## Annual report ## and accounts 2022 ## Inside this report This Annual report and accounts contains Alternative Overview Review of investments Governance Performance Measures (‘APMs’), which are financial measures not defined in International Financial 1 Welcome andSustainability report 84 Introduction to Governance Reporting Standards (‘IFRS’). These include Total return | 2 Performance highlights | | | 87 Leadership and purpose | | | --- | --- | --- | --- | --- | | | 35 ESVAGT | 41 Oystercatcher | | on opening net asset value (‘NAV’), NAV per share, | | 3 At a glance | | | 101 Division of responsibilities | Total income and non-income cash, Investment value | | | 36 Infinis | 42 DNS:NET | | | | 4 Chair’s statement | | | 105 Composition, succession and evaluation | including commitments and Total portfolio return | | | 37 TCR | 43 SRL Traffic Systems | | | percentage. The definition of each of these measures | 7 Our approach | | | 110 Audit, Risk and Internal Control | | | --- | --- | --- | --- | --- | | | 38 Tampnet | 44 Valorem | | isshown on page 66. The Total return for the year shown | | 10 Energy transition | | | 117 Relationship with Investment Manager | | | | 39 Joulz | 45 Attero | | in the Performance highlights is the total comprehensive | | 12 Digital infrastructure | | | 119 Remuneration | income for the year under IFRS. The Total return on | | | 40 Ionisos | 46 Sustainability report | | | | 14 Our business model | | | 120 Directors’ statement | opening NAV is a Key Performance Indicator (‘KPI’). | | 18 Our strategy | | | | In previous years, in addition to the APMs, the Annual | report and accounts showed portfolio information 19 Our objectives and KPIs including cash and other net assets held within intermediate unconsolidated holding companies. A reconciliation of this portfolio information to the Integrity information presented in the Financial statements ## 4 34 86 was provided. Following the partial divestment of the Legacy Oystercatcher investment and a restructure of some | Chair’s | Review of | 3iN Board | | | | --- | --- | --- | --- | --- | | | | | Objectivity | investments previously held through Luxembourg-based | | statement | investments | values | | | subsidiaries but now held directly by the Company, wehave aligned the basis of reporting in this section Accountability 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 Investment Manager’s review Financial review and Risk report Accounts and other information ‘Company’) for the year to 31 March 2022 has been 21 Review from the Managing Partner 57 Financial review 126 Independent auditor’s report drawn up in accordance with applicable English law and Jersey law and the liabilities of the Company in 24 New investments 67 Risk report to the members of 3i Infrastructure plc connection with this statement shall be subject to 26 Our portfolio 81 Directors’ duties 138 Statement of comprehensive income thelimitations and restrictions provided by such law. 29 Movements in portfolio value 139 Statement of changes in equity This Annual report and accounts contains statements 140 Balance sheet about the future outlook for 3i Infrastructure. | | | 142 Cash flow statement | | Although the Directors believe their expectations are | | --- | --- | --- | --- | --- | | | | 144 Reconciliation of net cash flow | | based on reasonable assumptions, any statements | | | | | to movement in net debt | about the future outlook may be influenced by factors | | 21 | 57 | | | that could cause actual outcomes and results to be | 145 Significant accounting policies materially different. Review from Financial 155 Notes to the accounts The Company is managed by 3i Investments plc the Managing review 183 Investment policy (unaudited) (the‘Investment Manager’ or ’3i’). The Strategic report Partner 184 Portfolio valuation methodology (unaudited) comprises pages 1 to 82. 186 Information for shareholders Cover image: SRL Traffic Systems 187 Glossary Page 43 13i Infrastructure plc Annual report and accounts 2022 ## Welcome Our new digital approach ## Our purpose is to invest responsibly 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 in infrastructure, deliveringlong-term this new structure to make the information that we publish more ## accessible to our shareholders and other stakeholders than reading sustainable returns to shareholders a weighty printed document. We will continue to print copies of the Overview ## and having a positive impact report for users who prefer that format, but we have found in recent years that fewer printed copies have been required. Reducing the ## on our portfolio companies and number of printed copies reduces our carbon footprint, and our printing and posting costs. We aim to evolve and improve our report each year ## theirstakeholders. and welcome feedback from stakeholders on the structure and content. Positive impactSustainable returnsInvest responsibly ## We want to ## make information ## more accessible ## to our stakeholders.” Watch video online Richard Laing www.3i-infrastructure.com Chair, 3i Infrastructure plc 2 ## Performance highlights ## Consistent delivery against our target ## return of 8% to 10% per annum. Overview Total return on opening NAV NAV NAV per share Full year dividend per share | 17. 2% | | | | | £2,704m | | | | | 303.3p | | | | | | 10.45p | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | +13.1% | | | | | +13.1% | | | | | | +6.6% | | | | | | 2018 | | | | 28.6% | 2018 | £1,710m | | | | 2018 | 211.0p | | | | | 2018 | 7.85p+ | | | | | 2019 | | | 15.4% | | 2019 | | £1,902m | | | 2019 | | 234.7p | | | | 2019 | | 8.65p | | | | 2020 | | 11.4% | | | 2020 | | | £2,269m | | 2020 | | | 254.5p | | | 2020 | | | 9.20p | | | 2021 | 9.2% | | | | 2021 | | | £2,390m | | 2021 | | | | 268.1p | | 2021 | | | | 9.80p | | 2022 | | | 17.2% | | 2022 | | | | £2,704m | 2022 | | | | | 303.3p | 2022 | | | | 10.45p | + Special dividend in 2018: 41.40p Total return for the year 2023 Target dividend per share ## £404m 11.15p March 2021: £206m +6.7% 3i Infrastructure plc Annual report and accounts 2022 3 ## At a glance Portfolio value by investment including commitments* Megatrends** ## A well-diversified ## investment portfolio. Overview Portfolio value including commitments* 3% 4% 5% 17% ## £3.2bn Energy transition 44% 2021: £2.0bn 6% Digitalisation 23% Globalisation 16% 6% 10% Renewing social Assets infrastructure 9% Demographic change 8% 7% ## 18 ** Refer to page 8 for details on megatrends 9% 8% 8% 9% 8% * All charts at 31 March 2022 and include commitment to invest Read more in Review of investments in GCX announced on 17 November 2021 (see page 25). Pages 35 to 45 4 ## Chair’s statement Sustainability iscentral to our purpose As the countries in which we invest ## 3i Infrastructure continues to meet its and we create value for all stakeholders increase their focus on climate change, by investing in, developing and actively we see continued opportunities to invest ## strategicobjectives and deliver its purpose. managing essential infrastructure in energy transition, putting our capital which responds to public needs, fosters to work to generate sustainable returns The Company aims to provide shareholders We have made good progress against sustainable growth and improves the lives and to have a positive impact through Overview | with a total return of 8% to 10% per annum, | our sustainability objectives and are | of communities. We invest across a broad | mitigating climate change. Similarly, | | --- | --- | --- | --- | | to be achieved over the medium term. | pleased with the level of engagement and | range of infrastructure investment themes, | increasing demand for digital connectivity | | I am delighted to report that we achieved | enthusiasm that we see across our portfolio | and are highlighting two in particular in this | brings opportunities to invest in building | | a return of 17.2% in the year ended | companies. Our report this year includes | report: energy transition and digitalisation. | the underlying infrastructure required to | | 31 March 2022, well ahead of our target | information on greenhouse gas (‘GHG’) | | meetthat demand. | | and demonstrating the attractiveness of | emissions for each company, which can be | | | Performance our portfolio. This is the eighth consecutive found in theSustainability report. The Company generated a total return yearthat we have met or exceeded our I am grateful to shareholders and the Board of£404 million in the year ended return target; and we have increased of Directors for their support during the 31 March2022, or 17.2% on opening NAV, thedividend per share in every year year, as well as to the Investment Manager’s ahead of our target of 8% to 10% per annum oftheCompany’s existence. team for their hard work in a year when to be achieved over the medium term. | Our portfolio companies have continued | office life and business travel were again | | --- | --- | | to demonstrate resilience throughout the | restricted. We made good use of virtual | | Covid-19 pandemic, keeping essential | means of communication, as well as | | infrastructure operating and supporting | meeting in person where possible. | customers, suppliers, employees and Our purpose their communities. None of our portfolio companies has direct exposure to Russia Our purpose, as set out on page 1, or Ukraine. istoinvest responsibly in infrastructure, delivering long-term sustainable returns This has been another excellent year, to shareholders and having a positive and we have confidence in the future impact on our portfolio companies and of our Company and portfolio.” their stakeholders. The key elements Richard Laing ofour purpose are used to structure Chair, 3i Infrastructure plc our Strategic report. 3i Infrastructure plc Annual report and accounts 2022 5 ## Chair’s statement continued In November 2021, we agreed to invest We completed the sale of Oystercatcher’s Changes to the Investment 20222007 c.$512 million to acquire 100% of Global four European terminals in October 2021. Manager’s team Cloud Xchange (‘GCX’). GCX is a leading This resulted in a distribution of €55 million In the 15 years since the initial On 31 March 2022, the Investment Manager public offering (‘IPO’) the Company global data communications service to the Company after repaying all announced that Phil White is stepping down has delivered an annualised total provider. Additional acquisition debt of Oystercatcher’s debt facilities. from his role as Managing Partner and shareholder return of | was raised in March 2022, reducing | Oystercatcher retains its holding of a | | | | --- | --- | --- | --- | | | | Headof Infrastructure, 3i Investments plc, | Overview | | the Company’s equity commitment | 45%stake in Oiltanking Singapore. At the | | | with effect from 1 July 2022. Scott Moseley toc.£300 million. The transaction is end of the financial year, in March 2022, and Bernardo Sottomayor will be appointed ## 13.1% expected to complete in summer 2022. we agreed to sell our European Projects as Co-Heads of European Infrastructure per annum portfolio to 3i European Operational In December 2021, we invested £191 million, and will take on Phil’s role in relation to Projects Fund (‘3i EOPF’) for £103 million. net of a subsequent debt raise, in SRL the Company. This transaction is expected to reach | The NAV per share increased to | Traffic Systems (‘SRL’). SRL is the market | | | | --- | --- | --- | --- | | | | completion by June 2022. | Phil has contributed enormously to the | | 303.3pence. We delivered a Total | leading traffic management equipment | | | Company’s success over many years. Shareholder Return (‘TSR’) of 20.9% rental companyin the UK. Dividend During his eight-year tenure as Managing inthe year (FTSE 250: 0.5%). Since IPO, We bought out our co-investor, Following the payment of the interim Partner, the Company’s returns have the Company’s annualised TSR is 13.1%, AMPCapital, purchasing their stake in dividend of 5.225 pence per share in been consistently ahead of the FTSE 250 comparing favourably with the broader ESVAGT for £258 million in February 2022. January 2022, the Board is recommending benchmark and, under his leadership, the market (FTSE 250: 7.1% annualised over | | | a final dividend for the year of 5.225 pence | capabilities of the management team have | | --- | --- | --- | --- | | thesame period). | We have continued to support growth in | | | | | | per share, meeting our target for the year | grown considerably. We have appreciated | our portfolio companies with an aggregate of 10.45 pence per share, 6.6% above Phil’s experience, wisdom and commitment Investment activity £71 million investment into DNS:NET, | | | last year’s total dividend. We expect the | and are extremely grateful for all that he has | | --- | --- | --- | --- | | This was a busy year for new investments. | Valorem, ESVAGT and Joulz to fund | | | | | | final dividend to be paid on 11 July 2022. | done for the Company. | | In June 2021, we completed the acquisition | further growth. | | | Consistent with our progressive dividend of a 60% stake in DNS:NET for £157 million. policy, we are announcing a total dividend DNS:NET is a leading independent target for the year ending 31 March 2023 telecommunications provider in Germany. of 11.15pence per share, representing an increase of6.7%. 6 ## Chair’s statement continued We note that Phil will continue with the All resolutions were approved by Directors’ duties Outlook Investment Manager on a part-time basis shareholders, including the re-election of The Directors have a duty to act honestly The Company has remained disciplined and will remain a member of the Investment the existing Directors. I was pleased with and in good faith with a view to the in its investment approach, and has Committee. We welcome the appointment the high level of shareholder engagement best interests of the Company and to succeeded in making a number of new of Scott and Bernardo, knowing them well via proxy voting at that meeting. We also exercise the care, diligence and skill that a investments during the year. Our portfolio and having worked with them over many held an interactive online shareholder reasonably prudent person would exercise consists of defensive businesses providing Overview years. The Board is confident that under presentation two weeks before the AGM in comparable circumstances. essential services to their customers and the their leadership the team will continue which enabled shareholders to submit communities they serve, often benefitting to provide excellent management of questions for Directors to answer. In accordance with the AIC Code of from long-term sustainable trends. the Company. Corporate Governance 2019 (the ‘AIC This year’s AGM will be held on 7 July 2022. Code’), the Board does this through We remain confident in our business model. Further details are provided in the Notice Corporate governance understanding the views of the Company’s As our Company has grown, we have of Meeting and on the Company’s website, andCompany domicile key stakeholders and carefully considering increased the size of the investments we www.3i-infrastructure.com. We very much how their interests and the matters set can hold in our portfolio and the funding The Company’s Annual General Meeting look forward to seeing shareholders in out in section 172 Companies Act 2006 of options we have available to us. We are (‘AGM’) was held on 8 July 2021 as a purely person again at this year’s AGM. England and Wales have been considered well-placed to take advantage of new functional meeting only conducting the In 2021, the UK government consulted in Board discussions and decision making. investment opportunities and to continue to formal business due to Government on proposals to implement a simplified More detail can be found in the Directors’ support and grow our portfolio companies. guidance and continued restrictions corporate re-domiciliation regime duties and Section 172 Statement sections relatedto the Covid-19 pandemic | | that would allow overseas companies | later in this document. | | | --- | --- | --- | --- | | inplaceatthe time. | | | Richard Laing | | | tobecome UK domiciled. The Company | | Chair, 3i Infrastructure plc | 9 May 2022 responded supporting these proposals. If implemented, the Company would be likely to take advantage of this route to become a UK company. There would be no change in the Company’s status as anapproved UK investment trust. Our purpose 3i Infrastructure plc Annual report and accounts 2022 7 ## Our approach Invest Sustainable Positive responsibly returns impact ## We invest responsibly ## and have a positiveimpact Responsible investing Our influence Encouraging each portfolio We believe that a responsible approach to We use our influence as owners and active company to include in its sustainability strategy investment will add value to our portfolio managers to ensure that our investee afocus on its employees and that the effective assessment of companies are run responsibly and and local communities Supporting TCR in Environmental, Social and Governance (‘ESG’) that they have a positive impact on the Overview itscontract win with risks and opportunities has a positive effect environment and onthe communities Investing in DNS:NET and KLMRoyal Dutch Airlines GCX to increase digital on the value of our investee companies. in which they operate. to replace a diesel fleet of connectivity both locally ground support equipment and internationally | Since 2011, the Investment Manager has | This includes supporting and empowering | (‘GSE’) with a new | | --- | --- | --- | | been a signatory to the UN Principles for | management teams to develop business | electrical fleet | | Responsible Investment and has embedded | strategies that deliver value whilst | | | a clear and comprehensive Responsible | mitigating adverse environmental and | | | Investment policy into its investment and | social impacts. We create a culture where | | | asset management processes. This policy | there is an ambition to improve our | | | sets out the businesses in which the | businesses and where it is known that we | | Positive impact Company will not invest, as well as minimum value management teams spending time Examples of where we are Providing management Supporting ESVAGT in its standards in relation to ESG matters which and resources on sustainability initiatives. makingapositive impact teams with support transition to servicing the we expect new portfolio companies to on our portfolio companies and access to a wide offshore wind sector We also seek to manage all material ESG and their stakeholders: meet, or to commit to meeting over a network of advisers risks and opportunities during the period andindustry experts reasonable time period. The policy applies of the Company’s investment. This includes to all of our investments, irrespective enhancing portfolio companies’ corporate oftheir country or sector. governance and their board reporting. We seek to invest in opportunities that, where appropriate, will develop solutions to Supporting Joulz to evolve Working with portfolio into an integrated energy companies to develop plans sustainability challenges. We make a limited transition solutions provider for reducing greenhouse number of investments each year, allowing – with solar, battery and gas emissions ## RCF us to be very selective inour approach to EVcharging technologies, and Sustainability-linked revolving credit facility (‘RCF’) Infinis to diversify its renewable new investment. During the year, we refinanced the Company’s platform into solar power and revolving credit facility as a sustainability-linked RCF. battery storage The new facility includes stretching targets across ESG themes aligned withour purpose. 8 ## Our approach continued ## The infrastructure market Investment themeMegatrend Our portfolio Competitive landscape Megatrends Competition for infrastructure assets Megatrends are shaping the world around Renewable energy remained high with considerable capital us, influencing decision making and changing generation available in the market leading to another the demands placed on our economy and record year of infrastructure assets under services. Identifying the potential for change management. This year has seen the is a key driver of our investment decision Overview Electrification/energy launch of several new UK listed and private making – from the businesses, sectors and transition funds targeting economic infrastructure countries we invest in, to the way we go investment opportunities. This includes about finding opportunities. a number of funds with narrow mandates As the Company’s portfolio continues to Energy transition – Shared resources focused on specific sub-sectors of the grow, we seek to diversify our investments infrastructure market. low-carbon and circular economy across a range of megatrends that will provide a supportive environment for Macro environment Waste treatment long-term sustainable business growth and recycling Accelerating trends in the macro and returns to shareholders. We also environment have also increased investor continually assess underlying risk factors, appetite for the infrastructure asset class. both when considering new investment Automation, This year has seen rising inflation followed opportunities and in managing the existing digital operations and by expectations of rising interest rates portfolio and its exposure to certain risks, increasing connectivity and a tightening of monetary policy from such as commodity prices and foreseeable Digitalisation and central banks. technological disruptions. technology disruption In this environment, demand for infrastructure assets typically increases Demand for healthcare since they can act as a hedge with revenues change directly or indirectly linked to inflation. Demographic These trends, and our response tothem, are discussed in more detail within the Global trade and transport Riskreport on page 75. Globalisation Urbanisation and smart cities social Renewing infrastructure 3i Infrastructure plc Annual report and accounts 2022 9 ## Our approach continued ## A disciplined investor Origination approach As social restrictions due to Covid-19 Whilst listed and private funds compete Our primary investment focus remains began to ease, we ensured that portfolio against the Company for new investments, mid-market economic infrastructure We remain a disciplined investor and where companies were able to continue delivering other UK listed infrastructure funds with controlling majority or significant possible seek opportunities to transact essential services whilst focusing on the typically target smaller investments than minority positions and strong governance off-market, only participating in competitive health and safety of employees, and the the Company or investments in operational rights, whilst adhering to a set of core processes where we believe we have a needs of customers and suppliers. and greenfield Public Private Partnership investment characteristics and risk factors. distinct advantage. Overview (‘PPP’) projects, which are outside our More information on our business model We have increased our focus on We have a large and focused investment investment focus. can be found on page 14. sustainability. During the year we team, with a broad network and access worked with portfolio companies to across the geographies in which we invest. implement processes to collect and Our reputation, local presence and the analyse greenhouse gas emissions data relationships we develop withmanagement Market segmentation and investment focus and are pleased to report the results in teams provide us with competitive our Sustainability report on page 55. advantages and allowed us to be successful Investment focus Portfolio companies are now developing in signing our new investments this year in plans for reducing their emissions over time. Examples DNS:NET, SRL and GCX onattractive terms. Return In the year we also performed a review Asset management of each portfolio company’s cyber Throughout the year we maintained a security. Portfolio company management significant focus on asset management teams are now implementing bespoke activities and investment stewardship. recommendations to enhance their cybersecurity positions. Unique offering for shareholders The Company remains unique, providing ## £100m-£400m shareholders with access to private Typical equity investment infrastructure assets across a variety of megatrends, sectors and geographies. ## 9%-14% Economic Large Typical range of gross returns per annum Operational core economic infrastructure PPP projects infrastructure Risk 10 ## Energy transition Others are contributing indirectly We also facilitate the sharing of best ## In conversation with Bernardo Sottomayor through adapting their business models practice across our portfolio, and to more sustainable practices. Our arrange sessions on sustainability topics ## onthe energy transition. | | | portfolio company ESVAGT is a good | with advisers and industry experts, | | --- | --- | --- | --- | | | | example of this. ESVAGT provides | as many of our companies are facing | | Q What is your approach to investing | 3iInfrastructure’s portfolio contains | emergency rescue and response vessels | similar challenges, so they are able | Overview | inthe energy transition and why | | a range of companies targeting this | and when we acquired the company | | tolearn from each other. | | --- | --- | --- | --- | --- | --- | | doyou believe it will deliver good | | theme in a number of different ways. | in 2015 almost all of its business was | | | | risk-adjusted returns? | | | based around oil and gas. Under | Q Do you see some infrastructure | | | | Q How are companies in the 3iN | | our ownership we have encouraged | | sectors having more impact on | A The global effort towards portfolio helping to drive the ESVAGT tofocus on vessels serving theenergy transition than others? decarbonisation requires huge energytransition forward? theoffshore wind sector and today investment in underlying energy A We encourage all of our portfolio thatis where themajority of its earnings infrastructure. This strong demand A Many of our portfolio companies companies to embrace the energy come from. for capital and underlying growth are supporting the energy transition transition regardless of sub-sector. fundamentals create a clear opportunity in some way. Some are doing that Every contribution matters. Q As an owner of multiple assets across to invest and obtain superior returns in directlyby generating renewable For example, TCR, our airport ground different sub-sectors, how are you these areas. energy like Infinis, Valorem and handling equipment business, actively encouraging sustainability across Attero which have almost 900MW of researches electrical alternatives to its theportfolio as a whole? installed renewable capacity between traditional diesel-powered equipment them, enough to power 60% of the A Sustainability is no longer a ‘nice in order to advise and fund its airport households in London. to have’. It’s an important part of and airline rental customers on this managing risk, maximising the potential transition, indirectly supporting their of an investment and doing the right GHG reduction commitments. thing. All the companies in our portfolio Another example is Joulz, whose must have a sustainability strategy. core activity is to install and upgrade We encourage our companies to look the electrical infrastructure for its at sustainability holistically, focusing industrial and commercial customers, on Social and Governance issues as enabling their own energy transition We encourage all of our portfolio well as the Environment. For example, efforts, which in many cases include at Tampnet we have worked with the companies to embrace the energy the installation of electric vehicle management team to further promote chargingpoints, solar panels, batteries transition regardless of sub-sector.” improved health and wellbeing for and non-fossil fuel heating solutions. Bernardo Sottomayor theiremployees. Partner, Co-Head of Economic Infrastructure, Europe 3i Infrastructure plc Annual report and accounts 2022 11 ## Energy transition continued Overview | Joulz is benefitting from the Dutch | Infinis collects environmentally | Valorem is a leading developer of | Under our ownership, ESVAGT has | | --- | --- | --- | --- | | government’s commitment to | harmful landfill gas and converts it | renewable energy projects from | established a leading position as a | | decarbonise the economy. The energy | into a consistent source of baseload | wind, solar and hydro. The company | renewable offshore services provider | | transition is further advanced than in | electricity for the local UK grid. | continues to grow its asset base, now | in the fast growing offshore wind | | other European countries and leads | Infinis is using its platform to make new | owning 663MW of fully developed | industry, both in Europe and the | | to an increased demand for Joulz’s | investments in activities such as solar | renewable capacity. | US. ESVAGT’s vessels support the | | equipment and services. | power generation and battery storage. | | efficient maintenance of offshore | windfarms, a key contribution to the energy transition. Read more Read more Read more Read more Page 39 Page 36 Page 44 Page 35 12 ## Digital infrastructure We also own Tampnet, which operates Q What’s the outlook for digital ## In conversation with Scott Moseley fibre networks in the North Sea and connectivity and what opportunities Gulf of Mexico, providing offshore are you seeing? ## on digital infrastructure. connectivity and smart digitalisation A Communications infrastructure is solutions to energy platforms and arguably now as fundamental to the Q Which digitalisation trends have Q Can you tell us more about your windfarms to enable efficient utilisation prospects of our economies as energy Overview beenaccelerated by Covid-19? latest investments in the digital ofour offshore energy resources. and water utilities. connectivity space and your rationale The diversification evident across these A We are all aware of the rapid shift to Innovation across smart cities, industries for investing? investments helps our shareholders a more dynamic way of working and and devices is dependent upon data learning caused by the pandemic. A Our most recent investment is benefit from digitalisation as a transmission. Recent high profile Many of us have also experienced a company called Global Cloud megatrend in different ways. corporate activity, such as Microsoft’s | transformational growth in e-commerce | Xchange, one of the largest private | | | acquisition of video game maker | | --- | --- | --- | --- | --- | | and online gaming. Perhaps less | subsea fibre | optic networks globally. | | Activision Blizzard and Meta’s push | | immediately evident to our day-to- | Its 66,000km of underwater cabling | | | into the metaverse, provides further | | day lives is the increasing emphasis | provides high-bandwidth connectivity | | 66,000km | | evidence that network infrastructure on industrial process digitalisation. on important routes between Europe, GCX’s subsea fibre optic network facilitating connectivity is going to be The consumption of data is growing Asia and North America. Its customers increasingly vital. exponentially and the architecture of range from hyper-scalers to content We are confident that we are well network connectivity is proliferating streaming and telecom carriers, placed to take advantage of these across increasingly diverse routes, and itis well-positioned to provide bulk digital opportunities. creating investment opportunity in transmission of data across continents areas such as mobile communication, along high value routes. data centres, and subsea and terrestrial At a more local level, another fibre-optic networks. 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 Communications infrastructure fibre-to-the-home coverage at only 14% is arguablynow as fundamental is low compared to other markets and it is really the only technology capable of to the prospects of our economies future-proofing demandrequirements. as energy andwater utilities.” Scott Moseley Partner, Co-Head of Economic Infrastructure, Europe 3i Infrastructure plc Annual report and accounts 2022 13 ## Digital infrastructure continued Overview GCX owns one of the world’s largest DNS:NET is rolling out the largest Tampnet’s offshore fibre optic network private subsea fibre optic networks and fibre-to-the-home network in the Berlin provides customers with mission-critical is well-positioned to capitalise on the area, where demand is growing rapidly, reliable communications in the North exponential growth in data usage. as consumers normalise data intensive Sea and Gulf of Mexico. The company is activities such as cloud-based remote benefitting from the growing requirement for working, high definition streaming and high speed, high bandwidth and low latency online gaming. in data links that allow customers to improve efficiency through remote operations. Read more Read more Read more Page 25 Page 42 Page 38 14 Our purpose ## Our business model Invest Sustainable Positive responsibly returns impact ## We invest responsibly in infrastructure ## to create long-term value for stakeholders. Overview What enables us Characteristics we look How we Value created in the year to create value for in new investments create value Investment Asset intensive Financial Non-financial Buy well business Manager’s team Asset bases that ## 3i Group network 17. 2% 4 are hard to replicate Strong governance Total return on opening Further investments inportfolio Engaged asset Provide essential netasset value companies tofund growth services management Define strategy Established ## 10.45p ## Reputation andbrand 4 market position Ordinary dividend New Chair and non-executive Good visibility High ESG standards per share Execute plan Director appointments in of future cash flows portfolio companies Robust policies An acceptable element ## and procedures 19% of demand or marketrisk Realisation ## Asset IRR +5.5% Opportunities Efficient balance sheet (since inception) Increase in installed for further growth renewable energy capacity Sustainability Framed by our strategic priorities ## 10 Portfolio companies reporting | Read more | Read more | Read more | | | | --- | --- | --- | --- | --- | | | | | on | greenhouse gas emissions | | Pages 15 and 16 | Page 17 | Page 17 | | | 3i Infrastructure plc Annual report and accounts 2022 15 ## Our business model explained What enables us to create value Investment Manager’s team Engaged asset management The Company is managed by an We drive value from our investments through the Investment Manager’s engaged asset experienced and well-resourced team. management approach. Through this approach, the Investment Manager partners with Overview The European infrastructure team was our portfolio management teams to develop and execute a strategy to create long-term established by 3i Group in 2005 and now value in a sustainable way. Examples of this partnership include developing strategies that comprises more than 50 people, including support investment in the portfolio company’s asset base over the long term; continued over30investment professionals. improvements in operational performance; and establishing governance models that promote an alignment of interests between management and stakeholders. This is one of the largest and most experienced groups of infrastructure We develop and supplement management teams, often bringing in a non-executive chair investment professionals in Europe, early in our ownership. supported by dedicated finance, tax, Examples of this engaged asset management approach can be found on our website, legal, operations and strategy teams. www.3i-infrastructure.com. 3i Group network 3i Group has a network of offices, Invest in and Growing Strengthen advisers and business relationships across develop companies our platform portfolio company Europe. The investment management to support businesses management team leverages this network to identify, a sustainable through teams accessand assess opportunities to invest future acquisitions in businesses, on a bilateral basis where possible, and to position the Company favourably in auction processes. 