to impair
or could appear to impair a non‑executive
Director’s independence.
As the Company is considering transferring
its domicile from Jersey to the UK and the
UK Government has recently published a
consultation on corporate redomiciliation
(which the Investment Manager has
responded to), retaining Paul on the
Board provides continuity whilst the Board
considers these changes, which, if taken
forward, would mean that the Company
no longer required two Jersey resident
directors. This would allow any future
director to be selected from a much wider
pool of candidates. The Board agreed
that staying beyond nineyears from the
date of his appointment does not impair
Paul’s independence and that retaining
Paul on the Board for an additional period
is in the best interests of the Company.
For further details see the Nomination
Committee report on page 109. The Board
is recommending toshareholders at the
2022 AGM that Paulbe re‑elected for
a
further year.
Ian Lobley is a non‑independent Director
who is not a member of the Management
Engagement Committee, and so did not
participate in the Board’s evaluation of the
performance of the Investment Manager.
The Company Secretary
3i plc serves as the Company Secretary
under the terms of the Investment
Management Agreement. 3i plc’s Group
Secretariat has a fully qualified company
secretarial team with sufficient resources
tosupport the Company. All Directors have
access to the advice and services of the
Company Secretary, who advises the Board,
through the Chair, on governance and
related matters. The Company’s Articles
and the schedule of matters reserved to
theBoard provide that the appointment
and removal of the Company Secretary
would be a matter for Board approval.
Disclosure Committee report
The Disclosure Committee’s role is
toconsider matters within its remit,
inparticular in relation to the treatment
of
price sensitive information during the
half‑year and year end accounts process.
This year it was convenient for the Board
itself to consider matters relating to the
treatment of price sensitive information
during certain Board meetings, rather
than convening a separate Disclosure
Committee meeting.
Internal control
The Board has overall responsibility for
the Company’s risk management and
internal control framework, including
the determination of the nature and
extent of the principal risks it is willing to
take to achieve its strategic objectives.
The Company’s overall risk management
and internal control process is regularly
reviewed by the Audit and Risk Committee
and complies with the Guidance on
Risk Management, Internal Control and
Related Financial and Business Reporting
issued by the Financial Reporting Council.
The process has been in place for the year
under review and up to the date of approval
of this Annual report and accounts 2022.
For further details see the Audit and Risk
Committee report on pages 115 and 116.
The Board has contractually delegated
investment management and support
services to its key service providers and
their contractual obligations encompass
the implementation of systems of internal
control, including financial, operational and
compliance controls and risk management.
Governance
102
Governance
3i Infrastructure plc Annual report and accounts 2022 103
Division of responsibilities continued
The Audit and Risk Committee receives
presentations and reports on the control
systems and their operation from its
main service providers, including from
the Investment Manager and the Heads
of Internal Audit and Compliance of the
Investment Manager.
The risk log contains a description of events
that have occurred and relevant actions/
mitigants taken. The Committee tracks
open internal audit actions and receives
reports on their progress to closure.
The Company’s Compliance Officer,
Money Laundering Reporting Officer and
Money Laundering Compliance Officer is
an employee of Apex Financial Services
(Alternative Funds) Limited (the Jersey
administrator) (‘Apex’). He presents a report
at every Audit and Risk Committee meeting
and the Committee is responsible for the
assessment and evaluation of these reports
in the context of the delegated investment
management and support services and
for monitoring the effectiveness of those
internal controls.
Apex maintains an annual Compliance
Monitoring Plan and reports to the
Committee on the results of its tests on the
Company, the Directors, the Investment
Manager and the Company’s suppliers,
amongst others. Apex has not identified
any areas of concern during the course
of the year. On the recommendation of
the Compliance Officer and the Money
Laundering Compliance Officer, the Board
approved further updates to its Conduct of
Business Manual, Anti‑Money Laundering
Manual, Business Risk Assessment and
customer due diligence processes during
the year.
In addition, as part of the internal control
framework, the Company Secretary reports
to the Board on updates to those policies
which do not form part of the Conduct
of Business Manual and Anti‑Money
Laundering Manual, namely the Non‑audit
Services Policy, the Whistleblowing Policy
and 3i Group’s Equal Opportunities
and Diversity Policy (in so far as this
particular policy applies to the Directors
ofthe Company).
The Chair of the Audit and Risk Committee
meets with the Compliance Officer, and
the Investment Manager’s Head of Internal
Audit and Head of Compliance periodically
to receive updates on the internal audit and
compliance processes and procedures of
the Investment Manager.
The Company does not have a separate
internal audit function, as it is not
considered appropriate given the structure
of the Company. This is reviewed annually
by the Audit and Risk Committee and was
approved by the Board for FY22.
As a result of these reviews, the Audit and
Risk Committee was able to confirm to
the Board that the internal controls were
working effectively and no weaknesses
orinefficiencies had been identified.
Division of responsibilities continued
Key Board activities and decisions during the year
In addition to all matters reserved to the Board for decision, the key matters considered by the Board were:
Approval of the FY21 final dividend
of 4.9 pence pershare, meeting our
target for the year of 9.8 pence per
share, and of a target dividend for
FY22
of 10.45 pence per share.
10.45p
FY22 Target dividend per share
Consideration of the external
evaluationsof the Board, the Chair
andthe Audit and Risk Committee.
Approval of the entry into a £400 million
additional credit facility.
Review of the portfolio asset valuation
process and methodology.
Detailed risk review and focus on risk
management framework.
Review of the Company’s corporate
structure and domicile.
Regular reviews of the Company’s
strategy, investment opportunities
andorganic growth initiatives.
Focus on stakeholder engagement with
an Investor Perception Study including
analysis of the key sustainability positions
of the Company’s largest shareholders.
Approval of the Annual report
and accounts 2021.
Ongoing consideration of the impact
of
the Covid-19 pandemic on the
Company and its portfolio assets.
Annual report
and accounts 2021
Approval of the FY22 interim
dividend of 5.225 pence per share.
5.225p
FY22 interim dividend
Approval of the renewal of the
£400 million revolving credit facility
witha£200 million accordion feature.
Setting and reviewing progress
against sustainability objectives.
Governance
104
Governance
3i Infrastructure plc Annual report and accounts 2022 105
Composition, succession and evaluation
Evaluation and Director Training
Board and Committees
This year an external review of the
performance of the Board, the Audit
and Risk Committee and the Chair
was conducted by a third party, Satori.
Satori has no other connection to the
Company. The review provided an
opportunity for the
Board to consider the
structure, function and composition of the
Board and its sub‑committees, balanced
against the strategic direction of the
Company. The Satori team were able to
bring their broader perspectives in relation
to best practices in other boards and areas
of specific interest were highlighted in the
discovery process. An externally facilitated
evaluation was last conducted in 2019
and
evaluations in 2020 and 2021 had been
undertaken by the Company Secretary.
The evaluation involved the completion
of a questionnaire by all Directors,
Clare
Calderwood (representing the
Company Secretary), and the Investment
Manager’s Managing Partner, Phil White,
and CFO, James Dawes followed by
individual interviews with the Satori team.
The anonymity of all respondents to the
questionnaire was maintained in the report
on the survey data in order to promote the
open and frank exchange of views.
Reports were subsequently prepared
by
Satori and presented to the Board for
consideration and extensive discussion.
The Board was rated highly on a number
of
aspects which included the following:
• Board structure and operations;
• Collaborative and constructive dynamics;
• Chairing of both the Board and
its Committees;
• The relationship with the
Investment Manager;
• The Board’s impact on specific topics
such as ESG matters; and
• That Directors actively enjoyed being
members of this Board and cited it as
an exemplar.
The Board considered that the evaluation
had been both challenging and provocative
in a positive way. The key themes
highlighted on the 2022 evaluation were
focused on Board purpose. Following the
development of the Company’s purpose
last year, now was an appropriate time to
more fully articulate the Board’s purpose
in order to deliver maximum value, inform
Board function, form, composition and
its agenda. Satori recommended a range
of further themes related to Talent,
Operations and Performance. The Board
has agreed that it would consider how to
take these forward following completion
ofthe work on Board purpose.
The evaluation concluded that overall the
Board was considered very effective.
Composition, succession and evaluation continued
Evaluation and Director Training continued
It was noted that good progress had been seen against the recommendations made in the 2021 Board evaluation, as follows:
Evaluation Actions 2021 Progress
Strategy: Work with the Investment
Manager todevelop the Company’s
approach to sustainability and to consider
how itinfluenceslong-term strategy
The Board considered a range of issues related to sustainability including decarbonisation: the role of hydrogen, the portfolio companies’
approach to engaging with their stakeholders, and understanding investors views on sustainability as part of the investor perception study.
The Board also receives regular ESG updates from the Investment Manager on the portfolio companies and on topical issues. Inaddition
the Board received an update from Anthesis, external advisers engaged by the Company to work with portfolio companies on the collation
and reporting of GHG emissions and compliance with TCFD. All of these feed into the Board’s approach to sustainability as part of its
long‑term strategy.
Investors and Stakeholders: further
consideration of directors’ duties and
how to fulfil these in relation to wider
stakeholder engagement
An in‑depth investor perception study was carried out and provided an opportunity to seek investor views on a wide range of topics,
including ESG as mentioned above. Thisengagement demonstrates the Board’s commitment to engaging in a meaningful way with its
keystakeholders.
Oversight of risk management The Directors received an externally facilitated risk management workshop which demonstrated that the risk review process followed
bythe Company aligned with bestpractice and provided some helpful suggestions to further improve the process.
Board succession planning and
wideningBoarddiversity
The Board continues to work on its succession plan and currently the composition of the Board satisfies the target set by the
Hampton‑Alexander review. The Directors continue to be mindful, when looking at the longer‑term succession plan, of the recommendations
for both gender and ethnic diversity, while also considering diversity ofsocial background, and cognitive andpersonalstrengths.
Governance
106
Governance
3i Infrastructure plc Annual report and accounts 2022 107
Composition, succession and evaluation continued
Evaluation and Director Training continued
Director training
and development
The Company has developed a framework
within which training for Directors is
planned, with the objective of ensuring
that the Directors understand the duties
and responsibilities of being a director
of a listed company and the business
environment of the Company. All Directors
are required continually to update their
skills and maintain their familiarity with the
Company and its business. In accordance
with Jersey regulations the Directors are
expected to undertake sufficient, relevant
and appropriate training and development
each year. Presentations on different
aspects of the Company’s business are
made regularly to the Board, usually by
the
Investment Manager, but on occasion
by other advisers, including the Company’s
corporate brokers, external auditor,
tax
adviser, financial adviser, depositary,
Jersey
administrator and legal advisers.
The Directors have the opportunity
to request additional training and
development where they feel that
wouldbe appropriate.
During the year, the Directors received
presentations on the following:
• aspects of the infrastructure market,
sector reviews and infrastructure assets;
• briefings in relation to changes to laws
and regulations in Jersey and the UK;
• changes and updates to
corporate governance;
• maintenance of the investment
trust status and UK corporation
tax compliance;
• the Investment Manager’s
valuations process;
• directors and officers’ liability insurance
market update;
• Decarbonisation: the role of hydrogen;
• Risk management – an externally
facilitateworkshop provided by EY
which included a review of the existing
processes, a focus on risk management
processes and reporting for investment
trusts; and
• ESG risk and litigation.
On appointment, all Directors have
discussions with the Chair and Company
Secretary, following which they receive
briefings on the responsibilities of Directors,
the Company’s business and the Company’s
procedures. Briefings on the infrastructure
market and each of the portfolio companies
are arranged with the Investment Manager
and other experts. The Company provides
opportunities for Directors to obtain a
thorough understanding of the Company’s
business and the industry it operates in
by meeting regularly with senior members
of the Investment Manager’s team and by
meeting the executive management teams
of portfolio companies.
The Company has procedures for
Directorsto take independent legal
orother professional advice about the
performance
of their duties.
Composition, succession and evaluation continued
Nomination Committee report
The Committee has continued
its focus on succession planning
and the steps the Board intends
to take to promote both gender
and ethnic diversity amongst
itsDirectors.”
Richard Laing
Chair, Nomination Committee
The Committee plays a key role
supporting the Board in reviewing
the composition of the Board and its
Committees. The Committee has a formal
and rigorous appointments process
led by the Committee and involving all
Board members. When requested by
the Board, the Committee is responsible
for recommending any new Director
appointment based on merit whilst
ensuring that the recruitment process
considers diversity in its widest sense,
as well as seeking an appropriate
balance of expertiseand experience
and having regard to the Company’s
strategic objectives.
The 2022 Board evaluation continued
previous years’ focus on succession
planning and widening Board diversity.
The composition of the Board now
satisfies
the target set by the Hampton‑Alexander
Review with 33% female Directors.
The Directors continue to be mindful,
whenlooking at the longer term, of the
recommendations for both gender and
ethnic diversity, while also considering
diversity of social background,
andcognitive and personal strengths.
Matters reviewed in the year
During the year the Committee reviewed
its compliance with the AIC Code and its
Terms of Reference and confirmed that it
remained compliant with all of its corporate
governance responsibilities.
Succession planning
The Committee has undertaken succession
planning so that when Directors retire at the
end of their term, recruitment processes
are in place to ensure that both gender and
ethnic diversity are considered alongside
the candidates’ skills and experience.
The Committee reviewed an updated
Board skills and experience matrix and the
Chair discussed with each Director their
future intentions as part of thesuccession
planning programme.
Details of each of the Director’s skills
and experience which contribute to the
effective functioning of the Board and the
success of the Company can be found in
their biographies on pages 89 and 90 and
inthe Skills Matrix on page 109.
Female (33%) 2
Male (67%) 4
Board members by gender
0‑3 years 1
4‑6 years 1
7+ years 4
Non-executive Directors’ tenure
Governance
108
Governance
3i Infrastructure plc Annual report and accounts 2022 109
Composition, succession and evaluation continued
Nomination Committee report continued
The Board has previously stated that it had
agreed a maximum term for any Director
of nine years, subject to any exceptional
circumstances that might arise at the
relevant time. The Board is considering
redomiciling the Company to the UK and
this is an exceptional circumstance which
impacts succession planning. As a Jersey
registered Company it is required to have
at
least two Jersey resident directors,
one
ofwhom is Paul Masterton.
The Board has asked Paul to serve as a
Director of the Company for an additional
period whilst it awaits the outcome of
the UK Government’s consultation on
Corporate Redomiciliation. In these
circumstances, the Board believes that it
is in the best interests of the Company for
Paul to serve beyond the usual term of nine
years, as detailed on page 102. Should the
Company transfer its
domicile it will no
longer require two Jersey resident directors
which will allow any future director to be
sought from a much wider candidate pool.
Paul is standing
for re‑election at the AGM
in 2022.
Diversity
The Board has adopted 3i Group plc’s
Equal Opportunities and Diversity Policy in
so far as it is relevant to the Company with
non‑executive Directors and no employees.
This can be found at www.3i.com.
The Board supports the principles of the
Hampton‑Alexander Review (now replaced
by the FTSE Women Leaders Review)
and Parker Review on gender and ethnic
diversity. The Committee notes the new
recommendation of the FTSE Women
Leaders Review of achieving 40% female
representation on the Board by the end of
2025. The Committee continues to develop
its succession plan in line with these targets
and the wider diversity requirements of the
AIC Code and other relevant requirements.
Richard Laing
Chair, Nomination Committee
9 May 2022
5
5
6
6
3
4
4
6
3
4
3
6
Risk Management/Compliance
Technology
Fund Management
Financial/Accounting/Audit
Legal/Regulatory/Governance
Listed Company
Investment Trust
International
Remuneration
Infrastructure
ESG
M&A/Capital Markets
Directors’ Skills Matrix
Audit, Risk and Internal Control
Audit and Risk Committee report
This year the Audit and Risk
Committee has continued its
focus on financial reporting
which included an additional
focus on the risk management
framework.”
Wendy Dorman
Chair, Audit and Risk Committee
The Company, through the Investment
Manager, has in place internal control and
risk management arrangements to support
the financial and narrative reporting process
and to provide assurance that the Financial
statements are prepared in accordance with
applicable standards.
All the members of the Audit and Risk Committee
are independent non‑executive Directors who
have the necessary range of financial, risk, internal
control and commercial experience required
to provide effective challenge.
The Audit and Risk Committee Chair, Wendy Dorman,
is a CharteredAccountant, and the Board is satisfied
that she has recent and relevant financial experience.
The Chair of the Board is not a member of the Committee
but attends meetings by invitation. The Committee Chair
meets regularly with the external auditor.
The Committee also manages the
relationship with the external auditor.
The Committee and its members act in
a way that they consider to be likely to
promote the best interests of the Company,
ensuring that the interests of shareholders
and the wider stakeholder group are
properly considered and reflected in their
decision making processes, see page 100
for further details.
The annual evaluation of the performance
of the Committee was conducted by
Satori, for further details see page
105. Overall the Committee continued
to perform well and was effective
in
discharging its responsibilities.
Financial and narrative reporting
The Committee reviewed and made
recommendations to the Board regarding
significant accounting matters and the
accounting disclosures in the Half‑yearly
report and Annual report and accounts
of
the Company.
The role of the Audit and Risk Committee
is to assist the Board by establishing,
reviewing and monitoring policies
andprocedures to ensure the integrity
of financial and narrative reporting, the
independence and effectiveness of
the external auditor, the effectiveness
of thesystem of internal controls and
oftherisk management framework.
Governance
110
Governance
3i Infrastructure plc Annual report and accounts 2022 111
Audit, Risk and Internal Control continued
Audit and Risk Committee report continued
Fair, balanced and
understandable (‘FBU’) reporting
The Committee considered the
requirements of the AIC Code and
specifically reviewed this Annual report and
accounts to conclude whether the financial
reporting is fair, balanced, understandable,
comprehensive and consistent with how
the Board assesses the performance of the
Company’s business during the financial
year. As part of this review, the Committee
considered whether the Annual report
and accounts provided the information
necessary to shareholders to assess
the Company’s position, performance,
strategy and business model and reviewed
the description of the Company’s
KeyPerformance Indicators.
How the Committee satisfies itself that
the
Board can make the FBU statement
is
set out in the chart opposite.
1
The Committee reviewed the Annual report
atan early stage, and throughout the process,
toenable sufficient time for comment and review
and ensure overall balance and consistency.
2
The Investment Manager and Company
Secretary oversaw a verification process for
allfactual content and reported back to the
Committee on its assessment and findings.
3
The Committee approved the process in place
to support the FBU assessment and reviewed
the findings of the process. The Committee was
satisfied that all key events andissues reported
to the Board by the Investment Manager had
been adequately referenced or reflected within
the Report.
4
The external auditor presented the results of
itsaudit work. The significant issues considered
by the Committee were consistent with those
identified by the external auditor in its report
(see
pages 126 to 137 for further information).
5
The Board approved the Committee’s
recommendation that the FBU statement could
bemade and this can be found in the Directors’
Statement on pages 123 and 124.
The following statements show how
the Committee was able to make its
FBU assessment:
5
Recommendation
to the Board by
the Committee
3
FBU
assessment
2
Investment
Manager
and Company
Secretary review
process
1
Regular
Audit
Committee
review
4
External
auditor
review
FBU Reporting
Valuation of the
investment portfolio
The Committee noted that this year there were no changes to the principles of valuation
which have been consistently applied. All unquoted assets have been valued on a
discounted cash flow (’DCF’) basiswith the exception of the Projects portfolio which is
valued based on the agreed sales price and the 3i India Infrastructure Fund where the
valuation is taken as the Company’s shareof the Fund’s net assets. Within the India Fund,
the remaining investment in Supreme Infrastructure is valued at nil.
The WADR of the portfolio was slightly higher at 10.9% (10.8% at March 2021), with the new
investments in SRLand DNS:NET being mostly offset by small reductions in a number
ofinvestments including Oystercatcher, TCR,ESVAGT and Valorem.
The Committee considered the effect of a higher inflation environment on cost and
revenue assumptions. Factors considered include the impact of cost inflation on
operating costs and capital expenditure, the ability to pass cost inflation to customers
andcompany specific factors such as the impact on the ROC buyout price for Infinis.
These factors are reflected in the cash flow projections of the portfolio companies.
The Investment Manager, as the Company’s Alternative Investment Fund Manager,
isresponsible for providing a valuation of the investment portfolio that has been prepared
properly and independently challenged. The Committee noted that 3i Investments
plc’s infrastructure valuations committee is considered independent of the Investment
Manager’s fund management activity and that it had approved the investment portfolio
valuation as at 31 March 2022. The Committee discussed in detail the portfolio company
valuations with the Investment Manager and the external auditor, including the external
auditor’s valuation expert, and considered that the principles of valuation applied
bythe Investment Manager to the investment portfolio hadbeen applied correctly
andconsistently and recommended the valuations to the Board for approval.
Audit, Risk and Internal Control continued
Audit and Risk Committee report continued
Interest streaming For an approved investment trust that has taxable profits arising from net interest income,
the UK tax rules provide an option to treat a part of the dividends it pays as interest.
TheAnnual report and accounts have been prepared on the assumption that the
Company will not designate any of its final dividend as interest.
Investment entity
consideration
The Committee reviewed the assessment that the Company continues to meet the
criteria of an investment entity.
Calculation of
the management
andperformance
fees payable
totheInvestment
Manager
The Committee undertook a detailed review of the management and performance
fee calculation. The Committee also had access to a review ofthe calculation of the
management and performance fee carried out by the internal audit function of the
Investment Manager and engaged theexternal auditor to perform additional agreed‑
upon‑procedures work in relation totheinputs to the management and performance
fee calculation.
Valuation of derivative
financial instruments,
other receivables
and recognition of
contingent amounts
The Committee considered and agreed with the Investment Manager’s valuations
in relation to derivative financial instruments, other receivables and recognition
ofcontingent amounts.
Key accounting estimates and judgements
An important responsibility of the Committee is to review and agree the key estimates, judgements and assumptions which impact theFinancial statements.
The key areas of judgement are set out below. After receiving reports on the significant estimates and matters of judgement from the Investment Manager,
and after considering the report on the audit from Deloitte, the Committee agreed that the judgements made were appropriate and correctly reflected and
presented in the Annual report. More detailed information on the Company’s accounting policies can be found on pages 145 to 154.
Governance
112
Governance
3i Infrastructure plc Annual report and accounts 2022 113
Audit, Risk and Internal Control continued
Audit and Risk Committee report continued
In addition to the above matters, the
Committee reviewed the following areas:
• the use of Alternative Performance
Measures (‘APMs’) and the balance of
APMs and GAAP measures in the Annual
Report and accounts;
• the appropriateness of the sensitivity
rates applied in Note 9 of the
Financial statements;
• post balance sheet events; and
• other changes in presentation within
the
report to improve clarity for users.
The Committee presented its conclusions
on the above areas to the Board and
advised the Board that it considered
the Annual report and accounts,
taken as a whole, to be fair, balanced
and understandable.
The Committee further advised that so
far as it was aware, there was no relevant
audit information of which the external
auditor was unaware; that the Committee
had taken all reasonable steps to ascertain
any relevant audit information and ensure
that the external auditor was aware of such
information; and that the Annual report
and accounts provided the information
necessary for the shareholders to assess
the
Company’s position, performance,
business model and strategy.
External auditor
The Committee has primary responsibility
for overseeing the relationship with
Deloitte LLP (‘Deloitte’), the external
auditor, including assessing annually
its performance, effectiveness and
independence. Shareholders approved
the re‑appointment of Deloitte as external
auditor for the year ended 31 March 2022
at the Company’s July 2021 AGM following
a competitive external auditor selection
process in 2017.
Jacqueline Holden has been the audit
partner for Deloitte since first appointment
in the year to 31 March 2018 following
a
full audit tender. Jacqueline will rotate
off the audit at the conclusion of this
year’s audit and Stephen Craig has been
selected as her replacement. Stephen is
familiar with auditing investment trusts.
The Committee considers that the Deloitte
lead audit partner rotation provides fresh
perspective and thanks Jacqueline for
her work with the Company over the last
five years. The Committee reviewed and
monitored Deloitte’s execution of the audit
plan. The Committee considered Deloitte’s
report on its review of the half‑yearly
results and its report on the FY22 audit.
It discussed all significant matters identified
in Deloitte’s final report on the FY22 audit
including key accounting judgements
taken by the Investment Manager and the
Investment Manager’s responses to any
audit findings.
Audit, Risk and Internal Control continued
Audit and Risk Committee report continued
External auditor effectiveness
The Audit and Risk Committee reviewed
the effectiveness of the FY21 external
audit process, considering performance,
objectivity, independence and relevant
experience demonstrated by reports and
presentations from the external audit
team and discussion with the Investment
Manager. The Committee monitors the
external auditor’s independence and
objectivity, taking into consideration
relevant professional and regulatory
requirements, the quality of the audit
process, and the use of Deloitte’s
valuation practice to support the
audit of the portfolio valuations, the
technical knowledge of the team and
staff turnover within the Deloitte audit
team. The Committee considered a
memorandum from the Investment
Manager regarding the external auditor’s
effectiveness, independence and
objectivity. The Committee considered
the Financial Reporting Council’s (‘FRC’)
2016 guidance to Audit Committees when
assessing the effectiveness of the whole
audit process.
The Committee noted the following
in
respect of the external auditor:
Assessment against the audit plan
• the FY21 audit was again conducted
remotely due to the continued Covid‑19
stay at home restrictions and whilst this
provided a number of challenges for both
Deloitte and the Investment Manager,
the
audit was efficient and effective,
and
all deadlines were met;
• there were no areas where the Investment
Manager or Company’s views of the
accounting treatment differed from
that
of the external auditor;
• the level of engagement from the
audit partner was high throughout the
audit process;
• the continuity of the audit team was
predominantly retained from the previous
year; and
• the audit matched the process set out
in
the audit plan.
Evaluation of audit quality
Following the FRC’s Practice Aid for
audit committees on audit quality (2019)
the Committee considered the four key
elements that are necessary to support
theauditor in making sound judgement–
(i)Judgement, (ii) Mindset and Culture,
(iii)Skills, Character and Knowledge, and
(iv)Quality Control. In making its evaluation
the Committee noted the following in
respect of the external auditor:
• the work undertaken by the external
auditor to address the risks identified in
their plan and any subsequent risks that
had later been identified;
• the external auditor’s focus on valuation
assumptions particularly for Ionisos due
to the valuation impact of the fraudulent
activity in Steril Milano, and for TCR as an
asset impacted by the pace and extent
of
the recovery in the aviation sector;
• the detailed audit work completed on
the calculation of the Management and
Performance Fees;
• the additional disclosures and sensitivities
sought concerning Ionisos and the
updated assumptions on Covid‑19
restrictions, particularly inrelation to TCR;
• the use of data analytic tools tosupport
the conduct of the audit;
• the level and quality of challenge
received from the external auditor;
• a good knowledge of accounting
standards, governance requirements
and
the infrastructure market;
• the robust and perceptive handling of the
key accounting and audit judgements;
• the support received by the external
auditor from the external auditor’s
technical team;
• the focus of the external auditor on
compliance with the UK Investment
Trust Regulations and AIC Statement
ofRecommended Practice; and
• the final report was presented based on
a good understanding of the Company’s
business and included granularity around
the valuation assumptions.
Governance
114
Governance
3i Infrastructure plc Annual report and accounts 2022 115
Audit, Risk and Internal Control continued
Audit and Risk Committee report continued
Non-audit services and External
auditor independence
The Committee monitors the Company’s
policy for non‑audit services to ensure
that the provision of such services by
the external auditor does not impair
the external auditor’s independence or
objectivity. The Committee reviewed and
updated the Company’s policy on the
provision of non‑audit services which is
compliant with the provisions applicable
to public interest entities in the Revised
Ethical Standard 2019 published by the
Financial Reporting Council. In order to
safeguard external auditor objectivity and
independence, the chair of the Audit and
Risk Committee is required to approve in
advance all non‑audit work undertaken
by the external auditor for the Company
and its subsidiaries, and as a general rule
the external auditor will not be engaged
on investment‑related work. However,
exceptions to this may be permitted if the
work is (i) for an affiliate of the Company
and an indirect service to the Company or
(ii) reporting accountant work, for example
in the case of a capital raise.
Deloitte and their associates provided
non‑audit services to the Company
forfeestotalling £104,635 for the year
to31 March 2022 (2021: £52,700).
This related to agreed‑upon procedures
onthe management and performance fees
(£7,560), agreed‑upon procedures work in
respect of Sustainability KPIs for the RCF
reporting (£27,000), a review of the interim
financial statements (£55,575) and reporting
accountant work (£14,500). In this financial
year, in line with the Company’s policy,
Deloitte provided non‑audit services in
relation to certain non‑consolidated 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.
In assessing the external auditor’s
independence, the Committee reviews
thetotal amount of fees paid to the
external auditor in accordance with
the
stated policy on non‑audit services,
regardless ofwhether they are borne by
theCompanyor by the investee companies.
The Committee concluded that the external
auditor remained independent and the
audit was effective, and that a resolution be
proposed to shareholders recommending
the re‑appointment of Deloitte at the
2022 AGM.
Risk management
and internalcontrol
The Committee is responsible on behalf of
the Board for overseeing the effectiveness
of the Company’s risk management and
internal control systems. During the year,
the Committee:
• carried out a a full review of the risk
register as part of the beginning of a
new three year risk review cycle with the
objectives of (i) identifying the principal,
key and emerging risks facing the
Company; (ii) considering the impact
and likelihood of these risks; (iii)ensuring
that risks identified were linked to the
Company’s strategic objectives; and
(iv)updating the risk register and risk
matrix as appropriate;
• conducted risk reviews as detailed in
theRisk report on pages 67 to 77;
• carried out horizon scanning to identify
new and emerging risks;
• reviewed the risk log at each Committee
meeting, and discussed the management
of risks noted on the log with the
Investment Manager;
• considered reports from the Company’s
Compliance Officer, Money Laundering
Compliance Officer and Money
Laundering Reporting Officer;
• on the advice of Apex, considered and
approved updates to (i) the customer due
diligence procedures for shareholders
related to off‑market transactions,
(ii)
theconduct of business manual;
(iii)
theanti‑money laundering manual
and
(iv) the business risk assessment;
• considered the presentation of
risk‑related matters in the Annual report
and accounts;
• considered the viability statement and
the reverse stress test analysis (for more
detail see pages 79 and 80);
• considered reports and presentations on
the controls systems and their operation
from the main service providers,
including from the Investment Manager,
the Jersey Administrator, the Registrar
and the Heads of Internal Audit and
Compliance of the Investment Manager
and determined the effectiveness of the
internal controls; and
• reviewed the fact that the Company
does not have a separate internal audit
function and recommended to the Board
that it was not considered appropriate
to have one given the structure of
the Company.
Audit, Risk and Internal Control continued
Audit and Risk Committee report continued
Prior to the start of the full review
of the risk
register in October 2021,
the
Committee and Investment Manager
participated in a risk management
workshop facilitated by EY. The purpose
of the workshop was to look at risk
management best practice and consider
what, if any, changes should be made to
the
Company’s risk management framework
and risk review process. The current
three‑year cycle was considered to be in
line with market practice for investment
trusts. The ‘blank sheet of paper’ element
at the very start of the risk review process
was considered best practice. EY offered
suggestions to enhance the current process
along with advice on best practice for
external reporting.
The risk register is reviewed regularly
by the Committee and managed on
a day‑to‑day basis by the Investment
Manager. The Investment Manager brings
to the Committee’s attention events or
circumstances which may impact the
full
range of risks on the risk register.
Examples of this include the following:
• In the previous three‑year risk review
cycle Climate risk was identified as a
new
key risk and identified as such in
the
2021 Annual report.
• This year Climate risk was reassessed
based on the physical risk from climate
change and the transition risk associated
with a move towards a low‑carbon
economy on the portfolio.
• In addition Climate regulation has
been
identified as a regulatory risk
for the
Company and the portfolio
associated with the transition to a
low‑carbon economy.
• Market and economic risk now
includes
the risks associated with the
Russia/Ukraine conflict, including the risks
resulting from increases in commodity
and energy prices and the heightened
risk of recession.
These examples illustrate the dynamic
nature of the risk register. For further details
see the Risk Report on pages 67 to 77.
Other matters
Other matters reviewed by the Committee
during the year were:
• the coverage of the proposed interim
and
final dividends, including a review
of the coverage of dividend payments
through income generated by the
Company, non‑income cash distributions
received from portfolio companies, net
capital profits generated from the sale of
portfolio assets and retained reserves; and
• the Company’s compliance with its
regulatory obligations in the UK as
a listed entity and in Jersey where it
is registered.
The Committee reported to the
Board on how it has discharged its
responsibilities and reported to the Board
the key matters arising at each meeting.
All recommendations were accepted by
the Board.
Wendy Dorman
Chair, Audit and Risk Committee
9 May 2022
Governance
116
Governance
3i Infrastructure plc Annual report and accounts 2022 117
Relationship with Investment Manager
Management Engagement Committee report
Management of the
performanceof and relationship
with the Investment Manager
remains key to the continuing
success of the Company.”