16 ## Our business model explained continued What enables us to create value continued Reputation and brand Robust policies and procedures High ESG standards The Investment Manager and the Company Sustainability and ESG standards are discussed throughout this report. Established investment and asset have built a strong reputation and track Please refer to Our approach on page 7, theSustainability report on management processes are supported by Overview | record as investors by investing responsibly, | pages46 to55 and the Risk report on pages 67 to 80. | the Investment Manager’scomprehensive | | | --- | --- | --- | --- | | managing their business and portfolio | | set of best practice policies, including | | | sustainably and by carrying out activities | | governance, conduct, cyber security | | | according to high standards of conduct | | and | anti-bribery. | 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 Efficient balance sheet companies, and has enabled the Investment Manager to recruit and develop employees The Company’s flexible funding model who share those values and ambitions for ## There is a strong seeks to maintain an efficient balance the future. sheet with sufficient liquidity to make ## link between The Board seeks to maintain this strong newinvestments. In order to capitalise reputation through a transparent approach on emerging opportunities, during the ## companies that have to corporate reporting, including on year we extended our borrowing facilities our progress on driving sustainability ## high ESG standards from £300 million to£1 billion. through ouroperations and portfolio. Since FY15 the Company has raised We are committed to communicating in ## and those that equitytwice and returned capital a clear, open and comprehensive manner to shareholders twice following ## are able to achieve and to maintaining an open dialogue successful realisations. with stakeholders. ## long-term sustainable ## business growth.” Anna Dellis Partner, 3i Investments plc 3i Infrastructure plc Annual report and accounts 2022 17 ## 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 ## We have a rigorous approach to identify geographies and sectors, whilst adhering to a set of core investment characteristics andrisk factors. ## the best investment opportunities and then The Investment Manager has a rigorous process for identifying, screening and selecting Overview ## work in close partnership with our portfolio investments to pursue. Although investments may be made into a range of sectors, theInvestment Manager typically focuses on identifying investments that meet most ## companies to drive sustainable growth. orallof the following criteria: Asset intensive business Good visibility Owning or having exclusive access under Buy well Strong governance Define strategy of future cash flows long-term contracts to assets that are Long-term contracts or sustainable demand essentialtodeliver the service • Comprehensive • Make immediate • Agree strategic direction thatallow us to forecast future performance withareasonable degree of confidence due diligence improvements • Develop action plan • Consistent with • Board representation • Focus on ESG return/yield targets • Appropriate • Right capital structure • Fits risk appetite Board composition Asset bases that Provide essential services Services that are an integral part of • Incentivise management are hard to replicate a customer’s business or operating Assets that require time and significant requirements, or are essential to everyday life capitalortechnical expertise to develop, withlow risk oftechnological disruption An acceptable element Opportunities for further growth Execute plan Realisation of demand or marketrisk Opportunities to grow or to develop the business into new markets, either organically Businesses that have downside protection, • Ongoing support and advice • Long-term view but or through targeted M&A butthe opportunity for outperformance • Monitor performance will sell tomaximise What we do is shareholder value | | | • Review further investment | | framed by our | | | --- | --- | --- | --- | --- | --- | | | | • Facilitate M&A | strategic priorities | | | | Established market position | Sustainability | | | | | | Businesses that have a long-standing | Businesses that meet our Responsible | | | | Read more | | position,reputation and relationship with | Investing criteria, with opportunities to | | | | Page 18 | | theircustomers – leading to high renewal | improve sustainability and ESG standards | | | | | andretention rates 18 ## Our strategy Strategic priorities ## Our strategy is ## to maintain a Maintaining a Disciplined approach Managing the balanced portfolio to new investment portfolio intensively ## balanced portfolio Delivering an attractive mix of income yield Focusing selectively on investments that Driving value from our portfolio through Overview ## of infrastructure and capital appreciation for shareholders. are value enhancing to the Company’s our engaged asset management portfolio and with returns consistent with approach. ## investments delivering Investing in a diversified portfolio in our objectives. developed markets, with a focus on Delivering growth through platform ## an attractive mix of theUKand Europe. investments. ## income yield and ## 17% £980m 4 5 ## capital appreciation Largest single investment New investments Follow-on investments Portfolio by value* or commitments in portfolio companies companies ## for shareholders. refinanced* Read more Read more Read more Pages 34 to 45 Pages 24, 25 and 34 to 45 Pages 34 to 45 Maintaining an Sustainability a key efficient balance sheet driver of performance Minimising return dilution to shareholders Ensuring that our investment decisions from holding excessive cash, while and asset management approach consider retaining a good level of liquidity for both the risks and opportunities presented future investment. by sustainability. | | | £484m | | 898MW | | | --- | --- | --- | --- | --- | --- | | | | Total liquidity less investment | | Installed renewable | | | | | commitments* | | energy capacity | | | * Includes commitment to invest in GCX, net | | | Read more | | Read more | | | of debt financing, madeon17 November 2021. | | Page 63 | | Page 50 | 3i Infrastructure plc Annual report and accounts 2022 19 ## Our objectives and KPIs Our KPIs ## Our objectives Total return % on opening NAV Rationale and definition Performance over the year ## are to provide | | 2018 | | | | | 28.6% | • Total return is how we measure the overall financial | | • Total return of £404 million in the year, or 17.2% | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | performance of the Company | | onopening NAV | | | shareholders with: | 2019 | | | 15.4% | | | | | | | | | | | | | | | | • Total return comprises the investment return from | | • The portfolio showed good resilience overall with | | | | | 2020 | | 11.4% | | | | | theportfolio and income from any cash balances, | | strong performance in particular from Oystercatcher, | Overview | | | | | | | | | | netof management and performance fees and | | TCR and ESVAGT | | | | 2021 | 9.2% | | | | | | | | | | | | | | | | | | | operating and finance costs. It also includes foreign | • The hedging programme continues to reduce the | | | | | | | | | | | | exchange movement and movement in the fair value | | volatility in NAV from exchange rate movements | | | a total return of | 2022 | | | | 17.2% | | | | | | | of derivatives and taxes • Costs were managed in line with expectations Target 8-10% • Total return, measured as a percentage, is calculated ## 8%to10% per annum, against the opening NAV, net of the final dividend for Target To provide shareholders with a total return of8%to the previous year, and adjusted (on a time-weighted ## tobeachieved over average basis) to take into account any equity issued 10%per annum, to be achieved over themedium term. and capital returned in the year Met or exceeded target ## themedium term for 2022 and every prior year shown Annual distribution pence per share Rationale and definition Performance over the year ## a progressive annual | | | | | | | | • This measure reflects the dividends distributed | | • Proposed total dividend of 10.45 pence per share, | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2018 | 7.85p+ | | | | | | | | | | | | | | | | | | toshareholders each year | | or £93 million, is in line with the target set at the | | dividend per share | 2019 | | 8.65p | | | | | | | | | | | | | | | | • The Company’s business model is to generate | | | beginning of the year | | | | | | | | | | returns from portfolio income and capital returns | • Income generated from the portfolio and cash | | | | 2020 | | | 9.20p | | | | | | | | | | | | | | | | (through value growth and realised capital profits). | | deposits, including non-income cash distributions | | | 2021 | | | | 9.80p | | | Income, other portfolio company cash distributions | | and other income from portfolio companies, | | | | | | | | | | and realised capital profits generated are used to | | totalled£143 million for the year | | | 2022 | | | | 10.45p | | | | | | | | | | | | | | | meet the operating costs of the Company and to | • Operating costs and finance costs used to assess | | | | 2023 Target | | | | | 11.15p | | make distributions to shareholders | | dividend coverage totalled £50 million in the year | | | | | | | | | • The dividend is measured on a pence per share basis, | | • The dividend was fully covered for the year | | + Special dividend (2018: 41.40p) and is targeted to be progressive • Setting a total dividend target for FY23 of 11.15 pence Target Progressive dividend per share policy. per share, 6.7% higher than for FY22 FY23 full year dividend target of 11.15 pence per share. Dividend per share increased every year since IPO 20 ## Investment ## Manager’s ## review Joulz Page 39 3i Infrastructure plc Annual report and accounts 2022 21 ## Review from the Managing Partner This was a very busy year of investment Our portfolio is not immune to the ## We have made attractive new activity. Our new investments in SRL and challenging current macro environment of GCX are both in growth sectors with strong higher inflation, interest rate rises, tax rises, ## investments, both in new businesses market positions. Increasing our stake in supply side disruptions and heightened ESVAGT to 100% and our injections of geopolitical risks from Russia’s invasion ## and companies we already know additional capital into DNS:NET, Valorem of Ukraine. However, theCompany has Investment Manager’s review ## well, and successfully realised and Joulz will benefit the Company awell-diversified portfolio, each business from further growth in those platforms. operating in its established market ## Oystercatcher’s European terminals The Company has increased its credit position and, in the majority of cases, with facilities to ensure that it continues to predictable income and some inflation ## and our European projects portfolio. have ample liquidity to make further protection. Over the past six months we new investments. have also further reduced the portfolio’s exposure to interest rates through extensive ## The portfolio continued to be resilient, The portfolio delivered strong performance financing activity. We supported five during the year and met our income portfolio companies through refinancing ## delivering strong operational and expectations. As Europe emerges from or additional debt raises, extending debt the Covid-19 pandemic, we have seen a maturities and locking in fixed rates on ## financial performance ahead of the pick-up in growth initiatives in a number attractive terms. of our portfolio companies and we are ## expectations we set a year ago. working closely with our portfolio company management teams to execute on these. ## Competition for new investments ## remains intense, leading to high pricing ## of assets, and we remain disciplined ## to invest selectively. It was a very good year for the Company – a high level of new investment, excellent realisations, and a strong portfolio performance.” Phil White Managing Partner and Head of Infrastructure, 3i Investments plc 22 ## Review from the Managing Partner continued Portfolio review Despite new travel restrictions imposed Our French-headquartered companies, Our newest assets, DNS:NET and SRL, during the winter, TCR continued to Ionisos and Valorem, were strong are performing broadly in line with our Most portfolio companies performed demonstrate the resilience of its business performers in the year. To sustain the investment cases. In February 2022 we materially ahead of expectations. | | model and performed ahead of our | growing demand from the healthcare and | invested a further £33 million in DNS:NET | | | --- | --- | --- | --- | --- | | The sale of Oystercatcher’s 45% | expectations for the year. The business | pharma industries, Ionisos is looking at | to | support its fibre network roll-out. | | stakes in its four European terminals in | continues to grow, increasing the number | various expansion opportunities beyond | | | On 29 March 2022, the Company signed Investment Manager’s review Amsterdam, Terneuzen, Ghent and Malta of airports in which it operates and the construction of a new site at Kleve, an agreement to sell its European drove part of the outperformance in the increasing the number of clients it serves. Germany. Valorem is progressing well projects portfolio, comprising four | year. The majority of the net proceeds | | with its construction activity with a total | | | | --- | --- | --- | --- | --- | | | Infinis significantly exceeded its budget | | Dutch | and two French PPP projects | | from the sale were used to prepay all | | of 105MW of new wind and solar projects | | | | | due to outperformance in its captured | | across transport and social infrastructure, | | | of Oystercatcher’s debt. | | entering into operation during the year. | | | | | landfill methane business, higher UK power | | to 3i EOPF, representing an uplift of | | It also successfully closed Viiatti, a landmark The balance of the net proceeds to prices and the frequent power supply £8 million on the value at September. large-scale wind project in Finland. | Oystercatcher, €55 million, was distributed | system imbalances in the UK that benefitted | | Completion is | | expected by June 2022 and | | --- | --- | --- | --- | --- | --- | | to the Company. Oystercatcher continues | its power response assets. Attero also | Tampnet and Joulz performed well during | proceeds are estimated at £103 million. | | | | to own a 45% stake in Oiltanking Singapore | benefitted from high power prices, which, | the year. At Tampnet, customers continued | This results in a 20% gross IRR and a 1.7x | | | | Limited alongside Oiltanking GmbH. | together with higher than forecast waste | to upgrade their bandwidth requirements. | gross money multiple for the Company. | | | | | supply volumes and gate fees, helped it | Joulz’s core businesses of Infrastructure | | | | | ESVAGT, in which we invested £258 million | | | Finally, we were pleased with the | | | | | to materially outperform expectations | Services and Metering performed in line | | | | | to acquire the 50% stake owned by our | | | significant progress made towards | | | | | and the prior year. In March 2022, the | with expectations and we saw continued | | | | | co-investor, AMP, had a very good year, | | | realising | the remaining assets in the | | | | business closed an additional debt raise | healthy growth in the order book. This was | | | | | benefitting from higher contract rates and | | | 3i IndiaInfrastructure Fund (the ‘India | | | | | onfavourable terms. | offset by some delays in completing new | | | | | utilisation levels returning to pre-Covid | | | Fund’), with the sale of the India Fund’s | | | projects, mainly due to Covid-19 related levels. It also won a milestone contract stake in KMC Roads and in GVK Energy at staffing issues. The Company invested to provide the world’s first green Service uplifts to the carrying value. £5 million of new equity into Joulz to Operation Vessel, powered by batteries and support further growth. renewable e-methanol, to theHornsea 2 wind farm in the UK. 3i Infrastructure plc Annual report and accounts 2022 23 ## Review from the Managing Partner continued Investment activity Throughout the year, we saw an active Outlook investment pipeline that included a During the year, the Company invested It was a very good year for the Company, broad range of potential new investment or committed £980 million into its target with a high level of new investment, opportunities. Competition for new markets. In November, we agreed to excellent realisations, and a strong investments was very high, and we are invest c.$512 million to acquire 100% portfolio performance. The market focused on achieving an appropriate of GCX. GCX is a leading global data for newinvestments remains highly Investment Manager’s review balance of risk and return. communications service provider and owns competitivebut we remain very selective one of the world’s largest private subsea and, as we have shown consistently over Sustainability fibre optic networks. Completion is subject many years, are prepared to sell assets We took a big step forward on to certain regulatory approvals and where that generates exceptional returns sustainability during the year. We set is expected mid-2022. In December, for shareholders. The Company is in several sustainability-related objectives wecompleted the £191 million acquisition ahealthy position for the future. and are pleased to have met all of these. of a 92% stake in SRL and invested a further This includes reporting Scope 1 and £21 million into Valorem and £5 million into Phil White Scope 2 greenhouse gas emissions for our Joulz to fund their growth. In February, Managing Partner and Head of Infrastructure, portfolio companies for the first time as well we increased our stake in ESVAGT from 3i Investments plc as implementing policies and entering into 9 May 2022 50% to 100% for £258 million and invested financial agreements that further embed a further £33 million into DNS:NET to sustainability throughout our investment fund the next step of its fibre roll-out. and asset management processes. These new investments have added further diversification to the Company’s portfolio, In the year ahead, we plan to build on which is well-balanced by size of investment this progress by working with portfolio and has exposure to a range of countries, companies to consider potential sectors and risk factors. This should opportunities to reduce their greenhouse strengthen the Company’s ability to gas emissions over time and by assessing meet its return and dividend objectives the results of climate scenario analysis. over the medium term. 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. 24 ## New investments Characteristics Asset intensive business that is hard to replicate SRL rents a fleet of c.13,000 TTE under full Investment rationale service contracts. The fleet is deployed from 30 strategically located depots Investment Manager’s review • Temporary Traffic Equipment (‘TTE’) is throughout the UK. mission-critical for the safe use of roads Good visibility on future cash flows • SRL fits with the Company’s strategy There is broad political and regulatory of investing in companies with leading support for increased investment in UKinfrastructure and TTE will be needed market positions and barriers to entry, tosupport this. yet with operational levers to achieve Provides essential services attractive returns for shareholders TTE is safety critical equipment needed through active asset management to protect highway workers and segregate traffic, cyclists and pedestrians. • SRL has sound market fundamentals Acceptable element of demand risk through the increasing emphasis placed Primary competition for SRL is from on health and safety, anda growing customers with owned assets who often propensity to rent rather than own TTE use their own fleets to serve a baseload ofwork and then top up with rented TTE. • Outsourcing ownership of TTE makes Established market position economic sense for traffic management SRL is the only large rental company of companies, as it allows them to TTEin the UK. It benefits from economies manage maintenance and utilisation of scale through being able to provide more efficiently access to TTE nationally and 24/7. Opportunities for further growth • SRL has a market leading reputation The rental model is expected to increase and is trusted by its customers penetration and gain market share from theownership model over time. ## SRL is the UK’s leading Sustainability TTE, and in particular SRL’s smarter products, allow for greater control of traffic ## lessor of temporary traffic Invested Equity stake flows, which in turn reduces congestion around roadworks and improves safety. ## management equipment. ## £191m 92% 3i Infrastructure plc Annual report and accounts 2022 25 ## New investments continued Characteristics Asset intensive business that is hard to replicate GCX’s 66,000km of cables,spanning from Investment rationale North America to Asia, would require large upfront investments and a multi-year lead • GCX owns one of the most Investment Manager’s review time to replicate. comprehensive subsea cable networks Good visibility on future cash flows globally, serving customers in over GCX’s core network benefits from high 180 countries margins and low maintenance capex requirements, resulting in an attractive • Benefits from the rapidly expanding yield profile for 3i Infrastructure. data market with data usage forecast Provides essential services to grow exponentially GCX is a key infrastructure provider in the • Operates in a market with high barriers to rapidly expanding data market, in particular in high growth markets in Asia and the entry whilst providing anessential service Middle East. • Supported by a highly experienced Acceptable element of demand risk management team with astrong track Over 90% of GCX’s revenue is recurring record in the sector in nature, underpinned by a mixture of medium-term (1-3 years) and long-term • Attractive entry valuation following (10years+) contracts. abilateral process 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 ## GCX owns one of the accelerate growth or to further strengthen GCX’snetwork footprint. ## most comprehensive subsea Expected equity commitment Equity stake ## cable networks globally. ## c.£300m 10 0% 26 ## Our portfolio The Company’s portfolio was valued ## The portfolio at £2,873 million at 31 March 2022 (2021: £1,804 million) and delivered a total ## comprises a portfolio return in the year of £509 million, including income and allocated foreign ## diversified, defensive exchange hedging (2021: £232 million). Investment Manager’s review ## set of businesses Table 1 summarises the valuations and movements in the portfolio, as well as the ## providing essential return for each investment, for the year. In accordance with accounting standards, ## services. We are ‘Investments at fair value through profit ## confident that the or loss’ as reported in the Balance sheet include, in addition to the portfolio asset ## portfolio is well valuation, the cash and other net assets held within intermediate unconsolidated ## positioned to deliver holding companies. Due to the change in basis of accounting described in the ## our target returns. Financial review on page 59, there is no longer any difference between Table 1 and the amounts reported in theFinancial statements. Read more Pages 35–45 3i Infrastructure plc Annual report and accounts 2022 27 ## Our portfolio continued Table 1: Portfolio summary (31 March 2022, £m) | | Directors’ | | | | | | | | | Directors’ | | Allocated | | Underlying | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | valuation | | | | Accrued | | | | Foreign | valuation | | | foreign | | portfolio | Portfolio | | | 31 March | | Investment | Divestment | income | | Value | exchange | | 31 March | | exchange | | | income | total return | | Portfolio assets | | 2021 | in the year | in the year | movement | movement | | translation | | | 2022 | hedging | | in the year | | in the year¹ | 2,3 ESVAGT 189 294 – 3 57 5 548 (5) 28 85 Infinis 300 – – 2 30 – 332 – 17 47 Investment Manager’s review 2,4 TCR 199 14 – – 67 (1) 279 1 13 80 2 Tampnet 230 5 – – – 6 241 (2) 22 26 2,4 Joulz 219 10 – – 14 (2) 241 2 6 20 2 Ionisos 202 5 – 4 28 (2) 237 2 9 37 5 Oystercatcher 157 – (56) 1 121 7 230 (5) 5 128 2,3 DNS:NET – 193 – 2 9 (2) 202 2 4 13 5 SRL – 274 (83) 5 4 – 200 – 7 11 4 Valorem 107 21 – – 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 5 Projects 93 – (1) – 12 (1) 103 1 7 19 India Fund 3 – (8) – 4 1 – – – 5 6 Total portfolio reported in the Financial statements 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 onpage59, there is no longer any difference between Table 1 and the amounts reported in the Financial statements. 28 ## Our portfolio continued | The total portfolio return in the year of | Performance was strong across the | | Chart 1 below shows the portfolio return | | | --- | --- | --- | --- | --- | | £509 million is 19.8% (2021: £232 million, | portfolio, driven principally by the | | in | the year for each asset as a percentage | | 13.7%) of the aggregate of the opening | realisation of the European storage | | of | the aggregate of the opening value of | | value of the portfolio and investments | terminals held by | Oystercatcher for a price | the asset and investments in the asset in | | | in theyear (excluding capitalised interest), | above their opening valuation and by | | the | year (excluding capitalised interest). | | which total £2,565 million. | outperformance from a number of portfolio | | Note that this measure does not time-weight | | Investment Manager’s review companies but particularly TCR and ESVAGT. for investments in the year. 19.8% SVAGT 18.5% 15.7% 40.0% 11.3% Chart 1: Portfolio return by asset (year to 31 March 2022) 8.9% | Total portfolio return | | | | | 18.3% | | | | --- | --- | --- | --- | --- | --- | --- | --- | | E | | | | | | | 81.5% | | Infinis | | | 6.7% | | | | | | TCR | | 4.0% | | | | | | | Tampnet | | | | 16.4% | | | | | Joulz | | | | 16.2% | | | | | Ionisos | | | | | | 20.4% | | | Oystercatcher | * Acquired during the year and portfolio return not annualised. | | | | | | | DNS:NET* SRL* Valorem Attero Projects 3i Infrastructure plc Annual report and accounts 2022 29 ## Movements in portfolio value The movements in portfolio value were Economic infrastructure portfolio The value increase in TCR of £67 million ESVAGT increased in value by £57 million, driven principally by the delivery of planned reflects: the outperformance of the as we revised our investment case following The economic infrastructure portfolio cash flows and other asset outperformance business during the year; cost savings the completion of the acquisition of generated a value gain of £359 million in | as well as new and follow-on investments | | | delivered and expected from its cost | our co-investor’s 50% stake in ESVAGT. | | --- | --- | --- | --- | --- | | | the | year, alongside income of £120 million. | | | | made during the year. A reconciliation of | | | optimisation programme; and a reduction | We revised our growth assumptions for | | the movement in portfolio value is shown | The £121 million value increase in | | in the discount rate to remove the Covid-19 | the business and made a small reduction | Investment Manager’s review | in Chart 2 below. The portfolio summary | Oystercatcher reflects: the uplift achieved | | premium previously applied. This increased | in the discount rate to reflect the reduction | | | --- | --- | --- | --- | --- | --- | | shown in Table 1 details the analysis of | from the sale of the European terminals; | | valuation is further supported by increased | in risk following the signing of significant | | | these movements by asset. Changes to | the | prepayment of Oystercatcher’s debt; | interest in TCR’s full service rental model and | new contracts and the | completion of | | portfolio valuations arise due to several | and a reduced discount rate to reflect | | our confidence in the long-term value of its | the newbuild programme for three | | | factors, as shown in Table 2. | higher quality cash flows from Singapore | | asset base and market opportunity. | new MHIVestas Service Operation | | | | and low leverage. | | | 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 3,000 of cash distributions. This was due to a 375 9 17 2,873 combination of business outperformance, 816 Chart 2: Reconciliation of the movement in portfolio value (year to 31 March 2022, £m) the continued progress of its solar 2,500 (148) development programme and changes in forecast futurepower prices. 2,000 1,804 Ionisos experienced a £28 million gain due to significant outperformance, particularly 1,500 from strong demand in the medical devices and pharmaceuticals sectors. 1,000 500 Opening 1 Divestment/ Value Exchange Accrued Closing Investment 2 portfolio value at capital repaid movement movement income portfolio value at 1 April 2021 movement 31 March 2022 1 Includes capitalised interest. 2 Excludes movement in the foreign exchange hedging programme (see Chart 7 in the Financial review). 30 ## Movements in portfolio value continued Table 2: Components of value movement (year to 31 March 2022, £m) Projects portfolio The value gain in the Projects portfolio of Value movement Value movement component in the year Description £12 million reflects the proceeds expected Planned growth 109 Net value movement resulting from the passage of time, consistent from the agreement to sell the holdings to with the discount rate and cash flow assumptions at the beginning of 3i EOPF which is expected to complete by the year less distributions received and capitalised interest in the year. June 2022. Investment Manager’s review Other asset performance 188 Net value movement arising from actual performance in the year India Fund and changes to future cash flow projections, including financing assumptions and changes to regulatory assumptions. Includes the During the year we divested KMC Roads uplift on the sale of Oystercatcher’s European terminals and the and GVK Energy at an uplift to the Projects portfolio. carrying value. Discount rate movement 43 Value movement relating to changes in the discount rate applied to theportfolio cash flows. Summary of portfolio Macroeconomic assumptions 35 Value movement relating to changes to macroeconomic out-turn or valuation methodology assumptions, eg power prices, inflation, interest rates and taxation Investment valuations are calculated at the rates. This includes changes to regulatory returns that are directly half-year and at the financial year end by linked to macroeconomic variables. the Investment Manager and then reviewed Total value movement before exchange 375 by the Board. Investments are reported at Foreign exchange retranslation 9 Movement in value due to currency translation to year end date. the Directors’ estimate of fair value at the Total value movement 384 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. 3i Infrastructure plc Annual report and accounts 2022 31 ## Movements in portfolio value continued Where the DCF methodology is used, The current impact on the portfolio of As a ‘through the cycle’ investor with For ESVAGT, which operates Emergency the resulting valuation is checked against the war in Ukraine is, in our assessment, a strong balance sheet we consider Rescue and Response Vessels (‘ERRVs’) in other valuation benchmarks relevant not material. valuations in the context of the longer-term the North Sea servicing sectors including to the particular investment, including, value of the investments. This includes the oil and gas market, we do not The volatility in power prices has for example: consideration of climate change risk and assume any new vessels or replacement positively affected our energy generating stranded asset risk. Factors considered vessels in our valuation for that segment • earnings multiples; portfolio companies, although the Investment Manager’s review include physical risk, litigation risk linked of the business. majority of our power price exposure • recent transactions; and to climate change and transition risk was hedged in the short to medium term. However, a number of our portfolio • quoted market comparables. (for example, assumptions on the timing Future power price projections are taken companies are set to benefit from these and extent of decommissioning of In determining a DCF valuation, we consider from independent forecasters and changes changes. Digitalisation in the offshore North Sea oil fields, which affects Tampnet and reflect changes to the two principal in these assumptions will affect the future oil and gas sector in order to reduce and ESVAGT). We take a granular approach inputs, being forecast cash flows from the value of these investments. costs is benefitting Tampnet. The energy to these risks, for example each relevant | investment and discount rates. We consider | | | | | transition in the Netherlands, with a focus | | --- | --- | --- | --- | --- | --- | | | TCR operates in the aviation sector, | | | offshore oil and gas field has been assessed | | | both the macroeconomic environment | | | | | on electrification, is benefitting Joulz. | | | which | has been severely affected by travel | | individually to forecast the market over the | | | and investment-specific value drivers when | | | | | The base case for each of our valuations | | | restrictions. The value of TCR assumes a full | | | long term and a low terminal value has been | | | deriving a balanced base case of cash flows | | | | | takes a balanced view of potential factors | | | recovery in air | | traffic to pre-Covid-19 levels | assumed at the end of the forecast period. | | | and selecting an appropriate discount rate. | | | | | that we estimate are as likely to result in | in 2024, consistent with the assumptions In the case of stranded asset risk, underperformance as outperformance. A prevalent theme this year has been made in the prior year. we consider long-term threats that inflationary pressures on supply chain costs may impact value materially over our and employee costs. The ability to pass cost investment horizon, for example, inflation to customers varies by portfolio technological evolution, climate change, company so we took a granular approach or societal change. to modelling the effects of inflation. 32 ## Movements in portfolio value continued | Discount rate | During the year, we witnessed an increase | Investment track record | The value created through this robust | | | --- | --- | --- | --- | --- | | | in risk-free rates across Europe as central | | investment performance has been | | | Chart 3 shows the movement in the | | As shown in Chart 4, since its launch in 2007, | | | | | banks started to take action in response | | crystallised | ina number of instances | | weighted average discount rate applied to | | 3i Infrastructure has built a portfolio that | | | | | to higher inflation. The increase in risk-free | | through well-managed realisations, shown | | | the portfolio at the end of each year since | | has provided: | | | | | rates was offset by reductions in equity | | as ‘Realised assets’ in Chart 4. While the | | the Company’s inception and the position risk premia, the implied excess return over • significant income, supporting the Company is structured to hold investments as at March 2022. During the year, the Investment Manager’s review a risk-free rate of return, in the countries delivery of a progressive annual dividend; over the long term, it has sold assets where weighted average discount rate increased in which we invest. We are not yet seeing • consistent capital growth; and compelling offers will generate additional modestly as the introduction of the new | | any upward pressure on discount rates | | | shareholder value. | | --- | --- | --- | --- | --- | | investments in SRL and DNS:NET to the | | | • strong capital profits from realisations. | | | | as | aresult of higher interest rates. | | | | portfolio at a higher than average discount | | | | This was the case with WIG in 2019 which | These have contributed to a 19% annualised rate was mostly offset by small reductions generated an IRR of 27%, Eversholt Rail in asset Internal Rate of Return (‘IRR’) since in discount rates for Oystercatcher, TCR, 2015 and XLT in 2019 which both generated the Company’s inception. The European ESVAGT and Valorem. IRRs in excess of 40% and Elenia and AWG portfolio has generated strong returns, in 2018, which generated IRRs of 31% and in line with, or in many cases ahead of, 16% respectively. expectations. Portfolio asset returns in Chart 4 include an These returns were underpinned by allocation of FX hedging where applicable. substantial cash generation in the form ofincome or capital profits. Chart 3: Portfolio weighted average discount rate (31 March, %) 13.8 13.2 12.5 12.6 12.4 11.3 12.0 10.8 10.9 11.8 10.5 10.0 10.8 10.2 9.9 Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 417 ESVAGT 548 322 Infinis 332 80 85 156 TCR 279 224 187 Tampnet 241 13 195 Joulz 241 2 20 186 Ionisos 237 6 139 Oystercatcher 230 47 157 190 3i Infrastructure plc Annual report and accounts 2022 33 DNS:NET ## Movements in portfolio value continued 202 3 191 SRL 200 2 80 Valorem 144 16 Chart 4: Portfolio asset returns throughout holding period (since inception, £m) 88 Attero Existing portfolio (Total return) Realised assets (Total return) 116 25 1 Multiple Multiple IRR 75 Projects | | 103 | 252 | 417 | | | | WIG | 265 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 1.3x | ESVAGT | | | 1.7x | 27% | | | | | | | | | | | | (realised December 2019) | | | 21431 | 548 Investment Manager’s review 322 XLT 63 Infinis | 1.5x | | | 5.9x | 40% | (realised March 2019) | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 332 80 85 | | | | | | 38332 | | | 156 | | | | | Elenia | 195 | | TCR | 1.9x | | | 4.5x | 31% | (realised February 2018) | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 279 224 | | | | | | 766 106 | | | 187 | | | | | AWG | 173 | | Tampnet | 1.4x | | | | 3.3x | 16% | (realised February 2018) | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 241 | 13 | | | | | | 410 | 154 | | | 195 | | | | | | Eversholt | 151 | | | Joulz | 1.3x | | | | 3.3x | 41% | (realised April 2015) | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 241 | 2 20 | | | | | | 114391 | | | 186 | | | | | | Projects | 289 | | Ionisos | 1.3x | | | 1.9x | 22% | (realised assets) | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 237 6 | | | | | 446 | 103 | | | 139 | | | | | 138 | | | 1 | | Oystercatcher | | | | | | | Others | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 3.1x | | | | | 1.2x | 8% | | | | | | | | | | 230 47 157 | | | | | | 24145 | | | | | 190 | | | | | | 108 | | | | | DNS:NET | | | | | India Fund | | | | | 1.1x | | | | | 0.6x | (6%) | | | | | | | | | 202 3 | | | | | | 61 | | 191 SRL ### 1.1x 200 2 Asset IRR to 31 March 2022 Total cost Value including accrued income 80 Valorem Proceeds on disposals/capital returns Cash income ### 2.0x 144 16 Portfolio asset returns include allocation of FX hedging where applicable. Dates of asset realisations refer 88 ## 19% to completion dates. Attero ### 1.6x 116 25 1 Since inception 1 Others includes junior debt portfolio, T2C and Novera. 75 Projects ### 1.7x 103 252 | | WIG | | 265 | | | --- | --- | --- | --- | --- | | (realised December 2019) | | | | 21431 | | | XLT | 63 | | | (realised March 2019) 38332 | | Elenia | | 195 | | | --- | --- | --- | --- | --- | | (realised February 2018) | | | | 766 106 | | | AWG | 173 | | | (realised February 2018) 410 154 Eversholt 151 (realised April 2015) 114391 Projects 289 (realised assets) 446 103 138 1 Others 24145 108 India Fund 61 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. 34 ## Review of ## investments and ## Sustainability Valorem Page 44 3i Infrastructure plc Annual report and accounts 2022 35 ## Review of investments Performance (£m) Ownership Country Currency 100% Denmark, Norway, DKK 417 UK and USA Megatrend Date invested 548 Energy Transition Management September 2015 and team HQ February 2022 Total cost Closing value Cash distributions Esbjerg, Denmark Review of investments and Sustainability Developments in the year An important multi-vessel contract was signed with Total Energies in Denmark Following the acquisition of our in the year. co-investor AMP’s 50% stake in ESVAGT, 3i Infrastructure now owns 100% of We recently appointed Soren Poulsgaard the business. ESVAGT has established Jensen, ex-CEO of Scandlines, to the a leading position in the offshore ESVAGT Board. He brings significant wind service operation vessels (‘SOV’) experience in the maritime sector and market. Despite increasing interest knowledge of working with 3i. from competitors, the business recently Sustainability signed a contract with Ørsted for the world’s first green SOV which will service ESVAGT is maintaining its market position the Hornsea 2 wind park in the UK. as the leading offshore wind service vessel provider. It has clear emissions In the US, ESVAGT and its joint venture reductions goals which tie back to the partner, Crowley, are exploring several company’s aim of becoming CO 2 -neutral SOV opportunities to service existing by 2035. ESVAGT’s strategy has been European customers. further advanced by the latest SOV ESVAGT’s emergency rescue and design, powered by batteries and dual fuel response vessel segment is also engines, capable of sailing on renewable generating momentum due to e-methanol. increasingly attractive supply/demand dynamics and a renewed focus on security of energy supply in Europe. 36 ## Review of investments continued Performance (£m) Ownership Country Currency 100% UK GBP 322 Megatrend Management Date invested 332 165 Energy Transition team HQ December 2016 Northampton, UK Total cost Closing value Cash distributions Review of investments and Sustainability Developments in the year An additional 100MW is currently in the planning process with a longer-term Infinis performed strongly in the year, potential for afurther 200MW+. It has thanks to good operating performance, experienced some delays in solar project higher power prices and price volatility development together with higher which benefitted the power response development costs. assets in particular. It has faced some challenges in its Captured Mineral In parallel, Infinis is developing a Methane business due to lower engine complementary pipeline of potential availability and reliability. Infinis’s battery sites to capitalise on expected cashflows are positively correlated continued power price volatility. Infinis has with UK RPI inflation through the 36MW of projects expected to commence index-linked Renewables Obligations construction in FY23. Certificate regime. Sustainability Infinis continues to deliver on its strategy Infinis continues to make good progress to grow into a diversified and low-carbon on its sustainability agenda. Its targets have renewable energy player: on the solar been aligned to its ambition to meet the front Infinis now has 117MW of consented growing energy demand whilst reducing sites with 97MW expected to commence industry emissions, support the transition construction in FY23. to new renewable energy sources and grow a clean low-carbon economy whilst also taking care to safeguard biodiversity and manage natural resources responsibly. 