Richard Laing
Chair, Management Engagement Committee
The principal function of the Management
Engagement Committee is to consider,
and recommend to the Board, whether the
continued appointment of the Investment
Manager is in the best interests of the
Company and its shareholders and to
give reasons for its recommendation.
Its remit includes managing all aspects of
the performance of and relationship with
the Investment Manager. The Committee
also reviews the terms of the Investment
Management Agreement.
Investment Manager
On 15 October 2018, the Company
appointed 3i Investments plc as its
Investment Manager (it having previously
acted as the Company’s investment adviser)
with discretionary investment management
authority. The Investment Manager is
responsible for the implementation of
the agreed investment policy and for
investment or divestment decisions,
subject to the investments or divestments
remaining below an agreed threshold.
Where the value of investments or
divestments is above the agreed threshold,
the Board is responsible for approving
these transactions.
The Investment Manager keeps the Board
regularly updated on the progress of
the
deal pipeline, and proposed and
completed transactions. The Investment
Manager discusses with the Board potential
investment opportunities and proposed
divestments, whether or not they are within
the Investment Manager’s delegated
authority.The Investment Manager
undertakes origination activities,
manages
the Company’s funding and
hedging requirements, and manages
funding requirements of the investment
portfolio, all of which is governed by the
terms of the IMA.
The IMA includes an exclusivity
arrangement in respect of investment
opportunities within the Company’s
Investment policy.
Fees under the IMA consist of a tiered
management fee and time weighting of
the management fee calculation, a one‑off
transaction fee of 1.2% payable in respect
of new investments, and the payment of
a performance fee on a phased basis and
subject to future performance tests.
The applicable tiered rates are shown in
the
table below:
Gross investment value Applicable tier rate
Up to £1.25bn 1.4%
£1.25bn to £2.25bn 1.3%
Above £2.25bn 1.2%
The IMA is terminable on service of
12 months’ notice by either party.
Further details on the management and
performance fees and the relationship
between the Company, 3i Investments plc
and 3i Group plc are described in more
detail in Note 18 in the Financial statements
on pages 176 and 177.
The Committee monitored the overall
relationship with the Investment
Manager and:
• monitored and reviewed the Investment
Manager’s performance against the
Company’s strategy and the general
market conditions;
• reviewed the quality, timeliness, accuracy
and relevance of the information
provided to the Board, including
recommendations on new investments
and divestments and reviews of portfolio
company performance;
• reviewed reports from industry analysts,
comparing the performance of listed
infrastructure investment companies,
including an analysis of the terms
of their management agreements
and fees charged relative to their
investment objectives;
• reviewed the fees charged to the
Company by the Investment Manager for
the provision of its management services;
and
• reviewed non‑investment services
provided by the Investment Manager.
Following its assessment, and based on
the continued good performance of the
Investment Manager, the Committee
recommended to the Board, and the Board
agreed, that the continued appointment of
the Investment Manager on the terms set
out in Note 18 in the Financial statements
on pages 176 and 177 is in the interest of
shareholders as a whole.
Richard Laing
Chair, Management Engagement Committee
9 May 2022
Relationship with Investment Manager continued
Management Engagement Committee report continued
Governance
118
Governance
3i Infrastructure plc Annual report and accounts 2022 119
Remuneration
Remuneration Committee report
The Remuneration Committee,
comprising the independent
non-executive Directors, sets
theremuneration of the Chair
and members of the Board.”
Paul Masterton
Chair, Remuneration Committee
The Remuneration Committee is charged
with reviewing the scale and structure of
thenon‑executive Directors’ remuneration.
Remuneration policy
The remuneration of each of the Directors
is subject to fixed fee arrangements
and none of the Directors received any
additional remuneration or incentives in
respect of his or her services as a Director
of the Company. The Directors’ fees
were reduced in April 2019 following the
Company becoming a managed alternative
investment fund, which led to a reduced
time commitment for Directors.
The Committee conducted its annual
review of the Directors’ fees and recognised
that there had been no increase in fees
for a number of years. At the time of
the fee reduction in 2019 the Board had
agreed that regular increases to Directors’
fees was more appropriate than larger
infrequent increases.
The Remuneration Committee reviewed
the current level of the Directors’ fees
taking account of the time spent including
but not limited to attendance at meetings,
Board calls with the Investment Manager,
the strategy sessions and attending ad hoc
meetings. The Committee also reviewed
external benchmarking reports on Director
remuneration for both FTSE 250s and,
in
particular, investment trusts.
After careful consideration the Committee
recommended to the Board that the fees
for Directors, the Chair, the Chair of the
Audit and Risk Committee and the Senior
Independent Director be increased as
set out below and this was subsequently
approved by the Board to take effect from
1 April 2022.
The Directors’ fees for the financial year to 31 March 2022 and fee increases from
1 April
2022 are as follows:
Directors’ fees
Amount per annum
to be paid from
1 April 2022
£
Amount paid in
the year ended
31 March 2022
£
Amount paid in
the year ended
31 March 2021
£
Richard Laing 124,000 120,000 120,000
Doug Bannister 47,5 0 0 46,000 46,000
Wendy Dorman 58,500 56,000 56,000
Samantha Hoe‑Richardson 47,5 0 0 46,000 46,000
Robert Jennings
1
n/a 15,333 46,000
Ian Lobley
2
47,5 0 0 46,000 46,000
Paul Masterton 55,000 53,000 53,000
1 Fees paid for the period from April‑July 2021.
2 Fee payable to 3i plc.
Paul Masterton
Chair, Remuneration Committee
9 May 2022
Directors’ statement
Principal activity
The Company is a closed‑ended
UK investment trust that invests in
infrastructure businesses and assets.
The Directors do not anticipate any change
in the principal activity of the Company in
the foreseeable future. Its unconsolidated
subsidiaries are shown in Note 19 in the
Financial statements on pages178 to 182.
Investment trust status
The management and tax domicile of the
Company moved from Jersey to the UK
on 15 October 2018, and the Company
was granted, with effect from that date,
UK approved investment trust status.
The affairs of the Company are directed
to enable it to maintain its UK tax domicile
and its approved investment trust company
status, which it did during the course of the
year. This is managed on an ongoing basis
by the Investment Manager and monitored
by Audit and Risk Committee.
Corporate Governance
The Company is committed to upholding
the highest standards of corporate
governance. The Company observes the
requirements of the AIC Code, a copy of
which is available from The Association
of Investment Companies website
(www.theaic.co.uk).
The provisions of the AIC Code are more
appropriate for a closed ended investment
trust than the UK Corporate Governance
Code (the ‘UK Code’) because, amongst
other things, it has no executive directors.
The Association of Investment Companies
website includes an explanation of how
the AIC Code adapts the principles and
provisions set out in the UK Code to make
them relevant for investment companies.
The Company complied with all the
provisions of the AIC Code for the
financial
year ended 31 March 2022.
Directors’ duties
Details of compliance by Directors with
theirDirectors’ duties are set out on
pages81 and 82.
Appointment and re-election
ofDirectors
The appointment and re‑election of
Directors is governed by the Articles,
the Companies (Jersey) Law 1991 and
related legislation. The Articles provide
that at each AGM of the Company all the
Directors at the date of notice convening
the AGM shall retire from office and each
Director may offer himself or herself for
election or re‑election. In addition, under
the AIC
Code, all Directors should be
subject
toannual election by shareholders.
As a result, all Directors will retire and stand
for re‑election at the next AGM to be held
on 7 July 2022.
The Board regularly considers the
independence of non‑executive Directors
as detailed on pages 101 to 102.
Board’s responsibilities
andprocesses
The composition of the Board and its
Committees, as well as the Board’s key
responsibilities and the way in which it
and its Committees work, are described
on pages 94 to 96 and pages 108 to 119.
The Board is responsible to shareholders
for
the overall management of the
Company and may exercise all the powers
of the Company subject to the provisions
of relevant statutes, the Company’s Articles
of Association and any directions given
byspecial resolution of the shareholders.
Matters reserved for the Board
The Board has approved a formal schedule
of matters reserved to it and its duly
authorised Committees for decision,
asdetailed on page 94.
Portfolio management
and votingpolicy
In relation to unquoted investments, the
Company’s approach is to seek to add value
to the businesses in which it invests through
the extensive experience, resources and
contacts of the Investment Manager’s team.
In relation to quoted equity investments,
the Company’s policy is to exercise voting
rights on matters affecting the interests
ofthe Company.
Regulation
The Company is incorporated in Jersey and
is regulated by the Jersey Financial Services
Commission as a collective investment
fund under the Collective Investment
Funds (Jersey) Law 1988. It has a Premium
Listing on the London Stock Exchange’s
Main Market.
Alternative Investment
Fund Managers Directive
For the purposes of the Alternative
Investment Fund Managers Regulations
2013 (the ‘Regulations’) and the EU
Alternative Investment Fund Managers
Directive, the Company is an alternative
investment fund (‘AIF’). The Investment
Manager is approved as an alternative
investment fund manager (‘AIFM’) by the
Financial Conduct Authority (the ‘FCA’)
for the purposes of the Regulations and is
the Company’s AIFM. The Depositary is
currently Citibank UK Limited.
The Investment Manager is a subsidiary
of 3i Group plc and the Remuneration
Policy of 3i Group plc (which applies to
the
Investment Manager) was approved
Governance
120
Governance
3i Infrastructure plc Annual report and accounts 2022 121
Directors’ statement continued
by 3i Group plc’s shareholders in 2020.
Details of the Remuneration Policy are set
out in the 3i Group plc Annual report and
accounts for 2021.
The disclosures required by the Investment
Manager as an AIFM are contained in the
Annual report and accounts of 3i Group plc
(www.3i.com). These disclosures include the
remuneration (fixed and variable) of all staff
and all AIFM Identified Staff of the Investment
Manager. Due to 3i Group plc’s operational
structure, the information needed to provide
a further breakdown of remuneration
attributable to the staff and the AIFM
Identified Staff of the Investment Manager
as the Company’s AIFM is not readily available
and would not be relevant or reliable.
Although certain investor disclosures
required by the FCA’s Investment
Funds sourcebook are made in this
Annual report, further disclosures are
summarised on the Company’s website
at www.3i‑infrastructure.com. There have
been no material changes to these
disclosures during the financial year.
In accordance with Part 5 of the Regulations
and the relevant requirements of the
EUAlternative Investment Fund Managers
Directive, the Investment Manager, as
an AIFM, requires all relevant controlled
portfolio companies to make available to
employees an annual report which meets
the applicable disclosure requirements.
These are available either on the portfolio
company’s website or through filing with
the relevant local authorities.
NMPI
As a UK investment trust, the Company’s
shares are excluded from the FCA rules
regarding the restrictions on the retail
distribution of unregulated collective
investment schemes and close substitutes
(‘non‑mainstream pooled investments’,
or ‘NMPIs’) and therefore the restrictions
relating to NMPIs do not apply to its shares.
It is the Board’s intention that the Company
will continue to conduct its affairs in such
a manner that it maintains its approved
investment trust company status and that,
accordingly, the Company’s shares will
continue to be excluded from the FCA’s
rules relating to NMPIs.
Results and dividends
The Directors recommend that a final
dividend of 5.225 pence per share
(2021: 4.9pence) be paid in respect of the
year to 31 March 2022 to shareholders on
the register at the close of business on
17 June 2022. The Company has chosen
not
to designate any of its final dividend
as
an interest distribution.
The Company chose to designate 38%
of the interim dividend as an interest
distribution (2.0 pence per share of the total
dividend of 5.225 pence per share). For UK
tax purposes the effect of the designation
was that shareholders were treated in
respect of the designated part as though
they had received a payment of interest,
whilst being treated as having received
a
payment of dividend in respect of the
non‑designated part.
The distribution of the dividend payments
between interim and final dividends
is evaluated by the Board each year,
according to the Company’s performance,
portfolio income generation and other
factors, such as profits generated on the
realisation of portfolio assets. The Company
will be targeting a dividend for FY23 of
11.15pence per share.
Strategy, performance and
principal risks
The Strategic report on pages 1 to 82
provides a review of the performance and
position of the Company, together with
a description of the principal risks and
uncertainties that it faces.
Operations and management
arrangements
Details of the role and responsibilities of the
Investment Manager under the Investment
Management Agreement are set out in the
Management Engagement Committee
report on pages 117 and 118.
Other significant service
arrangements
In addition to the investment management
arrangements, 3i plc and 3i Investments
plc (both subsidiaries of 3i Group plc),
in relation to certain regulatory services,
have been appointed by the Company to
provide support services, including treasury
and accounting services, investor relations
and other support services. The amounts
payable under these arrangements are
described in more detail in Note 18 in the
Financial statements on page 176 and 177.
3i plc acts as Company Secretary to the
Company and Apex Financial Services
(Alternative
Funds) Limited acts, in a limited
capacity, as the Company’s Jersey fund
administrator, which includes provision
of the Company’s Compliance Officer,
Money
Laundering Compliance Officer
andMoney Laundering Reporting Officer.
Revolving credit facility
The Company has a £400 million sustainability‑linked revolving credit facility (‘RCF’).
The RCF has a margin of 1.50% and a non‑utilisation fee. The RCF has a maturity date of
November 2024 and includes two one‑year extension options. The RCF has a £200 million
accordion feature. This gives the Company a right to request an increase in the size of the
RCF on a temporary basis. The £200 million accordion was activated in December 2021
for
one year.
In January 2022, the Company raised an additional credit facility of £400 million
embedded
into the existing RCF with a margin of 1.2%. This tranche has a maturity
date
ofJanuary 2023. Aggregate credit facilities therefore total £1 billion.
Share capital
The issued share capital of the Company as at 31 March 2022 was 891,434,010 ordinary
shares (2021: 891,434,010). The Company does not hold any ordinary shares in treasury.
Major interests in ordinary shares
As at 31 March 2022 and 30 April 2022, the Company has received notification in
accordance with Chapter 5 of the FCA’s Disclosure Guidance and Transparency Rules of the
following notifiable interests in the voting rights in the Company’s ordinary share capital:
Interest in ordinary shares
Number of
ordinary
shares
1
as at
31 March 2022
% of issued
share capital
Number of
ordinary
shares
1
as at
30 April 2022
% of issued
share capital
3i Group plc (and subsidiaries) 269,242,685 30.20% 269,242,685 30.20%
Schroders plc 47, 693,9 72 5.35% 47,591,515 5.34%
1 Each ordinary share carries the right to one vote.
Directors’ statement continued
Directors’ and Persons Closely Associated interests
The Board adopted a code for Directors’ dealings in ordinary shares following the
implementation of the EU Market Abuse Regulation (‘MAR’) on 3 July 2016. The Board
is
responsible for taking all proper and reasonable steps to ensure compliance with
the
UKversion of MAR bythe Directors.
In accordance with FCA Listing Rule 9.8.6(R)(1), Directors’ interests in the shares of
the
Company (in respect of which transactions are notifiable to the Company under
the
UKversion of MAR as at 31 March 2022) are shown below:
Directors’ interests and beneficial interests
1
Ordinary shares
at 31 March
2022
Ordinary shares
at 31 March
2021
Richard Laing 35,000 35,000
Doug Bannister 20,000 20,000
Wendy Dorman 21,947 21,947
Samantha Hoe‑Richardson 1,339 1,339
Robert Jennings
2
n/a 55,000
Ian Lobley 0 0
Paul Masterton 29,194 29,194
1 No options have been granted since the inception of the Company.
2 Stepped down from the Board on 16 July 2021.
Governance
122
Governance
3i Infrastructure plc Annual report and accounts 2022 123
Directors’ statement continued
Directors’ authority to buy
backshares
The Company did not purchase any of its
own shares during the year. The current
authority of the Company to make market
purchases of up to 14.99% of the issued
ordinary share capital expires at the 2022
AGM. The Company will seek to renew such
authority until the end of the AGM in 2023,
specifying the maximum and minimum
price at which shares can be bought back.
Any buy back of ordinary shares will be
made in accordance with Jersey law and the
making and timing of any buy backs will be
at the discretion of the Directors.
Such purchases will also only be made in
accordance with the Listing Rules of the
FCA which provide that the price paid must
not be more than the higher of: (i) 5% above
the average middle market quotations for
the ordinary shares for the five business
days before the shares are purchased;
and (ii) the higher of the last independent
trade and the highest current independent
bid on
the London Stock Exchange at
such time.
Directors’ conflicts of interests
The Directors have a statutory duty to avoid
conflicts of interest with the Company.
The Company’s Articles enable the
Directors to approve conflicts of interest
and include other conflict of interest
provisions. The Company has implemented
processes to identify potential and actual
conflicts of interest. Such conflicts are
then
considered for approval by the Board,
subject, if necessary, to appropriate
conditions. No conflicts arose during
the year, other than the pre‑approved
conflict of Ian Lobley as the 3i Group plc
nominated Director.
Directors’ indemnities
The Articles provide that, subject to the
provisions of the Statutes, every Director
of the Company shall be indemnified out
of the assets of the Company against all
liabilities and expenses incurred by him or
her in the actual or purported execution
or discharge of his or her duties. ‘Statutes’
here refers to the Companies (Jersey) Law
1991 and every other statute, regulation or
order for the time being in force concerning
companies registered under the Companies
(Jersey) Law 1991.
In addition, the Company has entered into
indemnity agreements for the benefit of its
Directors and these remain in force at the
date of this report.
The Company also had directors’ and
officers’ liability insurance in place in
the year.
Political donations
During the year to 31 March 2022 no
donations were made to political parties
or organisations, or independent election
candidates and no political expenditure
was incurred.
Information included in
theStrategic report
The following information has been
included in the Strategic report: risk
management objectives and policies;
likely
future developments of the business;
greenhouse gas emissions; and section
172 statement. The Directors’ Viability
statement is also shown in the Strategic
report on page 79.
Statement of Directors’
responsibilities
The Directors are responsible for
preparing the Annual report and accounts
in accordance with applicable law and
regulations and those International Financial
Reporting Standards (‘IFRSs’) which have
been adopted by the United Kingdom.
As a company listed on the London Stock
Exchange’s Main Market, 3i Infrastructure
plc is subject to the FCA’s Listing Rules and
Disclosure Guidance and Transparency
Rules, as well as to all applicable laws
and regulations of Jersey, where it
is incorporated.
Jersey company law requires the Directors
to prepare financial statements for each
financial period in accordance with
generally accepted accounting principles.
The Financial statements of the Company
are required by law to give a true and fair
view of the state of affairs of the Company
at the period end and of the profit or loss of
the Company for the period then ended.
In preparing these Financial statements,
the
Directors should:
• select suitable accounting policies and
then apply them consistently;
• make judgements and estimates that
are reasonable;
• specify which generally accepted
accounting principles have been adopted
in their preparation; and
• prepare the Financial statements on
the going concern basis, unless it is
inappropriate to presume that the
Company will continue in business.
The Directors are responsible for keeping
accounting records which are sufficient
to show and explain the Company’s
transactions and are such as to disclose
with reasonable accuracy at any time the
financial position of the Company and
enable them to ensure that the Company’s
Financial statements comply with the
requirements of the Companies (Jersey)
Law 1991.
They are also responsible for safeguarding
the assets of the Company and hence
for taking reasonable steps for the
prevention and detection of fraud
and
other irregularities.
The Directors are also responsible for
preparing the Annual report and accounts
and the Directors confirm that they
consider that, taken as a whole, the Annual
report and accounts are fair, balanced
and understandable and provide the
information necessary for shareholders
to assess the Company’s performance,
business model and strategy.
In accordance with the FCA’s Disclosure
Guidance and Transparency Rules, the
Directors confirm to the best of their
knowledge that:
• 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
• 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
theprincipal risks and uncertainties
faced by the Company.
The Directors of the Company and their
functions are listed on pages 89, 90, 94 to 96
and pages 101 to 103.
The Directors have acknowledged their
responsibilities in relation to the Financial
statements for the year to 31 March 2022.
By order of the Board
Authorised signatory
3i plc
Company Secretary
9 May 2022
Registered Office:
12 Castle Street
St. Helier
Jersey JE2 3RT
Channel Islands
Directors’ statement continued
Governance
124
125
Attero
Page 00
Accounts
and other
information
Independent auditor’s report to the members
of 3i Infrastructure plc
Report on the audit of the Financial statements
1 Opinion
In our opinion the Financial statements of 3i Infrastructure plc (the ‘Company’):
• give a true and fair view of the state of the Company’s affairs as at 31 March 2022 and of the Company’s profit for the year then ended;
• have been properly prepared in accordance with United Kingdom adopted international accounting standards; and
• have been properly prepared in accordance with Companies (Jersey) Law, 1991.
We have audited the Financial statements which comprise:
• the Statement of comprehensive income;
• the Statement of changes in equity;
• the Balance sheet;
• the Cash flow statement;
• the Reconciliation of net cash flow to movement in net debt;
• the Statement of significant accounting policies; and
• the related notes 1 to 19.
The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom adopted international accounting standards.
Accounts and other information
126
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 127
Independent auditor’s report to the members
of 3i Infrastructure plc continued
2 Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described
inthe auditor’s responsibilities for the audit of the Financial statements section of our report.
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the Financial statements in the UK, including the Financial Reporting
Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
The non-audit services provided to the Company for the year are disclosed in Note 3 to the Financial statements. We confirm that we have not provided any non-audit services prohibited
by the FRC’s Ethical Standard to the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3 Summary of our audit approach
Key audit matters The key audit matter that we identified in the current year was the fair value of investments.
Within this report, key audit matters are identified as follows:
Similar level of risk
Materiality The materiality that we used for the Financial statements was £25.9 million which was determined on the basis of approximately 1% of the Company’s
net assets.
A lower materiality threshold of £2.4 million based upon approximately 2% of investment income was applied to certain balances in the Statement
ofcomprehensive income and Balance sheet, excluding fair value of investments and derivatives balances and their associated fair value movements.
Scoping Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team.
Significant changes
inourapproach
There have been no significant changes in our audit approach compared with the prior year.
Independent auditor’s report to the members
of 3i Infrastructure plc continued
4 Conclusions relating to going concern
In auditing the Financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the Financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Company’s ability to continue to adopt the going concern basis of accounting included:
• Assessment of the financial position of the Company, including the cash balance of £17 million and undrawn financing facilities of £769 million, of which £600 million expires during
thenext 12 months;
• Review of the Directors’ liquidity forecast for the next 12 months, including the ability to fund committed investments of c.£300 million and to meet its obligations under the Investment
Management Agreement;
• Assessment of the ability of the Company’s investments to generate cash income for the Company and the robustness of those cash flows to key risks;
• Performance of sensitivity analysis, including the consideration of a ‘reverse stress test’; and
• Assessment of the model used to prepare the forecasts, testing of mathematical accuracy of those forecasts and our assessment of the historical accuracy of forecasts prepared
bytheInvestment Manager.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt
ontheCompany’s ability to continue as a going concern for a period of at least 12 months from when the Financial statements are authorised for issue.
In relation to reporting on how the Company has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the Directors’
statement in the Financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
Accounts and other information
128
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 129
Independent auditor’s report to the members
of 3i Infrastructure plc continued
5 Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the Financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
5.1 Fair value of Investments
Key audit
matter
description
At 31 March 2022, the Company held investments totalling £2,873 million (2021: £1,804 million) in unquoted companies which are recognised at fair value
through profit and loss. These investments are classified at Level 3 within the IFRS 7 fair value hierarchy and, for Economic Infrastructure investments,
their valuation requires significant judgement and estimation.
Certain assumptions used in the determination of fair value are a key source of estimation uncertainty, which is why we consider there to be a significant
risk of material misstatement as well as a potential fraud risk. As a liquid market does not exist for the investments, they are generally measured using
a discounted cash flow methodology. The complex nature of this methodology, combined with the number of significant judgements and estimates,
means there is a risk that the fair value of the investments could be misstated.
The key assumptions and estimates used in the determination of fair value for Economic Infrastructure investments have been summarised as:
• Discount rates – the determination of the appropriate discount rate for each investment that is reflective of current market conditions and the specific
risks of the investment;
• Macroeconomic assumptions – primarily in respect of forecast inflation rates; and
• Forecasted future cash flows – specific investments contain certain assumptions in the cash flow forecasts that are particularly complex and judgemental.
This key audit matter is also discussed on page 112 in the Audit and Risk Committee report and disclosed in the significant accounting policies as a key
source of estimation uncertainty on pages 148 and 149 and in the portfolio valuation methodology on pages 30 and 31.
5.1 Fair value of Investments continued
How the scope
of our audit
responded
to the key
audit matter
In response to the key audit matter identified, we performed the following procedures:
• Tested the controls in respect of the valuation process adopted by the Investment Manager and the Board, including the review and approval processes
undertaken by the Investment Manager’s valuation committee;
• Tested that the valuation methodology is compliant with IFRS 13 requirements;
• Met with the Investment Manager’s Managing Partner, CFO and analysts responsible for preparing the valuations to understand the underlying performance
of the businesses being valued and how the year-end valuation has been prepared, including key valuation assumptions;
• Involved our valuation experts to assess discount rates applied in the valuations by benchmarking to relevant peers and transactions and considering
theinherent risk profile of the underlying cash flows specific to each investment;
• Tested and challenged the macroeconomic assumptions included in the forecasts with reference to observable market data and external forecasts;
• Assessed the forecasted cash flows and related assumptions for all investments, including movements since acquisition or the prior year and, where
applicable, used third-party evidence to challenge key assumptions;
• Engaged with our valuation experts to apply an additional level of challenge to the investments identified as containing more judgemental forecast
cashflow assumptions;
• Evaluated the Investment Manager’s identification of climate change-related risks and considered how material risks are accounted for in the
valuation assumptions;
• Evaluated the Investment Manager’s assessment of the risks related to the ongoing war in Ukraine, including supply chain continuity, customer base
exposure and the monitoring of sanctions compliance;
• Reviewed industry news and other external sources of information to identify evidence that may contradict the assumptions adopted by the
Investment Manager;
• Assessed the historical accuracy of the cash flow forecasts through comparison to actual results in order to assess the reliability of the forecasts;
• Compared historical data included in the valuation to audited financial statements to check that forecasts are based on actual results where applicable;
• Employed analytics to assess the integrity of the valuation models;
• Evaluated whether the estimates made were, individually and in aggregate, reasonable and free of bias; and
• Assessed the disclosures made in the notes to the Financial statements regarding the key sources of estimation uncertainty.
Key observations We consider the judgements and assumptions utilised in determining the fair value of the Company’s investments to be within an acceptable range.
We have not identified any material misstatements in respect of the fair value of the Company’s investments at 31 March 2022.
Independent auditor’s report to the members
of 3i Infrastructure plc continued
5 Key audit matters continued
Accounts and other information
130
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 131
6 Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the Financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would
bechanged or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the Financial statements as a whole as follows:
Materiality £25.9 million (2021: £23.1 million).
Basis for determining materiality Materiality is determined using approximately 1% of net asset value (‘NAV’).
Rationale for the benchmark applied We consider NAV to be the key financial statement benchmark used by shareholders of the Company in assessing financial performance.
NAV
Materiality
Materiality
£25.9m
Audit Committee
reporting threshold
£1.3m
NAV
£2,704m
A lower materiality threshold of £2.4 million (2021: £2.0 million) based on approximately 2% (2021: 2%) of investment income has also been used. This has been applied to certain balances
in the Statement of comprehensive income and Balance sheet, excluding fair value of investments and derivatives balances and their associated fair value movements, due to qualitative
factors of stakeholder interest.
Independent auditor’s report to the members
of 3i Infrastructure plc continued
6 Our application of materiality continued
6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for
the Financial statements as a whole. Performance materiality was set at 70% of materiality for the 2022 audit (2021: 70%). In determining performance materiality, we considered the
following factors:
• The quality of internal control in existence at the Company and the Investment Manager;
• The stability of the business;
• The low level of errors identified in prior years;
• The willingness of the Investment Manager to correct errors identified; and
• The stability and competence of the finance team.
6.3 Error reporting threshold
We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of £1.3 million (2021: £1.1 million), as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit and Risk Committee on disclosure matters that we identified when assessing the overall
presentation of the Financial statements.
7 An overview of the scope of our audit
7.1 Scoping
Our audit was scoped by obtaining an understanding of the entity and its environment, including internal control, and assessing the risks of material misstatement. All audit work to respond
to the risks of material misstatement was performed directly by the audit engagement team.
7.2 Our consideration of the control environment
We have obtained an understanding of the control environment and the relevant controls to address our significant risks and other key account balances and transactions including
thevaluation of investments, performance and management fees, investment income, investment and divestment, and financial reporting. This has included the control environment
andrelevant controls operating at the Investment Manager as a key service provider to the Company.
We tested the controls in respect of the valuation process adopted by the Investment Manager and the Board, including the review and approval processes undertaken by the
Investment Manager’s valuation committee.
Independent auditor’s report to the members
of 3i Infrastructure plc continued
Accounts and other information
132
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 133
7 An overview of the scope of our audit continued
7.3 Our consideration of climate-related risks
The Company has identified climate risk as a key risk as detailed in the Climate risk section of the Risk report on page 71. The primary area where climate risks could impact the
Financialstatements is in respect of the fair value of investments as the investment portfolio companies face a range of climate change-related risks and opportunities.
In preparing the valuations, the Company has considered the impact of climate change. We have assessed the identification and evaluation of climate change risk and the potential
impact on the fair value of investments as highlighted in section 5. This assessment considered the risks and opportunities associated with the impact of energy transition, extreme
weather patterns and regulatory environments and their impact on the determination of fair value.
8 Other information
The other information comprises the information included in the Annual report, other than the Financial statements and our auditor’s report thereon. The Directors are responsible
fortheother information contained within the Annual report.
Our opinion on the Financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the Financial
statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Independent auditor’s report to the members
of 3i Infrastructure plc continued
9 Responsibilities of Directors
As explained more fully in the Statement of Directors’ responsibilities, the Directors are responsible for the preparation of the Financial statements and for being satisfied that they
giveatrue and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the Financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
10 Auditor’s responsibilities for the audit of the Financial statements
Our objectives are to obtain reasonable assurance about whether the Financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these Financial statements.
A further description of our responsibilities for the audit ofthe Financial statements is located on the FRC’s website. This description forms part of our auditor’s report.
11 Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material
misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
11.1 Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Investment Manager’s fee structure and performance targets;
• results of our enquiries of the Investment Manager, the Investment Manager’s internal audit function, and the Audit and Risk Committee about their own identification and assessment
of the risks of irregularities;
• any matters we identified having obtained and reviewed the Company’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
• the matters discussed among the audit engagement team and relevant internal specialists, including tax and valuations regarding how and where fraud might occur in the
Financial
statements and any potential indicators of fraud.
Independent auditor’s report to the members
of 3i Infrastructure plc continued
Accounts and other information
134
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 135
11 Extent to which the audit was considered capable of detecting irregularities, including fraud continued
11.1 Identifying and assessing potential risks related to irregularities continued
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the
valuation of the investment portfolio. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Company operates in, focusing on provisions of those laws and regulations that had a direct effect
on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the Companies (Jersey) Law,
Listing Rules, and UK Investment Trust tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance with which may be fundamental to the
Company’s ability to operate or to avoid a material penalty. The key laws and regulations we considered in this context included the Alternative Investment Fund Managers Directive
asapproved by the Financial Conduct Authority.
11.2 Audit response to risks identified
As a result of performing the above, we identified the fair value of investments as a key audit matter related to the potential risk of fraud. The key audit matters section of our report
explains the matter in more detail and also describes the specific procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having
adirect effect on the Financial statements;
• enquiring of management, the Audit and Risk Committee, the Investment Manager’s in-house legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing the Investment Manager’s internal audit reports pertaining to the Company’s activities, and reviewing
anycorrespondence with HMRC and the Financial Conduct Authority; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements
made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal
course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members, including internal specialists, and remained alert to any
indications of fraud or non-compliance with laws and regulations throughout the audit.
Independent auditor’s report to the members
of 3i Infrastructure plc continued
Independent auditor’s report to the members
of 3i Infrastructure plc continued
Report on other legal and regulatory requirements
12 Corporate Governance Statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the
Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the
Financial statements and our knowledge obtained during the audit:
• the Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 78;
• the Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is appropriate set out on page 79;
• the Directors’ statement on fair, balanced and understandable set out on page 124;
• the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 115 and 116;
• the section of the Annual report that describes the review of effectiveness of risk management and internal control systems set out on page 115; and
• the section describing the work of the Audit and Risk committee set out on pages 110 to 116.
13 Matters on which we are required to report by exception
13.1 Adequacy of explanations received and accounting records
Under the Companies (Jersey) Law, 1991 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• proper accounting records have not been kept, or proper returns adequate for our audit have not been received from branches not visited by us; or
• the Financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Accounts and other information
136
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 137
Independent auditor’s report to the members
of 3i Infrastructure plc continued
14 Other matters which we are required to address
14.1 Auditor tenure
Following the recommendation of the Audit and Risk Committee, we were appointed by the shareholders on 6 July 2017 at the Annual General Meeting to audit the Financial statements for
the year ending 31 March 2018 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is fiveyears,
covering the years ending 31 March 2018 to 31 March 2022.