3i Infrastructure plc Annual report and accounts 2022 37 ## Review of investments continued Performance (£m) Ownership Country Currency 48% 13 European countries, Malaysia, EUR 156 Middle East, Australasia and USA Megatrend Date invested 279 26 Globalisation Management July 2016 team HQ Total cost Closing value Cash distributions Brussels, Belgium Review of investments and Sustainability | Developments in the year | | Sustainability | | --- | --- | --- | | TCR’s good performance in the year | | A key part of TCR’s sustainability strategy | | continues to evidence the resilience | | is the transition to electrical or green | | of its business model. Despite further | | GSE, both in terms of managing its fleet’s | | travel restrictions during the winter | | residual value risk and as a significant | | season, TCR performed ahead of our | | market opportunity to win new business | | expectations, although equipment | | and to strengthen and extend its business | | off | lease is still above pre-Covid levels. | model. TCR recently signed an agreement | | Its footprint has continued to grow, | | with long-term customer KLM to replace | | now covering 164 airports globally. | | diesel equipment with electrical. | New contracts were signed in the year, TCR has also established itself as a market including with important new customers leader in providing pooled GSE at airports, such as Finnair and Gate Gourmet as which can enable material reductions in well as more recent sale and rent back the amount of equipment operated on an contracts in Europe and Australia. airfield, thereby reducing overall emissions. 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. 38 ## Review of investments continued Performance (£m) Ownership Country Currency 45% Norway and USA NOK 187 Megatrend Management Date invested 241 13 Digitalisation team HQ March 2019 Stavanger, Norway Total cost Closing value Cash distributions Review of investments and Sustainability Developments in the year In the Gulf of Mexico, Tampnet is seeing good momentum. There were some delays Tampnet performed strongly in the year in installations, due to Covid-19 and severe and materially above 2021 levels. Its core weather conditions, but the management business in the North Sea performed team is in discussions on several new well as customers continued to upgrade projects and data demand is continuing their bandwidth requirements and to increase steadily. invest in digital initiatives. Furthermore, we are seeing increasing momentum Sustainability in the basin due to the higher oil price The core of Tampnet’s approach to and a renewed focus on security of sustainability is to make a positive energy supply from European nations. contribution to the underlying industry, During the year, Tampnet renewed by enabling oil and gas producers to extract an important contract with Equinor, more efficiently from existing resources. providing long-term visibility and Tampnet is also providing connectivity de-risking future cashflows. and digital services in the offshore Beyond its historic oil and gas customers, wind segment. 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. 3i Infrastructure plc Annual report and accounts 2022 39 ## Review of investments continued Performance (£m) Ownership Country Currency 99% Netherlands EUR 195 Megatrend Management Date invested 241 22 Energy Transition team HQ April 2019 Delft, Netherlands Total cost Closing value Cash distributions Review of investments and Sustainability Developments in the year In December 2021, the Company invested £5 million of further equity in Joulz to fund Financial performance for Joulz was growth projects, including the acquisition broadly in line with expectations in the of further commercial transformers year. The carve-out from Stedin and from Stedin. implementation of a new ERP system are now complete. The Infrastructure Sustainability Services business is seeing strong order Sustainability is a key element of Joulz’s intake ahead of expectations, which business strategy: it has expanded is partially offset by some delays to its customer offering into new energy project completions and by some churn transition solutions with solar and in the Metering business. A new head EV charging products, and is exploring of Metering was appointed during the opportunities in low-carbon heating year, and performance has improved solutions and energy storage. 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. 40 ## Review of investments continued Performance (£m) Ownership Country Currency 96% France, Spain, EUR 186 Germany, Estonia Megatrend Date invested 237 6 Demographic Change Management September 2019 team HQ Total cost Closing value Cash distributions Dagneux, France Review of investments and Sustainability Developments in the year Sustainability Ionisos delivered strong performance in As part of its sustainability strategy, the year, exceeding expectations with Ionisos aims to reduce its GHG footprint market growth outperforming and with over the next five years through green a favourable product mix. The business initiatives. The other key priorities to its is working on plans to increase capacity sustainability strategy include providing a to meet the additional demand, through great place to work for its employees: the a combination of expanding existing board is focused on promoting a good facilities, exploring further greenfield culture and awareness of health and safety investments and monitoring potential across the business. Ionisos is also striving M&A opportunities. The construction to build valuable partnerships with its of the new sterilisation site in Kleve, stakeholders, through an active engagement Germany, is progressing in line with programme with customers, key suppliers, budget and is expected to start regulators and local authorities. 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. 3i Infrastructure plc Annual report and accounts 2022 41 ## Review of investments continued Performance (£m) Ownership Country Currency 45% Singapore SGD 139 Megatrend Management Date invested 230 204 Globalisation team HQ August 2007 and Singapore June 2015 Total cost Closing value Cash distributions Review of investments and Sustainability Developments in the year Financial performance for the year was in line with expectations and, looking ahead, The Company and Oiltanking (our we remain confident that, as demand for co-shareholder and operating partner) oil products in the Asia Pacific region grows completed the sale of their stakes in post Covid, the supply/demand balance for four European terminals at an attractive oil storage will tighten and storage rates will price during the year. The transaction step up. generated a strong return for the Company, increasing Oystercatcher’s Sustainability unrealised money multiple to 3.1x Oiltanking has long placed significant focus and unrealised IRR to 13.9% over the on sustainability, including high standards Company’s 14 year ownership period. of environmental management and a strong Our investment now consists of a focus on health and safety. During the year 45% stake in Oiltanking Singapore. it has announced the results of a strategic Market conditions for oil storage were review which will see the company rebranded mixed in the past year: high oil prices and focusing on supporting its customers have resulted in a backwardated market. in the energy industry to achieve their On the other hand a resumption in sustainability ambitions, for example by demand has meant increased levels of supporting them to grow their renewable customer activity at storage terminals. fuels businesses. 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. 42 ## Review of investments continued Performance (£m) Ownership Country Currency 64% Germany EUR 190 Megatrend Management Date invested 202 3 Digitalisation team HQ June 2021 Berlin, Germany Total cost Closing value Cash distributions Review of investments and Sustainability Developments in the year In line with our best practice for newer investments, we have strengthened Following our initial investment, the board with the appointment of a 3i Infrastructure injected £33 million non-executive Chair, Charles Frankl, of further equity in DNS:NET to fund who brings a background in sales and the next phase of its fibre network technology management functions build-out. The Company’s stake in for larger corporates and of scaling the business increased to 64% as a growth businesses. result, the remainder being owned by Alexander Lucke, founder and Sustainability CEO ofthe business. DNS:NET’s business has a very low GHG | Since our investment, DNS:NET has | | | footprint once the network is deployed. | | --- | --- | --- | --- | | performed in line with our expectations. | | | Fibre is a greener alternative to copper, | | Although the roll-out began slower than | | | requiring significantly less energy to | | anticipated initially, the management | | | transport data and less repair work | | team has since accelerated the build | | | to maintain. Additionally, enhanced | | programme, signing agreements with | | | connectivity can lead to a reduction in | | two contractors to increase capacity. | | | GHG emissions related to business travel | | Customer take up remains high | | | and commuting as well as enable smart | | and build | | costs are in line with our | building energy management systems, | | expectations. More broadly, German | | | which will further drive energy efficiency | | market fundamentals continue to | | | and GHG reduction. | | be | favourable, with a 30% growth | | | | in | fibre-to-the-home connections | | | | in | the year. | | | 3i Infrastructure plc Annual report and accounts 2022 43 ## Review of investments continued Performance (£m) Ownership Country Currency 92% UK GBP 191 Megatrend Management Date invested 200 2 Renewing team HQ December 2021 Social Infrastructure Cheshire, UK Total cost Closing value Cash distributions Review of investments and Sustainability Developments in the year Sustainability SRL has performed in line with our Sustainability and safety form a cornerstone investment case to date, both financially of our value creation plan. TTE allows for and operationally. The fundamentals greater segregation and control of traffic of addressing the road network flows, which in turn reduces congestion maintenance backlog and strategic around roadworks. Greater rigour is being initiatives such as the UK fibre roll-out placed on health and safety through the plan continue to provide a strong use of more sophisticated methods of underpinning rationale for further traffic management to protect highway expansion of the equipment as a workers and segregate traffic, cyclists service model. and pedestrians. 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. 44 ## Review of investments continued Performance (£m) Ownership Country Currency 33% France, Finland EUR 80 Megatrend Management Date invested 144 16 Energy Transition team HQ September 2016 Bègles, France Total cost Closing value Cash distributions Review of investments and Sustainability Developments in the year In France, both the solar and wind pipelines are progressing well, with an increased focus Valorem’s asset base has continued to on larger projects, and Valorem is trialling increase, with 663MW of fully owned projects in the hydrogen sector, with two capacity having reached financial close, projects in Rouen and Saint-Brieux. In Finland, compared to 179MW at acquisition. Valorem will focus on the construction of the Despite lower than anticipated revenue Viiatti project and progress planning for the from electricity generation due to low MegatuuIi wind project (313MW), expected wind conditions in the year, the core to be financed by 2024. A first wind project business in France continues to perform in Greece is expected to close this year. in line with expectations. The successful closing of the Viiatti wind project in Sustainability Finland represents a key milestone for As a producer of renewable energy, the the company. It is over four times the size business is net carbon negative. Beyond its of Valorem’s previous project in Finland core mission as a contributor to the energy and almost 10 times its largest project in transition and GHG emissions reduction, France. Approximately half of this project Valorem strives to promote protecting was sold in the year. biodiversity, sustainable procurement and | In December 2021, the Company | employee wellbeing. This was demonstrated | | --- | --- | | completed a follow-on investment of | by Valorem becoming an Entreprise à Mission | | £21 million in Valorem and increased its | in December 2021. | equity stake in the company to 33.1% in order to continue funding the pipeline across Valorem’s fast growing markets. 3i Infrastructure plc Annual report and accounts 2022 45 ## Review of investments continued Performance (£m) Ownership Country Currency 25% Netherlands EUR 88 Megatrend Management Date invested 116 26 Energy Transition team HQ June 2018 Apeldoorn, Total cost Closing value Cash distributions Netherlands Review of investments and Sustainability Developments in the year On the back of several years of strong growth and highly resilient performance, Attero outperformed expectations in despite Covid-19, Attero raised additional the year, on the back of higher waste long-term debt on attractive terms and volumes, gate fees and power prices. refinanced existing facilities. The core Energy from Waste business unit benefitted from these favourable Sustainability market conditions and was able to renew Attero’s activities primarily relate to recycling and extend a number of key commercial and recovery of energy from waste produced and industrial waste supply contracts, by society, and as such it plays a key role in and lock-in current high electricity helping to deliver on the Netherlands’ and prices for the coming year. Organics and European environmental and sustainability Plastics also outperformed expectations, objectives. Since 2019, Attero has fully offset while Minerals slightly underperformed its CO 2 emissions by the volume of emissions due to lower construction activity due avoided. It is committed to increase its to Covid-19 in the second half of 2021. avoided emissions to one million tonnes | The company is currently looking at a | CO | 2 by 2025 by increasing the production | | | | --- | --- | --- | --- | --- | | number of investment opportunities, | of renewable energy and recycled materials. | | | | | including a new post-separation recycling | Attero is also | | exploring CO | 2 capture at its | | line, a new anaerobic digestion (biogas) | main facilities. | | | | facility and solar installations at its closed landfill sites. 46 ## Sustainability report This matters to us as individuals, to the people We act as a conduit for institutional and ## The Company has made significant managing and working within ourportfolio retail savings into these assets, helping our companies and to their customers, suppliers shareholders to achieve their own return ## progress on ESG topics during the year. and local communities. As investors, objectives in a sustainable way with low wedepend onall of these stakeholders levels of volatility and little correlation for our investments to be successful. towider equity markets. Review of investments and Sustainability The Board of Directors is responsible for We have a responsibility to our shareholders sustainability with day-to-day accountability to deliver long-term sustainable returns, Investing responsibly The policy applies to all ofour resting with the Investment Manager. and to the communities and environment investments, irrespective of their We believe that a responsible approach We are rigorous in assessing and managing in which we operate to manage essential countryor sector. to investment will add value to our | sustainability-related risks in our portfolio | infrastructure in a responsible manner. | | | | --- | --- | --- | --- | | | | portfolio. Responsibility starts when | For more information on the | | and identifying opportunities to improve | We operate with the highest level of | | | | | | wefirst consider investing in a company. | InvestmentManager’s sustainability | | the sustainability of the businesses we | stewardship standards and use our position | | | | | | It isvital that we seek to identify all | policies, pleaserefer to the 3i Group | | invest in. Equally, we are keen to invest in, | as a shareholder in the businesses we own | | | | | | material ESG risks and opportunities | website: www.3i.com/sustainability. | | and actively seek, opportunities arising | to influence and support management | | | | | | at the point we invest, and that we put | The Board has reviewed these policies | | from the development of solutions to global | tooperate responsibly. | | | | | | in place appropriate and robust plans | and is satisfied that the adoption | sustainability challenges. These long-term Through our engaged asset management to mitigate risks or capitalise on the of thesepolicies by the Investment trends are aligned with our strategy and approach and representation on the boards opportunities. The Investment Manager Manager meets the Company’s investment mandate. of our investee companies we integrate is a signatory to the UN Principles objectives in this area. We continue to see a strong link between stewardship and investment, including for Responsible Investment and has The Company has a long track record companies with high ESG standards and the consideration of material ESG and embedded a Responsible Investment of investing in sustainable businesses those that are able to achieve long-term climate change issues, to make decisions policy into its investment and asset and of working with portfolio company sustainable business growth. As owners that balance the requirements ofall management processes. This sets management teams to improve of a portfolio of infrastructure assets, stakeholders. We require our businesses out the types of business in which the governanceand operating standards we recognise our ability to influence our to review regularly their approach to, Company will not invest, as well as and to develop growth strategies that portfolio companies, their management andambition for, sustainability. minimum standards in relation to ESG align with long-term trends. Long-term teams, employees, customers matters which we expect new portfolio trends such as the energy transition or and suppliers. companies to meet, or to commit to climate change are considered both a meeting over a reasonable time period. risk and an opportunity for the portfolio, and are an increasingly important part ofdecision making for the Company. 3i Infrastructure plc Annual report and accounts 2022 47 ## Sustainability report continued Our influence and approach to ESG management Category Outcome Individual portfolio company ESG-related Greenhouse We supported portfolio companies with implementing GHG emissions reporting and worked with a third-party performance is monitored on a regular gas emissions specialist firm to review and refine the data and calculations, ensuring the methodologies and results are robust, basis and progress towards a broad set of consistent across the portfolio and reflect best practice for GHG accounting. Scope 1 and Scope 2 GHG emissions objectives is reviewed in detail each year for each portfolio company are presented in our TCFD disclosures on page 55. We are now working with portfolio Review of investments and Sustainability using the Investment Manager’s proprietary companies to consider potential opportunities to reduce their GHG emissions over time. ESG assessment tool, as shown on page 48. Investment The Investment Manager introduced an ESG assessment earlier in its investment process in order to assess The Investment Manager completes this process thepotential ESG risk of early-stage investment opportunities and identify where specialist due diligence may assessment for all economic infrastructure berequired. investments in the portfolio and prepares and prioritises, alongside management, Climate scenario The Investment Manager developed its approach to climate scenario analysis, in line with the TCFD’s anaction plan for the business based on analysis recommendations, tohelp it assess the impacts on our portfolio companies from different climate-related therecommendations from this assessment. scenarios. This analysis is discussed in more detail in our TCFD disclosures on pages 51 to 55. ESG value creation opportunities are Governance We continued to assess ESG and climate-related reporting frameworks and evolved the Company’s risk also reviewed and prioritised with the and reporting governance to incorporate different climate-related risks. portfolio company management teams. Suppliers We set a policy outlining the minimum sustainability standards the Company will expect from its suppliers and Management incentives are aligned assessed our current key suppliers against these criteria. with achievement of these plans, where appropriate. Financial In November 2021 we refinanced the Company’s revolving credit facility (‘RCF’) as a sustainability-linked RCF. agreements Thenew facility follows the Loan Market Association’s Sustainability Linked Loan Principles and includes stretching At the start of this financial year the Board targets across Environmental, Social and Governance themes aligned with our purpose. of Directors and the Investment Manager setseveral specific sustainability objectives, During the year, the Company also entered into sustainability-linked FX hedging agreements with some of with the desire to take a big step forward its hedge counterparties. The Company can receive ‘sustainability rebates’ dependent on meeting the same inthis area. We are pleased to have met sustainability targets as set for the Company’s RCF. allof these objectives, as set out in the We are also considering the appropriateness of sustainability-linked credit facilities across the portfolio. ESVAGT table opposite. has recently signed a facility with ESG targets across several themes aligned with its sustainability strategy. For further information www.3i-infrastructure.com/sustainability 48 ## Sustainability report continued We aim to act lawfully and with integrity, ESG assessment framework including complying with all regulatory and statutory obligations and disclosure requirements. We maintain open and constructive relationships with regulators, Review of investments and Sustainability including the UK Financial Conduct Assessment Action plan and strategy development Authority (‘FCA’) and the Jersey Financial completion Services Commission. We require that ourportfolio companiescomply with Deal team their legalandregulatory obligations. Details of the Company’s policies relating to the UK Bribery Act, Modern Slavery Proprietary Aggregation & Output Act, Procurement, Prompt Payment, Assessment Tool Analysis Whistleblowing and EqualOpportunities Asset review and Diversity canbe found on our Developed over Developed and calibrated dashboard website www.3i-infrastructure.com. a number of years. against historic Regularly refined and portfolio performance Action log benchmarked against external tools Comparison to 3i Portfolio dashboard and research minimum standards 3i-wide output Assessment Trend analysis Feedback loop databank Risk scoring Investment case and categorisation Risk log Investment decision support 3i Infrastructure plc Annual report and accounts 2022 49 ## Sustainability report continued UN Sustainable We believe that each of our portfolio companies is able to make a positive Development Goals Where we are having contribution to one or more of the SDGs. In order to assess the impact of our the biggest impact In particular our approach to governance, portfolio companies on the environment and to labour and health and safety, makes and the communities in which they operate, a positive contribution to the employees, the Board and the Investment Manager Review of investments and Sustainability customers, suppliers and the local reference a number of frameworks, communities in which they operate. including the UN’s Sustainable Development Goals (‘SDGs’). Additionally, through their operations, several of our businesses also make The Board and the Investment Manager positive contributions to the provision of consider each of the portfolio companies renewable energy, to the development of against the SDGs periodically and infrastructure to support economic growth, soon after we acquire a new company. to managing and minimising the waste This process, alongside the conversations of precious resources and to providing between the portfolio companies and the high quality and safe healthcare. Investment Manager around sustainability, helps us to understand the impact that Our assessment of where we are having the each of the investments makes, to identify biggest impact through the portfolio is also improvements and to help develop their shown in the table opposite. We believe the sustainability objectives. work we do to ensure that comprehensive and high quality policies are implemented Many of our portfolio companies have by our portfolio companies is a step embraced this framework, conducting towards the objectives of SDG 16 Peace, their own assessment against the SDGs Justice and Strong Institutions. We also and incorporating that assessment in their believe our focus on health and safety sustainability strategies. Where relevant governance and employee engagement wehave incorporated those assessments at our portfolio companies is aligned with inthe table opposite. the objectives of SDG 3 Good Health and Well-being. 50 ## Sustainability report continued Climate change and the transition In GHG footprint terms, it prevents emissions equivalent to 7.1 million tonnes (at 31 March, MW) to a low-carbon economy of CO 2 annually, which is comparable Through its investment portfolio the to that of over 750,000 UK households. 1,000 Company supports the transition towards Renewable energy installed capacity Infinis generates nearly 1,300 GWh of a low-carbon economy. Since 2016, the electricity a year and is developing battery Review of investments and Sustainability Company has invested in three businesses 900 projects to store energy for usage during 177 (Infinis, Attero and Valorem) that generate periods of low supply. 177 electricity from renewable resources. | | | 800 | 177 | | | --- | --- | --- | --- | --- | | The installed capacity across these | Valorem, our renewable energy | | | | | businesses is now almost 900MW, enough | development company, has grown its | | | | | to power more than 60% of the households | renewable assets base from 179MW to | 700 | | 238 | 177 in London. 663MW (of which 483MW is in operation) 287 | | since our acquisition in September 2016. | | | 289 | | --- | --- | --- | --- | --- | | We have a strong pipeline of new | | 600 | | | | potential generatingcapacity for future | Under our ownership, Valorem has moved | | | | | development. The chart shows the growth | from solely owning wind farms in France | | 304 | | 500 294 in renewable energy generating capacity to now developing wind, solar and hydro 483 over the last six financial years, since we assets in France, Finland and Greece. 287 firstinvested in Valorem and Infinis. 400 Attero, one of the largest waste treatment 387 Infinis is the UK’s leading generator of companies in Europe, produces renewable 350 | low-carbon power from captured methane | electricity for 350,000 households by | 300 | | | | | --- | --- | --- | --- | --- | --- | | and has begun installing solar panels across | recovering energy from waste. Attero’s | | | | | | its sites to further expand its renewable | recycling activities also help avoid GHG | | | | 233 | | | | 200 | | 216 | | | energy generation capabilities. By capturing | emissions by reducing the need for | | | | | | methane from landfill sites, Infinis is not | extraction or mining of virgin materials. | | 157 | | | 100 only able to generate renewable electricity, butit also prevents methane from escaping into the atmosphere, a greenhouse gas 0 which is 25 times more potent than CO 2 . Mar 2018Mar 2017 Mar 2019 Mar 2020 Mar 2021 Mar 2022 1 Valorem Infinis Attero 1 Excludes Infinis Power Response business which is not deemed to be renewable for these purposes. 3i Infrastructure plc Annual report and accounts 2022 51 ## Sustainability report continued TCFD disclosures The Board discharges its responsibilities The Investment Manager’s role in ## This section of the Strategic report sets out for the assessment and monitoring of assessingandmanaging climate- sustainability and climate-related risks ## how we incorporate climate-related risks and related risksand opportunities Review of investments and Sustainability and opportunities through the Company’s The Investment Manager is responsible Audit and Risk Committee. The Audit and ## opportunities into our governance, strategy, for the implementation of the Responsible Risk Committee, amongst other areas, Investment policy, as well as being ## risk management and targets, and is guided is responsible for internal controls and risk responsible for making decisions concerning management, including the assessment ## by the recommendations of the TCFD. the acquisition, management, ongoing and management of ESG risks and monitoring and sale of investments, opportunities in the portfolio, considering and formaking decisions concerning physical and transition climate change risks The Company is making good progress We have cross-referenced the relevant major investments made by our portfolio including on terminal value assumptions, in its voluntary climate-related financial sections under each of the headings below. companies. In evaluating new and existing and for ensuring compliance with disclosures as recommended by the As an investment company, the majority investments, the Investment Manager takes applicable ESG legislation and regulation. TCFD. As a listed investment company, of the disclosures relate to the Company’s account of climate-related risks, including The Audit and Risk Committee is also these are not required by the UK Listing portfolio of investments rather than to the the impact of climate change on the responsible for reviewing and approving Rules. We expect that the Company’s Company itself. markets each company serves and theCompany’s voluntary disclosures under reporting of TCFD disclosures will demand for its products; the climate the TCFD framework. Governance evolve over time, consistent with the change resilience of each company’s forthcoming requirement for the Day-to-day accountability for sustainability, The Board’s oversight of assets and supply chain; and, in the caseof Investment Manager to publish a including climate change-related issues, climate-related risks and opportunities emissions-intensive industries, the feasibility TCFD product report in respect of rests with the Investment Manager. and potential cost of greenhouse gas The Board is responsible for the Company’s the Company. Further detail on risk governance can be emissions abatement. The 3i Group overall approach to sustainability, ESG and found in the Risk report on page 67. Risk Committee oversees the Investment The following should be related policies. The Board has adopted Manager’s risk management framework. read inconjunction with the rest the Responsible Investment policy of the of theAnnualreport and accounts. Investment Manager. 52 ## Sustainability report continued TCFD disclosures continued Strategy Our investment strategy is to make a Once invested, we use our influence at During the year, the Investment limited number of new investments each portfolio companies to encourage the Manager worked with portfolio Climate-related risks and opportunities year, selected within our target sectors monitoring of environmental impacts, companies to implement GHG Review of investments and Sustainability identified over the short, medium, and geographies on the basis of their development of more environmentally emissions reporting and worked and long term and the impact on compatibility with our return targets sustainable behaviours and investments with a third-party specialist firm businesses, strategy, and financial and fit with the existing portfolio. to mitigate portfolio companies’ to review and refine the data and environmental impacts. We are calculation methodologies. planning Whilst the Company does not continuously evolving our approach as Climate-related risk and climate regulation operate asustainability-driven We are now working with portfolio a responsible investor by undertaking risk have been identified as key risks as well investment strategy, it does seek to companies to consider potential initiatives to improve our assessment as investment themes for the Company. identify investments that benefit from opportunities to reduce their of sustainability risks and opportunities This is further discussed in our Risk report long-term trends, many of which link GHG emissions over time. within our investment and portfolio on page 71. There are physical risks that to sustainability themes including the management processes. Resilience of the organisation’s arise directly from changing climate energy transition. As set out earlier in this section the Company, through its Each of the portfolio companies we strategy, taking into consideration conditions and transition risks that occur as a result of the necessary transition Investment Manager, carries out its owned at the start of the year has set different climate-related scenarios, to alower-carbon economy. These risks investment activities under 3i Group’s a formal sustainability strategy and including a2°Corlower scenario exist for the Company and its portfolio. Responsible Investment policy, which is identified a responsible individual to As a company that invests over the embedded in the Investment Manager’s drive the strategy and to set and The Board and the Investment Manager medium to long term we recognise investment and portfolio management measure objectives for the company. are increasingly considering the impact the importance of investing in the processes and is considered rigorous Having a sustainability strategy in place of climate-related risks and opportunities low-carbon energy transition and that by industry standards. We will not invest provides a framework for setting specific on our portfolio companies, investment this will ultimately impact all sectors in businesses that have unsustainable objectives, and driving performance strategy and financial planning. in which we invest. The Investment environmental practices or an toachieve them. Manager has recently completed unsustainable impact on the society its first climate scenario analysis inwhich they operate. to help it assess the impact on portfolio companies from different climate scenarios. 3i Infrastructure plc Annual report and accounts 2022 53 ## Sustainability report continued TCFD disclosures continued The approach was developed with the Risk management During the year, the Investment Manager Processes for managing climate- support of a third-party climate modelling introduced an ESG assessment earlier in its related risks and integration into Processes for identifying and assessing specialist firm and considers three climate investment process in order to assess the overall risk management Review of investments and Sustainability climate-related risks pathways: i) Orderly net zero by 2050, potential ESG risk of early-stage investment The processes for managing ii)Disorderly net zero by 2050 and iii) Failed The Investment Manager monitors opportunities and identify where specialist climate-related risks are determined transition. The pathways differ in terms of all relevant portfolio risks, including due diligence may be required. by the Audit and Risk Committee. policy and technological changes, physical climate-related risks and changing We continue to develop our governance and risks and pricing-in mechanisms. The inputs, consumer preferences in response to The main focus area for the Committee risk management framework to ensure that assumptions and macroeconomic environmental issues, through its rigorous and the Investment Manager is the sustainability-related risks in our portfolio modelling utilised draw from established investment assessment and portfolio development and integration of the are treated as a priority by our portfolio academic and industry sources. monitoring processes and using its data, tools and capabilities needed to company management teams. proprietary ESG assessment tool. This is support disclosure, risk identification The assessment of the results from climate critical to protecting and enhancing the We also assess the potential financial and monitoring for ESG-related risks, scenario analysis will be a focus for the value of our assets and is at the core of impact of climate change on the Company including climate-related risks across Investment Manager in the coming year. our investment management process. through our annual viability assessment the whole portfolio. This includes understanding how different (see page 79). Our analysis shows that the climate scenarios will impact each portfolio The Investment Manager always 3i Infrastructure itself is not exposed Company remains viable over the medium company’s strategy and help prioritise our undertakesESG due diligence, including to material environmental risks. term from a climate change stress scenario areas of focus and engagement. environmental due diligence, before The Company has no employees. on our portfolio. making new investments, and monitors ESG The business of the Company is 3i Infrastructure itself has no employees risks throughout the life of our investments. As the regulatory environment is constantly conducted through the Investment and a very limited direct impact on the If appropriate this includes the engagement evolving, the Investment Manager Manager and Jersey administrator environment and is not a significant of specialist external firms to provide advice actively considers and monitors existing who do not have any office locations producer of greenhouse gas emissions. on specific sectors or topics. and emerging regulatory requirements dedicated to the Company. We continue to monitor this position and related to climate change (eg limits on will consider reporting if the emissions emissions and carbon taxes) as these footprint increases materially. requirements may pertain both to the Company and to our portfolio companies. 