14.2 Consistency of the audit report with the additional report to the Audit and Risk Committee
Our audit opinion is consistent with the additional report to the Audit and Risk Committee we are required to provide in accordance with ISAs (UK).
15 Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law, 1991. Our audit work has been undertaken so that we
might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Jacqueline Holden, FCA
For and on behalf of Deloitte LLP
Recognised Auditor
London, United Kingdom
9 May 2022
Statement of comprehensive income
For the year to 31 March
Notes
Year to
31 March
2022
£m
Year to
31 March
2021
£m
Net gains on investments 7 384 118
Investment income 7 127 92
Fees payable on investment activities (3) (1)
Interest receivable 6 11
Investment return 514 220
Movement in the fair value of derivative financial instruments 5 (2) 22
Management and performance fees payable 2 (97) (31)
Operating expenses 3 (3) (3)
Finance costs 4 (5) (2)
Exchange movements (3) –
Profit before tax 404 206
Income taxes 6 – –
Profit after tax and profit for the year 404 206
Total comprehensive income for the year 404 206
Earnings per share
Basic and diluted (pence) 14 45.3 23.1
Accounts and other information
138
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 139
Statement of changes in equity
For the year to 31 March
For the year to 31 March 2022 Notes
Stated
capital
account
£m
Retained
reserves
1
£m
Capital
reserve
1
£m
Revenue
reserve
1
£m
Total
shareholders’
equity
£m
Opening balance at 1 April 2021 779 1,282 330 (1) 2,390
Total comprehensive income for the year – – 324 80 404
Dividends paid to shareholders of the Company during the year 15 – – (11) (79) (90)
Closing balance at 31 March 2022 779 1,282 643 – 2,704
For the year to 31 March 2021 Notes
Stated
capital
account
£m
Retained
reserves
1
£m
Capital
reserve
1
£m
Revenue
reserve
1
£m
Total
shareholders’
equity
£m
Opening balance at 1 April 2020 779 1,282 196 12 2,269
Total comprehensive income for the year – – 134 72 206
Dividends paid to shareholders of the Company during the year 15 – – – (85) (85)
Closing balance at 31 March 2021 779 1,282 330 (1) 2,390
1 The Retained reserves, Capital reserve and Revenue reserve are distributable reserves. Retained reserves relate to the period prior to 15 October 2018. Further information can be found in Accounting policy H.
Balance sheet
As at 31 March
Notes
2022
£m
2021
£m
Assets
Non-current assets
Investments at fair value through profit or loss 7 2,873 1,804
Derivative financial instruments 10 6 18
Total non-current assets 2,879 1,822
Current assets
Derivative financial instruments 10 20 25
Trade and other receivables 8 104 106
Cash and cash equivalents 17 462
Total current assets 141 593
Total assets 3,020 2,415
Liabilities
Non-current liabilities
Derivative financial instruments 10 (6) (2)
Trade and other payables 12 (38) (10)
Loans and borrowings 11 (231) –
Total non-current liabilities (275) (12)
Current liabilities
Derivative financial instruments 10 (12) (4)
Trade and other payables 12 (29) (9)
Total current liabilities (41) (13)
Total liabilities (316) (25)
Net assets 2,704 2,390
Accounts and other information
140
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 141
Balance sheet continued
Notes
2022
£m
2021
£m
Equity
Stated capital account 13 779 779
Retained reserves 1,282 1,282
Capital reserve 643 330
Revenue reserve – (1)
Total equity 2,704 2,390
Net asset value per share
Basic and diluted (pence) 14 303.3 268.1
The Financial statements and related Notes were approved and authorised for issue by the Board of Directors on 9 May 2022 and signed on its behalf by:
Richard Laing
Chair
Cash flow statement
For the year to 31 March
Year to
31 March
2022
£m
Year to
31 March
2021
£m
Cash flow from operating activities
Purchase of investments (761) (43)
Proceeds from other financial assets 12 104
Proceeds from partial realisations of investments 140 14
Proceeds from full realisations of investments 8 30
Investment income
1
54 51
Fees paid on investment activities (4) –
Operating expenses paid (4) (3)
Interest received – 1
Management and performance fees paid (50) (29)
Amounts received on the settlement of derivative contracts 27 6
Distributions from transfer of investments from unconsolidated subsidiaries
2
– 5
Net cash flow from operating activities (578) 136
1 Investment income includes dividends of £24 million (2021: £6 million), interest of £30 million (2021: £43 million) and no distributions (2021: £2 million) received from unconsolidated subsidiaries.
2 Following the change of tax residence of the Company from Jersey to the UK, several of the investments held in unconsolidated subsidiaries domiciled outside the UK have been transferred to be
held directly by the Company.
Accounts and other information
142
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 143
Cash flow statement continued
Year to
31 March
2022
£m
Year to
31 March
2021
£m
Cash flow from financing activities
Fees and interest paid on financing activities (6) (2)
Dividends paid (90) (85)
Drawdown of revolving credit facility 955 –
Repayment of revolving credit facility (724) –
Net cash flow from financing activities 135 (87)
Change in cash and cash equivalents (443) 49
Cash and cash equivalents at the beginning of the year 462 413
Effect of exchange rate movement (2) –
Cash and cash equivalents at the end of the year 17 462
Reconciliation of net cash flow to movement in net debt
For the year to 31 March
Notes
Year to
31 March
2022
£m
Year to
31 March
2021
£m
Change in cash and cash equivalents (443) 49
Drawdown of revolving credit facility 11 (955) –
Repayment of revolving credit facility 11 724 –
Change in net (debt)/cash resulting from cash flows (674) 49
Movement in net (debt)/cash (674) 49
Net cash at the beginning of the year 462 413
Effect of exchange rate movement (2) –
Net (debt)/cash at the end of the year (214) 462
In the above reconciliation there were no non-cash movements.
Accounts and other information
144
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 145
Significant accounting policies
Corporate information
3i Infrastructure plc (the ‘Company’) is a company incorporated in Jersey, Channel Islands. The Financial statements for the year to 31 March 2022 comprise the Financial statements
ofthe Company as defined in IFRS 10 Consolidated Financial Statements.
The Financial statements were authorised for issue by the Board of Directors on 9 May 2022.
Statement of compliance
These Financial statements have been prepared in accordance with United Kingdom adopted International Financial Reporting Standards (‘IFRS’) and International
Accounting Standards.
These Financial statements have also been prepared in accordance with and in compliance with the Companies (Jersey) Law 1991.
Basis of preparation
In accordance with IFRS 10 (as amended), entities that meet the definition of an investment entity are required to fair value certain subsidiaries through profit or loss in accordance with
IFRS 9 Financial Instruments, rather than consolidate their results. The Company does not have any consolidated subsidiaries, which would include subsidiaries that are not themselves
investment entities and provide investment-related services to the Company.
The Financial statements of the Company are presented in sterling, the functional currency of the Company, rounded to the nearest million except where otherwise indicated.
The preparation of financial statements in conformity with IFRS requires the Board to make judgements, estimates and assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on experience and other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of determining the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates.
Going concern
The Financial statements are prepared on a going concern basis as disclosed in the Risk report, as the Directors are satisfied that the Company has the resources to continue in business
for the foreseeable future. The Directors have made an assessment of going concern, taking into account a wide range of information relating to present and future conditions,
including the Company’s cash and liquidity position, current performance and outlook, which has considered the impact of the recovery from the Covid-19 pandemic, ongoing
geopolitical uncertainties and current and expected financial commitments using information available to the date of issue of these Financial statements. As part of this assessment
theDirectors considered:
• the analysis of the adequacy of the Company’s liquidity, solvency and capital position. The Company manages and monitors liquidity regularly ensuring it is adequate and sufficient.
At 31 March 2022, liquidity remained strong at £786 million (2021: £763 million). Liquidity comprised cash and deposits of £17 million (2021: £463 million) and undrawn facilities of
£769 million (2021: £300 million).The £200 million accordion and £400 million additional facility both mature within 12 months of the date of this report. In addition, the Company
isableto call the second tranche of the deferred consideration from the realisation of WIG of £98 million with six weeks’ notice and, in June 2022, is expecting to receive £103 million
fromthe sale of its Projects portfolio. Income and non-income cash is expected to be received from the portfolio investments during the coming year, a portion of which will be
required to support the payment of the dividend target and the Company’s other financial commitments;
• uncertainty around the valuation of the Company’s assets as set out in the Key estimation uncertainties section. The valuation policy and process was consistent with prior years.
This year a key focus of the portfolio valuations at 31 March 2022 was an assessment of the impact of the macroeconomic environment on the operational and financial performance
of each portfolio company. In particular this focused on increasing inflationary pressures, tightening debt markets, volatility in power prices, recovery from the Covid-19 pandemic
andongoing geopolitical uncertainties. We have incorporated into our cash flow forecasts a balanced view of future income receipts and expenses; and
• the Company’s financial commitments. The Company had one investment commitment at 31 March 2022 totalling c.£300 million in GCX, a global data communications service
provider. The Company had ongoing charges of £36 million in the year to 31 March 2022, detailed in Table 5 in the Financial review, which are indicative of the ongoing run rate in the
short term. The Company has a FY22 performance fee accrual of £54 million, a third of which is payable within the next 12 months. The Company has a FY21 performance fee accrual
of £4 million relating to the second and third instalments of the FY21 fee, the second instalment being due within the next 12 months, an accrual of £12 million relating to the third
instalment of the FY20 fee due within the next 12 months and a proposed final dividend for FY22 of £47 million. In addition, while not a commitment at 31 March 2022, the Company
has a dividend target for FY23 of 11.15 pence per share. In order to meet the commitment to invest in GCX, the Company expects to receive the WIG deferred consideration and the
proceeds from the sale of the Projects portfolio prior to the completion of this investment.
In addition to the considerations listed above there are a number of mitigating actions within management control to enhance available liquidity. These include seeking to extend the
maturity of available credit facilities, the timing of certain income receipts from the portfolio and the level and timing of new investments or realisations.
Having performed the assessment of going concern, the Directors considered it appropriate to prepare the Financial statements of the Company on a going concern basis.
The Company has sufficient financial resources and liquidity and is well placed to manage business risks in the current economic environment and can continue operations for a period
ofat least 12 months from the date of these Financial statements.
Significant accounting policies continued
Accounts and other information
146
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 147
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.
Significant accounting policies continued
The Company must also exercise judgement in whether a subsidiary provides investment-related services or activities and therefore should be consolidated or held at fair value through
profit or loss. Further details are shown in significant accounting policy ‘A Classification’ below.
During the year, the Company set up seven wholly owned subsidiary entities for new investments in SRL and GCX. The Directors have assessed whether any of these entities provide
investment-related services and have concluded that they should not be consolidated and that they should all be held at fair value through profit or loss.
The adoption of certain accounting policies by the Company also requires the use of certain critical accounting estimates in determining the information to be disclosed in the
Financial statements.
Key estimation uncertainties
Valuation of the investment portfolio
The key area where estimates are significant to the Financial statements and have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year is in the valuation of the investment portfolio. The portfolio is well-diversified by sector, geography and underlying risk exposures. The key risks to the portfolio are
discussed in further detail in the Risk report.
The majority of assets in the investment portfolio are valued on a discounted cash flow basis which requires assumptions to be made regarding future cash flows, terminal value and the
discount rate to be applied to these cash flows. The methodology for deriving the fair value of the investment portfolio, including the key estimates, is set out in the Portfolio valuation
methodology section. Refer to Note 7 for further details of the valuation techniques, significant inputs to those techniques and sensitivity of the fair value of these investments to the
assumptions that have been made.
The discount rate applied to the cash flows in each investment portfolio company is a key source of estimation uncertainty. The acquisition discount rate is adjusted to reflect changes
in company-specific risks to the deliverability of future cash flows and is calibrated against secondary market information and other available data points, including comparable
transactions. The discount rates applied to the investment portfolio at 31 March 2022 range from 10.0% to 13.2% (2021: 7% to 12%) and the weighted average discount rate applied to
the investment portfolio is 10.9% (2021: 10.8%). The increase in the year is due to the introduction of the new investments in SRL and DNS:NET to the portfolio at a higher than average
discount rate, mostly offset by small reductions in discount rates for Oystercatcher, TCR, ESVAGT and Valorem. The Projects portfolio is now valued on a sales basis and therefore this
investment has been removed from the discount rate range.
The cash flows on which the discounted cash flow valuation is based are derived from detailed financial models. These incorporate a number of assumptions with respect to individual
portfolio companies, including: forecast new business wins or new orders; cost-cutting initiatives; liquidity and timing of debtor payments; timing of non-committed capital expenditure
and construction activity; the terms of future debt refinancing; and macroeconomic assumptions such as inflation and oil and power prices. Future power price projections are taken from
independent forecasters and changes in these assumptions will affect the future value of our energy generating portfolio companies. The Summary of portfolio valuation methodology
section on pages 30 and 31 provides further details on some of the assumptions that have been made in deriving a balanced base case of cash flows.
Significant accounting policies continued
Accounts and other information
148
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 149
The terminal value attributes a residual value to the portfolio company at the end of the projected discrete cash flow period based on market comparables. The terminal value
assumptions consider climate change risk and stranded asset risk. The valuation of each asset has significant estimation in relation to asset specific items but there is also consideration
given to the impact of wider megatrends such as the transition to a lower-carbon economy and climate change. The effects of climate change, including extreme weather patterns or
rising sea levels in the longer term could impact the valuation of the assets in the portfolio in different ways. The Summary of portfolio valuation methodology section earlier in this
document provides further details on some of the assumptions that have been made in deriving terminal values and some of the risk factors considered in the cash flow forecasts,
forexample in relation to the inflationary headwinds currently being experienced.
New and amended standards adopted for the current year
Standards and amendments to standards applicable to the Company that became effective during the year and were adopted by the Company on 1 April 2021 are listed below.
Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) (1 January 2021)
This amendment has not had a material impact on the Financial statements.
Standards and amendments issued but not yet effective
As at 31 March 2022, the following new or amended standards, which have not been applied in these Financial statements, had been issued by the International Accounting Standards
Board (‘IASB’) but are yet to become effective.
Amendments to IAS 1 Classification of Liabilities as Current or Non-current (1 January 2023)
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (1 January 2023)
Amendments to IAS 16 Property, Plant and Equipment – Proceeds before Intended Use (1 January 2022)
Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets – Onerous Contracts (1 January 2022)
Amendments to IFRS 3 Business Combinations (1 January 2022)
Amendments to IFRS 17 Insurance contracts (1 January 2022)
Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 resulting from Annual Improvements to IFRS 2018-2020 Cycle (1 January 2022)
The Company intends to adopt these standards when they become effective, however does not currently anticipate the standards will have a significant impact on the Company’s
financial statements. Current assumptions regarding the impact of future standards will remain under consideration in light of interpretation notes as and when they are issued.
Significant accounting policies continued
Significant accounting policies continued
A Classification
(i) Subsidiaries – Subsidiaries are entities controlled by the Company. Control exists when the Company is exposed, or has rights, to variable returns from its involvement with the
subsidiary entity and has the ability to affect those returns through its power over the subsidiary entity. In accordance with the exception under IFRS 10 Consolidated Financial
Statements, the Company only consolidates subsidiaries in the Financial statements if they are deemed to perform investment-related services and do not meet the definition of an
investment entity. Investments in subsidiaries that do not meet this definition are accounted for as Investments at fair value through profit or loss with changes in fair value recognised
in the Statement of comprehensive income in the year. The Directors have assessed all entities within the structure and concluded that there are no subsidiaries of the Company that
provide investment-related services or activities.
(ii) Associates – Associates are those entities in which the Company has significant influence, but not control, over the financial and operating policies. Investments that are held as
partof the Company’s investment portfolio are carried in the Balance sheet at fair value even though the Company may have significant influence over those entities.
(iii) Joint ventures – Interests in joint ventures that are held as part of the Company’s investment portfolio are carried in the Balance sheet at fair value. This treatment is permitted
byIFRS11 and IAS 28, which allows interests held by venture capital organisations where those investments are designated, upon initial recognition, as at fair value through profit
orloss and accounted for in accordance with IFRS 9 with changes in fair value recognised in the Statement of comprehensive income in the year.
B Exchange differences
Transactions entered into by the Company in a currency other than its functional currency are recorded at the rates ruling when the transactions occur. Foreign currency monetary
assetsand liabilities are translated to the functional currency at the exchange rate ruling at the balance sheet date. Foreign exchange differences arising on translation to the functional
currency are recognised in the Statement of comprehensive income. Foreign exchange differences relating to investments held at fair value through profit or loss are shown within the
line Net gains on investments. Foreign exchange differences relating to other assets and liabilities are shown within the line Exchange movements.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transactions. Non-monetary
assets and liabilities denominated in foreign currencies that are stated at fair value are translated to the functional currency using exchange rates ruling at the date the fair value was
determined with the associated foreign exchange difference being recognised within the unrealised gain or loss on revaluation of the asset or liability.