54 ## Sustainability report continued TCFD disclosures continued The Company has a comprehensive risk As the portfolio is subject to continuous During the year, the Investment Manager Emissions reporting governance framework and compliance change as a result of investment and worked with all of our portfolio company As noted above, 3i Infrastructure itself processes and procedures to ensure divestment activity, such portfolio level management teams to identify and report has a very limited direct impact on the Review of investments and Sustainability that all risks, including ESG risks, are scenario analyses and data aggregation their GHG footprint. There is a legal environment and is not a significant monitored and managed with due care would notbe meaningful or comparable requirement for UK listedcompanies producer of greenhouse gas emissions. and diligence and that the Company is fully year-on-year. The Investment Manager and UK large unquoted companies to The Company consumed less than | compliant with all applicable environmental | monitors the environmental performance | | provide certain climate-related disclosures, | | | | --- | --- | --- | --- | --- | --- | | | | | | 40,000 | kilowatt hours of energy in the | | legislation. This is further described in the | of | our portfolio companies, and uses its | including in relation to GHG emissions. | | | financial year and is therefore exempt from Risk report on pages 67 to 69. influence as an investor to promote a This applies to Infinis, which provides this the UK Streamlined Energy and Carbon commitment in our portfolio companies reporting as part of its own annual report Reporting disclosure requirements. Metrics and targets to minimise their environmental footprint, and accounts, which can be found on invest in the mitigation of their environmental www.infinis.com. We are pleased to report Scope 1 and Metrics used to assess climate-related impact and implement energy efficiency Scope 2 GHG emissions for our portfolio risks and opportunities Our portfolio companies include in measures. This is an important part not companies below for the first time. We manage the environmental their sustainability strategies long-term only of our portfolio risk management These are being disclosed voluntarily in sustainability of each portfolio company objectives for reducing GHG intensity. procedures, but also of the value creation order to provide a useful view on emissions as we would any other critical business The objectives for each portfolio company plan for each of our investments. across our portfolio. activity in an integrated and consistent will differ depending on the sector in which manner. Due to the changing nature of our they operate. We supported portfolio companies with portfolio, the Company does not carry out implementing GHG emissions reporting portfolio level scenario analyses, and we do and worked with a third-party specialist not publish aggregated resource intensity firm during the year to review and refine or GHGintensity data. the data and calculations, ensuring that the methodologies and results are robust, consistent across the portfolio and reflect best practice for GHG accounting. 3i Infrastructure plc Annual report and accounts 2022 55 ## Sustainability report continued TCFD disclosures continued | We expect to continue to work with | We will work with their management teams | The most significant sources of Scopes | ESVAGT has several innovations in | | --- | --- | --- | --- | | portfolio company management teams to | to implement processes for emissions data | 1 and 2 emissions across the portfolio | progress, including a recent agreement | | refine their data collection and calculation | collection in order to report their emissions | relate to specific operations that support | with Ørsted for a new SOV powered | Review of investments and Sustainability | methodologies over time, including the | in the next Annual Report. | | | | the essential nature of the businesses in | by dual-fuel engines capable of sailing | | --- | --- | --- | --- | --- | --- | --- | | calculation of Scope 3 emissions. We are | | | | | our portfolio. | on renewable e-methanol as well | | | Tonnes of CO | 2 equivalent Scope 1 Scope 2 | | | | | | also working with portfolio companies | | | | | | as batteries. | | | | 1 | | 2 | Attero is the largest direct emitter in the | | | to consider potential opportunities to | Oystercatcher | | 14 1,717 | | | | | | | | | | portfolio. Its emissions are primarily a result | Infinis’s Scope 1 emissions primarily | 3 | reduce | their GHG emissions over time. | ESVAGT 99,248 331 | | | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | of Attero’s waste processing activities | relate | to the natural gas used in its | | The work performed to collect Scope 1 | | | 2 | | | | TCR 1,656 2,031 and from the landfills that Attero owns Power Response business, which and Scope 2 emissions helped identify 2 Infinis 66,591 2,822 | | | | and operates. However, Attero’s recycling | provides highly responsive power during | | --- | --- | --- | --- | --- | | several potential areas for reduction across | | 3 | | | | | Valorem 13 106 | | operations help to avoid waste being sent | times of peak demand. This is a critical | the portfolio. 2 Attero 792,245 37,72 9 to landfills and emitting more greenhouse activity to help overcome the current Emissions data are not currently available 2 gases than Attero emits through its own gaps in supply from renewable power Tampnet 31 103 for our two most recent investments: 2 processing activities, thereby reducing sources. Infinis has begun developing Joulz 533 98 SRL Traffic Systems, which was signed netGHG emissions in the Netherlands. battery projects that will allow renewable 2 Ionisos 3,502 1,952 and completed in December 2021, and energy to be stored in order to meet 2 Attero’s operations help further to DNS:NET 418 1,880 Global Cloud Xchange, which was signed in peaks in demand. This will lessen the avoid emissions through its production November 2021 and has not yet completed. 1 Represents GHG emissions from Oystercatcher’s reliance on natural gas to fill gaps in of renewable energy from the waste it terminal in Singapore. Excludes GHG emissions supply. In addition, Infinis’s Captured processes and from the sale of secondary fromOystercatcher’s European terminals, Landfill Methane (‘CLM’) and Captured whichweredivested during the year. materials. During calendar year 2021, the Mineral Methane (‘CMM’) operations 2 Location-based, using grid-average emissions that these two activities helped emissions factors. contributed to the capture of 258,000 offset its Scope 1 and Scope 2 emissions. | 3 Market-based, using contract-specific | | | tonnes of methane in FY22, equivalent | | | | --- | --- | --- | --- | --- | --- | | | emissions factors. | ESVAGT’s Scope 1 emissions relate to the | to preventing the emission of | | 6,400,000 | | | | fuels used in its vessels. ESVAGT aims to | tonnes of CO | 2 . | | 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. 56 ## Financial ## review and ## Risk report ESVAGT Page 35 3i Infrastructure plc Annual report and accounts 2022 57 ## Financial review The Company delivered another year of Returns ## The Company delivered another outperformance which was underpinned Total return by strong income and capital returns ## year of outperformance. The Company generated a total return from the portfolio. A total of £980 million for the year of £404 million, representing of new investments and commitments a 17.2% return on opening NAV net of the | | 1 | were made and the Company actively | | | | --- | --- | --- | --- | --- | | Key financial measures | (year to 31 March) 2022 2021 | | | | | | | | prior year final dividend (2021: £206 million, | Financial review and Risk report | managed its liquidity position through 2 9.2%). This performance is significantly ### Total return £404m £206m its RCF and an additional £600 million ahead of the target return of 8% to of committed facilities. 10%per annum to be achieved over ### NAV £2,704m £2,390m The portfolio has the income-generating themedium term. capacity to support the progressive ### NAV per share 303.3p 268.1p This outperformance was driven by dividend policy, and the dividend was the strong return from the sale of covered by net income this year despite ### Total income £133m £110m Oystercatcher’s four European terminals some drag from uninvested cash earlier and good performance across the inthe year. The target dividend for ### Total income and non-income cash £143m £117m economic infrastructure portfolio, FY23of11.15 pence per share is an particularly from TCR and ESVAGT. increaseof 6.7% over FY22. ### Portfolio asset value £2,873m £1,802m Changes in the valuation of the Company’s portfolio assets are described in the ### Cash balances £17m £463m Movements in portfolio value section oftheInvestment Manager’s review. 3 ### Total liquidity £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. The Company has continued to grow income and NAV per share alongside managing liquidity to fundnewinvestments.” James Dawes CFO, Infrastructure 58 ## Financial review continued Total income and non-income cash of £143 million in the year was higher than last Composition of balance sheet and income statement (year to 31 March 2022) year, due to income from new investments and some portfolio companies resuming Composition of balance sheet and income statement (year to 31 March 2022) distributions after preserving liquidity in Movements the previous year due to Covid-19 risks Balance sheet (as at 31 March 2022) Income statement (year to 31 March 2022) in derivatives Financial review and Risk report (2021: £117 million). £2m Derivatives Portfolio return Non-income cash receipts reflect £18m distributions from underlying portfolio Loans and companies, which would usually be income borrowings Costs £231m £111m to the Company, but which are distributed as a repayment of investment for a variety Other net liabilities of reasons. Whilst non-income cash does £68m not form part of the total return shown in Table 3, it is included when considering Dividends Capital return dividend coverage. £90m £375m An analysis of the elements of the total return for the year is shown in Table 3. | Portfolio | Shareholders’ | | | --- | --- | --- | | assets | | equity | | £2,873m | | £2,704m | Total return Available for £404m reinvestment when realised £314m Cash £17m Portfolio income Foreign £127m Other exchange net assets £9m £105m Other income £26m £6m Derivatives 3i Infrastructure plc Annual report and accounts 2022 59 ## Financial review continued Table 3: Summary total return (year to 31 March, £m) The Financial statements’ classification of these components of total return includes 2022 2021 transactions within unconsolidated Capital return (excluding exchange) 375 135 subsidiaries as the Company adopts Foreign exchange movement in portfolio 9 (24) the Investment Entities (Amendments Capital return (including exchange) 384 111 to IFRS 10, IFRS 12 and IAS 27) basis for Financial review and Risk report its reporting. In previous years we have Movement in fair value of derivatives (2) 22 shown the non-material adjustments Net capital return 382 133 required to reconcile this analysis to Total income 133 110 theFinancial statements. Costs (111) (37) Following the partial divestment of the Total return 404 206 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 3,000 this section to the Financial statements and 133 7 2,750 willno longer report on anadjusted basis. 375 2,704 2,800 (111) (46) Capital return Chart 5: Reconciliation of the movement in NAV (year to 31 March 2022, £m) 2,600 2,346 The capital return is the largest element ofthe total return. The portfolio generated 2,400 a value gain of £375 million in the year to 2,200 31 March 2022 (2021: £135 million), as shown in Chart 5. There was a positive contribution 2,000 across the majority of the portfolio and the largest contributor was Oystercatcher 1,800 which generated £121 million.These value Opening NAV at Capital Net foreign Total Net costs NAV Distribution Closing NAV at movements are described in the 1 | 1 April 2021 | return | exchange | | income | | including | | | before | to shareholders | 31 March 2022 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 2 | | | | 3 | | | | | Movements in portfolio value section | | | | movement | | | management fees | | | distributions | | | | | oftheInvestment Manager’s review. 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. 60 ## Financial review continued | Income | A strong income contribution from Tampnet | Foreign exchange impact | As shown in Chart 7, the reported foreign | | --- | --- | --- | --- | | | and higher non-income cash receipts offset | | exchange gain on investments of £9 million | | The portfolio generated income of | | The portfolio is diversified by currency as | | | | the reduction in income fromOystercatcher | | (2021: loss of £24 million) included a gain | | £127 million in the year (2021: £99 million). | | shown in Chart 6. We aim to deliver steady | | | | following divestment of the European | | of £1 million from the Company’s exposure | | Of this amount, £24 million was through | | NAV growth for shareholders, and the | | | | terminals. A breakdown of portfolio income | | to the Indian rupee, which is not hedged. | | dividends (2021: £20 million) and | | foreign exchange hedging programme | | | | is provided in Chart 8, together with an | | This was partially offset by a £2 million loss | | £103 million through interest on | | helps us to do this by reducing our | | Financial review and Risk report explanation of the change from prior year. on the hedging programme (2021: gain of shareholderloans (2021: £79 million). exposure to fluctuations in the foreign £22 million). An additional £6 million of interest was Interest income from the portfolio was exchange markets. accrued on the vendor loan notes issued significantly higher than prior year due Portfolio foreign exchange movements, in lieu of WIG proceeds (2021: £10 million) to the new investments in SRL, DNS:NET after accounting for the hedging together with a further £0.1 million and ESVAGT. programme, increased the net capital of interest receivable on deposits Dividend and non-income cash distributions return by £7 million (2021: reduced by (2021: £0.4 million). Total income and increased this year as liquidity preserved for £2 million). non-income cash is shown in Table 4. risks associated with the Covid-19 pandemic in the prior year was released. Table 4: Total income and non-income cash (year to 31 March, £m) at 31 March 2022) (year to 31 March 2022, £m) Chart 7: Impact of foreign exchange (‘FX’) movements 2022 2021 onportfolio value 9 1 EUR 54% | Chart 6: Portfolio value by currency | Total income 133 110 | | | 8 | | | --- | --- | --- | --- | --- | --- | | | | DKK | 19% | | | | ( | | | | | 1 | | | Non-income cash 10 7 | GBP | 19% | | | 6 6 Total 143 117 NOK 8% 3 0 FX gain before hedging FX gain after hedging Hedged assets (€/SGD/DKK/NOK) Unhedged assets (£/rupee) 3i Infrastructure plc Annual report and accounts 2022 61 ## Financial review continued Explanation of variances 28 Chart 8: Breakdown of portfolio income (year to 31 March, £m) ESVAGT Further investment in February 2022 22 517 Tampnet Liquidity retained in prior year Financial review and Risk report 5 17 Infinis 17 13 TCR 13 9 Ionisos 9 7 SRL New investment in FY22 6 Joulz 5 5 Oystercatcher Divestment of European terminals 13 4 1 Attero 5 1 4 DNS:NET New investment in FY22 1 3 Valorem Liquidity retained in prior year 3 2 5 Projects Portfolio 2 4 Interest (FY22) Interest (FY21)Dividend (FY22) Dividend (FY21) 62 ## Financial review continued Costs The first instalment, of £18 million, will be Finance costs of £5 million (2021: £2 million) Realisation of assets reduces the paid in May 2022 along with the second in the year comprised arrangement and ongoingcharges ratio. The cost items Management and performance fees instalment of £2 million relating to the commitment fees for the Company’s RCF. thatcontributed to the ongoing charges During the year to 31 March 2022, the previous year’s performance fee and Finance costs were higher than in FY21 ratio are shown below. Company incurred management fees, | | thethird instalment of £6 million relating | as the size of the RCF was increased and | | | --- | --- | --- | --- | | including transaction fees of £10 million, | | | The AIC methodology does not | | | tothe FY20 performance fee. | drawn in the year. | | | of £43 million (2021: £24 million). The fees, | | | include transaction fees, performance | Financial review and Risk report payable to 3i plc, consist of a tiered For a more detailed explanation of how fees or finance costs. However, the Ongoing charges ratio management fee, and a one-off transaction management and performance fees are AIC recommends that the impact of The ongoing charges ratio measures annual fee of 1.2% payable in respect of new calculated, please refer to Note 18 to performance fees on the ongoing charges operating costs, as disclosed in Table 5 investments. The management fee tiers the accounts. ratio is noted, where performance fees below, against the average NAV over the | range from 1.4%, reducing to 1.2% for any | | | are payable. The ratio including the | | --- | --- | --- | --- | | | Fees payable | reporting period. | | | proportion of gross investment value above | | | performance fee was 3.52% (2021: 1.45%). | Fees payable on investment activities The Company’s ongoing charges ratio The total return of 17.2% for the year is £2.25 billion. include costs for transactions that did not | | | is calculated in accordance with the | after deducting this performance fee | | --- | --- | --- | --- | | An annual performance fee is also payable | reach, or have yet to reach, completion and | | | | | | Association of Investment Companies | andongoing charges. | | by the Company, amounting to 20% of | the reversal of costs for transactions that | | | (‘AIC’) recommended methodology and returns above a hurdle of 8% of the total have successfully reached completion and was 1.41% for the year to 31 March 2022 return. This performance fee is payable in were subsequently borne by the portfolio (2021: 1.16%). The ongoing charges ratio three equal annual instalments, with the company. For the year to 31 March 2022, ishigher in periods where new investment second and third instalments only payable fees payable totalled £3 million levels are high and new equity is raised if certain future performance conditions (2021: lessthan £1 million). or capital is returned to shareholders. are met. This hurdle was exceeded for Other operating and finance costs the year ended 31 March 2022 resulting in a performance fee payable to 3i plc in Operating expenses, comprising Directors’ Table 5: Ongoing charges (year to 31 March, £m) respect of the year ended 31 March 2022 fees, service provider costs and other 2022 2021 of£54 million (2021: £7 million). professional fees, totalled £3 million in the year (2021: £3 million). 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% 3i Infrastructure plc Annual report and accounts 2022 63 ## Financial review continued | Balance sheet | Cash and other assets | Borrowings | Dividend and dividend cover | | --- | --- | --- | --- | | The NAV at 31 March 2022 was | Cash balances at 31 March 2022 totalled | The Company has a £400 million RCF in | The Board has proposed a dividend for the | | £2,704 million (2021: £2,390 million). | £17 million (2021: £463 million). | order to maintain a good level of liquidity | year of 10.45 pence per share, or £93 million | | The principal components of the NAV | | for further investment whilst minimising | in aggregate (2021: 9.8 pence; £87 million). | Cash on deposit was managed actively arethe portfolio assets, cash holdings and returns dilution from holding excessive This is in line with the Company’s target by the Investment Manager and there are | borrowings under the RCF, the vendor loan | | cash balances. This is a three-year facility, | announced in May last year. | | | --- | --- | --- | --- | --- | | | regular reviews of counterparties and their | | | Financial review and Risk report | | notes from the sale of WIG, thefair value | | with a maturity date of November 2024. | | | | | limits. Cash is principally held in AAA-rated | | When considering the coverage of the | | | of derivative financial instruments and | | In December 2021, the Company increased | | | | | money market funds. | | proposed dividend, the Board assesses | | | other net assets and liabilities. A summary | | its existing facility by £200 million to | | | the income earned from the portfolio, balance sheet is shown in Table 6. The decrease in Other net assets is due to £600 million and in January 2022 an interest received on cash balances and any an increase in the performance fee payable. additional one-year credit facility of At 31 March 2022, the Company’s net assets additional non-income cash distributions £400 million was agreed. Aggregate credit after the deduction of the final dividend from portfolio assets which do not follow facilities totalled £1 billion at 31 March 2022. were £2,657 million (2021: £2,346 million). from a disposal of the underlying assets, At 31 March 2022 the total amount drawn as well as the level of ongoing operational was £231 million. costs incurred in the year. The Board also NAV per share takes into account any surpluses retained from previous years, and net capital profits The total NAV per share at 31 March 2022 generated through asset realisations, was 303.3 pence (2021: 268.1 pence). whichit considers available as dividend This reduces to 298.1 pence (2021: 263.2 reserves for distribution. pence) after the payment of the final dividend of 5.225 pence (2021: 4.9 pence). There are no dilutive securities in issue. 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 64 ## Financial review continued Table 7 shows the calculation of dividend Table 7: Dividend cover (year to 31 March, £m) coverage and dividend reserves. 2022 2021 The dividend was fully covered for the Total income, other income and non-income cash 143 117 year with no surplus (2021: no surplus). Operating costs including management fees (50) (30) The retained amount available for Dividends paid and proposed (93) (87) distribution, following the payment Financial review and Risk report Dividend surplus for the year – – of the final dividend, the realised loss over cost relating to the India Fund Dividend reserves brought forward from prior year 868 876 that was previously unrealised and the Realised loss over cost on disposed assets (20) (1) performance fee will be £794 million Performance fees (54) (7) (2021: £868 million). This is a substantial Dividend reserves carried forward 794 868 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 Chart 9: Dividend cover (five years to 31 March 2022, £m) through lower distributions being received 80 from portfolio companies in order to 60 165 1 preserve liquidity. 40 1 Chart 9 shows that the Company has 20 1 consistently covered the dividend over 116 00 1 105 the lastfive years. 93 93 | | 80 | | | | 87 87 | | --- | --- | --- | --- | --- | --- | | 1 | | | | 82 | | | | | 72 | 70 | | | 60 40 20 0 2 March 2018 March 2019 March 2020 March 2021 March 2022 1 Net income Dividend 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. 3i Infrastructure plc Annual report and accounts 2022 65 ## Financial review continued Sensitivities Alternative Performance The APMs are consistent with those • Total income and non-income cash is disclosed in prior years. used to assess dividend coverage based The sensitivity of the portfolio to key inputs Measures (‘APMs’) on distributions received and accrued to our valuations is shown in Chart 10 and • Total return on opening NAV reflects We assess our performance using a variety from the investment portfolio. described in more detail in Note 7 to the the performance of the capital of measures that are not specifically defined accounts. The portfolio valuations are • Investment value including commitments under IFRS and are therefore termed APMs. deployed by the Company during the positively correlated to inflation. The measures the total value of shareholders’ The APMs that we use may not be directly year. This measure is not influenced Financial review and Risk report longer-term inflation assumptions beyond capital deployed by the Company. comparable with those used by other by movements in share price or two years remain consistent with central ordinary dividends to shareholders. • Total portfolio return percentage reflects companies. These APMs provide additional bank targets, eg UK CPI at 2%. This is a common APM used by the performance of the portfolio assets information of how the Company has performed over the year and are all financial investment companies. during the year. The sensitivities shown in Chart 10 are measures ofhistorical performance. • The NAV per share is a measure of the indicative and are considered in isolation The definition and reconciliation to IFRS holding all other assumptions constant. underlying asset base attributable to ofthe APMs is shown below. Timing and quantum of price increases each ordinary share of the Company will vary across the portfolio and the and is a useful comparator to the share sensitivity may differ from that modelled. price. This is a common APM used by Changing the inflation rate assumption investment companies. may necessitate consequential changes toother assumptions used in the valuation ofeach asset. | Chart 10: Portfolio sensitivities (year to 31 March 2022) | Discount rate | -1% | | | £297m 10.3% | | --- | --- | --- | --- | --- | --- | | | | +1% | £(258m) (9.0%) | | | | | Inflation | -1% | | £(46m) (1.6%) | | (for two years) | | +1% | | £43m 1.5% | | | --- | --- | --- | --- | --- | | Interest rate | -1% | | | £156m 5.4% | | | +1% | £(158m) (5.5%) | | | 8%0 2%-2%-4%-6%-8% 4% 6% 66 ## Financial review continued The table below defines our APMs. APM Purpose Calculation Reconciliation to IFRS Total return on A measure of the overall financial It is calculated as the total return The calculation uses IFRS measures. opening NAV performance of the Company. of £404 million, as shown in the Statement of comprehensive income, Financial review and Risk report For further information see the as a percentage of the opening KPIsection. NAV of £2,390 million net of the finaldividend for the previous year of£44 million. NAV per share A measure of the NAV per share It is calculated as the NAV divided The calculation uses IFRS measures and is set out in Note 14 to the accounts. intheCompany. bythe total number of shares in issueat the balance sheet date. Total income and A measure of the income and other It is calculated as the total income Total income uses the IFRS measures Investment income and Interest non-income cash cash receipts by the Company which from the underlying portfolio and receivable. The non-income cash, being the proceeds from partial support the payment of expenses other assets plus non-income cash realisations of investments are shown in the Cashflow statement. and dividends. being the repayment of shareholder Therealisation proceeds which result from a partial sale of an underlying loans not resulting from the disposal portfolio asset are not included within non-income cash. of an underlying portfolio asset. | Investment | A measure of the size of the | It is calculated as the portfolio | The portfolio asset value uses IFRS measures. The value of future | | --- | --- | --- | --- | | value including | investment portfolio including | asset value plus the amount of | commitments is set out in Note 16 to the accounts. | | commitments | the value of further contracted | thecontracted commitment. | | future investments committed bytheCompany. Total portfolio A measure of the financial It is calculated as the total portfolio The calculation uses capital return (including exchange), movement in fair return percentage performance of the portfolio. return in the year of £509 million, value of derivatives, underlying portfolio income, opening portfolio value asshown in Table 1, as a percentage and investment in the year. The reconciliation of all these items to IFRS of the sum of the opening value of is shown in Table 1 including in the footnotes. the portfolio and investments in the year (excluding capitalised interest) of£2,565 million. 3i Infrastructure plc Annual report and accounts 2022 67 ## Risk report Introduction Approach to risk governance Risk framework At the start of the year, the Audit and Risk The Board is ultimately responsible for Committee (the ‘Committee’), alongside the risk management of the Company. the Investment Manager, began a new It seeks to achieve an appropriate balance E ective risk management three-year cycle of risk reviews to identify between mitigating risk and generating isatthe heart o everything and consider the impact and likelihood of long-term sustainable risk-adjusted returns Financial review and Risk report we o as a Boar .” the key, principal and emerging risks facing for shareholders. Integrity, objectivity Wendy Dorman the Company today. A number of risks and accountability are embedded in the Chair Audit and Risk Committee were reassessed to reflect developments Company’s approach to risk management. in the year, and the list of emerging risks The Board exercises oversight of the was refreshed. The Committee updated risk framework, methodology and the risk register and risk matrix as a result process through the Committee. of the analysis conducted during the The risk frameworkis designed to provide year, and considered the alignment of the a structured and consistent process for principal risks identified to the Company’s identifying, assessing and responding to strategic objectives. strat risks. The Committee ensures that there The following sections explain how we The is a consistent approach to risk across the identify and manage risks to the Company. iden Company’s strategy, business objectives, Risk related reporting We outline the key risks, our assessment We policies and procedures. Internal External – Annual report of their potential impact on the Company o th • Monthly • Risk appetite The Company is also reliant on the risk and our portfolio in the context of the and management accounts • Viability statement management frameworks of the Investment current environment and how we seek curr • Internal and external • Internal controls Manager and other key service providers, audit reports tomitigate them. tom • Going concern aswell as on the risk management • Service provider • Statutory/accounting operations of each portfolio company. control reports disclosures • Risk logs The Board manages risks through • Compliance reports reports from the Investment Manager • Risk related reporting and other service providers and through representation on portfolio companies’ boards by the Investment Manager’s team members. ff f o , e f t e o i f e d d 68 ## Risk report continued Risk appetite The benefits of diversification across Risk review process • experience of investment and sectors, countries and types of underlying divestment processes; During the year, the Committee discussed The Company’s risk review process includes economic risk will mitigate this volatility, the Company’s risk appetite and concluded the monitoring of key strategic and financial • compliance with regulatory obligations, and the Company has sought to build that it remained broadly stable. As an metrics considered to be indicators including climate-related regulation; a diverse portfolio while considering investment company, the Company seeks of potential changes in its risk profile. • analysis of new and emerging carefully the underlying risks to which to take investment risk. The appetite for The review includes, but is not limited to, regulatory initiatives; Financial review and Risk report our portfolio companies are exposed. investment risk is described previously the following: • liquidity management; The Committee concluded that the risk in the Our approach section, and in the appetite of the Company for economic • infrastructure and broader • assessment of climate risks to the Investment policy towards the end of infrastructure investments has not changed, market overviews; portfolio, including physical, transition this document. Investments are made and remains appropriate for our investment • key macroeconomic indicators and their and litigation risks; subject to the Investment Manager’s | | mandate and target returns. The Covid-19 | impact on the performance and valuation | | | | --- | --- | --- | --- | --- | | Responsible Investment policy, which | | | • consideration of scenarios that may | | | | pandemic provided a severe test of | of portfolio companies; | | | | addresses an important element of our | | | | impact the viability of the Company; | the appropriateness of the Company’s appetite for investment risk. Given the • regular updates on the operational • assessment of emerging risks; and risk appetite, and its attractiveness to strong competition for new investments, and financial performance of investors. The portfolio overall has been • review of the Company’s risk log. investment discipline remains a key portfolio companies; resilient, and benefitted from diversification consideration. The target risk-adjusted across infrastructure subsectors and types objective of delivering 8% to 10% return of underlying risks. | per annum over the medium term remains | | | | Risk register review process | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | consistent with our current portfolio | | | The key tools used by the Committee to | | | | | | | | | | October 2021 | | December 2021 | | | investment cases, including our | | recent | define the Company’s risk appetite and | | | | | | new investments. It is expected that | | | to determine the appetite for key risks | Directors identify and score | | | Analysis and | | as the | portfolio expands, the range | | are the risk register and the risk matrix. | the principal, key and | | | interpretation | | ofexpected returns in individual | | | The process of creating and reviewing the | emerging risks facing 3iN | | | of responses | | investmentcases may also expand to | | | risk register and risk matrix is described | | | | | | include higher risk/return ‘value add’ cases | | | below, together with a discussion of the | | | | | | and lower risk/return ‘core’ investments. | | | Company’s appetite for each of the key | | | | | | We recognise that this has the potential | | | risks. Beyond the appetite for investment | | | | | | to result in greater volatility in returns | | | risk discussed above, the Company seeks | | | | | | | | | | April 2022 | | | January 2022 | | onanindividual asset basis. | | | tolimit or manage exposure to other risks | | | | | | | | | | Risk register and | Impact and likelihood | | | to acceptable levels. risk matrix updated of the identified risks considered 3i Infrastructure plc Annual report and accounts 2022 69 ## Risk report continued The Committee uses the risk framework The review process was updated this year A number of scenarios have been The Investment Manager models the to identify emerging and key risks, and to assess the likelihood and impact of each developed to reflect plausible outcomes impact of these scenarios on the Company to evaluate changes in risks over time. risk over two timeframes, within threeyears should the principal risks be experienced, and reports the results to the Committee. Developments during the year in the more and beyond three years. The evaluation as well as consideration of stressed The resulting assessment of viability is significant key risks or ‘principal risks’ are of these key risks is then presented on a scenarios that could result in the included in this Risk report. discussed later in this document. These are risk matrix. Mitigating controls have been Company ceasing to be viable. Review during the year Financial review and Risk report risks that the Committee considers to developed for each risk and the adequacy As the Company is an investment have the potential to materially impact of the mitigation is then assessedand, Early in the financial year, the Committee company, the stressed scenarios reflect the delivery of our strategic objectives. if necessary, additional controls are engaged EY to benchmark the Company’s reduced cash flows from the Company’s implemented and reviewed by the risk review process and to facilitate The Committee evaluates the probability investment portfolio, such that debt Committee at a subsequent meeting. a workshop with the Committee to of each identified risk materialising and the covenants are breached and liabilities consider improvements to the process. impact it may have, with reference to the The Committee considers the identified not met. Following the invasion of Ukraine, Presentation of the results of the Company’s strategy and business model. principal risks in greater detail in the a scenario was developed this year for a benchmarking exercise and the workshop assessment of the Company’s viability. new emerging risk of an escalation of this took place in September 2021. The risk conflict in Europe. 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 Risk categorisation the risk review process, conducted at the The Committee uses the following categorisation to describe risks that are identified during the risk review process. start of each three-year cycle of reviews, wasconsidered to be best practice against the benchmarking undertaken. Emerging risks Key risks Principal risks An emerging risk is one that may in future A key risk is considered currently to The Committee maintains a risk matrix, be likely to have a material impact on the pose the risk of a material impact on onto which the key risks are mapped by performance of the Company and the theCompany. Risks may be identified as impact and likelihood. The principal risks achievement of our long-term objectives, emerging risks and subsequently become are identified on the risk matrix as those but that is not yet considered to be a key risks. Identified key risks may cease with the highest combination of impact key risk. tobe considered key over time. and likelihood scores. 70 ## Risk report continued In October 2021, the Committee instigated Future realisations may continue the The Board and the Investment Manager Key risks a process designed to identify and score evolution of risk in the portfolio in line consider these factors when reviewing Key risks are mapped by impact and the key risks and update the list of emerging with our strategy and allow the Company the performance of the portfolio and when likelihoodon a risk matrix. During the risks currently facing the Company. to manage its exposure to more sensitive evaluating new investments, seeking to year, the Committee considered the This started with the ‘blank sheet of paper’ assets, or to take account of where the risk identify which factors present a potential development of all the key risks in detail. exercise where each Director, and several profile of an asset has changed over time. risk and can either be mitigated or Within the category of key risks, the Financial review and Risk report members of the Investment Manager’s converted into opportunities. We are confident that the portfolio remains principal risks identified by the Committee team, identified the top risks facing the defensive and resilient, and in a position As part of the ongoing risk identification in the financial year are set out in the Company. In December 2021, the Committee to benefit from asymmetric returns in rising and management of the Company, the Principal risks and mitigation table on pages analysed the data collected and identified or declining markets (taking more of the Committee considers whether these 72 to 74, alongside how the Company seeks the principal risks facing the Company, upside in a rising market, and benefitting emerging risks should be added to the to mitigate these risks. scoring each for impact and likelihood | | | from protection in a downside). We believe | Company’s risk register. The risk register | | | --- | --- | --- | --- | --- | | (within a three-year period and | beyond a | | | Market and economic risk was considered | | | | the current appetite for risk is appropriate. | is a ‘live’ document that is reviewed and | | | three-year period). In January | 2022, the | | | the top risk facing the Company. | updated regularly by the Committee results of the principal risk scoring were This includes the consequences of Emerging risks as new risks emerge and existing risks | considered and assessed and additional | | | sanctions on Russia and Russian companies, | | --- | --- | --- | --- | | | The Company is a long-term investor and | change. Examples of emerging risks that | | | changes made. | | | the recovery from the Covid-19 pandemic, | | | therefore needs to consider the impact of | were considered during the year include | | increased commodity and energy prices, In March and April 2022, the Committee both identified key risks, as detailed below, the impact of changes in technology rising inflation and interest rates, supply reviewed the updated risk register and risk and risks that are considered emerging or on our portfolio companies, a future chain constraints and a heightened risk matrix and the Company’s appetite for each longer-term. Risk categorisation, including pandemic, divergence between the of recession. of the key risks. the definition of emerging risk, is shown UK and the EU regulation increasing on page 69. friction over trade in goods and services, We have a relatively diverse spread of and escalating regulatory reporting assets in the portfolio and it is important requirements. The risk of an escalation that risk diversity is maintained as we evolve of the war in Ukraine was added to the the portfolio through new investments list of emerging risks this year. and realisations. 