C Investment portfolio
Recognition and measurement – Investments are recognised and de-recognised on a date where the purchase or sale of an investment is under a contract whose terms require the
delivery or settlement of the investment. The Company manages its investments with a view to profiting from the receipt of investment income and obtaining capital appreciation
fromchanges in the fair value of investments. Therefore, all quoted investments and unquoted investments are measured at fair value through profit or loss upon initial recognition
andsubsequently carried in the Balance sheet at fair value, applying the Company’s valuation policy. Acquisition related costs are accounted for as expenses when incurred.
Net gains or losses on investments are the movement in the fair value of investments between the start and end of the accounting period, or investment disposal date, or the investment
acquisition date and the end of the accounting period, including divestment related costs where applicable, converted into sterling using the exchange rates in force at the end of the
period; and are recognised in the Statement of comprehensive income.
Accounts and other information
150
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 151
Significant accounting policies continued
Income
Investment income is that portion of income that is directly related to the return from individual investments. It is recognised to the extent that it is probable that there will be an
economic benefit and the income can be reliably measured.
The following specific recognition criteria must be met before the income is recognised:
• dividends from equity investments are recognised in the Statement of comprehensive income when the Company’s rights to receive payment have been established. Special dividends
are credited to capital or revenue according to their circumstances;
• interest income from loans that are measured at fair value through profit or loss is recognised as it accrues by reference to the principal outstanding and the effective interest rate
applicable, which is the rate that exactly discounts the estimated future cash flows through the expected life of the financial asset to the asset’s carrying value or principal amount.
The remaining changes in the fair value movement of the loans are recognised separately in the line Net gains on investments in the Statement of comprehensive income;
• distributions from investments in Limited Partnerships are recognised in the Statement of comprehensive income when the Company’s rights as a Limited Partner to receive payment
have been established; and
• fees receivable represent amounts earned from investee companies on completion of underlying investment transactions and are recognised on an accruals basis once entitlement
to the revenue has been established.
D Fees
(i) Fees – Fees payable represent fees incurred in the process of acquiring an investment and are measured on the accruals basis.
(ii) Management fees – A management fee is payable to 3i plc, calculated as a tiered fee based on the Gross Investment Value of the Company and is accrued in the period it is incurred.
Further details on how this fee is calculated are provided in Note 18.
(iii) Performance fee – The Investment Manager is entitled to a performance fee based on the total return generated in the period in excess of a performance hurdle of 8%. The fee is
payable in three equal annual instalments and is accrued in full in the period it is incurred. Further details are provided in Note 18.
(iv) Finance costs – Finance costs associated with loans and borrowings are recognised on an accruals basis using the effective interest method.
Significant accounting policies continued
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.
Accounts and other information
152
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 153
Significant accounting policies continued
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.
Significant accounting policies continued
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.
Accounts and other information
154
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 155
Notes to the accounts
1 Operating segments
The Directors review information on a regular basis that is analysed by portfolio segment; being Economic infrastructure businesses, the Projects portfolio and the India Fund, and
by geography. These segments are reviewed for the purpose of resource allocation and the assessment of their performance. In accordance with IFRS 8, the segmental information
provided below uses these segments for the analysis of results as it is the most closely aligned with IFRS reporting requirements. The Company is an investment holding company
anddoes not consider itself to have any customers.
The following is an analysis of the Company’s investment return, profit before tax, assets, liabilities and net assets by portfolio segment for the year to 31 March 2022:
For the year to 31 March 2022
Economic
infrastructure
businesses
£m
Projects
portfolio
£m
India
Fund
£m
Unallocated
1
£m
Total
£m
Investment return 486 18 5 5 514
Profit/(loss) before tax 483 19 5 (103) 404
For the year to 31 March 2021
Investment return 196 8 5 11 220
Profit/(loss) before tax 215 11 5 (25) 206
As at 31 March 2022
Assets 2,796 105 – 119 3,020
Liabilities (18) (1) – (297) (316)
Net assets/(liabilities) 2,778 104 – (178) 2,704
As at 31 March 2021
Assets 1,748 96 3 568 2,415
Liabilities (6) – – (19) (25)
Net assets 1,742 96 3 549 2,390
1 Unallocated includes cash, management and performance fees payable, RCF drawn and other payables and receivables (including vendor loan notes) which are not directly attributable to the investment portfolio.
Notes to the accounts continued
1 Operating segments continued
The following is an analysis of the Company’s investment return, profit before tax, assets, liabilities and net assets by geography for the year to 31 March 2022:
For the year to 31 March 2022
UK and
Ireland
1
£m
Continental
Europe
2
£m
Asia
£m
Total
£m
Investment return 63 446 5 514
(Loss)/profit before tax (45) 444 5 404
For the year to 31 March 2021
Investment return 53 162 5 220
Profit before tax 17 184 5 206
As at 31 March 2022
Assets 653 2,367 – 3,020
Liabilities (298) (18) – (316)
Net assets 355 2,349 – 2,704
As at 31 March 2021
Assets 868 1,544 3 2,415
Liabilities (19) (6) – (25)
Net assets 849 1,538 3 2,390
1 Including Channel Islands. All centrally incurred costs have been deemed to be incurred in the UK and Ireland while recognising these costs support allocations across geographies.
2 Continental Europe includes all returns generated from, and investment portfolio value relating to, the Company’s investments in Oystercatcher, including those derived from its underlying business in Singapore.
The Company generated 12% (2021: 24%) of its investment return in the year from investments held in the UK and Ireland and 87% (2021: 74%) of its investment return from investments
held in continental Europe. During the year, the Company generated 95% (2021: 94%) of its investment return from investments in Economic infrastructure businesses, 4% (2021: 4%)
frominvestments in Projects and 1% (2021: 2%) from its investment in the India Fund. Given the nature of the Company’s operations, the Company is not considered to be exposed
toanyoperational seasonality or cyclicality that would impact the financial results of the Company during the year or the financial position of the Company at 31 March 2022.
Accounts and other information
156
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 157
Notes to the accounts continued
2 Management and performance fees payable
Year to
31 March
2022
£m
Year to
31 March
2021
£m
Management fee 43 24
Performance fee 54 7
97 31
Total management and performance fees payable by the Company for the year to 31 March 2022 were £97 million (2021: £31 million). Note 18 provides further details on the calculation
ofthe management fee and performance fee.
3 Operating expenses
Operating expenses include the following amounts:
Year to
31 March
2022
£m
Year to
31 March
2021
£m
Audit fees 0.6 0.4
Directors’ fees and expenses 0.5 0.5
In addition to the fees described above, audit fees of £0.05 million (2021: £0.07 million) were paid by unconsolidated subsidiary entities for the year to 31 March 2022 to the Company’s auditor.
Notes to the accounts continued
3 Operating expenses continued
Services provided by the Company’s auditor
During the year, the Company obtained the following services from the Company’s auditor, Deloitte LLP.
Audit services
Year to
31 March
2022
£m
Year to
31 March
2021
£m
Statutory audit
1
Company 0.40 0.30
UK unconsolidated subsidiaries
2
0.05 0.04
Overseas unconsolidated subsidiaries
2
– 0.03
0.45 0.37
1 Amounts exclude VAT.
2 These amounts were paid from unconsolidated subsidiary entities and do not form part of operating expenses but are included in the net gains on investments.
Non-audit services
Deloitte LLP and their associates provided non-audit services for fees totalling £104,635 for the year to 31 March 2022 (2021: £52,700). This related to agreed-upon procedures work
inrespect of the management and performance fees (£7,560), agreed-upon procedures work in respect of Sustainability KPIs for the RCF reporting (£27,000), the review of the interim
financial statements (£55,575) and reporting accountant work (£14,500). In line with the Company’s policy, Deloitte LLP provided non-audit services to certain investee companies.
The fees for these services are ordinarily borne by the underlying investee companies or unconsolidated subsidiaries, and therefore are not included in the expenses of the Company.
Details on how such non-audit services are monitored and approved can be found in the Governance section of the Annual report and accounts.
Accounts and other information
158
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 159
Notes to the accounts continued
4 Finance costs
Year to
31 March
2022
£m
Year to
31 March
2021
£m
Finance costs associated with the debt facilities 3 2
Professional fees payable associated with the arrangement of debt financing 2 –
5 2
The finance costs associated with the debt facilities have increased in the year ended 31 March 2022 as a result of higher average drawings and increases in the total available facilities.
The average monthly drawn position during the year was £80 million (2021: nil) and the average monthly total available facilities was £508 million (2021: £300 million).
5 Movement in the fair value of derivative financial instruments
Year to
31 March
2022
£m
Year to
31 March
2021
£m
Movement in the fair value of forward foreign exchange contracts (2) 22
The movement in the fair value of derivative financial instruments is included within profit before tax but not included within investment return.
6 Income taxes
Year to
31 March
2022
£m
Year to
31 March
2021
£m
Current taxes
Current year – –
Total income tax charge in the Statement of comprehensive income – –
Notes to the accounts continued
6 Income taxes continued
Reconciliation of income taxes in the Statement of comprehensive income
The tax charge for the year is different from the standard rate of corporation tax in the UK, currently 19% (2021: 19%), and the differences are explained below:
Year to
31 March
2022
£m
Year to
31 March
2021
£m
Profit before tax 404 206
Profit before tax multiplied by rate of corporation tax in the UK of 19% (2021: 19%) 77 39
Effects of:
Non-taxable capital profits due to UK approved investment trust company status (70) (26)
Non-taxable dividend income (5) (1)
Dividends designated as interest distributions (3) (12)
Temporary differences on which deferred tax is not recognised 1 –
Total income tax charge in the Statement of comprehensive income – –
The Company’s affairs are directed so as to allow it to meet the requisite conditions to continue to operate as an approved investment trust company for UK tax purposes. The approved
investment truststatus allows certain capital profits of the Company to be exempt from tax in the UKand alsopermits the Company to designate the dividends it pays, wholly or partly,
as interest distributions.These features enable approved investment trust companies to ensure that theirinvestorsdo notultimately suffer double taxation of their investment returns,
ieonce at the level of the investment fund vehicle and then again in the hands of the investors.
Under the UK Finance Act 2021, the UK corporation tax rate will increase for large companies from the current rate of 19% to 25% with effect from 1 April 2023.Should the Company
recognise any deferred tax assets and liabilities, a rate of 19% or 25% would be used depending on when the assets and liabilities are expected to be crystallised.
Accounts and other information
160
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 161
Notes to the accounts continued
7 Investments at fair value through profit or loss and financial instruments
All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
Level Fair value input description Financial instruments
Level 1 Quoted prices (unadjusted and in active markets) Quoted equity investments
Level 2 Inputs other than quoted prices included in Level 1 that are observable in
themarketeither directly (ie as prices) or indirectly (ie derived from prices)
Derivative financial instruments held at fair value
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
byreassessing the categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) for each reporting period.
The table below shows the classification of financial instruments held at fair value into the fair value hierarchy at 31 March 2022. For all other assets and liabilities, their carrying value
approximates to fair value. During the year ended 31 March 2022, there were no transfers of financial instruments between levels of the fair value hierarchy (2021: none).
Trade and other receivables in the Balance sheet includes £2 million of deferred finance costs relating to the arrangement fee for the revolving credit facility and additional facilities
(2021: £1 million). This has been excluded from the table below as it is not categorised as a financial instrument.
Notes to the accounts continued
7 Investments at fair value through profit or loss and financial instruments continued
Financial instruments classification
As at 31March 2022
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Financial assets
Investments at fair value through profit or loss – – 2,873 2,873
Trade and other receivables – 102 – 102
Derivative financial instruments – 26 – 26
– 128 2,873 3,001
Financial liabilities
Derivative financial instruments – (18) – (18)
– (18) – (18)
As at 31March 2021
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Financial assets
Investments at fair value through profit or loss – – 1,804 1,804
Trade and other receivables – 105 – 105
Derivative financial instruments – 43 – 43
– 148 1,804 1,952
Financial liabilities
Derivative financial instruments – (6) – (6)
– (6) – (6)
Accounts and other information
162
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 163
Notes to the accounts continued
7 Investments at fair value through profit or loss and financial instruments continued
Reconciliation of financial instruments categorised within Level 3 of fair value hierarchy
Level 3 fair value reconciliation
As at
31 March
2022
£m
As at
31 March
2021
£m
Opening fair value 1,804 1,652
Additions 816 91
Disposal proceeds and repayment (148) (48)
Movement in accrued income 17 (9)
Fair value movement (including exchange movements) 384 118
Closing fair value 2,873 1,804
The fair value movement (including exchange movements) is equal to the Net gains on investments showing in the Statement of comprehensive income. All unrealised movements on
investments and foreign exchange movements are recognised in profit or loss in the Statement of comprehensive income during the year and are attributable to investments held at
theend of the year.
The holding period of the investments in the portfolio is expected to be greater than one year. Therefore, investments are classified as non-current unless there is an agreement
to dispose of the investment within one year and all relevant regulatory or other third-party approvals have been received. It is not possible to identify with certainty whether any
investments may be sold withinone year.
Investment income of £127 million (2021: £92 million) comprises dividend income of £24 million (2021: £6 million), interest of £103 million (2021: £83 million) and no distributions
(2021: £3 million) from unconsolidated subsidiaries.
Unquoted investments
The Company invests in private companies which are not quoted on an active market. These are measured in accordance with the International Private Equity Valuation guidelines with
reference to the most appropriate information available at the time of measurement. Further information regarding the valuation of unquoted investments can be found in the Portfolio
valuation methodology section.
The Company’s policy is to fair value both the equity and shareholder debt investments in infrastructure assets together where they will be managed and valued as a single investment,
were invested at the same time and cannot be realised separately. The Directors consider that equity and debt share the same characteristics and risks and they are therefore treated as a
single unit of account for valuation purposes and a single class for disclosure purposes. As at 31 March 2022, the fair value of unquoted investments was £2,873 million (2021: £1,802 million).
Individual portfolio asset valuations are shown in the Portfolio summary on page 27.
Notes to the accounts continued
7 Investments at fair value through profit or loss and financial instruments continued
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
wellpositioned to assess how the Company is likely to perform if affected by variables and events that are inherently outside of the control of the Board and the Investment Manager.
The majority of the assets held within Level 3 are valued on a discounted cash flow basis, hence, the valuations are sensitive to the discount rate assumed in the valuation of each asset.
Other significant unobservable inputs include the inflation rate assumption, the interest rates assumption used to project the future cash flows and the forecast cash flows themselves.
The sensitivity to the inflation rate and interest rates is described below and the sensitivity to the forecast cash flows is captured in the Market risk section in Note 9.
A discussion of discount rates applied can be found in the Summary of portfolio valuation methodology section. Increasing the discount rate used in the valuation of each asset by
1% would reduce the value of the portfolio by £258 million (2021: £152 million). Decreasing the discount rate used in the valuation of each asset by 1% would increase the value of the
portfolio by £297 million (2021: £176 million).
The majority of assets held within Level 3 have revenues that are linked, partially linked or in some way correlated to inflation. The long-term inflation rate assumptions for the country
of domicile of the investments in the portfolio range from 5.0% (India) (2021: 5.0%) to 2.0% (the Netherlands) (2021: 2.0%). The long-term RPI assumption for the UK is 2.5% (2021: 2.5%).
The impact of increasing the inflation rate assumption by 1% for the next two years would increase the value of the portfolio by £43 million (2021: £25 million). Decreasing the inflation rate
assumption used in the valuation ofeachasset by 1% for the next two years would decrease the value of the portfolio by £46 million (2021: £25 million). The timing and quantum of price
increases will vary across the portfolio and the sensitivity may differ from that modelled. Changing the inflation rate assumption may result in consequential changes to other assumptions
used in the valuation of each asset.
The valuations are sensitive to changes in interest rates, which may result from: (i) unhedged existing borrowings within portfolio companies; (ii) interest rates on uncommitted future
borrowings assumed within the asset valuations; and (iii) cash deposits held by portfolio companies. These comprise a wide range of interest rates from short-term deposit rates to
longer-term borrowing rates across a broad range of debt products. Increasing the cost of borrowing assumption for unhedged borrowings and any future uncommitted borrowing
andthe cash deposit rates used in the valuation of each asset by 1% would reduce the value of the portfolio by £158 million (2021: £88 million). Decreasing the interest rate assumption
forunhedged borrowings used in the valuation of each asset by 1% would increase the value of the portfolio by £156 million (2021: £82 million). This calculation does not take account
ofany offsetting variances which may be expected to prevail if interest rates changed, including the impact of inflation discussed above.
Intermediate holding companies
The Company invests in a number of intermediate holding companies that are used to hold the unquoted investments, valued as referred to above. All other assets and liabilities of the
intermediate holding companies are held either at fair value or a reasonable approximation to fair value. The fair value of these intermediate holding companies therefore approximates
to their NAV and the Company classifies the fair value as Level 3. As at 31 March 2022, the fair value of the other assets and liabilities within these intermediate holding companies was
£nil (2021: £2 million).
Accounts and other information
164
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 165
Notes to the accounts continued
7 Investments at fair value through profit or loss and financial instruments continued
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 ahalf-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
31 March
2022
£m
Year to
31 March
2021
£m
Current assets
Vendor loan notes 100 105
Other receivables including prepayments 2 –
Capitalised finance costs 2 1
104 106
Vendor loan notes (‘VLNs’) of £98 million plus interest are due from the purchaser following the sale of WIG in December 2019. These can be called on by giving notice and carry an
interest rate of 6%. These are measured at amortised cost using the effective interest method. Accrued interest on the VLNs is included in the table above.
Notes to the accounts continued
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,
Auditand Risk Committee and the Investment Manager’s investment process are part of the overall risk management framework of the Company.
The funding objective of the Company is that each category of investment ought to be broadly matched with liabilities and shareholders’ funds according to the risk and maturity
characteristics of the assets, and that funding needs are to be met ahead of planned investment.
Capital structure
The Company has a continuing commitment to capital efficiency. The capital structure of the Company consists of cash held on deposit and in AAA rated money market funds,
borrowing facilities and shareholders’ equity. The Company’s Articles require its outstanding borrowings, including any financial guarantees to support subsequent obligations, to be
limited to 50%of the gross assets of the Company. The type and maturity of the Company’s borrowings are analysed in Note 11 and the Company’s equity is analysed into its various
components in the Statement of changes in equity. Capital is managed so as to maximise the return to shareholders, while maintaining a strong capital base that ensures that the
Company can operate effectively in the marketplace and sustain future development of the business. The Board is responsible for regularly monitoring capital requirements to ensure
that the Company is maintaining sufficient capital to meet its future investment needs.
The Company is regulated by the Jersey Financial Services Commission under the provisions of the Collective Investment Funds (Jersey) Law 1988 as a listed closed-ended collective
investment fund and is not required as a result of such regulation to maintain a minimum level of capital.
Capital is allocated for investment in infrastructure across the UK and continental Europe. As set out in the Company’s investment policy, the maximum exposure to any one investment
is25% of gross assets (including cash holdings) at the time of investment.
Accounts and other information
166
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 167
Notes to the accounts continued
9 Financial risk management continued
Credit risk
The Company is subject to credit risk on the debt component of its unquoted investments, cash, deposits, derivative contracts and receivables. The maximum exposure to credit
risk asaresult of counterparty default equates to the current carrying value of these financial assets. Throughout the year and the prior year, the Company’s cash and deposits were
held with a variety of counterparties, principally in AAA rated money market funds, as well as in short-term bank deposits and notice accounts with a minimum of a A credit rating.
The counterparties selected for the derivative financial instruments were all banks with a minimum of a BBB+ credit rating with at least one major rating agency. Following the sale
ofWIGin December 2019, the Company received VLNs from the purchaser, Brookfield Infrastructure Fund IV, that are reported within Trade receivables. The credit risk on these VLNs
has been assessed through calculating an expected credit loss using the credit ratings of underlying investors in the Brookfield fund and the amount of undrawn commitments to the
fund to calculate a probability of default.
The credit quality of unquoted investments, which are held at fair value and include debt and equity elements, is based on the financial performance of the individual portfolio companies.
The credit risk relating to these assets is based on their enterprise value and is reflected through fair value movements. This incorporates the impact of the recovery from the Covid-19
pandemic, the volatility in the oil prices and power prices and other macroeconomic factors such as inflation and interest rate rises. The performance of underlying investments is
monitored by the Board to assess future recoverability.
For those assets and income entitlements that are not past due, it is believed that the risk of default is small and capital repayments and interest payments will be made in accordance
with the agreed terms and conditions of the investment. If the portfolio company has failed and there is no expectation to recover any residual value from the investment, the Company’s
policy is to record an impairment for the full amount of the loan. When the net present value of the future cash flows predicted to arise from the asset, discounted using the effective
interest rate method, implies non-recovery of all or part of the Company’s investment a fair value movement is recorded equal to the valuation shortfall.
As at 31 March 2022, the Company had no loans or receivables or debt investments considered past due (2021: nil).
The Company actively manages counterparty risk. Counterparty limits are set and closely monitored by the Board and a regular review of counterparties is undertaken by the Investment
Manager and reported to the Board. As at 31 March 2022, the Company did not consider itself to have a significant exposure to any one counterparty and held deposits and derivative
contracts with a number of different counterparties to reduce counterparty risk (2021: same).
Due to the size and nature of the investment portfolio there is the potential for concentration risk. This risk is managed by diversifying the portfolio by sector and geography.
Notes to the accounts continued
9 Financial risk management continued
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.
2022
Payable
on demand
£m
Due within
1 year
£m
Due between
1 and 2 years
£m
Due between
2 and 5 years
£m
Total
£m
Liabilities
Loans and borrowings
1
– (7) (5) (234) (246)
Trade and other payables (4) (26) (20) (18) (68)
Derivative contracts – (12) (3) (3) (18)
Financial commitments
2
(302) – – – (302)
Total undiscounted financial liabilities (306) (45) (28) (255) (634)
1 Loans and borrowings relate to undrawn commitment fees and interest payable on the RCF referred to in Note 11.
2 Financial commitments are described in Note 16 and are not recognised in the Balance sheet.
2021
Payable
on demand
£m
Due within
1 year
£m
Due between
1 and 2 years
£m
Due between
2 and 5 years
£m
Total
£m
Liabilities
Loans and borrowings
1
– (2) (2) – (4)
Trade and other payables (9) – (8) (2) (19)
Derivative contracts – (4) (2) – (6)
Financial commitments
2
(38) – – – (38)
Total undiscounted financial liabilities (47) (6) (12) (2) (67)
1 Loans and borrowings relate to undrawn commitment fees and interest payable on the RCF and additional facilities referred to in Note 11.
2 Financial commitments are described in Note 16 and are not recognised in the Balance sheet.
The derivative contracts liability shown is the net cash flow expected to be paid on settlement.
In order to manage the contractual liquidity risk the Company has free cash and debt facilities in place, is able to call the VLNs referred to in Note 8 with six weeks’ notice and, in June 2022,
is expecting to receive £103 million from the sale of its Projects portfolio.
Accounts and other information
168
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 169
Notes to the accounts continued
9 Financial risk management continued
Market risk
The valuation of the Company’s investment portfolio is largely dependent on the underlying trading performance of the companies within the portfolio, but the valuation of the portfolio
and the carrying value of other items in the Financial statements can also be affected by interest rate, currency and market price fluctuations. The Company’s sensitivities to these
fluctuations are set out below.
(i) Interest rate risk
Further information on how interest rate risk is managed is provided in the Risk report.
An increase of 100 basis points in interest rates over 12 months (2021: 100 basis points) would lead to an approximate decrease in net assets and net profit of the Company of £2million
(2021: increase of £5 million). This exposure relates principally to changes in interest payable on the drawn RCF balance at the year end (2021: in interest receivable on cash on deposit
held at the year end). The average cash balance of the Company, whichis more representative of the cash balance during the year, was £269 million (2021: £405 million) and the
weighted-average interest earned was 0.04% (2021: 0.1%).
In addition, the Company has indirect exposure to interest rates through changes to the financial performance of portfolio companies caused by interest rate fluctuations as disclosed
in Note 7. This risk is considered a component of market risk described in section (iii). The Company does not hold any fixed rate debt investments or borrowings and is therefore not
exposed to fair value interest rate risk.
(ii) Currency risk
Further information on how currency risk is managed is provided in the Risk report. The currency denominations of the Company’s net assets are shown in the table below. The sensitivity
analysis demonstrates the exposure of the Company’s net assets to movements in foreign currency exchange rates. The hedging strategy is discussed in the Financial review.
Notes to the accounts continued
9 Financial risk management continued
As at 31 March 2022
Sterling
1
£m
Euro
£m
NOK
£m
DKK
£m
US dollar
£m
Total
£m
Net assets 456 1,457 243 548 – 2,704
Sensitivity analysis
Assuming a 10% appreciation in sterling against the euro, NOK, DKK and US dollar exchange rates:
Impact of exchange movements on net profit and net assets 139 (132) (22) (50) – (65)
1 Sterling impact relates to the impact of fair value movement in derivatives held by the Company to hedge foreign currency fluctuations in the valuation of the investment portfolio. The notional amount of the derivatives is disclosed
inNote 10.
As at 31 March 2021
Sterling
1
£m
Euro
£m
NOK
£m
DKK
£m
US dollar
£m
Total
£m
Net assets 848 1,116 234 189 3 2,390
Sensitivity analysis
Assuming a 10% appreciation in sterling against the euro, NOK, DKK and US dollar exchange rates:
Impact of exchange movements on net profit and net assets 109 (101) (21) (17) – (30)
1 Sterling impact relates to the impact of fair value movement in derivatives held by the Company to hedge foreign currency fluctuations in the valuation of the investment portfolio. The notional amount of the derivatives is disclosed
in
Note 10.
The impact of an equivalent depreciation in sterling against the euro, NOK, DKK and US dollar exchange rates has the inverse impact on net profit and net assets from that shown above.
There is an indirect exposure to the rupee through the investment in the India Fund which is denominated in US dollars but it is only the direct exposure that is considered here. The risk
exposure at the year end is considered to be representative of this year as a whole.
Accounts and other information
170
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 171
Notes to the accounts continued
9 Financial risk management continued
(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
31 March
2022
Investments
at fair value
£m
As at
31 March
2021
Investments
at fair value
£m
Increase in net profit and net assets 287 180
The impact of a 10% decrease in the fair value of those investments would have the inverse impact on net profit and net assets from that shown above. The risk exposure at the year end
is considered to be representative of this year as a whole.
By the nature of the Company’s activities, it has large exposures to individual assets that are susceptible to movements in price. This risk concentration is managed within the Company’s
investment strategy as discussed in the Risk report.
(iv) Fair values
The fair value of the investment portfolio is described in detail in the Portfolio valuation methodology section and in Note 7. The fair values of the remaining financial assets and liabilities
approximate to their carrying values (2021: same).
The sensitivity analysis in respect of the interest rate, currency and market price risks is considered to be representative of the Company’s exposure to financial risks throughout the period
to which they relate (2021: same).
Notes to the accounts continued
10 Derivative financial instruments
As at
31 March
2022
£m
As at
31 March
2021
£m
Non-current assets
Forward foreign exchange contracts 6 18
Current assets
Forward foreign exchange contracts 20 25
Non-current liabilities
Forward foreign exchange contracts (6) (2)
Current liabilities
Forward foreign exchange contracts (12) (4)
Forward foreign exchange contracts
The Company uses forward foreign exchange contracts to minimise the effect of fluctuations in the investment portfolio from movements in exchange rates and also to fix the value of
certain expected future cash flows arising from distributions made by investee companies.
The fair value of these contracts is recorded in the Balance sheet. No contracts are designated as hedging instruments and consequently all changes in fair value are taken through profit
or loss.
As at 31 March 2022, the notional amount of the forward foreign exchange contracts held by the Company was £1,555 million (2021: £1,090 million).
11 Loans and borrowings
On 3 November 2021, the Company refinanced its £300 million RCF as a new £400 million sustainability-linked RCF with a maturity date of November 2024 and two one-year extension
options. The Company has the right to increase the size of the new RCF by a further £200 million, provided that existing lenders have a right of first refusal. This right was exercised on
16 December 2021 for a one-year period. On 31 January 2022 an additional £400 million facility was agreed for a one-year period. Total available debt facilities at 31 March 2022 were
£1 billion (2021: £300 million).
The new RCF is secured by a floating charge over the bank accounts of the Company. Interest is payable at SONIA or EURIBOR plus a fixed margin on the drawn amount. This fixed margin
is subject to a small adjustment annually based upon performance against agreed sustainability metrics. As at 31 March 2022, theCompany had drawn cash of £231 million from the RCF
(2021: nil). The new RCF has certain loan covenants, including a loan to value ratio.
Accounts and other information
172
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 173
Notes to the accounts continued
12 Trade and other payables
Year to
31 March
2022
£m
Year to
31 March
2021
£m
Non-current liabilities
Performance fee 38 10
Current liabilities
Management and performance fees 27 8
Accruals and other creditors 2 1
67 19
The carrying value of all liabilities is representative of fair value (2021: same).
13 Issued capital
As at 31 March 2022 As at 31 March 2021
Number £m Number £m
Authorised, issued and fully paid
Opening balance 891,434,010 1,496 891,434,010 1,496
Closing balance 891,434,010 1,496 891,434,010 1,496
Aggregate issue costs of £24 million arising from IPO and subsequent share issues have been offset against the stated capital account in previous years. In addition, the stated capital
account was reduced by Court order on 20 December 2007 with an amount of £693 million transferred to a new, distributable reserve which has been combined with retained reserves
inthese accounts. Therefore, as at 31 March 2022, the residual value on the stated capital account was £779 million.
Notes to the accounts continued
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
31 March
2022
Year to
31 March
2021
Earnings per share (pence)
Basic and diluted 45.3 23.1
Earnings (£m)
Profit after tax for the year 404 206
Number of shares (million)
Weighted average number of shares in issue 891.4 891.4
Number of shares at the end of the year 891.4 891.4
As at
31 March
2022
As at
31 March
2021
Net assets per share (pence)
Basic and diluted 303.3 268.1
Net assets (£m)
Net assets 2,704 2,390
Accounts and other information
174
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 175
Notes to the accounts continued
15 Dividends
Declared and paid during the year
Year to 31 March 2022 Year to 31 March 2021
Pence per share £m Pence per share £m
Interim dividend paid on ordinary shares 5.225 46 4.900 44
Prior year final dividend paid on ordinary shares 4.900 44 4.600 41
10.125 90 9.500 85
The Company proposes paying a final dividend of 5.225 pence per share (2021: 4.9 pence) which will be payable to those shareholders that are on the register on 17 June 2022. On the basis
of the shares in issue at year end, this would equate to a total final dividend of £47 million (2021: £44 million).
The final dividend is subject to approval by shareholders at the AGM in July 2022 and has therefore not been accrued in these Financial statements.
16 Commitments
As at
31 March
2022
£m
As at
31 March
2021
£m
Unquoted investments 302 38
As at 31 March 2022, the Company was committed to invest $398 million (£302 million) in GCX. Following the end of the 3i India Infrastructure Fund (the ‘India Fund’) life at the end of
March 2022, the India Fund has now moved into liquidation and the outstanding US$38 million (£27 million) commitment is no longer callable. During the year, the Company invested
inESVAGT and as a result, the prior year commitment of DKK 100 million (£11 million) was extinguished.
17 Contingent liabilities
As at 31 March 2022, the Company had no contingent liabilities (2021: nil).
Notes to the accounts continued
18 Related parties
Transactions between 3i Infrastructure and 3i Group
3i Group plc (‘3i Group’) holds 30.2% (2021: 30.2%) of the ordinary shares of the Company. This classifies 3i Group as a ‘substantial shareholder’ of the Company as defined by the Listing
Rules. During the year, 3i Group received dividends of £27 million (2021: £26 million) from the Company.
In 2007 the Company committed US$250 million to the India Fund to invest in the Indian infrastructure market. 3i Group also committed US$250 million to the India Fund.
No commitments (2021: nil) were drawn down by the India Fund from the Company during the year. In total, commitments of US$184 million or £140 million re-translated (2021:
US$184 million or £133 million) had been drawn down at 31 March 2022 by the India Fund from the Company. As the India Fund has reached the end of its life andmoved into liquidation,
the outstanding commitment at 31 March 2022 is no longer callable (2021: US$38 million or £27 million).
3i Investments plc, a subsidiary of 3i Group, is the Company’s Alternative Investment Fund Manager and provides its services under an Investment Management Agreement (‘IMA’).
3i Investments plc also acts as the investment manager of the India Fund. 3i plc, another subsidiary of 3i Group, together with 3i Investments plc, provides support services to the
Company (which are ancillary and related to the investment management service) which it is doing pursuant to the terms of the IMA.