3i Infrastructure plc Annual report and accounts 2022 71 ## Risk report continued The risk review showed a high level of Exposure to competition risk is considered consistency with the prior year, with a to have increased further reflecting the level Climate risk Our progress in TCFD reporting is small number of changes in the key risks of fund raising by other asset managers described on pages 51 to 55, and this There is an increased focus on identified. The assessment of likelihood including several new listed funds. nowincludes GHG emissions reporting for sustainability and ESG amongst our and impact of the key risks resulted in These changes are reflected in the scopes 1 and 2 for our portfolio companies. shareholders and in the wider market. some changes to the principal risks facing | | Principal | | risks and mitigations table | | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | Although there is still much uncertainty | | Financial review and Risk report | | the Company. | | | | | All of the companies in our portfolio | | | | on | pages 72 to 74. | | | | | | | | | | around the extent and timing of the | recognise the importance of considering | | The risk of having an unbalanced portfolio impact of climate change, government climate change and of evolving a Covid-19 is considered to have decreased following | | | and societal action, and future regulations, | sustainable business model. As discussed | | --- | --- | --- | --- | | the new investments made in the year | The Covid-19 pandemic was a major test | | | | | | we recognise that climate-related risk is a | in the Sustainability report, the physical | | which have increased the diversity of the | of the business models of all companies. | | | | | | key risk as well asaninvestment theme for | and transition climate-related risks are also | | portfolio. Following that high level of new | The resilient response of our portfolio | | | | | | the Company. In our review this year, we | seen as opportunities for all companies in | | investment, the management of liquidity | companies was consistent with our | | | | | | decided to separate climate-related risk | our portfolio. | | risk is considered to have increased and | strategy and with the characteristics that | | | into two distinct but related risks. become a principal risk. we look for in infrastructure investments. There are no acute physical nor transition We are encouraged by the strength of the Climate regulation risk has been added risks identified in the portfolio that would The risk of poor investment performance performance of our portfolio this year as tothe risk register, to address the suggest that climate risk is a principal is considered to have increased such that Europe recovers from the pandemic and regulatory risk to the Company and the risk, although an example of the impact it is now a principal risk, reflecting the restrictions are eased in the countries in portfolio associated with the transition of a transition risk is the introduction of a risk at individual portfolio company level which we invest. More detail can be found to alow-carbon economy. The existing tax on imported waste or a carbon tax in of increased market and economic risk in the Investment Manager’s review and climate risk was amended to address the the Netherlands, which impacts Attero, alongside the evolution of underlying elsewhere in this Risk report. physical and transition risks from climate and the risk of early decommissioning of risks in our portfolio consistent with change on the portfolio. oil and gas assets which impacts some our investment strategy to focus on customers of Tampnet and ESVAGT. We have increased our disclosures economic infrastructure assets. The risk and reporting on climate risk and our We consider that the mitigating controls at of an inappropriate rate of investment Investment Manager has evolved its the Company and the Investment Manager is considered to have decreased this proprietary ESG tool to allow us to over climate regulation risk prevent this from year, with a good flow of new investment assess this and other risks in more being a principal risk at the moment. opportunities through the pipeline which detail across the portfolio. This year, the converted into a good number of new and Investment Manager added consideration follow-on investments. of ESGrisks, including climate risks, earlierintheinvestment process. 72 ## Risk report continued ## Principal risks and mitigations Our Strategic priorities Invest Disciplined Manage portfolio Efficient Sustainability responsibly approach intensively balance sheet key driver External Principal risk Risk description Risk mitigation • Macroeconomic or market volatility, such as may arise from the consequences • Resources and experience of the Investment Manager on deal-making, Market/economic of the invasion of Ukraine and from the effects on economies of the Covid-19 asset management and hedging solutions to market volatility pandemic, flows through to pricing, valuations and portfolio performance • Periodic legal and regulatory updates on the Company’s markets and in-depth Financial review and Risk report • Fiscal tightening impacts market environment market and sector research from the Investment Manager and other advisers Risk exposure Link to Strategic • Risk of sovereign default lowers market sentiment and increases volatility • Portfolio diversification to mitigate the impact of a downturn in any geography movement in priorities or sector or portfolio company-specific effects • Misjudgement of inflation and/or interest rate outlook the year Manage portfolio • The permanent capital nature of an investment trust allows us to look through Increased intensively market volatility and the economic cycle • Increased competition for the acquisition of assets in the Company’s • Continual review of market data and review of Company return target Competition | | | | strategicfocus areas | | comparedto market returns | | --- | --- | --- | --- | --- | --- | | | | • Deal processes become more competitive and prices increase | | • Origination experience and disciplined approach of Investment Manager | | | | | • New entrants compete with a lower cost of capital | | • Strong track record and strength of 3i Infrastructure brand | | | Risk exposure | Link to Strategic | | | | | | movement in | priorities | | | | | | the year | Disciplined approach | | | | | Increased • Debt becomes increasingly expensive, eroding returns • The Investment Manager maintains close relationships with a number of banks Debt markets deteriorate and monitors the market through transactions and advice • Debt availability is restricted • Regular reporting of Company liquidity and portfolio company • The Company’s RCF or portfolio company debt cannot be refinanced refinancing requirements due tolack of appetite from banks Risk exposure Link to Strategic • Investment Manager has extensive experience in raising debt finance for movement in priorities portfolio companies, alongside an in-house Treasury team to provide advice the year Manage portfolio ontreasury issues No significant intensively • Active management of portfolio company debt facilities, with fixed rates and change long duration of debt 3i Infrastructure plc Annual report and accounts 2022 73 ## Risk report continued ## Principal risks and mitigations continued Our Strategic priorities Invest Disciplined Manage portfolio Efficient Sustainability responsibly approach intensively balance sheet key driver Operational Principal risk Risk description Risk mitigation • Members of the deal team at the Investment Manager leave and • Benchmarked compensation packages and deferred remuneration Loss of senior ‘deal-doing’ and portfolio management capability in the short to • Notice periods within employment contracts Investment Manager staff medium term is restricted • Strength and depth of the senior team and strength of the 3i Group brand Financial review and Risk report • Careful management of senior management transition Risk exposure Link to Strategic movement in priorities the year Invest responsibly No significant Sustainability change key driver Strategic Principal risk Risk description Risk mitigation • Failure to manage the Company’s liquidity, including cash and available • Regular reporting of current and projected liquidity Management of liquidity credit facilities • Investment and planning processes consider sources of liquidity • Insufficient liquidity to pay dividends and operating expenses or to make • Flexible funding model, where liquidity can be sought from available cash new investments balances including reinvestment of proceeds from realisations, committed Risk exposure Link to Strategic • Hold excessive cash balances, introducing cash drag on the Company’s returns credit facilities which can be increased with approval from our lenders, movement in priorities andtheissue of new share capital the year Disciplined approach Increased • Failure to ensure the investment strategy can deliver the return target and • Market returns are reviewed regularly Deliverability dividend policy of the Company • The Investment Manager and other advisers to the Company report on ofreturn target • Failure to adapt the strategy of the Company to changing market conditions market positioning • Investment process addresses expected return on new investments and the impact on the portfolio Risk exposure Link to Strategic • Consideration of risks, including ESG and climate risks, in the movement in priorities investment process the year Invest responsibly No significant Sustainability change key driver 74 ## Risk report continued ## Principal risks and mitigations continued Our Strategic priorities Invest Disciplined Manage portfolio Efficient Sustainability responsibly approach intensively balance sheet key driver Investment Principal risk Risk description Risk mitigation • An incident, such as a cyber or terrorist attack • Regular review of the Company and key service providers Security of assets • Unauthorised access of information and operating systems • Regular review and update of cyber due diligence for potential investments • Regulatory and legal risks from failure to comply with cyber related laws • Review of portfolio companies for cyber risk management and Financial review and Risk report andregulations, including data protection incident readiness Risk exposure Link to Strategic movement in priorities the year Invest responsibly No significant Sustainability change key driver • Misjudgement of the risk and return attributes of a new investment • Robust investment process with thorough challenge of the investment case Poor investment supported by detailed due diligence • Material issues at a portfolio company performance • Investment Manager’s active asset management approach including proactive • Poor judgement in the realisation of an asset 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 Link to Strategic movement in priorities the year Invest responsibly Increased Sustainability key driver 3i Infrastructure plc Annual report and accounts 2022 75 ## Risk report continued Development of significant In this environment, the Investment Manager Central bank base rates increased during There are actual and potential indirect continues to leverage its network and skills the year, and these increases are likely to effects on portfolio companies of the keyrisks in the year to look forinvestments that can deliver continue in the coming year. This would Russian invasion of Ukraine and the The disclosures in the Risk report are not attractive and sustainable risk-adjusted increase debt financing costs for our imposition of sanctions on Russia and an exhaustive list of risks and uncertainties returns to the Company’s shareholders. portfolio companies and could also lead Russian businesses, including increasing faced by the Company, but rather a to increases in required rates of return cost and wage inflation, availability of summary of significant key risks which The Company achieved a high level of Financial review and Risk report on equity, both of which would decrease resources and disruptions to normal market are under active review by the Board. new investment in the year, while avoiding portfolio company valuations. Long-term activities. However, the impact to date on These significant key risks have the potential the most heavily competed processes in fixed rate debt is in place across the portfolio companies has been limited. to affect materially the achievement of the the market. majority of our portfolio which mitigates the Company’s strategic objectives and impact The valuation of our portfolio companies Inflation in the UK and Europe has risen risk from interest rate changes in the shorter its financial performance. This disclosure that generate electricity, Infinis, Valorem sharply in the year, driven by rising energy term. The increase in competition noted shows developments in these significant and Attero, is affected by the evolution costs, supply chain bottlenecks, labour and above has led to required rates of return keyrisks for the year. The risks that have of long-term power price forecasts and raw material shortages and the reopening on equity remaining at historic low levels. been identified as principal risks are by fluctuations in the spot power price. of economies from pandemic-related described in more detail in the Principal The Company is exposed to movements Volatility in prices is expected to continue lockdowns. Higher inflation is generally risks and mitigations table. in sterling exchange rates against a number as thermal and nuclear plants are retired, positive for the Company, particularly for of currencies, most significantly the there is growth in intermittent renewables assets which have revenues at least partially External risks – market euro. The Company operates a hedging and increasing demand due to the linked to inflation, although higher inflation and competition programme which substantially offsets electrification of transport and heating, may also result in increased costs. volatility in returns from exchange rate and due to the the war in Ukraine. Infinis’s The markets in which the Company movements. The Board monitors the electricity offtake arrangements include seeks to invest, and in particular the effectiveness of the Company’s hedging contracts with Gazprom Marketing & European economic infrastructure market, policy on a regular basis. Trading Ltd, a large supplier in the UK are more competitive than ever, with non-domestic energy market. Whilst these strong demand for new investments. contracts are not currently affected by Competition continued to increase as sanctions, Infinis is actively replacing the infrastructure sector has demonstrated contracts where permitted and others its resilience during the pandemic. will run off over time. 76 ## Risk report continued | We do not expect Infinis to be adversely | Air traffic movements and passenger | Ofgem is progressing a series of reviews | | The portfolio is diversified across sector | | --- | --- | --- | --- | --- | | affected by any extension of sanctions or an | numbers remain substantially below the | and consultations following its recent | | and geography with no investment above | | insolvency process for Gazprom Marketing | levels seen before the Covid-19 pandemic, | Significant Code Review, resulting | | 17% of portfolio value. | | & Trading Ltd. | although they are now showing signs of | ina | degree of regulatory uncertainty | | Investment risks recovery. The timing and extent of future for theforeseeable future. Sanctions on Russia and Russian companies, recovery remains uncertain. This affects Portfolio companies continue to experience together with the recovery from the The unprecedented fiscal stimulus that we Financial review and Risk report | | TCR more than other companies in our | | fraud attempts, some of which are successful, | | --- | --- | --- | --- | | Covid-19 pandemic, has led to an increase | | have seen during the Covid-19 pandemic | | | | portfolio, although we are pleased with the | | but none of which has had a material impact | | in oil prices. For Oystercatcher, the increase | | has increased sovereign debt levels and | | | | performance of TCR over the duration of | | on any of our companies. In the year the | | in oil prices has led to a backwardation | | a consequence of this is likely to be higher | | | | the pandemic and the strong performance | | Investment Manager commissioned a | | market structure which, together with | | taxes to balance the deficit. The increase | | | | this year as the industry starts to recover. | | review of cyber controls by an independent | | recent market volatility, may maintain some | | in the UK corporation tax rate from | | | | We have maintained our assumption | | IT security provider, building upon a | | short-term downward pressure on pricing | | April2023 is reflected in the valuations of | | | | ofalonger-term return to pre-pandemic | | previous review by the same company. | | ofcontract renewals. | | Infinis, SRLand Tampnet and the increase | | | | levels of air travel by 2024. | | No significant weaknesses in cyber security | in theDutch corporation tax rate from Ionisos is a provider of cold sterilisation were identified and the majority of more April2022 is reflected in the valuations External risks – regulatory and tax andionising radiation treatment services minor issues noted in the review have been ofJoulz and Attero. tothe medical, pharmaceutical, plastics The Company’s investment in Infinis is addressed. We remain vigilant and continue andcosmetics industries. Gamma radiation, exposed to electricity market regulation to focus on effective operations of controls Strategic risks one of the three methods of cold sterilisation risk around the future of network access against possible cyber-attack, particularly The Company manages its balance sheet used, relies on the radioactivedecay of and charging arrangements. It is possible as this risk continues to increase following and liquidity position actively, seeking Cobalt-60, a scarce resource. Ionisos’s that this could affect the valuation of Infinis, the outbreak of war in Ukraine. to maintain adequate liquidity to pursue | Estonian business has inthe past sourced | and we are closely monitoring the position. | | | | | --- | --- | --- | --- | --- | | | | new investment opportunities, while not | | Further to the announcement in March | | Cobalt-60 from a Russian-owned company, | The direction of network access charging | | | | | | | diluting shareholder returns by holding | | 2021 that the facilities of Steril Milano, | | JSC. Whilst JSC is not currently subject | reform is for more location-based charging | | | | | | | surplus cashbalances. At 31 March 2022 | | a subsidiary of Ionisos, had been closed, | | tosanctions, Ionisos will not source new | which in principle should benefit generators | | | | | | | there was £17 million available in cash, | | Steril Milano was placed into voluntary | | Cobalt-60 from JSC for the foreseeable | such as Infinis with sites predominantly in | | | | | | | with | drawings of £231 million under the | liquidation during the period. This was fully | | future and is seeking alternative sources | demand-dominated areas. | | | | | | | RCF. The Company increased the size of the | | provided for in the March 2021 valuation | ofsupply. The capacity of the Estonian committed credit facilities during the year, of Ionisos. Steril Milano represented c.3% business would reduce over time until with aggregate facilities of £1 billion at the of Ionisos’s 2020 EBITDA. new Cobalt-60 is sourced. date of this report. 3i Infrastructure plc Annual report and accounts 2022 77 ## Risk report continued Operational risks This is underpinned by the strong The resilience of key suppliers, including institutional culture and values of our the Investment Manager, is considered The key areas of operational risk include Investment Manager, high standards annually or more frequently if appropriate. attracting and retaining key personnel at of corporate governance, and effective The Audit and Risk Committee is provided the Investment Manager, and whether the risk management. with relevant extracts of reports from the Investment Manager’s team can continue Investment Manager’s internal audit team, to support the delivery of the Company’s Over the life of the Company, the Financial review and Risk report which includes an annual report on the objectives. The team has strength Investment Manager has built a resilient European infrastructure investment team. and depth and the transition in senior and diversified portfolio with good growth Further detail is included in the Governance management has been carefully managed. potential and downside protection that section on page 115. | The Board monitors the performance | delivers an attractive mix of income yield | | | --- | --- | --- | | of the Investment Manager through the | and capital appreciation for shareholders. | The Directors manage the Company’s | | Management Engagement Committee. | This has been achieved through consistent | liquidity actively, reviewing reports | | It also monitors the performance of key | delivery of our strategic priorities, | on current and forecast liquidity from | | service providers, receiving reports of | described on page 18. | the Investment Manager, alongside | | anysignificant control breaches. | | recommendations for seeking | Short-term resilience additional liquidity when appropriate. Resilience statement | | The Directors assess the Company’s | Further discussion on the RCF can be found | | --- | --- | --- | | Our resilience comes from the effective | short-term resilience through monitoring | in the Financial review section on page 63. | | implementation of our business model, | portfolio, pipeline and finance reports. | | The identification of material uncertainties described on pages 14 to 17. Key elements These are prepared monthly, and discussed that could cast significant doubt over the of our business model relating to resilience at quarterly scheduled Board meetings and ability of the Company to continue as include the Investment Manager’s Board update calls held between scheduled a going concern forms the basis of the disciplined approach to new investment meetings. Six-monthly detailed investment Goingconcern statement below. and engaged asset management, the reviews are prepared by the Investment defensive characteristics of our portfolio Manager and discussed with the Board, as of investments, high ESG standards, our part of the half-yearly and annual valuation flexible funding model and efficient balance and reporting processes. These reviews sheet, and the capability of the Investment describe sources of risk at portfolio Manager’s team. company level, and mitigating actions being taken or considered. 78 ## Risk report continued Going concern The Company has liquid financial The Company had ongoing charges The Company has sufficient resourcesand a strong investment of£36 million in the year to 31 March2022, financial resources and liquidity and is The Company’s business activities, portfolioproviding a predictable income detailed in Table 5 in the Financial review, well-positioned to manage business risks together with the factors likely to affect yield and an expectation of medium-term which are indicative of the ongoing run in the current economic environment its future development, performance | | | capital growth. The Company manages | rate in the short term. In addition, the | and can continue operations for a | | --- | --- | --- | --- | --- | | Financial review and Risk report | and position are set out in the Strategic | | | | | | | andmonitors liquidity regularly, ensuring | FY22 performance fee of £54 million | period of at least 12 months from the | report and in the Financial statements that it is sufficient. (2021: £7 million) is due in three equal date of this report. This is supported by and related Notes to our Annual | | | | instalments with the first instalment payable | | | the scenario analysis and stress testing | | --- | --- | --- | --- | --- | --- | --- | | report and accounts to 31 March 2022. | At 31 March 2022, liquidity remained | | | | | | | | | | in the next 12 months along with the second | | | described in the medium-term resilience | | The financial position of the Company, | strong at £786 million (2021: £763 million). | | | | | | | | | | instalment of FY21’s performance fee and | | | section and the viability statement on | | its cash flows, liquidity position and | Liquidity comprised cash and deposits | | | | | | | | | | the third instalment of FY20’s performance | | | page 79. Accordingly, the Directors | | borrowing facilities are described in the | of £17 million (2021: £463 million) | | | | | | | | | | fee, and a proposed final dividend for | | | continue to adopt the going concern | | Financial statements and related Notes | and undrawn facilities of £769 million | | | | | | | | | | FY22 | | of £47 million which is expected | basis in preparing the Annual report | | to the accounts. In addition, Note 9 to | (2021: £300 million). The £200 million | | | | | | | | | | to | be paid in July. | | and accounts. | | the accounts includes the Company’s | accordion and £400 million additional | | | | | | | objectives, policies and processes for | facility both mature within 12 months | | Although not a commitment, the | | | | | managing its capital, its financial risk | of the date of this report. In addition, | | Companyhas announced a dividend | | | | | management objectives, details of | the Company is able to call the second | | target for FY23 of 11.15 pence per share. | | | | | its financial instruments and hedging | tranche of the deferred consideration | | Income and non-income cash is expected | | | | | activities, and its exposures to credit risk | fromthe realisation of WIG, | £98 million | to be received from the portfolio | | | | | and liquidity risk. | with sixweeks’ notice and, in June 2022, | | investments during the coming year, some | | | | | | is expecting to receive £103 million from | | of which will be required to support the | | | | The Directors have made an assessment thesale of its Projects portfolio. payment of this dividend target and the of going concern, taking into account the Company’s other financial commitments. | Company’s cash and liquidity position, | The Company had an expected | | | | --- | --- | --- | --- | | current performance and outlook, which | investmentcommitment of c.£300 million | | The Directors have acknowledged | | considered the impact of the Covid-19 | at 31 March 2022, relating to the equity cost | | theirresponsibilities in relation to | | pandemic and the war in Ukraine, using | for the acquisition of GCX expected to | close | the Financial statements for the year | | the information available up to the date | in the summer. The Company expects to | | to 31 March 2022. After making the | | of issue of these Financial statements. | receive the WIG deferred consideration | | assessment on going concern, the Directors | | | and the proceeds from the sale of the | | considered it appropriate to prepare | | | Projects portfolio prior to the completion | | theFinancial statements of the Company | | | ofthis investment. | | on a going concern basis. | 3i Infrastructure plc Annual report and accounts 2022 79 ## Risk report continued Medium-term resilience Viability statement The Directors have considered the potential The assumptions used to model these impact on the Company of a number of scenarios included a fall in value of some or The assessment of medium-term The Directors consider the medium-term scenarios in addition to the Company’s all of the portfolio companies, a reduction resilience, which includes modelling of prospects of the Company to be favourable. business plan and recent forecasts, which in cash flows from portfolio companies, stressed scenarios and reverse stress tests, The Company has a diverse portfolio of quantify the financial impact of the principal areduction in the level of new investment, considers the viability and performance infrastructure investments, producing risks occurring. These scenarios represent the imposition of additional taxes on of the Company in the event of specific good and reasonably predictable levels of Financial review and Risk report severe yet plausible circumstances that the distributions from, or transactions in, the stressed scenarios which are assumed to income which cover the dividend and costs. Company could experience, including a portfolio companies, an increase in the cost occur over a three-year horizon. This stress The defensive nature of the portfolio and of significant impairment in the value of the of debt and restriction in debt availability, testing forms the basis of the Viability the essential services that the businesses in portfolio and a reduction in the cash flows and an inability for the Company to raise statement below. which we invest provide to their customers available from portfolio companies from equity. The implications of changes in the are being demonstrated in the current The Directors consider that a three-year avariety of causes. inflation, interest rate and foreign exchange climate. The Investment Manager has a | period to March 2025 is an appropriate | | | environment were also considered, | | --- | --- | --- | --- | | | strong track record of investing in carefully | The assessment was conducted over | | | period to review for assessing the | | | separately and in combination. | | | selected businesses and projects and of | several months, during which the proposed | | Company’s viability. This reflects greater driving value through an engaged asset scenarios were evaluated by the Board, The results of this stress testing showed that predictability of the Company’s cash management approach. The Directors the assumptions set, and the analysis the Company would be able to withstand flows over that time period and increased consider that this portfolio can continue produced and reviewed. Analysis included the impact of these scenarios occurring uncertainty surrounding economic, tomeet the Company’s objectives. the impact of an escalation of the war in over the three-year period. The Directors political and regulatory changes over Ukraine on our portfolio companies and the also considered scenarios that would thelonger term. The Directors have assessed the viability impact of a resulting economic downturn. represent a serious threat to its liquidity and of the Company over a three-year period The stress testing focuses on the principal Other considerations included the possible viability in that time period. These scenarios to March 2025. The Directors have taken risks, but also reflects those new and impact of climate-related events and were considered to be remote, such as account of the current position of the emerging risks that are considered to transition risks, widespread economic a fall in equity value of the portfolio of Company, including its strong liquidity be of sufficient importance to require turmoil, a reduction in cash distributions materially more than 50% whilst being fully position with £17 million of cash and active monitoring by the Audit and Risk from portfolio companies to the Company, drawn on the RCF including the accordion, £769 million of undrawn credit facilities, | Committee. The scenarios used are | | | | a tightening of debt markets and the failure | oranequivalent fall in income. | | --- | --- | --- | --- | --- | --- | | | its | commitment of c.£300 million to | | | | | described in the Viability statement | | | | of a large investment. | | | | the new | | investment in GCX described | | Based on this assessment, the Directors | below. The medium-term resilience of the in the Going concern section above, have a reasonable expectation that the Company is assessed through analysing and the principal risks it faces which Company will be able to continue in the impact of these scenarios on key are documented in this Risk report. operation and meet its liabilities as they metrics such as total return, income yield, fall due over the three-year period to net asset value, covenants on the RCF March 2025. andavailable liquidity. 80 ## Risk report continued Long-term resilience We have a long-term investment time horizon made possible by our permanent As described above, the long-term capital base that is unconstrained resilience of the Company, beyond the by the fixed investment period and Viability statement period, comes from the fundraising cycle seen in private limited effective implementation of our business partnership funds. model and consistent delivery of our Financial review and Risk report strategic objectives. Although the scenarios and stress testing to support the viability statement are Our approach to origination and portfolio modelled over a three-year time horizon, construction, focus on price discipline and the resilience shown by the Company, and engaged asset management approach its ability to recover from these stressed enable us to adapt in response to new and situations, supports the assessment of emerging risks and challenges including our resilience over a longer term than climate change and developments three years. 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. 3i Infrastructure plc Annual report and accounts 2022 81 ## Directors’ duties ## Section 172 statement The Directors are obliged to act 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 honestly and in good faith with a view of the company for the benefit of its members as a whole, and in doing so have regard to: to the best interests of the Company; The likely consequences of The impact of the Company’s operations and to exercise the care, diligence any decision in the long term on the community and theenvironment andskill that a reasonably prudent Our purpose and strategy combined We use our influence to promote a Financial review and Risk report person would exercise in withtheresponsible investment approach commitment in our portfolio companies ofthe Investment Manager focuses tomitigate any adverse environmental comparable circumstances. onsustainable returns and outcomes. andsocial impacts, and to enhance The Directors fulfil their duties through positiveeffects on their communities Read more theCompany’s governance framework and andthe environment. Pages 4 to 6 and 67 to 80 through their delegation of discretionary Read more investment management authority to the Pages 46 to 55 Investment Manager. The interests of the The desirability of maintaining The Company adheres to the AIC Code and Company’s employees areputation for high standards it is the intention of the AIC Code thatthe ofbusiness conduct Whilst we do not have any employees, matters set out in section 172 Companies ourpurpose includes the intention to Our success relies on maintaining a strong Act 2006 (‘s172’) arereported on to the havea positive impact on our portfolio reputation and our values and ethics are extent they do not conflict with Jersey companies and their stakeholders, aligned to our purpose, our strategy and law. The Directors exercise their duties by whichincludes the employees of those ourways of working. understanding the views of the Company’s portfolio companies. Read more key stakeholders and considering all of Read more Pages 15 and 17 the matters set out ins172 in both their Pages 35 to 45 discussions and in decision making. The need to foster the Company’s The need to act fairly towards business relationships with suppliers, allmembers of the Company customers and others The Board actively engages with its We engage with all our stakeholders shareholders and balances their interests eitherdirectly or through the when implementing our strategy. Investment Manager. Read more Read more Pages 97 to 100 Pages 97 to 100 82 ## Directors’ duties continued ## Section 172 statement continued Board decisions are guided by the Company’s purpose. The Board Our s172 approach Director induction programme, acknowledges that not every decision ongoing Director training made will necessarily result in a positive and individual Director skills outcome for every stakeholder group. and experience. Board decisions often involve complex Financial review and Risk report interactions of factors and require Directors to understand and have regard to a range Board papers and Investment Ongoing engagement of stakeholder interests and concerns. Manager presentations take into Board Information with stakeholders, including account relevant s172 factors By considering the Company’s purpose the Investment Manager. for consideration. 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 s172 factors considered in Board culture and values, discussions and in relation to the Board Meetings along with Investment Manager group in accordance with s172. overall delivery of the Company’s andDiscussion input, facilitate discussion Governance structure purpose and strategy. on the impact of decisions. Pages 84 to 124 Board challenges the quality Chair ensures discussion and and fullness of information received decision making takes into account Board Decisions and receives appropriate assurance relevant s172 factors. prior to taking decisions. This Strategic report, on pages 1 to 82, Board performance evaluated is approved by order of the Board. Further engagement Outcomes of annually to ensure Board Actions taken to implement and dialogue with stakeholders Authorised signatory decisions assessed. has performed effectively, Board decisions. where appropriate. 3i plc in accordance with its values. Company Secretary 9 May 2022 83 ## Governance DNS NET Page 42 84 ## Introduction to Governance Our corporate governance framework The Board and its Committees have been ## The Board has continued its focus underpins the Company’s purpose and able to meet in person since July 2021 the delivery of our strategy. This section of and prior to that met through video ## on strong and effective corporate our Annual report provides details of our conferencing for all of our meetings. corporate governance framework and the This has worked well but nothing can quite ## governance. A key part of this approach the Board has taken over the last replace in-person meetings and we hope Governance | is our stakeholder engagement | 12 months to promote the standards of | that as the pandemic subsides, we can | | --- | --- | --- | | | good corporate governance that are rightly | continue to do so whilst using video | | which remains fundamental to the | expected by all our stakeholders. This year | conferencing for ad hoc meetings. | we have continued to face a number of How we have engaged with our stakeholders ## Company’s purpose of investing pandemic-related challenges, but the Pages 97 to 100 return to the office and in-person meetings ## responsibly in infrastructure, in the summer of 2021 was welcomed. ## delivering long-term sustainable ## returns to shareholders and having ## a positive impact on our portfolio ## companies and their stakeholders. 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 3i Infrastructure plc Annual report and accounts 2022 85 ## Introduction to Governance continued Principal governance The Board reviewed its key decisions during the year to ensure that lessons are learnt Compliance with the AIC Code Composition, succession activities during the year from such decisions and this acts as a way and evaluation The Board confirms that the Company has Meetings of ensuring continuous improvement. We aim to have a balanced Board with the continued to meet all of its obligations During the year, there were six scheduled The Board monitors and assesses the appropriate skills and experience to govern under the AIC Code and inrespect of the | meetings of the Board of Directors and two | | | the business. We have an effective board | | | --- | --- | --- | --- | --- | | | manner in which it reached such decisions | associated disclosures under the applicable | | | | additional ad hoc Board meetings arranged | | | evaluation process anda succession plan | Governance | | | and provides feedback to the Investment | provisions ofparagraph 9.8.6 of the Listing | | | monitored bytheNomination Committee. at short notice. Further details can be found Manager on how it engaged with the Board Rules. Details of how the Company has on page 96. In addition, the Board held two complied with the relevant principles and Read more and kept them informed throughout the standalone Strategy sessions (in addition provisions of theAIC Code are setout below. Pages 105 to 109 process that led to a decision. to the strategy issues which are considered | | | Board leadership and purpose | Audit, Risk and Internal Control | | --- | --- | --- | --- | | at every Board meeting) where the Board | Investment Manager | | | | | | The Board is responsible for leading the | The Audit and Risk Committee, supported | | worked with the Investment Manager | 3i Investments plc acts as the Investment | | | | | | business in a way which supports its purpose | by the Investment Manager and other key | | toconsider matters of a strategic or | Manager of the Company and has | | | | | | of investing responsibly in infrastructure, | stakeholders, identifies potential risks and | | wide-ranging nature. The Board has regular | discretionary investment management | | | | | | delivering long-term sustainable returns | how best to mitigate them. The Audit and | | telephone or video calls with the Investment | authority other than in respect of certain | | | | | | to shareholders and having a positive | Risk Committee is appointed to oversee | | Manager which provides updates on | transactions which must be referred to the | | | | | | impact on our portfolio companies | thisprocess on behalf of the Board. | | activities between Board meetings. | Board. The Management Engagement | andtheir stakeholders. | | Read more Committee oversees the relationship with Decisions and s172 Read more Pages 110 to 116 the Investment Manager and monitors Pages 87 to 100 When making decisions, the Directors its performance. Further details on the Remuneration consider the requirements of s172 and Investment Management Agreement Division of responsibilities The Remuneration Committee further details of this are set out in our (‘IMA’), theleadership of the Investment We ensure we have the right combination ensures afair reward structure Section 172 Statement on pages 81 and Manager and the oversight by the ofChair and non-executive Directors to forthenon-executive Directors. 82. The Directors are also reminded of Management Engagement Committee can leadthe Company effectively, supported Read more their s172 duties in the papers for each byboth strong governance arrangements be found onpages 91, 92, 98, 117 and 118. Page 119 scheduledBoard meeting. andthe workof the Investment Manager. Read more Pages 101 to 104 86 ## Introduction to Governance continued Stakeholders Board values Integrity The Board recognises the importance The Board acts with honesty, dedication The Board’s values of Integrity, Objectivity, of engaging with stakeholders and and consistency, with the courage to Accountability and Legacy underpin its Integrity details of that engagement programme do the right thing in every situation. open and collaborative culture and are are set out on pages 98 and 99. As an The Board manages its relationships supplemented by the skills and experience investment trust, shareholders are one of Governance based on trust and respect. that each individual Director brings to Legacy our key stakeholders and it is the Chair’s 3iN the Company. For further information Objectivity responsibility to ensure that there is the Board seethe Nomination Committee report on Objectivity The Board applies a fair, transparent and opportunity for shareholders to engage values | pages108 and 109. The values support the | | balanced approach to decision making. | with the Board on strategy, corporate | | --- | --- | --- | --- | | delivery of the Company’s purpose and | | The Board values diversity of opinion | governance and any other matters they | | reflect the commitment of the Board to | | and encourages different perspectives | wish to raise. The Chair welcomes the | | the success of the Company for the benefit | Accountability | to bring constructive challenge as it | opportunity to meet with shareholders as | | of its members as a whole, whilst taking | | discharges its responsibilities. | required. Day-to-day engagement with | | into account the views of stakeholders. | | | shareholders is managed by the Investment | Accountability The Investment Manager applies the Manager through a comprehensive annual The Board acts in the interest of all 3iGroup plc values as the basis of how engagement programme. This year, the stakeholders of the Company, ensuring itdoes business (see www.3i.com). Board commissioned an Investor Perception that obligations to shareholders are Study and further details on this can be The values of the Board and the understood and met. It is mindful of its found on page 98. The Board is grateful to Investment Manager are complementary responsibility to act as a good steward all shareholders for their continued support and consistent. of its portfolio and of the influence and and to those who have given feedback. impact that the Company can have on Where shareholders have expressed society, the communities in which it concern over particular issues, the Board operates and the environment. seeks to understand those concerns and Legacy address them where appropriate. The Board seeks to develop a company and portfolio that delivers long-term, sustainable value for our shareholders and society. 3i Infrastructure plc Annual report and accounts 2022 87 ## Leadership and purpose ## Board of Directors In 2021, due to uncertainty on the next Committees The Nomination Committee has continued Board evaluation steps of the UK government’s easing to develop the Board succession plan. The Board, working with the Audit and During the year, a Board performance of lockdown restrictions, the Company The Board will ensure that in making Risk Committee, is responsible for ensuring evaluation was conducted by Satori, held an online interactive shareholder appointments it, and any search firm that that its Annual report and accounts are anexternal Board evaluator and the findings engagement event two weeks before assists it, will consider a wide range of fair, balanced and understandable, and for provided a further opportunity to continue holding a purely functional AGM (where candidates from different backgrounds establishing, maintaining and exercising to enhance the Board’s contribution to Governance shareholders were encouraged not while making appointments on merit and oversight over the risk management the long-term success of theCompany. to attend and to vote by proxy) which which meet the objectives ofits policy and internal control frameworks. Further details of the evaluation can be conducted the business of the meeting on diversity, including gender, social and Further detailson the work of the Audit found on page 105. and where there were no presentations. ethnic background, cognitive and personal andRisk Committee can be found on The Board recognises that this limited the strengths. Further details on the work of I hope that this Governance section pages110 to 116. ability of some shareholders, in particular theNomination Committee can be found provides you with an insight into our work retail shareholders, to engage with the The role of the Remuneration Committee on pages 108 and 109. as a Board on your behalf. The Board Directors and the Company but we did not is to determine and maintain a fair reward welcomes feedback on all our activities, Having the right balance of skills and feel it appropriate to encourage travel to structure for Directors to attract and retain governance being a key one of those. experience amongst the Directors ensures and attendance at an indoor meeting at the right talent to deliver the Company’s that the Board can be responsible to that stage of the pandemic. This year, we strategic objectives. Further details on the shareholders for the overall management Richard Laing anticipate returning to the more usual form work of the Remuneration Committee can Chair, 3i Infrastructure and oversight of the Company, for agreeing of AGM where shareholders will be able to be found on page 119. 9 May 2022 its strategy, monitoring its financial attend in person and ask questions directly performance, setting and monitoring of the Board and the Investment Manager. its riskappetite and maintaining an effective system of internal controls. This year, Robert Jennings stepped down from the Board and we thank him for his contribution. 88 ## Leadership and purpose continued ## Board of Directors continued From left to right: Wendy Dorman Paul Masterton Richard Laing Samantha Hoe-Richardson Doug Bannister Governance Ian Lobley 3i Infrastructure plc Annual report and accounts 2022 89 ## Leadership and purpose continued ## Board of Directors continued Chair Independent non-executive Directors | Richard Laing | Paul Masterton | Wendy Dorman | | --- | --- | --- | | Appointed January 2016. Chair of Nomination, | Senior Independent Director | Appointed March 2015. Chair of the Audit and Risk | | Disclosure and Management Engagement Committees, | | Committee and member of Management Engagement, | Appointed April 2013. Chair of the Remuneration and member of Remuneration Committee. UK resident. Nomination, Remuneration and Disclosure Committee and member of Audit and Risk, Committees. Jersey resident. Management Engagement, Nomination and Disclosure Skills and experience contributing to the Board Committees. Jersey resident. Governance • As an experienced non-executive Director and Skills and experience contributing to the Board seniorexecutive, has broad strategic insights • Over 27 years’ experience as a chartered accountant Skills and experience contributing to the Board • Long-standing experience of investing in and tax adviser • Extensive experience in leading and developing large international infrastructure • Particular expertise in the taxation of UK and offshore companies, and of mergers and acquisitions • Deep knowledge of investment companies investment funds, including the tax aspects of • Particularly experienced from an international • As a previous CFO, understands complex financial fund structuring business perspective and funding matters • Extensive knowledge of risk mitigation, compliance • Knowledge of digital technology • Fellow of the Institute of Chartered Accountants and corporate governance. • Deep experience as a non-executive director, inEngland and Wales. including board governance and remuneration Current roles Current roles • Leadership and team development, including • Non-executive Director and Chair of Audit & Risk • Non-executive Director of Tritax Big Box REIT plc coaching and mentoring Committee of Jersey Electricity plc • Non-executive Director of JP Morgan Emerging • Focus on corporate social responsibility. • Non-executive Director and Chair of Audit & Markets Investment Trust plc Risk Committee of CQS New City High Yield Current roles • Trustee and Deputy Chair of Leeds Fund Limited. • Chair of Insurance Corporation CI Castle Foundation. • Chair of States of Jersey Development Company Past roles Past roles • Senior Independent Director of Jersey Competition • Head of PwC Channel Islands tax practice for • Non-executive Director and Chair of Perpetual & Regulatory Authority seven years Income and Growth Investment Trust plc • Trustee of Digital Jersey • Non-executive Director of Jersey Finance Limited • Non-executive Director of Murray Income Trust plc • Chair of Governors for Jersey College of Higher • President of Jersey Society of Chartered and • Non-executive Director and Chair of Miro Forestry Education and University of Jersey. Certified Accountants Company Limited • Chair of Jersey Institute of Directors. Past roles • Non-executive Director of London Metal Exchange • Over 25 years at RR Donnelley including as president • 11 years at CDC Group plc with the last seven years of company’s businesses in Europe, Russia and India asChief Executive • Chief Executive of Durrell Wildlife Conservation Trust. • 15 years at De La Rue latterly as Group Finance Director • Commercial roles in agribusiness and Marks & Spencer • Chartered accountant at PricewaterhouseCoopers (‘PwC’). 90 ## Leadership and purpose continued ## Board of Directors continued Independent non-executive Directors Non-executive Director | Doug Bannister | Samantha Hoe-Richardson | Ian Lobley | | --- | --- | --- | | Appointed January 2015. Member of Audit and | Appointed February 2020. Member of Audit and | Appointed May 2014 as the 3i Group plc nominated | | Risk, Management Engagement, Remuneration | Risk, Management Engagement, Remuneration | Director. UK resident. | | andDisclosure Committees. UK resident. | andDisclosure Committees. UK resident. | | Skills and experience contributing to the Board Skills and experience contributing to the Board Skills and experience contributing to the Board • Valuable experience and insight into the assessment Governance | • Over 30 years’ experience in the international | | • Senior executive with 18 years’ experience in global | | | of new investments and management of the portfolio | | --- | --- | --- | --- | --- | --- | | | transportation and distribution sectors | | mining and infrastructure | • Extensive knowledge on ESG matters | | | • In-depth knowledge of leading asset intense | | • In-depth understanding of environmental and | | • Experienced non-executive Director across sectors, | | | | operational businesses | | sustainability issues | | continents and ownership models | | • Experienced senior executive with broad | | • Broad based non-executive Director experience | | • Significant experience, as an investor and engineer, | | | | international experience | • Chartered accountant. | | | ofdisruptive technologies across multiple | | • Knowledge in turnaround, mergers and acquisition | | | | | end markets. | Current roles integration, restructuring and transformation • Non-executive Director of Assured Guaranty UK Ltd Current roles ofcapital intensive businesses. • Independent Group Adviser on Climate Change & • 3i Group plc Managing Partner – Asset Management Current roles Sustainability to Laing O’Rourke. • Non-executive Director of AES Engineering Ltd • Chief Executive of Dover Harbour Board • Non-executive Director of Cirtec Medical Holdco LLC Past roles • Council Member of British Ports Association. • Non-executive Director BSI Group • Non-executive Director and Chair of the Audit • Non-executive Director of Tato Holdings Ltd Past roles Committees at Lancashire Holdings Limited and • Non-executive Director of Boketto Holdco Limited • Group CEO of Ports of Jersey (Airports & Harbours) Lancashire Insurance UK Limited (Audley Travel). | • Commercial roles at P&O Nedlloyd and Maersk Line. | • Non-executive Director and Chair of Audit | | | | | --- | --- | --- | --- | --- | | | | Committee of Unum Limited | Past roles | | | | • Head of Environment and Sustainable Development | | • Long-term member of 3i Group plc | | | | | of Network Rail | | Investment Committee | | | • Head of Environment at Anglo American plc | | • Active investor and experienced board member | | | | • Trustee of the Royal School of Needlework. | | | in a variety of companies across Europe, Asia and | the USA • Leadership of technology investing and portfolio management activities • Engineer at BOC Speciality Gases. 3i Infrastructure plc Annual report and accounts 2022 91 ## Leadership and purpose continued ## Investment Management team From left to right: Phil White Aaron Church Matt Barker Stéphane Grandguillaume James Dawes Bernardo Sottomayor John Cavill Thomas Fodor Tim Short Scott Moseley Governance Anna Dellis 92 ## Leadership and purpose continued ## Investment Management team continued Managing Partners CFO Phil White Bernardo Sottomayor Scott Moseley James Dawes Joined 3i Group plc in 2007. Managing Partner and Joined 3i Group in 2015 and is a currently a partner and Joined 3i Group in 2007 and is a currently a partner and Joined 3i Group in 2016. CFO of 3i’s Head of 3i’s Infrastructure business. Phil will step down Co-Head of Economic Infrastructure, Europe. He will Co-Head of Economic Infrastructure, Europe. He will Infrastructure business. as Head of Infrastructure from 1 July 2022 and become become Managing Partner and Co-Head of European become Managing Partner and Co-Head of European Current roles Vice Chair of 3i’s Infrastructure business. Infrastructure from 1 July 2022. Infrastructure from 1 July 2022. • Performs CFO duties for 3i Infrastructure Governance | Current roles | | Current roles | | Current roles | | • Manages the operational, financial and reporting | | | --- | --- | --- | --- | --- | --- | --- | --- | | • Member of 3i Group’s Executive Committee, | | • With Scott leads the team’s origination and | | • With Bernardo leads the team’s origination and | | | requirements for 3i Group’s infrastructure business. | | | Investment Committee and Group Risk Committee | | execution platform | | execution platform | | | Past roles • Non-executive Director of Ionisos. • Led or co-led investments by the Company in Joulz, • Extensive experience in European infrastructure, • Finance Director of LGV Capital from 2007-2015 | | | TCR, Infinis, Attero, Alkane Energy, Ionisos and SRL | | spanning utilities, transportation and | | | | --- | --- | --- | --- | --- | --- | --- | | Past roles | | | | | • Senior finance roles with Legal & General | | | | | Traffic Systems | | social infrastructure | | | | • Division Director of Macquarie’s Infrastructure | | | | | | Investment Management. | | | • Non-executive Director of TCR and 3i board observer | | • Investments include Global Cloud Xchange, | | | | Funds business managing investments in the at Attero and Joulz. Tampnet, ESVAGT, Elenia, CrossLondon Trains and transport sector Eversholt Rail Group • Over 25 years of experience of infrastructure Past roles • Led the successful divestments of Elenia and XLT investment, advisory and finance fromroles at • Over 20 years’ experience of investing and advising as well as previously being responsible for junior Barclays and WestLB. in infrastructure debt investments in Arqiva, Associated British Ports, • Partner at Antin Infrastructure, which managed Télédiffusion de France, Thames Water and Viridian funds investing in infrastructure opportunities • Non-executive Director of Tampnet and ESVAGT. 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. 3i Infrastructure plc Annual report and accounts 2022 93 ## Leadership and purpose continued ## Investment Management team continued Partners | Matt Barker | Aaron Church | Anna Dellis | Tim Short | | --- | --- | --- | --- | | Joined 3i Group in 2010 and is a partner in the London | Joined 3i Group in 2013 and is a partner in the London | Joined 3i Group in 2006 and is a partner in the London | Joined 3i Group in 2007 and is a partner in the London | | infrastructure business. | infrastructure business. | infrastructure business. | infrastructure business. | | Current roles | Current roles | Current roles | Current roles | | • Focuses on new investments and the asset | • Focuses on origination, execution and asset | • Leads asset management for the portfolio of | • Focuses on the origination, execution and debt | Governance | | management of a number of 3i Infrastructure’s | | management of economic infrastructure investments | | economic infrastructure investments | | financing of infrastructure investments | | --- | --- | --- | --- | --- | --- | --- | --- | | | portfolio assets | • Extensive infrastructure investing experience across | | • Led the successful exit of Oystercatcher’s | | • Transaction experience includes the acquisitions | | | • Senior team member on 3i Infrastructure’s current | | | the transport, utilities, energy and waste sectors | | investments in Oiltanking terminals in Amsterdam, | | and financing of Attero, Elenia, ESVAGT, Global | | | investments in SRL Traffic Systems, DNS:NET, | • Senior deal team member on the acquisitions | | | Terneuzen, Ghent and Malta | | Cloud Xchange, Infinis, Ionisos, Joulz, Oystercatcher, | | | TCRand Tampnet | | ofJoulz, Attero, Tampnet, Infinis and ESVAGT, | • Non-executive Director of Oiltanking Singapore | | | Tampnet, TCR and WIG | | • Led the successful divestments of WIG, AWG | | | andthe sale of the Oystercatcher European terminals | • Focused on new deals over the period 2006–2017, | | • Non-executive Director of Infinis. | | | | and Eversholt | • Non-executive Director of Joulz, Attero and | | | prior to assuming current portfolio focus. | | | Past roles • Non-executive Director of SRL Traffic Systems, Oiltanking Singapore. Past roles • Financial restructuring at Houlihan Lokey. TCRand Tampnet. Past roles • Advised on infrastructure transactions and financing Past roles • Infrastructure investor at HRL Morrison & Co at PwC in London • Team member at Macquarie’s Infrastructure Funds inEurope and Australasia • Fellow of the Institute of Chartered Accountants business and part of the team responsible for the • Started career at Boston Consulting Group. ofEngland and Wales. management of the Australian Stock Exchange listed fund, Macquarie Airports. | | Stéphane Grandguillaume | Thomas Fodor | | --- | --- | --- | | | Joined 3i Group in 2013 and is a partner in the Paris | Joined 3i Group in 2016 and is a partner in the London | | John Cavill | infrastructure business. | infrastructure business. | Joined 3i Group in 2013 and is a partner in the London Current roles Current roles infrastructure business. | | | • Leads 3i’s Infrastructure business in France | | • Leads investor relation and fundraising efforts across | | | --- | --- | --- | --- | --- | --- | | Current roles | | • Responsible for origination, execution and | | | the 3i European infrastructure business | | • Non-executive Director of SRL Traffic Systems. | | | fundraising in relation to project opportunities | • First point of contact for shareholders in | | | • Leads the assets management activity for the | | | across Europe | | 3iInfrastructure plc | | | Projects portfolio | • Non-executive Director of Valorem and Ionisos. | | • Oversees co-investment activities in the | | | • Responsible for setting the strategy oversight of | | | | | 3iinfrastructure portfolio. | Past roles asset management activities • Headed Barclays Infrastructure in Paris Past roles • Overseas the implementation of value protection and • Headed Egis Investment Partners. • Private Capital Advisory at HSBC enhancement activities, and performance reporting. • Started career at Lehman Brothers. Past roles • Non-executive Director of WIG and XLT • Director at Barclays Infrastructure, St Modwen Properties plc, Land Securities Trillium and Vinci Investments. 94 ## Leadership and purpose continued ## Role of the Board Overview The Board ensures that the Investment As explained in the Introduction to Board committees Manager has the resources and capabilities Governance, during the pandemic the The Board is ultimately accountable The Board is assisted in its activities to support the delivery of the Company’s Board has adapted its ways of working in to our shareholders and the Directors by a number of standing committees purpose and strategy. The Board’s order to continue to operate effectively and ensure that both their decisions and the of the Board and, in undertaking its core values of Integrity, Accountability, to ensure effective corporate governance. actions ofthe Investment Manager are duties, it delegates certain authorities Objectivity and Legacy underpin its As the world has emerged from the aligned withthe Company’s and wider and decisions to these committees. Governance open and collaborative culture and are pandemic the Board and the Investment stakeholders’interests. The Board reviews the membership of these supplemented by the skills that each Manager will continue to focus on ways committees on a regular basis. The Board The Board’s role is to lead the Company individual Director brings to the Company, of working which align with the corporate committee structure, together with a in achieving its purpose of investing for further information see pages 89 and 90. governance framework and ensure that summary of the roles and composition responsibly in infrastructure, delivering it operates effectively. The Chair is responsible for the leadership of the committees, is outlined in the long-term sustainable returns to of the Board and ensuring its effectiveness. The Board has direct access to the Company’s table onpage 95. All committees have shareholders and having a positive impact In addition to the Chair, there are currently external advisers, including the Company’s terms of reference, which are available on on our portfolio companies and their four independent non-executive Directors external auditor (Deloitte LLP), corporate www.3i-infrastructure.com. The Board, stakeholders. The Board is also responsible and one 3i Group plc nominated Director, brokers (JP Morgan Cazenove and on the advice of the Company Secretary, for overseeing the implementation of 3iN’s who is not considered independent. RBCCapital Markets), financial adviser annually reviews the committees’ terms strategy of maintaining a balanced portfolio (Rothschild & Co), financial corporate of reference and the Schedule of Matters of infrastructure investments delivering an As detailed below, under the terms of communications adviser (Headland Reserved to the Board to ensure they attractive mix of income yield and capital the IMA investment and divestment Consultancy), UK tax adviser remain appropriate and compliant with appreciation to shareholders. decisions which exceed certain thresholds (PricewaterhouseCoopers LLP) and legal thelegal and regulatory environment. are reserved for decision to the Board. | The Company has no employees and | | advisers (Hogan Lovells International LLP | | | | | --- | --- | --- | --- | --- | --- | | | The IMA also includes a schedule of matters | | | | Further details on the areas of focus of | | its investment and portfolio monitoring | | and other law firms as appropriate). | | | | | | reserved for decision of the Board which are | | | | the Board Committees, as well as details | | activities have been delegated by the | | The Board receives advice on a range of | | | | | | considered significant to the Company due | | | | of attendance at scheduled full Board | | Board to 3i Investments plc in its role | | subjects, but particularly on | the | | | | | to their strategic, financial or reputational | | | | meetings, are set out on pages 95, 101 | | as Investment Manager. | | infrastructure market, taxation, ESG | | issues, | | | | implications and consequences. Details of | | | | to103 and 108to 119. | UK and Jersey legal and compliance key Board decisions and how the interests matters and equity market issues. Changes to the Board of Directors of stakeholders were considered by the Board when making these decisions are In July 2021 Robert Jennings stepped down setout on pages 97 to 100 and 104. from the Board. 3i Infrastructure plc Annual report and accounts 2022 95 ## Leadership and purpose continued ## Role of the Board continued The Board’s responsibilities 3i Infrastructure plc andprocesses The Board is responsible to shareholders Board for the overall strategy and management Committees of the Company. It determines the investment policy, the appointment of Governance theInvestment Manager, financial strategy and planning, approval of the results and dividends, and oversees the maintenance of internal controls and the risk management Audit and Risk Remuneration Nomination Management Disclosure framework, membership of the Board, Committee Committee Committee Engagement Committee Committee Director remuneration and adherence to the corporate governance framework. Financial reporting, Director Board appointments Monitoring of the Monitoring compliance risk and remuneration and size and performance of the with disclosure The Investment Manager has sole discretion internal controls composition of the Board Investment Manager requirements to make decisions on investments and divestments, other than those decisions which relate to transactions which reach Wendy Dorman Paul Masterton Richard Laing Richard Laing Richard Laing certain financial thresholds, in particular (Chair) (Chair) (Chair) (Chair) (Chair) Doug Bannister Doug Bannister Wendy Dorman Doug Bannister Doug Bannister in relation to investments or divestments | | Samantha Hoe-Richardson | | | Wendy Dorman | Paul Masterton | | Wendy Dorman | | Wendy Dorman | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | which represent 15% or more of the gross | | Paul Masterton | Samantha Hoe-Richardson | | | Samantha Hoe-Richardson | | Samantha Hoe-Richardson | | | assets of the Company, which require | | | | Richard Laing | | | Paul Masterton | | Paul Masterton | Board approval. The Investment Manager prepares reports and papers that are 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. 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. 96 ## 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. Management Audit and Risk Remuneration Nomination Engagement Governance Board Committee Committee Committee 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. 3i Infrastructure plc Annual report and accounts 2022 97 ## Leadership and purpose continued ## Engaging with stakeholders As explained in the Introduction to Governance, the Board recognises the importance of engaging with its stakeholders Shareholders and has identified its key stakeholders, as shown in the diagram below: Shareholders are keystakeholders in the Company. The Board recognises the importance of maintaining a purposeful Shareholders relationship with shareholders through a comprehensive Investor Relations Governance programme led by the Investment Manager. This programme provides existing and potential investors with relevant information 3i Infrastructure plc Brokers to enable them to understand the External auditor Company’s activities, strategy and financial Apex Financial Services Alternative Funds Ltd performance. The Investment Manager Financial advisers (Jersey administrator) briefs the Board on a regular basis on the Government and 3i Investments plc implementation of the Investor Relations regulatory bodies Citibank UK Limited (Investment Manager) programme and on feedback received from (Depositary) Lenders analysts and investors. Major shareholders 3i plc Registrars are invited to meet with the Chair and (Company Secretary) the Senior Independent Director in order to share their views on governance and the Company’s performance against its purpose and strategy. Any significant Portfolio companies 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 Communities to meet shareholders at the AGM. 98 ## Leadership and purpose continued ## Engaging with stakeholders continued Annual General Meeting – the Company Individual investors – individual investors The feedback received was extremely Investment Manager uses its AGM as an opportunity to are encouraged to engage with the positive with investors supportive of The key service provider to the Company communicate with its shareholders. At the Company and provide feedback through the Company’s strategy, its unique isthe Investment Manager. Senior members meeting, business presentations are made the Investor Relations team, who can be differentiated approach and delivery of the Investment Manager’s team present by the Chair and the Investment Manager. contacted at thomas.fodor@3i.com or ofattractive returns. Investors noted to the Board and Board Committees The Senior Independent Director and bytelephone on +44 (0)20 7975 3469. theCompany’s good stewardship by the on regular agenda items and the Board Governance chairof the Audit and Risk Committee Investment Manager in overseeing the Institutional investors – in May following also receives presentations from a wider are also generally available to answer evolution of the portfolio to include assets the release of the Company’s annual results group of the Investment Manager’s team. shareholders’ questions. that aligned with increased investor focus and in November following the release Through this engagement the Board is on ESG and sustainability. | The Board recognised that holding the | of the half-year results, the Investment | | able to evaluate the Investment Manager’s | | --- | --- | --- | --- | | 2021 AGM as a functional meeting only | Manager meets with existing and potential | In October 2021, the Investment Manager | performance against the Company’s | | for conducting the formal business of | investors in the UK and internationally to | organised a Capital Markets Event for | strategy and to understand any risks | | the meeting limited communication | communicate the performance and strategy | institutional shareholders where they | and opportunities this may present to | | opportunities between shareholders and | of the Company. These meetings continue | received presentations on the Company’s | the Company. The relationship with, | | Directors and so held an interactive online | throughout the year as required. | approach to sustainability and investing in | and the performance of, the Investment | | shareholder presentation two weeks | | the current market, along with presentations | Manager is monitored by the Management | The Board seeks to hold more detailed before the AGM. This gave shareholders from the senior management of two portfolio Engagement Committee, for further details engagement with its institutional the opportunity to submit questions companies – Oystercatcher and DNS:NET. see pages 117 and 118. shareholders on a periodic basis and these in advance or during the presentation, views inform the Board on the development The Company’s website provides details Outcomes – this engagement ensures which Directors were then able to answer. of its strategy and performance. of forthcoming events for shareholders that the Company and its portfolio of Further information regarding the proposed | | | | and analysts. In addition, videos of results | investments is well-managed, adheres to | | --- | --- | --- | --- | --- | | arrangements for the 2022 AGM (which | | This year Rothschild & Co (Investor | | | | | | | presentations and presentations from | its strategy and that the Board receives | | will return to a full AGM with shareholders | | Advisory) (“Rothschild”) organised an | | | | | | | the Capital Markets Event are on the | appropriate and timely management | | able to attend) can be found in the | | investor perception study where they held | | | | | | | Company’s website which all shareholders | and support services from the | | Chair’s | statement on page 6 and in the | in depth discussions with 15 investors | | | | | | | can access and view. | Investment Manager. | | Notice ofAnnual General Meeting 2022. | | representing 23.4% of the Company’s | | | | | | sharecapital and including seven of the | Outcomes – this extensive engagement | Portfolio companies | Annual and half-yearly results top10 shareholders. means that investors are able to make presentations – the Chair and Investment The companies in which we invest are informed decisions about their investment Manager present the annual and the source of returns to shareholders. in the Company. | half-yearly results to a broad group of | We drive value though our engaged asset | | --- | --- | | analysts and in the past year these have | management approach as detailed in our | | been presented both in person and virtually | Business model on page 14. | ascircumstances have allowed. 3i Infrastructure plc Annual report and accounts 2022 99 ## Leadership and purpose continued ## Engaging with stakeholders continued The Company is committed to achieving Outcomes – by investing in, developing and Outcomes – the work of the key third-party Lenders its investment objectives in a sustainable actively managing essential infrastructure service providers ensures compliance by The Investment Manager’s treasury team way and our success as an investor relies which responds to public needs, we foster the Company with its legal and regulatory manages the engagement with the lenders on us maintaining a strong reputation sustainable growth and improve the lives obligations in addition to the maintenance in the Company’s revolving credit facility. for managing our portfolio sustainably. of the communities in which our portfolio of the Company’s reputation and high This year, with the support of its lenders, Further details are contained in the companies operate. standards of business conduct. the Company was able to renew its existing Governance Sustainability report on pages 46 to revolving credit facility on favourable terms Third-party service providers Brokers 55. The principal engagement with and put in place an additional committed the portfolio companies is through the The Company contracts with third parties The Board and the Investment Manager facility to support the acquisition pipeline. Investment Manager’s team. One or more for other services including the external work with the brokers to provide access For further details see page 122. | of its investment professionals sits on the | auditor, the depositary, legal advisers, the | to markets and liquidity in the Company’s | | | --- | --- | --- | --- | | board of each portfolio company (or acts | financial adviser, the financial PR adviser, | shares. The brokers meet the Board at | Outcomes – access to bank borrowing | | as a board observer) and engagement | the Registrar, the Jersey administrator | least annually to advise on all aspects of | provides important flexibility and resilience | | with a portfolio company takes place both | and with 3i plc for company secretarial, | their remit and reports from the brokers, | to the Company’s financial structure and | | formally at board level and informally by | treasury, accounting and internal audit | particularly in relation to feedback from | helps the Company to maintain an efficient | | the Investment Manager’s team on an | services. Provision of these services is | shareholders and potential investors, are | balance sheet. | | ongoing basis. | necessary to ensure the Company’s | presented to the Board. The Investment | | Government and compliance with its legal and regulatory Manager meets regularly with the Outcomes – this engagement enhances obligations. The key third-party service brokers who keep them up to date on regulatorybodies the value of the portfolio companies for providers work closely day-to-day with both Company and wider market-related The Company works in a regulated the benefit of their, and our, stakeholders. the Investment Manager. This interaction matters. This year the brokers have environment and through the Jersey provides an environment where issues can provided advice to the Board and the administrator the Company engages with Communities be dealt with efficiently. The Board reviews Investment Manager on the Company’s the Jersey regulators to ensure compliance. The Company is committed to contributing annually both the arrangements that are access to liquidity as it moved from having In addition, the Company adheres to the positively to the communities in which it in place with all key third-party service significant cash available for investment to AIC Code and so engages with the AIC on operates and details of this are contained in providers and monitors their performance. having made a number of acquisitions and matters related to corporate governance. the Sustainability report on pages 46 to55. In addition, the Audit and Risk Committee utilising its revolving credit facility. Outcomes – the Company continues to reviews the performance and services Outcomes – the brokers promote the operate in compliance with relevant law provided by the external auditor and the Company as an attractive investment and regulation and ensures the highest Jersey administrator. Key service providers trust and work to ensure liquidity in the standards of corporate governance. attend Board and Committee meetings Company’s shares. as appropriate to advise the Board on specific matters. 