Fees under the IMA consist of a tiered management fee and time weighting of the management fee calculation and a one-off transaction fee of 1.2% payable in respect of new
investments. The applicable tiered rates are shown in the table below. The management fee is payable quarterly in advance.
Gross investment value Applicable tier rate
Up to £1.25bn 1.4%
£1.25bn to £2.25bn 1.3%
Above £2.25bn 1.2%
For the year to 31 March 2022, £43 million (2021: £25 million) was payable, including one-off transaction fees payable in respect of new investments and advance payments of £42 million
were made resulting in an amount due to 3i plc of £1 million at 31 March 2022 (2021: less than £1 million due from 3i plc). In consideration of the provision of support services under the
IMA, the Company pays the Investment Manager an annual fixed fee. The cost for the support services incurred for the year to 31 March 2022 was £1 million (2021: £1 million). There was
no outstanding balance payable as at 31 March 2022 (2021: nil).
Under the IMA, a performance fee is payable to the Investment Manager equal to 20% of the Company’s total return in excess of 8%, payable in three equal annual instalments.
The second and third instalments will only be payable if either (a) the Company’s performance in the year in which that instalment is paid also triggers payment of a performance fee
inrespect of that year, or (b) if the Company’s performance over the three years starting with the year in which the performance fee is earned exceeds the 8% hurdle on an annual basis.
There is no high water mark requirement.
Accounts and other information
176
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 177
Notes to the accounts continued
18 Related parties continued
The performance hurdle requirement was exceeded for the year to 31 March 2022 and therefore a performance fee of £54 million was recognised (2021: £7 million). The outstanding
balance payable as at 31 March 2022 was £64 million (2021: £18 million), which includes the second and third instalments of the prior year fee and the third instalment of the FY20 fee.
Year Performance fee (£m)
Outstanding balance at
31 March (£m) Payable in FY23 (£m)
FY22 54 54 18
FY21 7 4 2
FY20 17 6 6
Under the IMA, the Investment Manager’s appointment may be terminated by either the Company or the Investment Manager giving the other not less than 12 months’ notice in writing,
but subject to a minimum term of four years from 15 October 2018, unless 3i Investments plc has previously ceased to be a member of 3i Group, or with immediate effect by either party
giving the other written notice in the event of insolvency or material or persistent breach by the other party. The Investment Manager may also terminate the agreement on two months’
notice given within two months of a change of control of the Company.
Regulatory information relating to fees
3i Investments plc acts as the Alternative Investment Fund Manager (‘AIFM’) to the Company. In performing the activities and functions of the AIFM, the AIFM or another 3i company
maypay 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 theportfolio 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 somecircumstances, 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.
Notes to the accounts continued
19 Unconsolidated subsidiaries and related undertakings
Name Place of incorporation and operation Ownership interest
3i Infrastructure (Luxembourg) S.à r.l. Luxembourg 100%
3i Infrastructure (Luxembourg) Holdings S.à r.l. Luxembourg 100%
Oystercatcher Luxco 1 S.à r.l. Luxembourg 100%
Oystercatcher Luxco 2 S.à r.l. Luxembourg 100%
Oystercatcher Holdco Limited UK 100%
3i Osprey LP UK 69%
3i India Infrastructure Fund A LP UK 100%
BIF WIP LP (dissolved during the year) UK 100%
BIF WIP Dutch Holdco B.V. (dissolved during the year) The Netherlands 100%
3i Infrastructure (Netherlands) B.V. (formerly Heijmans Capital B.V.) (dissolved during the year) The Netherlands 100%
NMM Company B.V. The Netherlands 100%
Heijmans A12 B.V. The Netherlands 100%
3i ERRV Denmark Limited Jersey 100%
ERRV Luxembourg Holdings S.à r.l. Luxembourg 100%
3i WIG Limited Jersey 100%
3i Envol Limited Jersey 100%
3i Tampnet Holdings Limited UK 100%
3iN Attero Holdco Limited UK 100%
3i Amalthea Topco Limited UK 100%
Reef Topco Limited UK 100%
Reef Midco Limited UK 100%
Reef Bidco Limited UK 100%
Accounts and other information
178
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 179
Notes to the accounts continued
19 Unconsolidated subsidiaries and related undertakings continued
Name Place of incorporation and operation Ownership interest
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%
Notes to the accounts continued
19 Unconsolidated subsidiaries and related undertakings continued
Name Place of incorporation and operation Ownership interest
Infinis Group:
Gengas Limited UK 100%
Novera Energy Generation No. 2 Limited UK 100%
Renewable Power Generation Limited UK 100%
Novera Energy Generation No. 3 Limited UK 100%
Costessey Energy Limited UK 100%
Mayton Wood Energy Limited UK 100%
Infinis Alternative Energies Limited UK 100%
Infinis Energy Services Limited UK 100%
Novera Energy Services UK Limited UK 100%
Infinis China (Investments) Limited UK 100%
Infinis (COE) Limited UK 100%
Infinis Energy Storage Limited UK 100%
Novera Energy Pty Limited UK 100%
Barbican Holdco Limited UK 100%
Barbican Bidco Limited UK 100%
Alkane Energy Limited UK 100%
Alkane Biogas Limited UK 100%
Alkane Energy UK Limited UK 100%
Alkane Services Limited UK 100%
Seven Star Natural Gas Limited UK 100%
Regent Park Energy Limited UK 100%
Leven Power Limited UK 100%
Rhymney Power Limited UK 100%
Alkane Energy CM Holdings Limited UK 100%
Alkane Energy CM Limited UK 100%
Accounts and other information
180
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 181
19 Unconsolidated subsidiaries and related undertakings continued
Name Place of incorporation and operation Ownership interest
Infinis Solar Holdings Limited
UK 100%
Infinis Solar Developments Limited UK 100%
Infinis Solar Limited
UK 100%
ND Solar Enterprise Limited UK 100%
Aura Power Solar UK6 Limited UK 100%
DNS:NET Group:
DNS Holdings GmbH Germany 64%
DNS Bidco GmbH Germany 64%
DNS:NET Internet Service GmbH Germany 64%
SRL Traffic Systems Group:
Amalthea Holdco Limited UK 92%
Amalthea Midco Limited UK 92%
Amalthea Bidco Limited UK 92%
Jupiter Bidco Limited UK 92%
SRL Traffic Systems Limited UK 92%
SRL GmbH Germany 92%
SRL Traffic Systems Limited Ireland 92%
ESVAGT Group:
ERRV Holdings ApS Denmark 100%
ERRV ApS Denmark 100%
ESVAGT Holdings Inc US 100%
ESVAGT A/S Denmark 100%
ESVAGT Norge AS Norway 100%
ESVAGT Holdings Ltd UK 100%
P/F ESVAGT-Thor Faroe Islands 51%
ESVAGT UK Ltd UK 100%
Notes to the accounts continued
Notes to the accounts continued
19 Unconsolidated subsidiaries and related undertakings continued
The list above comprises the unconsolidated subsidiary undertakings of the Company as at 31 March 2022.
There are no current commitments or intentions to provide financial or other support to any of the unconsolidated subsidiaries, including commitments or intentions to assist
thesubsidiaries in obtaining financial support except for those disclosed in Note 16 (2021: none). No such financial or other support was provided during the year (2021: none).
Accounts and other information
182
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 183
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
(orequivalent governing body) and in cases
where it acquires a majority equity interest
in a business, that interest may also be a
controlling interest.
No investment made by the Company will
represent more than 25% of the Company’s
gross assets, including cash holdings,
atthe time of making the investment. It is
expected that most individual investments
will exceed £50 million. In some cases,
thetotal amount required for an individual
transaction may exceed the maximum
amount that the Company is permitted
to commit to a single investment. In such
circumstances, the Company may consider
entering into co-investment arrangements
with 3i Group (or other investors who may
also be significant shareholders), pursuant
to which 3i Group and its subsidiaries
(orsuch other investors) may co-invest on
the same financial and economic terms
as the Company. The suitability of any
such co-investment arrangements will be
assessed on a transaction-by-transaction
basis. Depending on the size of the
relevant investment and the identity of the
relevant co-investor, such a co-investment
arrangement may be subject to the related
party transaction provisions contained in
the Listing Rules and may therefore require
shareholder consent.
The Company’s Articles require its
outstanding borrowings, including any
financial guarantees to support subsequent
obligations, to be limited to 50% of the
gross assets of the Company (valuing
investments on the basis included in the
Company’s accounts).
In accordance with Listing Rules
requirements, the Company will only make
a material change to its investment policy
with the approval of shareholders.
Portfolio valuation methodology (unaudited)
A description of the methodology used
to value the investment portfolio of the
Company is set out below in order to
provide more detailed information than is
included within the accounting policies and
the Investment Manager’s review for the
valuation of the portfolio. The methodology
complies in all material aspects with the
International Private Equity and Venture
Capital valuation guidelines which are
endorsed by the British Private Equity
and Venture Capital Association and
Invest Europe.
Basis of valuation
Investments are reported at the Directors’
estimate of fair value at the reporting
date in compliance with IFRS 13 Fair Value
Measurement. Fair value is defined as
‘theprice that would be received to sell
an asset or paid to transfer a liability in
an orderly transaction between market
participants at the measurement date’.
General
In estimating fair value, the Directors
seek to use a methodology that is
appropriate in light of the nature, facts
and circumstances of the investment
and its materiality in the context of the
overall portfolio. The methodology that is
the most appropriate may consequently
include adjustments based on informed
and experience-based judgements, and
will also consider the nature of the industry
and market practice. Methodologies are
applied consistently from period to period
except where a change would result in a
better estimation of fair value. Given the
uncertainties inherent in estimating fair
value, a degree of caution is applied
in exercising judgements and making
necessary estimates.
Investments may include portfolio assets
and other net assets/liabilities balances.
The methodology for valuing portfolio
assets is set out below. Any net assets/
liabilities within intermediate holding
companies are valued in line with the
Company accounting policy and held
atfairvalue 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
oneof 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.
Accounts and other information
184
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 185
Portfolio valuation methodology (unaudited) continued
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.
Information for shareholders
Designation of dividends as
interest distributions
As an approved Investment Trust,
theCompany is permitted to designate
dividends wholly or partly as interest
distributions for UK tax purposes.
Dividends designated as interest in this
way are taxed as interest income in the
hands of shareholders and are treated as
tax deductible interest payments made
bythe Company. The Company expects to
make such dividend designations in periods
in which it is able to use the resultant tax
deduction to reduce the UK corporation tax
it would otherwise pay on the interest income
it earns from its investments. The Board
is not designating any of the 5.225 pence
finaldividend payable in respect of the year
as an interest distribution.
Registrars
The Company’s registrar is Link Market
Services (Jersey) Limited (the ‘Registrar’).
The Registrar’s main responsibilities
include maintaining the shareholder
register and making dividend payments.
Their registered address is as follows:
Link Market Services (Jersey) Limited
PO Box 532
St. Helier
Jersey JE4 5UW
Channel Islands
If you have any queries relating to your
3iInfrastructure plc shareholding you
should contact the Registrar as follows:
Online: www.signalshares.com. From here
you will be able to securely email Link with
your query.
Telephone: 0371 664 0300
Overseas enquiries: +44 371 664 0300
By post: Link, Central Square,
29 Wellington Street, Leeds, LS1 4DL
* Calls from outside the United Kingdom
willbe charged at the applicable
international rate. Lines are open between
9.00am-5.30pm, Monday to Friday
excluding public holidays in England
and Wales.
Investor relations and
general enquiries
For all investor relations and general
enquiries about 3i Infrastructure plc,
please contact:
Thomas Fodor
Investor Relations
3i Infrastructure plc
16 Palace Street
London, SW1E 5JD
email: thomas.fodor@3i.com
Telephone +44 (0)20 7975 3469
or for full up-to-date investor relations
information including the latest share
price, recent reports, results presentations
and financial news, please visit the
investor relations page on our website
www.3i-infrastructure.com.
If you would prefer to receive shareholder
communications electronically,
including your Annual reports and
notices of meetings, please go to
www.3i-infrastructure.com/investors/
shareholder-centre for details of how
to register.
Frequently used Registrars’ forms
can be found on our website at
www.3i-infrastructure.com/investors/
shareholder-centre.
3i Infrastructure plc
Registered Office
12 Castle Street
St. Helier
Jersey JE2 3RT
Channel Islands
www.3i-infrastructure.com
Financial calendar
Ex-dividend date for final dividend 16 June 2022
Record date for final dividend 17 June 2022
Annual General Meeting 7 July 2022
Final dividend expected to be paid 11 July 2022
Half-yearly results November 2022
Accounts and other information
186
Accounts and other information
3i Infrastructure plc Annual report and accounts 2022 187
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
anAIF. For 3i Infrastructure plc, this is
3iInvestments 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
toundertake 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
byway of a dividend.
Company 3i Infrastructure plc.
Discounting The reduction in present value
at a given date of a future cash transaction
at an assumed rate, using a discount factor
reflecting the time value of money.
External auditor The independent auditor,
Deloitte LLP.
Fair value through profit or loss (‘FVTPL’)
is an IFRS measurement basis permitted
for assets and liabilities which meet
certain criteria. Gains and losses on
assetsand liabilities measured as
FVTPLarerecognised directly in the
Statement ofcomprehensive income.
FY15, FY20, FY21, FY22, FY23 refers
to the financial years to 31 March 2015,
31 March 2020, 31 March 2021, 31 March 2022
and 31 March 2023 respectively.
Initial Public Offering (‘IPO’) is the
mechanism by which a company admits its
stock to trading on a public stock exchange.
3i Infrastructure plc completed its IPO
inMarch 2007.
International Financial Reporting
Standards (‘IFRS’) are accounting
standards issued by the International
Accounting Standards Board (‘IASB’).
The Company’s financial statements are
required to be prepared in accordance
withIFRS, as adopted by the UK.
Investment income is that portion
ofincome that is directly related to the
return from individual investments and is
recognised as it accrues. It is comprised
ofdividend income, income from loans and
receivables and fee income. It is recognised
to the extent that it is probable that there
will be an economic benefit and the income
can be reliably measured.
Key Performance Indicator (‘KPI’)
isa measure by reference to which the
development, performance or position of
the Company can be measured effectively.
Money multiple is calculated as the
cumulative distributions or realisation
proceeds plus any residual value divided
byinvested or paid-in capital.
Net asset value (‘NAV’) is a measure
ofthe fair value of all the Company’s
assetsless liabilities.
Glossary continued
Net assets per share (‘NAV per share’)
is the NAV divided by the total number
ofshares in issue.
Net gains on investments is the movement
in the fair value of investments between the
start and end of the accounting period, or
investment disposal date, or the investment
acquisition date and the end of the
accounting period, including divestment
related costs where applicable, converted
into sterling using the exchange rates in
force at the end of the period.
Ongoing charges A measure of the annual
recurring operating costs of the Company,
expressed as a percentage of average NAV
over the reporting period.
Public Private Partnership (’PPP’) is a
government service or private business
venture which is funded and operated
through a partnership of government
andone or more private sector companies.
Retained reserves recognise the
cumulative profits to 15 October 2018,
together with amounts transferred from
theStated capital account.
Revenue reserve recognises all profits
that are revenue in nature or have been
allocated to revenue.
Revolving credit facility (‘RCF’) A
£400 million facility provided by the
Company’s lenders with a maturity date
inNovember 2024, together with a further
£200 million of commitments maturing
in December 2022 and £400 million of
commitments maturing in January 2023.
SORP means the Statement of
Recommended Practice: Financial
Statements of Investment Trust Companies
and Venture Capital Trusts.
Stated capital account The Stated capital
account of the Company represents the
cumulative proceeds recognised from
share issues or new equity issued on
the conversion of warrants made by the
Company net of issue costs and reduced
by any amount that has been transferred
to Retained reserves, in accordance with
Jersey Company Law, in previous years.
Sustainability KPIs Sustainability metrics
in relation to the Sustainability-linked
revolving credit facility. The facility includes
targets across ESG themes aligned with
our purpose.
TCFD is the Task Force on Climate-related
Financial Disclosures.
Total return measured as a percentage,
iscalculated against the opening NAV,
netof the final dividend for the previous
year, and adjusted (on a time weighted
average basis) to take into account any
equity issued and capital returned in
the year.
Total shareholder return (‘TSR’)
isthe measure of the overall return to
shareholders and includes the movement
in the share price and any dividends paid,
assuming that all dividends are reinvested
on their ex-dividend date.
Accounts and other information
188
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www.3i-infrastructure.com
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3i Infrastructure plc
Registered office:
12 Castle Street
St. Helier, Jersey JE2 3RT
Channel Islands
T +44 (0)371 664 0445
Annual report and accounts online
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meetings, please go to:
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3i Infrastructure plc Annual report and accounts 2022