100 ## 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 topromote 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. Governance 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 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 considerations in delivering on its purpose for the benefit of all stakeholders. Impact on the success 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, of the Company 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 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. considerations 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 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 of the Company 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 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 considerations 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 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 of the Company 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. 3i Infrastructure plc Annual report and accounts 2022 101 ## Division of responsibilities The Chair of the Board Senior Independent Director They are also expected to ensure high The Directors’ appointments can be standards of financial probity on the part of terminated, without compensation for loss The Chair, Richard Laing, leads the Board Paul Masterton is the Senior Independent the Company. As well as papers for Board, of office, in accordance with the Company’s in the determination and implementation Director who supports the Chair in the Board Committees and strategy meetings, Articles of Association (the ‘Articles’). of its purpose and strategy, and ensures delivery of his objectives. The Senior the Directors receive monthly management Under the Articles, their appointments can that the views of all stakeholders are Independent Director leads the appraisal accounts, reports and information which be terminated by an ordinary resolution understood and considered appropriately of the Chair’s performance with the Governance enable them to scrutinise the Company’s of the Company, on notice signed by all in Board discussions and decision making. non‑executive Directors. performance against agreed objectives. the other Directors, or on ceasing to be The Chair is responsible for organising | | Any shareholder concerns can be conveyed | | a Director if they fail to be re‑elected | | --- | --- | --- | --- | | the business of the Board, ensuring its | | Each of the Directors has an appointment | | | | to the Senior Independent Director and | | at any AGM. The office of director is | | effectiveness and setting its agenda. | | letter and these were updated in July 2019, | | | | his contact details are available on the | | vacated if (i)the Director resigns, becomes | | He facilitates the effective contribution of | | with the subsequent appointment letter | | | | Company’s website. | | bankrupt or is prohibited by law from | | all the Directors and constructive relations | | for Samantha Hoe‑Richardson on the same | | being a Director; or (ii) where the Board so between the Company’s advisers, the terms as those agreed in 2019. No Director Directors resolves following the Director suffering Investment Manager, and the Directors. has a contract of employment with the The Board comprises the Chair and five from ill health or being absent from Board The Chair maintains direct links with the Company, nor are any such contracts non‑executive Directors. All Directors, meetings for sixmonths without the Company’s advisers and ensures that proposed. Copies of the appointment other than Robert Jennings, served Board’s permission. regular reports from them are circulated letters are available from the Company throughout the year under review and were to the Directors to enable the Directors Secretary upon request. re‑elected at the Company’s AGM in 2021. Directors’ independence to consider their views. The Chair and the Robert Jennings stepped down from the Following the formal appraisal process of All the Directors, with the exception of the Senior Independent Director are available Board in July 2021. Directors, and in accordance with Provision Chair and Ian Lobley, who is the 3i Group to meetwith shareholders throughout the | | | 7.2, paragraph 23 of the AIC Code, the | nominated Director, are considered by the | | --- | --- | --- | --- | | course ofthe year. | The Directors monitor the delivery of | | | | | | re‑election of all current Directors will be | Board to be independent for the purposes | the Company’s strategy set by the Board The Chair also acted as the Company’s proposed at the forthcoming 2022 AGM. of the AIC Code. The Board assesses and and constructively challenge and assist appointed member to the Advisory reviews the independence of each of the in the development of that strategy. Board for the India Fund. He received Directors at least annually, having regard They bring independent judgement to no additional remuneration for this role. tothe potential relevance and materiality the consideration of issues of strategy, ofa Director’s interests and relationships. performance, investment appraisal, communication matters and standards of conduct. 102 ## Division of responsibilities continued | The Chair was considered independent | As the Company is considering transferring | The Company Secretary | Internal control | | --- | --- | --- | --- | | on appointment and has no relationships | its domicile from Jersey to the UK and the | | | | | | 3i plc serves as the Company Secretary | The Board has overall responsibility for | | which might create a conflict of interest | UK Government has recently published a | | | | | | under the terms of the Investment | the Company’s risk management and | | between his interests and those of the | consultation on corporate redomiciliation | | | | | | Management Agreement. 3i plc’s Group | internal control framework, including | | shareholders. No Director, other than | (which the Investment Manager has | | | | | | Secretariat has a fully qualified company | the determination of the nature and | | IanLobley, was materially interested in any | responded to), retaining Paul on the | | | | | | secretarial team with sufficient resources | extent of the principal risks it is willing to | Governance | contract or arrangement subsisting during | Board provides continuity whilst the Board | | | | --- | --- | --- | --- | | | | tosupport the Company. All Directors have | take to achieve its strategic objectives. | | or at the end of the financial year in relation | considers these changes, which, if taken | | | | | | access to the advice and services of the | The Company’s overall risk management | | to the business of the Company. Ian Lobley, | forward, would mean that the Company | | | | | | Company Secretary, who advises the Board, | and internal control process is regularly | | as3iGroup’s nominated Director has a | no longer required two Jersey resident | | | | | | through the Chair, on governance and | reviewed by the Audit and Risk Committee | | pre‑approved conflict in relation to the IMA. | directors. This would allow any future | | | | | | related matters. The Company’s Articles | and complies with the Guidance on | director to be selected from a much wider The Board has noted that Paul Masterton, and the schedule of matters reserved to Risk Management, Internal Control and pool of candidates. The Board agreed who is a Jersey resident Director, will, at theBoard provide that the appointment Related Financial and Business Reporting that staying beyond nineyears from the the time of the 2022 AGM, have served and removal of the Company Secretary issued by the Financial Reporting Council. date of his appointment does not impair a term beyond nine years from the date would be a matter for Board approval. The process has been in place for the year Paul’s independence and that retaining | of his appointment. The Board and the | | | under review and up to the date of approval | | --- | --- | --- | --- | | | Paul on the Board for an additional period | Disclosure Committee report | | | Nominations Committee have carefully | | | of this Annual report and accounts 2022. | is in the best interests of the Company. reviewed provision 13 of the AIC Code and The Disclosure Committee’s role is For further details see the Audit and Risk For further details see the Nomination considered factors which are likely to impair toconsider matters within its remit, Committee report on pages 115 and 116. Committee report on page 109. The Board | or could appear to impair a non‑executive | | inparticular in relation to the treatment | | | --- | --- | --- | --- | | | is recommending toshareholders at the | | The Board has contractually delegated | | Director’s independence. | | of price sensitive information during the | | | | 2022 AGM that Paulbe re‑elected for | | investment management and support | half‑year and year end accounts process. a further year. services to its key service providers and This year it was convenient for the Board their contractual obligations encompass Ian Lobley is a non‑independent Director itself to consider matters relating to the the implementation of systems of internal who is not a member of the Management treatment of price sensitive information control, including financial, operational and Engagement Committee, and so did not during certain Board meetings, rather compliance controls and risk management. participate in the Board’s evaluation of the than convening a separate Disclosure performance of the Investment Manager. Committee meeting. 3i Infrastructure plc Annual report and accounts 2022 103 ## Division of responsibilities continued The Audit and Risk Committee receives Apex maintains an annual Compliance The Chair of the Audit and Risk Committee presentations and reports on the control Monitoring Plan and reports to the meets with the Compliance Officer, and systems and their operation from its Committee on the results of its tests on the the Investment Manager’s Head of Internal main service providers, including from Company, the Directors, the Investment Audit and Head of Compliance periodically the Investment Manager and the Heads Manager and the Company’s suppliers, to receive updates on the internal audit and of Internal Audit and Compliance of the amongst others. Apex has not identified compliance processes and procedures of Governance Investment Manager. any areas of concern during the course the Investment Manager. of the year. On the recommendation of The risk log contains a description of events The Company does not have a separate the Compliance Officer and the Money that have occurred and relevant actions/ internal audit function, as it is not Laundering Compliance Officer, the Board mitigants taken. The Committee tracks considered appropriate given the structure approved further updates to its Conduct of open internal audit actions and receives of the Company. This is reviewed annually Business Manual, Anti‑Money Laundering reports on their progress to closure. by the Audit and Risk Committee and was Manual, Business Risk Assessment and approved by the Board for FY22. The Company’s Compliance Officer, customer due diligence processes during Money Laundering Reporting Officer and the year. As a result of these reviews, the Audit and Money Laundering Compliance Officer is Risk Committee was able to confirm to In addition, as part of the internal control an employee of Apex Financial Services the Board that the internal controls were framework, the Company Secretary reports (Alternative Funds) Limited (the Jersey working effectively and no weaknesses to the Board on updates to those policies administrator) (‘Apex’). He presents a report orinefficiencies had been identified. which do not form part of the Conduct at every Audit and Risk Committee meeting of Business Manual and Anti‑Money and the Committee is responsible for the Laundering Manual, namely the Non‑audit assessment and evaluation of these reports Services Policy, the Whistleblowing Policy in the context of the delegated investment and 3i Group’s Equal Opportunities management and support services and and Diversity Policy (in so far as this for monitoring the effectiveness of those particular policy applies to the Directors internal controls. ofthe Company). 104 ## 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 Ongoing consideration of the impact Approval of the Annual report Governance of 4.9 pence pershare, meeting our of the Covid-19 pandemic on the and accounts 2021. target for the year of 9.8 pence per Company and its portfolio assets. share, and of a target dividend for FY22 of 10.45 pence per share. Setting and reviewing progress against sustainability objectives. ## 10.45p FY22 Target dividend per share Approval of the renewal of the Focus on stakeholder engagement with £400 million revolving credit facility an Investor Perception Study including witha£200 million accordion feature. analysis of the key sustainability positions of the Company’s largest shareholders. Approval of the entry into a £400 million additional credit facility. Consideration of the external evaluationsof the Board, the Chair Approval of the FY22 interim andthe Audit and Risk Committee. dividend of 5.225 pence per share. Review of the portfolio asset valuation Annual report and accounts 2021 process and methodology. ## 5.225p Detailed risk review and focus on risk | FY22 interim dividend | management framework. | | --- | --- | | Regular reviews of the Company’s | Review of the Company’s corporate | | strategy, investment opportunities | structure and domicile. | andorganic growth initiatives. 3i Infrastructure plc Annual report and accounts 2022 105 ## Composition, succession and evaluation ## Evaluation and Director Training Board and Committees The evaluation involved the completion Reports were subsequently prepared The Board considered that the evaluation of a questionnaire by all Directors, by Satori and presented to the Board for had been both challenging and provocative This year an external review of the Clare Calderwood (representing the consideration and extensive discussion. in a positive way. The key themes performance of the Board, the Audit | | Company Secretary), and the Investment | | highlighted on the 2022 evaluation were | | --- | --- | --- | --- | | and Risk Committee and the Chair | | The Board was rated highly on a number | | | | Manager’s Managing Partner, Phil White, | | focused on Board purpose. Following the | | was conducted by a third party, Satori. | | of aspects which included the following: | | | | and CFO, James Dawes followed by | | development of the Company’s purpose | Satori has no other connection to the Governance individual interviews with the Satori team. • Board structure and operations; last year, now was an appropriate time to Company. The review provided an The anonymity of all respondents to the more fully articulate the Board’s purpose opportunity for the Board to consider the • Collaborative and constructive dynamics; questionnaire was maintained in the report in order to deliver maximum value, inform structure, function and composition of the • Chairing of both the Board and on the survey data in order to promote the Board function, form, composition and Board and its sub‑committees, balanced its Committees; open and frank exchange of views. its agenda. Satori recommended a range against the strategic direction of the • The relationship with the of further themes related to Talent, Company. The Satori team were able to Investment Manager; Operations and Performance. The Board bring their broader perspectives in relation • The Board’s impact on specific topics has agreed that it would consider how to to best practices in other boards and areas such as ESG matters; and take these forward following completion of specific interest were highlighted in the ofthe work on Board purpose. | discovery process. An externally facilitated | | • That Directors actively enjoyed being | | | | --- | --- | --- | --- | --- | | evaluation was last conducted in 2019 | | | members of this Board and cited it as | The evaluation concluded that overall the | | and | evaluations in 2020 and 2021 had been | | an exemplar. | Board was considered very effective. | undertaken by the Company Secretary. 106 ## 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 The Board considered a range of issues related to sustainability including decarbonisation: the role of hydrogen, the portfolio companies’ Manager todevelop the Company’s approach to engaging with their stakeholders, and understanding investors views on sustainability as part of the investor perception study. Governance approach to sustainability and to consider The Board also receives regular ESG updates from the Investment Manager on the portfolio companies and on topical issues. Inaddition how itinfluenceslong-term strategy 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 An in‑depth investor perception study was carried out and provided an opportunity to seek investor views on a wide range of topics, consideration of directors’ duties and including ESG as mentioned above. Thisengagement demonstrates the Board’s commitment to engaging in a meaningful way with its how to fulfil these in relation to wider keystakeholders. stakeholder engagement Oversight of risk management The Directors received an externally facilitated risk management workshop which demonstrated that the risk review process followed bythe Company aligned with bestpractice and provided some helpful suggestions to further improve the process. Board succession planning and The Board continues to work on its succession plan and currently the composition of the Board satisfies the target set by the wideningBoarddiversity 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 andpersonalstrengths. 3i Infrastructure plc Annual report and accounts 2022 107 ## Composition, succession and evaluation continued ## Evaluation and Director Training continued Director training The Directors have the opportunity On appointment, all Directors have to request additional training and discussions with the Chair and Company and development development where they feel that Secretary, following which they receive The Company has developed a framework wouldbe appropriate. briefings on the responsibilities of Directors, within which training for Directors is the Company’s business and the Company’s planned, with the objective of ensuring During the year, the Directors received procedures. Briefings on the infrastructure that the Directors understand the duties presentations on the following: Governance market and each of the portfolio companies and responsibilities of being a director • aspects of the infrastructure market, are arranged with the Investment Manager of a listed company and the business sector reviews and infrastructure assets; and other experts. The Company provides environment of the Company. All Directors opportunities for Directors to obtain a • briefings in relation to changes to laws are required continually to update their thorough understanding of the Company’s and regulations in Jersey and the UK; skills and maintain their familiarity with the business and the industry it operates in Company and its business. In accordance • changes and updates to by meeting regularly with senior members with Jersey regulations the Directors are corporate governance; of the Investment Manager’s team and by expected to undertake sufficient, relevant • maintenance of the investment meeting the executive management teams and appropriate training and development trust status and UK corporation of portfolio companies. each year. Presentations on different tax compliance; aspects of the Company’s business are The Company has procedures for • the Investment Manager’s made regularly to the Board, usually by Directorsto take independent legal valuations process; the Investment Manager, but on occasion orother professional advice about the • directors and officers’ liability insurance by other advisers, including the Company’s performance of their duties. market update; corporate brokers, external auditor, tax adviser, financial adviser, depositary, • Decarbonisation: the role of hydrogen; Jersey administrator and legal advisers. • 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. 108 ## Composition, succession and evaluation continued ## Nomination Committee report The Committee plays a key role Board members by gender Matters reviewed in the year supporting the Board in reviewing During the year the Committee reviewed the composition of the Board and its its compliance with the AIC Code and its Committees. The Committee has a formal Terms of Reference and confirmed that it and rigorous appointments process remained compliant with all of its corporate led by the Committee and involving all governance responsibilities. Governance Board members. When requested by | the Board, the Committee is responsible | | Succession planning | | --- | --- | --- | | for recommending any new Director | | The Committee has undertaken succession | | appointment based on merit whilst | | planning so that when Directors retire at the | | ensuring that the recruitment process | | end of their term, recruitment processes | | considers diversity in its widest sense, | Female (33%) 2 | are in place to ensure that both gender and | | as well as seeking an appropriate | | ethnic diversity are considered alongside | Male (67%) 4 balance of expertiseand experience the candidates’ skills and experience. and having regard to the Company’s The Committee reviewed an updated strategic objectives. Board skills and experience matrix and the Chair discussed with each Director their The 2022 Board evaluation continued Non-executive Directors’ tenure future intentions as part of thesuccession previous years’ focus on succession planning programme. planning and widening Board diversity. | The composition of the Board now | satisfies | Details of each of the Director’s skills | | --- | --- | --- | | the target set by the Hampton‑Alexander | | and experience which contribute to the | | Review with 33% female Directors. | | effective functioning of the Board and the | | The Directors continue to be mindful, | | success of the Company can be found in | The Committee has continued whenlooking at the longer term, of the their biographies on pages 89 and 90 and its focus on succession planning | | recommendations for both gender and | | inthe Skills Matrix on page 109. | | --- | --- | --- | --- | | and the steps the Board intends | ethnic diversity, while also considering | | | | to take to promote both gender | diversity of social background, | | | | | andcognitive and personal strengths. | 0‑3 years 1 | | and ethnic diversity amongst itsDirectors.” 4‑6 years 1 Richard Laing 7+ years 4 Chair, Nomination Committee 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 Diversity Directors’ Skills Matrix agreed a maximum term for any Director The Board has adopted 3i Group plc’s Infrastructure 6 of nine years, subject to any exceptional Equal Opportunities and Diversity Policy in circumstances that might arise at the Investment Trust 5 so far as it is relevant to the Company with relevant time. The Board is considering non‑executive Directors and no employees. Financial/Accounting/Audit 3 redomiciling the Company to the UK and This can be found at www.3i.com. Risk Management/Compliance 6 Governance this is an exceptional circumstance which The Board supports the principles of the ESG 3 impacts succession planning. As a Jersey Hampton‑Alexander Review (now replaced International 5 registered Company it is required to have by the FTSE Women Leaders Review) at least two Jersey resident directors, Legal/Regulatory/Governance 4 and Parker Review on gender and ethnic one ofwhom is Paul Masterton. Technology 4 diversity. The Committee notes the new The Board has asked Paul to serve as a M&A/Capital Markets 6 recommendation of the FTSE Women Director of the Company for an additional Leaders Review of achieving 40% female Remuneration 4 period whilst it awaits the outcome of representation on the Board by the end of Listed Company 6 the UK Government’s consultation on 2025. The Committee continues to develop Fund Management 3 Corporate Redomiciliation. In these its succession plan in line with these targets circumstances, the Board believes that it and the wider diversity requirements of the is in the best interests of the Company for AIC Code and other relevant requirements. Paul to serve beyond the usual term of nine years, as detailed on page 102. Should the Richard Laing Company transfer its domicile it will no Chair, Nomination Committee longer require two Jersey resident directors 9 May 2022 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. 110 ## Audit, Risk and Internal Control ## Audit and Risk Committee report The Committee also manages the ### All the members of the Audit and Risk Committee relationship with the external auditor. ### are independent non‑executive Directors who The Committee and its members act in a way that they consider to be likely to ### have the necessary range of financial, risk, internal promote the best interests of the Company, ### control and commercial experience required ensuring that the interests of shareholders Governance ### to provide effective challenge. and the wider stakeholder group are properly considered and reflected in their decision making processes, see page 100 ### The Audit and Risk Committee Chair, Wendy Dorman, for further details. ### is a CharteredAccountant, and the Board is satisfied The annual evaluation of the performance ### that she has recent and relevant financial experience. of the Committee was conducted by Satori, for further details see page ### The Chair of the Board is not a member of the Committee 105. Overall the Committee continued ### but attends meetings by invitation. The Committee Chair to perform well and was effective ### meets regularly with the external auditor. in discharging its responsibilities. Financial and narrative reporting The Company, through the Investment The role of the Audit and Risk Committee The Committee reviewed and made Manager, has in place internal control and is to assist the Board by establishing, recommendations to the Board regarding risk management arrangements to support reviewing and monitoring policies significant accounting matters and the the financial and narrative reporting process andprocedures to ensure the integrity accounting disclosures in the Half‑yearly and to provide assurance that the Financial of financial and narrative reporting, the report and Annual report and accounts statements are prepared in accordance with independence and effectiveness of of the Company. applicable standards. the external auditor, the effectiveness This year the Audit and Risk of thesystem of internal controls and Committee has continued its oftherisk management framework. focus on financial reporting which included an additional focus on the risk management framework.” Wendy Dorman Chair, Audit and Risk Committee 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 FBU Reporting The Committee considered the The following statements show how requirements of the AIC Code and specifically reviewed this Annual report and the Committee was able to make its 1 accounts to conclude whether the financial FBU assessment: Governance Regular reporting is fair, balanced, understandable, Audit 1 The Committee reviewed the Annual report comprehensive and consistent with how Committee the Board assesses the performance of the atan early stage, and throughout the process, review Company’s business during the financial toenable sufficient time for comment and review year. As part of this review, the Committee and ensure overall balance and consistency. 2 considered whether the Annual report 2 The Investment Manager and Company Investment and accounts provided the information 5 Secretary oversaw a verification process for Manager necessary to shareholders to assess Recommendation allfactual content and reported back to the and Company the Company’s position, performance, to the Board by Committee on its assessment and findings. Secretary review strategy and business model and reviewed the Committee process 3 The Committee approved the process in place the description of the Company’s to support the FBU assessment and reviewed KeyPerformance Indicators. the findings of the process. The Committee was How the Committee satisfies itself that satisfied that all key events andissues reported the Board can make the FBU statement to the Board by the Investment Manager had is set out in the chart opposite. been adequately referenced or reflected within the Report. 4 4 The external auditor presented the results of 3 External itsaudit work. The significant issues considered FBU auditor by the Committee were consistent with those assessment | review | | 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. 112 ## Audit, Risk and Internal Control continued ## Audit and Risk Committee report continued 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 Valuation of the The Committee noted that this year there were no changes to the principles of valuation Interest streaming For an approved investment trust that has taxable profits arising from net interest income, investment portfolio which have been consistently applied. All unquoted assets have been valued on a the UK tax rules provide an option to treat a part of the dividends it pays as interest. discounted cash flow (’DCF’) basiswith the exception of the Projects portfolio which is TheAnnual report and accounts have been prepared on the assumption that the valued based on the agreed sales price and the 3i India Infrastructure Fund where the Company will not designate any of its final dividend as interest. 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. Investment entity The Committee reviewed the assessment that the Company continues to meet the consideration criteria of an investment entity. 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 Calculation of The Committee undertook a detailed review of the management and performance ofinvestments including Oystercatcher, TCR,ESVAGT and Valorem. the management fee calculation. The Committee also had access to a review ofthe calculation of the andperformance management and performance fee carried out by the internal audit function of the The Committee considered the effect of a higher inflation environment on cost and fees payable Investment Manager and engaged theexternal auditor to perform additional agreed‑ revenue assumptions. Factors considered include the impact of cost inflation on totheInvestment upon‑procedures work in relation totheinputs to the management and performance operating costs and capital expenditure, the ability to pass cost inflation to customers Manager fee calculation. 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. Valuation of derivative The Committee considered and agreed with the Investment Manager’s valuations The Investment Manager, as the Company’s Alternative Investment Fund Manager, financial instruments, in relation to derivative financial instruments, other receivables and recognition isresponsible for providing a valuation of the investment portfolio that has been prepared other receivables ofcontingent amounts. properly and independently challenged. The Committee noted that 3i Investments and recognition of plc’s infrastructure valuations committee is considered independent of the Investment contingent amounts 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 bythe Investment Manager to the investment portfolio hadbeen applied correctly andconsistently and recommended the valuations to the Board for approval. 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 | The Committee further advised that so | Jacqueline Holden has been the audit | | --- | --- | --- | | Committee reviewed the following areas: | far as it was aware, there was no relevant | partner for Deloitte since first appointment | | | audit information of which the external | in the year to 31 March 2018 following | • the use of Alternative Performance auditor was unaware; that the Committee a full audit tender. Jacqueline will rotate Measures (‘APMs’) and the balance of had taken all reasonable steps to ascertain off the audit at the conclusion of this APMs and GAAP measures in the Annual any relevant audit information and ensure year’s audit and Stephen Craig has been Report and accounts; Governance that the external auditor was aware of such selected as her replacement. Stephen is • the appropriateness of the sensitivity information; and that the Annual report familiar with auditing investment trusts. rates applied in Note 9 of the and accounts provided the information The Committee considers that the Deloitte Financial statements; necessary for the shareholders to assess lead audit partner rotation provides fresh • post balance sheet events; and the Company’s position, performance, perspective and thanks Jacqueline for business model and strategy. her work with the Company over the last • other changes in presentation within five years. The Committee reviewed and the report to improve clarity for users. External auditor monitored Deloitte’s execution of the audit The Committee presented its conclusions The Committee has primary responsibility plan. The Committee considered Deloitte’s on the above areas to the Board and for overseeing the relationship with report on its review of the half‑yearly advised the Board that it considered Deloitte LLP (‘Deloitte’), the external results and its report on the FY22 audit. the Annual report and accounts, auditor, including assessing annually It discussed all significant matters identified taken as a whole, to be fair, balanced its performance, effectiveness and in Deloitte’s final report on the FY22 audit and understandable. | independence. Shareholders approved | including key accounting judgements | | --- | --- | | the re‑appointment of Deloitte as external | taken by the Investment Manager and the | | auditor for the year ended 31 March 2022 | Investment Manager’s responses to any | | at the Company’s July 2021 AGM following | audit findings. | a competitive external auditor selection process in 2017. 114 ## Audit, Risk and Internal Control continued ## Audit and Risk Committee report continued External auditor effectiveness The Committee noted the following Evaluation of audit quality • the additional disclosures and sensitivities in respect of the external auditor: sought concerning Ionisos and the The Audit and Risk Committee reviewed Following the FRC’s Practice Aid for updated assumptions on Covid‑19 the effectiveness of the FY21 external audit committees on audit quality (2019) Assessment against the audit plan restrictions, particularly inrelation to TCR; audit process, considering performance, the Committee considered the four key • the FY21 audit was again conducted | | objectivity, independence and relevant | | elements that are necessary to support | • the use of data analytic tools tosupport | | | --- | --- | --- | --- | --- | --- | | Governance | | remotely due to the continued Covid‑19 | | | | | | experience demonstrated by reports and | | theauditor in making sound judgement– | | the conduct of the audit; | stay at home restrictions and whilst this presentations from the external audit (i)Judgement, (ii) Mindset and Culture, • the level and quality of challenge provided a number of challenges for both team and discussion with the Investment (iii)Skills, Character and Knowledge, and received from the external auditor; Deloitte and the Investment Manager, Manager. The Committee monitors the (iv)Quality Control. In making its evaluation the audit was efficient and effective, • a good knowledge of accounting external auditor’s independence and the Committee noted the following in and all deadlines were met; standards, governance requirements objectivity, taking into consideration respect of the external auditor: and the infrastructure market; • there were no areas where the Investment relevant professional and regulatory • the work undertaken by the external Manager or Company’s views of the • the robust and perceptive handling of the requirements, the quality of the audit auditor to address the risks identified in accounting treatment differed from key accounting and audit judgements; process, and the use of Deloitte’s their plan and any subsequent risks that that of the external auditor; valuation practice to support the • the support received by the external had later been identified; audit of the portfolio valuations, the • the level of engagement from the auditor from the external auditor’s • the external auditor’s focus on valuation technical knowledge of the team and audit partner was high throughout the technical team; assumptions particularly for Ionisos due staff turnover within the Deloitte audit audit process; • the focus of the external auditor on to the valuation impact of the fraudulent team. The Committee considered a • the continuity of the audit team was compliance with the UK Investment activity in Steril Milano, and for TCR as an memorandum from the Investment predominantly retained from the previous Trust Regulations and AIC Statement asset impacted by the pace and extent Manager regarding the external auditor’s year; and ofRecommended Practice; and of the recovery in the aviation sector; effectiveness, independence and • the audit matched the process set out • the final report was presented based on objectivity. The Committee considered • the detailed audit work completed on in the audit plan. a good understanding of the Company’s the Financial Reporting Council’s (‘FRC’) the calculation of the Management and business and included granularity around 2016 guidance to Audit Committees when Performance Fees; the valuation assumptions. assessing the effectiveness of the whole audit process. 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 | This related to agreed‑upon procedures | Risk management | • on the advice of Apex, considered and | | | --- | --- | --- | --- | --- | | | onthe management and performance fees | | | approved updates to (i) the customer due | | auditor independence | | and internalcontrol | | | | | (£7,560), agreed‑upon procedures work in | | | diligence procedures for shareholders | The Committee monitors the Company’s respect of Sustainability KPIs for the RCF The Committee is responsible on behalf of related to off‑market transactions, policy for non‑audit services to ensure reporting (£27,000), a review of the interim the Board for overseeing the effectiveness (ii) theconduct of business manual; that the provision of such services by | | financial statements (£55,575) and reporting | of the Company’s risk management and | (iii) | theanti‑money laundering manual | | | --- | --- | --- | --- | --- | --- | | the external auditor does not impair | | | | | Governance | | | accountant work (£14,500). In this financial | internal control systems. During the year, | and | (iv) the business risk assessment; | | the external auditor’s independence or year, in line with the Company’s policy, the Committee: • considered the presentation of objectivity. The Committee reviewed and Deloitte provided non‑audit services in • carried out a a full review of the risk risk‑related matters in the Annual report updated the Company’s policy on the relation to certain non‑consolidated investee register as part of the beginning of a and accounts; provision of non‑audit services which is companies. The fees for these services are new three year risk review cycle with the compliant with the provisions applicable • considered the viability statement and ordinarily borne by the underlying investee objectives of (i) identifying the principal, to public interest entities in the Revised the reverse stress test analysis (for more companies or unconsolidated subsidiaries, key and emerging risks facing the Ethical Standard 2019 published by the detail see pages 79 and 80); and therefore are not included in the Company; (ii) considering the impact Financial Reporting Council. In order to • considered reports and presentations on expenses of the Company. and likelihood of these risks; (iii)ensuring safeguard external auditor objectivity and the controls systems and their operation In assessing the external auditor’s that risks identified were linked to the independence, the chair of the Audit and from the main service providers, independence, the Committee reviews Company’s strategic objectives; and Risk Committee is required to approve in including from the Investment Manager, thetotal amount of fees paid to the (iv)updating the risk register and risk advance all non‑audit work undertaken the Jersey Administrator, the Registrar external auditor in accordance with matrix as appropriate; by the external auditor for the Company and the Heads of Internal Audit and and its subsidiaries, and as a general rule the stated policy on non‑audit services, • conducted risk reviews as detailed in Compliance of the Investment Manager the external auditor will not be engaged regardless ofwhether they are borne by theRisk report on pages 67 to 77; and determined the effectiveness of the on investment‑related work. However, theCompanyor by the investee companies. • carried out horizon scanning to identify internal controls; and exceptions to this may be permitted if the new and emerging risks; The Committee concluded that the external • reviewed the fact that the Company work is (i) for an affiliate of the Company auditor remained independent and the • reviewed the risk log at each Committee does not have a separate internal audit and an indirect service to the Company or audit was effective, and that a resolution be meeting, and discussed the management function and recommended to the Board (ii) reporting accountant work, for example proposed to shareholders recommending of risks noted on the log with the that it was not considered appropriate in the case of a capital raise. the re‑appointment of Deloitte at the Investment Manager; to have one given the structure of Deloitte and their associates provided 2022 AGM. the Company. • considered reports from the Company’s non‑audit services to the Company Compliance Officer, Money Laundering forfeestotalling £104,635 for the year Compliance Officer and Money to31 March 2022 (2021: £52,700). Laundering Reporting Officer; 116 ## Audit, Risk and Internal Control continued ## Audit and Risk Committee report continued | Prior to the start of the full review | | | Examples of this include the following: | | Other matters | | --- | --- | --- | --- | --- | --- | | of the risk | | register in October 2021, | | | | | | | | • In the previous three‑year risk review | | Other matters reviewed by the Committee | | the | Committee and Investment Manager | | | | | | | | | | cycle Climate risk was identified as a | during the year were: | participated in a risk management | | | | new | key risk and identified as such in | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | workshop facilitated by EY. The purpose | | | | • the coverage of the proposed interim | | | | | | | the | 2021 Annual report. | | | | | | of the workshop was to look at risk | | | | | and | final dividends, including a review | | Governance | | • This year Climate risk was reassessed | | | | | | | | management best practice and consider | | | | | of the coverage of dividend payments | | | | | | based on the physical risk from climate | | | through income generated by the | | what, if any, changes should be made to change and the transition risk associated Company, non‑income cash distributions the Company’s risk management framework with a move towards a low‑carbon received from portfolio companies, net and risk review process. The current economy on the portfolio. capital profits generated from the sale of three‑year cycle was considered to be in line with market practice for investment • In addition Climate regulation has portfolio assets and retained reserves; and trusts. The ‘blank sheet of paper’ element been identified as a regulatory risk • the Company’s compliance with its at the very start of the risk review process for the Company and the portfolio regulatory obligations in the UK as was considered best practice. EY offered associated with the transition to a a listed entity and in Jersey where it suggestions to enhance the current process low‑carbon economy. is registered. along with advice on best practice for • Market and economic risk now The Committee reported to the external reporting. includes the risks associated with the Board on how it has discharged its Russia/Ukraine conflict, including the risks The risk register is reviewed regularly responsibilities and reported to the Board resulting from increases in commodity by the Committee and managed on the key matters arising at each meeting. and energy prices and the heightened a day‑to‑day basis by the Investment All recommendations were accepted by risk of recession. Manager. The Investment Manager brings the Board. to the Committee’s attention events or These examples illustrate the dynamic circumstances which may impact the Wendy Dorman nature of the risk register. For further details full range of risks on the risk register. Chair, Audit and Risk Committee see the Risk Report on pages 67 to 77. 9 May 2022 3i Infrastructure plc Annual report and accounts 2022 117 ## Relationship with Investment Manager ## Management Engagement Committee report The principal function of the Management Where the value of investments or The applicable tiered rates are shown in Engagement Committee is to consider, divestments is above the agreed threshold, the table below: and recommend to the Board, whether the the Board is responsible for approving Gross investment value Applicable tier rate continued appointment of the Investment these transactions. Up to £1.25bn 1.4% Manager is in the best interests of the The Investment Manager keeps the Board £1.25bn to £2.25bn 1.3% Company and its shareholders and to regularly updated on the progress of Above £2.25bn 1.2% Governance give reasons for its recommendation. the deal pipeline, and proposed and Its remit includes managing all aspects of completed transactions. The Investment The IMA is terminable on service of the performance of and relationship with Manager discusses with the Board potential 12 months’ notice by either party. the Investment Manager. The Committee investment opportunities and proposed also reviews the terms of the Investment Further details on the management and divestments, whether or not they are within Management Agreement. performance fees and the relationship the Investment Manager’s delegated between the Company, 3i Investments plc Investment Manager authority.The Investment Manager and 3i Group plc are described in more undertakes origination activities, | On 15 October 2018, the Company | | | detail in Note 18 in the Financial statements | | --- | --- | --- | --- | | | manages | the Company’s funding and | | | appointed 3i Investments plc as its | | | on pages 176 and 177. | hedging requirements, and manages Investment Manager (it having previously funding requirements of the investment acted as the Company’s investment adviser) portfolio, all of which is governed by the with discretionary investment management terms of the IMA. authority. The Investment Manager is responsible for the implementation of The IMA includes an exclusivity the agreed investment policy and for arrangement in respect of investment investment or divestment decisions, opportunities within the Company’s subject to the investments or divestments Investment policy. remaining below an agreed threshold. Fees under the IMA consist of a tiered Management of the management fee and time weighting of the management fee calculation, a one‑off performanceof and relationship transaction fee of 1.2% payable in respect with the Investment Manager of new investments, and the payment of remains key to the continuing a performance fee on a phased basis and success of the Company.” subject to future performance tests. Richard Laing Chair, Management Engagement Committee 118 ## Relationship with Investment Manager continued ## Management Engagement Committee report continued The Committee monitored the overall Following its assessment, and based on relationship with the Investment the continued good performance of the Manager and: Investment Manager, the Committee recommended to the Board, and the Board • monitored and reviewed the Investment agreed, that the continued appointment of Manager’s performance against the the Investment Manager on the terms set Company’s strategy and the general Governance out in Note 18 in the Financial statements market conditions; on pages 176 and 177 is in the interest of • reviewed the quality, timeliness, accuracy shareholders as a whole. and relevance of the information provided to the Board, including Richard Laing recommendations on new investments Chair, Management Engagement Committee and divestments and reviews of portfolio 9 May 2022 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. 3i Infrastructure plc Annual report and accounts 2022 119 ## Remuneration ## Remuneration Committee report The Remuneration Committee is charged The Remuneration Committee reviewed After careful consideration the Committee with reviewing the scale and structure of the current level of the Directors’ fees recommended to the Board that the fees thenon‑executive Directors’ remuneration. taking account of the time spent including for Directors, the Chair, the Chair of the but not limited to attendance at meetings, Audit and Risk Committee and the Senior Remuneration policy Board calls with the Investment Manager, Independent Director be increased as The remuneration of each of the Directors the strategy sessions and attending ad hoc set out below and this was subsequently Governance | is subject to fixed fee arrangements | meetings. The Committee also reviewed | approved by the Board to take effect from | | --- | --- | --- | | and none of the Directors received any | external benchmarking reports on Director | 1 April 2022. | | additional remuneration or incentives in | remuneration for both FTSE 250s and, | | | respect of his or her services as a Director | in particular, investment trusts. | | of the Company. The Directors’ fees | were reduced in April 2019 following the | The Directors’ fees for the financial year to 31 March 2022 and fee increases from | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Company becoming a managed alternative | 1 April | 2022 are as follows: | | | | | | | | | | investment fund, which led to a reduced | | | | | | | Amount paid in | | | | | | | | Amount per annum | | | | | | Amount paid in | | | time commitment for Directors. | | | | to be paid from | | | the year ended | | the year ended | | | | | | | | 1 April 2022 | | 31 March 2022 | | 31 March 2021 | | | The Committee conducted its annual | Directors’ fees | | | | | £ | | £ | | £ | | review of the Directors’ fees and recognised | Richard Laing 124,000 120,000 120,000 | | | | | | | | | | | that there had been no increase in fees | Doug Bannister 47,5 0 0 46,000 46,000 | | | | | | | | | | for a number of years. At the time of Wendy Dorman 58,500 56,000 56,000 the fee reduction in 2019 the Board had Samantha Hoe‑Richardson 47,5 0 0 46,000 46,000 agreed that regular increases to Directors’ 1 Robert Jennings n/a 15,333 46,000 fees was more appropriate than larger 2 Ian Lobley 47,5 0 0 46,000 46,000 infrequent increases. Paul Masterton 55,000 53,000 53,000 1 Fees paid for the period from April‑July 2021. The Remuneration Committee, 2 Fee payable to 3i plc. comprising the independent non-executive Directors, sets Paul Masterton Chair, Remuneration Committee theremuneration of the Chair 9 May 2022 and members of the Board.” Paul Masterton Chair, Remuneration Committee 120 ## Directors’ statement Principal activity The provisions of the AIC Code are more As a result, all Directors will retire and stand contacts of the Investment Manager’s team. appropriate for a closed ended investment for re‑election at the next AGM to be held In relation to quoted equity investments, The Company is a closed‑ended trust than the UK Corporate Governance on 7 July 2022. the Company’s policy is to exercise voting UK investment trust that invests in Code (the ‘UK Code’) because, amongst rights on matters affecting the interests infrastructure businesses and assets. The Board regularly considers the other things, it has no executive directors. ofthe Company. The Directors do not anticipate any change independence of non‑executive Directors The Association of Investment Companies in the principal activity of the Company in as detailed on pages 101 to 102. Governance Regulation website includes an explanation of how the foreseeable future. Its unconsolidated the AIC Code adapts the principles and Board’s responsibilities The Company is incorporated in Jersey and subsidiaries are shown in Note 19 in the provisions set out in the UK Code to make is regulated by the Jersey Financial Services andprocesses Financial statements on pages178 to 182. them relevant for investment companies. Commission as a collective investment The composition of the Board and its Investment trust status fund under the Collective Investment Committees, as well as the Board’s key The Company complied with all the Funds (Jersey) Law 1988. It has a Premium The management and tax domicile of the responsibilities and the way in which it provisions of the AIC Code for the Listing on the London Stock Exchange’s Company moved from Jersey to the UK and its Committees work, are described financial year ended 31 March 2022. Main Market. on 15 October 2018, and the Company on pages 94 to 96 and pages 108 to 119. was granted, with effect from that date, Directors’ duties The Board is responsible to shareholders Alternative Investment UK approved investment trust status. Details of compliance by Directors with for the overall management of the Fund Managers Directive The affairs of the Company are directed theirDirectors’ duties are set out on Company and may exercise all the powers For the purposes of the Alternative to enable it to maintain its UK tax domicile pages81 and 82. of the Company subject to the provisions Investment Fund Managers Regulations | and its approved investment trust company | | of relevant statutes, the Company’s Articles | | | --- | --- | --- | --- | | | Appointment and re-election | | 2013 (the ‘Regulations’) and the EU | | status, which it did during the course of the | | of Association and any directions given | | Alternative Investment Fund Managers year. This is managed on an ongoing basis ofDirectors byspecial resolution of the shareholders. Directive, the Company is an alternative by the Investment Manager and monitored The appointment and re‑election of Matters reserved for the Board investment fund (‘AIF’). The Investment by Audit and Risk Committee. Directors is governed by the Articles, The Board has approved a formal schedule Manager is approved as an alternative the Companies (Jersey) Law 1991 and Corporate Governance of matters reserved to it and its duly investment fund manager (‘AIFM’) by the related legislation. The Articles provide authorised Committees for decision, Financial Conduct Authority (the ‘FCA’) The Company is committed to upholding that at each AGM of the Company all the asdetailed on page 94. for the purposes of the Regulations and is the highest standards of corporate Directors at the date of notice convening the Company’s AIFM. The Depositary is governance. The Company observes the the AGM shall retire from office and each Portfolio management currently Citibank UK Limited. requirements of the AIC Code, a copy of Director may offer himself or herself for and votingpolicy which is available from The Association election or re‑election. In addition, under The Investment Manager is a subsidiary In relation to unquoted investments, the of Investment Companies website the AIC Code, all Directors should be of 3i Group plc and the Remuneration Company’s approach is to seek to add value (www.theaic.co.uk). subject toannual election by shareholders. Policy of 3i Group plc (which applies to to the businesses in which it invests through the Investment Manager) was approved the extensive experience, resources and 3i Infrastructure plc Annual report and accounts 2022 121 ## Directors’ statement continued by 3i Group plc’s shareholders in 2020. employees an annual report which meets The Company chose to designate 38% Operations and management Details of the Remuneration Policy are set the applicable disclosure requirements. of the interim dividend as an interest arrangements | out in the 3i Group plc Annual report and | | distribution (2.0 pence per share of the total | | | --- | --- | --- | --- | | | These are available either on the portfolio | | Details of the role and responsibilities of the | | accounts for 2021. | | dividend of 5.225 pence per share). For UK | | | | company’s website or through filing with | | Investment Manager under the Investment | tax purposes the effect of the designation The disclosures required by the Investment the relevant local authorities. Management Agreement are set out in the was that shareholders were treated in Manager as an AIFM are contained in the Management Engagement Committee Governance respect of the designated part as though NMPI Annual report and accounts of 3i Group plc report on pages 117 and 118. they had received a payment of interest, (www.3i.com). These disclosures include the As a UK investment trust, the Company’s whilst being treated as having received shares are excluded from the FCA rules Other significant service remuneration (fixed and variable) of all staff a payment of dividend in respect of the and all AIFM Identified Staff of the Investment regarding the restrictions on the retail arrangements non‑designated part. Manager. Due to 3i Group plc’s operational distribution of unregulated collective In addition to the investment management structure, the information needed to provide investment schemes and close substitutes The distribution of the dividend payments arrangements, 3i plc and 3i Investments a further breakdown of remuneration (‘non‑mainstream pooled investments’, between interim and final dividends plc (both subsidiaries of 3i Group plc), attributable to the staff and the AIFM or ‘NMPIs’) and therefore the restrictions is evaluated by the Board each year, in relation to certain regulatory services, Identified Staff of the Investment Manager relating to NMPIs do not apply to its shares. according to the Company’s performance, have been appointed by the Company to as the Company’s AIFM is not readily available portfolio income generation and other provide support services, including treasury It is the Board’s intention that the Company and would not be relevant or reliable. factors, such as profits generated on the and accounting services, investor relations will continue to conduct its affairs in such realisation of portfolio assets. The Company and other support services. The amounts Although certain investor disclosures a manner that it maintains its approved will be targeting a dividend for FY23 of payable under these arrangements are required by the FCA’s Investment investment trust company status and that, 11.15pence per share. described in more detail in Note 18 in the Funds sourcebook are made in this accordingly, the Company’s shares will Financial statements on page 176 and 177. Annual report, further disclosures are continue to be excluded from the FCA’s Strategy, performance and summarised on the Company’s website rules relating to NMPIs. 3i plc acts as Company Secretary to the principal risks at www.3i‑infrastructure.com. There have Company and Apex Financial Services Results and dividends The Strategic report on pages 1 to 82 been no material changes to these (Alternative Funds) Limited acts, in a limited provides a review of the performance and disclosures during the financial year. The Directors recommend that a final capacity, as the Company’s Jersey fund position of the Company, together with dividend of 5.225 pence per share administrator, which includes provision In accordance with Part 5 of the Regulations a description of the principal risks and (2021: 4.9pence) be paid in respect of the of the Company’s Compliance Officer, and the relevant requirements of the uncertainties that it faces. year to 31 March 2022 to shareholders on Money Laundering Compliance Officer EUAlternative Investment Fund Managers the register at the close of business on andMoney Laundering Reporting Officer. Directive, the Investment Manager, as 17 June 2022. The Company has chosen an AIFM, requires all relevant controlled not to designate any of its final dividend portfolio companies to make available to as an interest distribution. 122 ## Directors’ statement continued Revolving credit facility Directors’ and Persons Closely Associated interests The Company has a £400 million sustainability‑linked revolving credit facility (‘RCF’). The Board adopted a code for Directors’ dealings in ordinary shares following the The RCF has a margin of 1.50% and a non‑utilisation fee. The RCF has a maturity date of implementation of the EU Market Abuse Regulation (‘MAR’) on 3 July 2016. The Board November 2024 and includes two one‑year extension options. The RCF has a £200 million is responsible for taking all proper and reasonable steps to ensure compliance with accordion feature. This gives the Company a right to request an increase in the size of the the UKversion of MAR bythe Directors. RCF on a temporary basis. The £200 million accordion was activated in December 2021 Governance In accordance with FCA Listing Rule 9.8.6(R)(1), Directors’ interests in the shares of for one year. the Company (in respect of which transactions are notifiable to the Company under In January 2022, the Company raised an additional credit facility of £400 million the UKversion of MAR as at 31 March 2022) are shown below: embedded into the existing RCF with a margin of 1.2%. This tranche has a maturity Ordinary shares Ordinary shares date ofJanuary 2023. Aggregate credit facilities therefore total £1 billion. at 31 March at 31 March 1 Directors’ interests and beneficial interests 2022 2021 Share capital Richard Laing 35,000 35,000 The issued share capital of the Company as at 31 March 2022 was 891,434,010 ordinary Doug Bannister 20,000 20,000 shares (2021: 891,434,010). The Company does not hold any ordinary shares in treasury. Wendy Dorman 21,947 21,947 Samantha Hoe‑Richardson 1,339 1,339 Major interests in ordinary shares 2 Robert Jennings n/a 55,000 As at 31 March 2022 and 30 April 2022, the Company has received notification in Ian Lobley 0 0 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: Paul Masterton 29,194 29,194 Number of Number of 1 No options have been granted since the inception of the Company. ordinary ordinary 2 Stepped down from the Board on 16 July 2021. | | | | 1 | | | 1 | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | shares | as at | % of issued | shares | as at | % of issued | | Interest in ordinary shares | 31 March 2022 | | | share capital | 30 April 2022 | | 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. 3i Infrastructure plc Annual report and accounts 2022 123 ## Directors’ statement continued Directors’ authority to buy Directors’ conflicts of interests In addition, the Company has entered into Statement of Directors’ indemnity agreements for the benefit of its backshares The Directors have a statutory duty to avoid responsibilities Directors and these remain in force at the conflicts of interest with the Company. The Company did not purchase any of its The Directors are responsible for date of this report. The Company’s Articles enable the | own shares during the year. The current | | | preparing the Annual report and accounts | | | --- | --- | --- | --- | --- | | | Directors to approve conflicts of interest | The Company also had directors’ and | | | | authority of the Company to make market | | | in accordance with applicable law and | | | | and include other conflict of interest | officers’ liability insurance in place in | | | | purchases of up to 14.99% of the issued | | | regulations and those International Financial | Governance | | | provisions. The Company has implemented | the year. | | | | ordinary share capital expires at the 2022 | | | Reporting Standards (‘IFRSs’) which have | | processes to identify potential and actual AGM. The Company will seek to renew such been adopted by the United Kingdom. Political donations conflicts of interest. Such conflicts are authority until the end of the AGM in 2023, As a company listed on the London Stock then considered for approval by the Board, During the year to 31 March 2022 no specifying the maximum and minimum Exchange’s Main Market, 3i Infrastructure price at which shares can be bought back. subject, if necessary, to appropriate donations were made to political parties plc is subject to the FCA’s Listing Rules and Any buy back of ordinary shares will be conditions. No conflicts arose during or organisations, or independent election Disclosure Guidance and Transparency made in accordance with Jersey law and the the year, other than the pre‑approved candidates and no political expenditure Rules, as well as to all applicable laws making and timing of any buy backs will be conflict of Ian Lobley as the 3i Group plc was incurred. and regulations of Jersey, where it at the discretion of the Directors. nominated Director. Information included in is incorporated. Such purchases will also only be made in Directors’ indemnities theStrategic report Jersey company law requires the Directors accordance with the Listing Rules of the The Articles provide that, subject to the The following information has been to prepare financial statements for each FCA which provide that the price paid must provisions of the Statutes, every Director included in the Strategic report: risk financial period in accordance with not be more than the higher of: (i) 5% above of the Company shall be indemnified out management objectives and policies; generally accepted accounting principles. the average middle market quotations for of the assets of the Company against all likely future developments of the business; The Financial statements of the Company the ordinary shares for the five business liabilities and expenses incurred by him or greenhouse gas emissions; and section are required by law to give a true and fair days before the shares are purchased; her in the actual or purported execution 172 statement. The Directors’ Viability view of the state of affairs of the Company and (ii) the higher of the last independent or discharge of his or her duties. ‘Statutes’ statement is also shown in the Strategic at the period end and of the profit or loss of trade and the highest current independent here refers to the Companies (Jersey) Law report on page 79. the Company for the period then ended. bid on the London Stock Exchange at 1991 and every other statute, regulation or such time. order for the time being in force concerning companies registered under the Companies (Jersey) Law 1991. 124 ## Directors’ statement continued In preparing these Financial statements, They are also responsible for safeguarding • the Annual report and accounts include the Directors should: the assets of the Company and hence a fair review of the development and for taking reasonable steps for the performance of the business and the • select suitable accounting policies and prevention and detection of fraud position of the Company taken as a then apply them consistently; and other irregularities. whole, together with a description • make judgements and estimates that of theprincipal risks and uncertainties The Directors are also responsible for Governance are reasonable; faced by the Company. preparing the Annual report and accounts • specify which generally accepted and the Directors confirm that they The Directors of the Company and their accounting principles have been adopted consider that, taken as a whole, the Annual functions are listed on pages 89, 90, 94 to 96 in their preparation; and report and accounts are fair, balanced and pages 101 to 103. • prepare the Financial statements on and understandable and provide the The Directors have acknowledged their the going concern basis, unless it is information necessary for shareholders responsibilities in relation to the Financial inappropriate to presume that the to assess the Company’s performance, statements for the year to 31 March 2022. Company will continue in business. business model and strategy. The Directors are responsible for keeping In accordance with the FCA’s Disclosure By order of the Board accounting records which are sufficient Guidance and Transparency Rules, the to show and explain the Company’s Authorised signatory Directors confirm to the best of their transactions and are such as to disclose knowledge that: 3i plc with reasonable accuracy at any time the Company Secretary • the Financial statements, prepared in financial position of the Company and 9 May 2022 accordance with applicable accounting enable them to ensure that the Company’s Registered Office: standards, give a true and fair view of the Financial statements comply with the 12 Castle Street assets, liabilities, financial position and requirements of the Companies (Jersey) St. Helier profit or loss of the Company taken as Jersey JE2 3RT Law 1991. a Channel Islands whole; and 125 ## Accounts ## and other ## information Attero Page 00 126 ## 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; Accounts and other information • 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. 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. Accounts and other information 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 There have been no significant changes in our audit approach compared with the prior year. inourapproach 128 ## 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 Accounts and other information 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. 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 Accounts and other information these matters. 5.1 Fair value of Investments Key audit 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 matter through profit and loss. These investments are classified at Level 3 within the IFRS 7 fair value hierarchy and, for Economic Infrastructure investments, description 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. 130 ## Independent auditor’s report to the members ## of 3i Infrastructure plc continued 5 Key audit matters continued 5.1 Fair value of Investments continued How the scope In response to the key audit matter identified, we performed the following procedures: of our audit • Tested the controls in respect of the valuation process adopted by the Investment Manager and the Board, including the review and approval processes Accounts and other information responded undertaken by the Investment Manager’s valuation committee; to the key • Tested that the valuation methodology is compliant with IFRS 13 requirements; audit matter • 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 theinherent 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 cashflow 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 3i Infrastructure plc Annual report and accounts 2022 ## 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. | ![img-0.jpeg](img-0.jpeg) 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. 132 ## 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: Accounts and other information • 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. 3i Infrastructure plc Annual report and accounts 2022 133 ## Independent auditor’s report to the members ## of 3i Infrastructure plc continued 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 Accounts and other information 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. 134 ## 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 Accounts and other information 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. 3i Infrastructure plc Annual report and accounts 2022 135 ## Independent auditor’s report to the members ## of 3i Infrastructure plc continued 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 Accounts and other information 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. 136 ## 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 Accounts and other information 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. 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. Accounts and other information 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 138 ## Statement of comprehensive income For the year to 31 March | | Year to | | Year to | | | --- | --- | --- | --- | --- | | | 31 March | | 31 March | | | | | 2022 | | 2021 | | Notes | | £m | | £m | Net gains on investments 7 384 118 Investment income 7 127 92 Accounts and other information 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 3i Infrastructure plc Annual report and accounts 2022 139 ## Statement of changes in equity For the year to 31 March | | Stated | | | | | | | | | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | capital | | Retained | | Capital | | Revenue | | shareholders’ | | | | | | | 1 | | 1 | | 1 | | | | | account | | reserves | | reserve | | reserve | | | equity | | For the year to 31 March 2022 Notes | | £m | | £m | | £m | | £m | | £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) Accounts and other information Closing balance at 31 March 2022 779 1,282 643 – 2,704 | | Stated | | | | | | | | | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | capital | | Retained | | Capital | | Revenue | | shareholders’ | | | | | | | 1 | | 1 | | 1 | | | | | account | | reserves | | reserve | | reserve | | | equity | | For the year to 31 March 2021 Notes | | £m | | £m | | £m | | £m | | £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. 140 # Balance sheetAs 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** | ![img-1.jpeg](img-1.jpeg) # Balance sheet continued 3i Infrastructure plc Annual report and accounts 2022 | | 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 142 ## Cash flow statement For the year to 31 March | Year to | | Year to | | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2022 | | 2021 | | | £m | | £m | Cash flow from operating activities Purchase of investments (761) (43) Accounts and other information Proceeds from other financial assets 12 104 Proceeds from partial realisations of investments 140 14 Proceeds from full realisations of investments 8 30 1 Investment income 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 2 Distributions from transfer of investments from unconsolidated subsidiaries – 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. 3i Infrastructure plc Annual report and accounts 2022 143 ## Cash flow statement continued | Year to | | Year to | | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2022 | | 2021 | | | £m | | £m | Cash flow from financing activities Fees and interest paid on financing activities (6) (2) Dividends paid (90) (85) Accounts and other information 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 17 462 144 ## Reconciliation of net cash flow to movement in net debt For the year to 31 March | | Year to | | Year to | | | --- | --- | --- | --- | --- | | | 31 March | | 31 March | | | | | 2022 | | 2021 | | Notes | | £m | | £m | Change in cash and cash equivalents (443) 49 Drawdown of revolving credit facility 11 (955) – Accounts and other information 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. 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 Accounts and other information 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. 146 Significant accounting policies continued ### 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. ![img-2.jpeg](img-2.jpeg) 3i Infrastructure plc Annual report and accounts 2022 147 ## Significant accounting policies continued 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, Accounts and other information 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. 148 ## 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 Accounts and other information 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. 3i Infrastructure plc Annual report and accounts 2022 149 ## Significant accounting policies continued 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. Accounts and other information 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. 150 ## 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 Accounts and other information 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. 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: Accounts and other information • 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. 152 ## 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 Accounts and other information 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. 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 Accounts and other information 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. 154 ## 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. Accounts and other information To enable the tax charge to be based on the profit for the year, deferred tax is provided in full on temporary timing differences, at the rates of tax expected to apply when these differences crystallise. Deferred tax assets are recognised only to the extent that it is probable that sufficient taxable profits will be available against which temporary differences can be set off. In practice, some assets that are likely to give rise to timing differences will be treated as capital for tax purposes. Given capital items are exempt from tax under the Investment Trust Company rules, deferred tax is not expected to be recognised on these balances. All deferred tax liabilities are offset against deferred tax assets, where appropriate, in accordance with the provisions of IAS 12. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available toallow all or part of the asset to be recovered. # Notes to the accounts 3i Infrastructure plc Annual report and accounts 2022 ## 1 Operating segments The Directors review information on a regular basis that is analysed by portfolio segment; being Economic infrastructure businesses, the Projects portfolio and the India Fund, and by geography. These segments are reviewed for the purpose of resource allocation and the assessment of their performance. In accordance with IFRS 8, the segmental information provided below uses these segments for the analysis of results as it is the most closely aligned with IFRS reporting requirements. The Company is an investment holding company and does not consider itself to have any customers. The following is an analysis of the Company's investment return, profit before tax, assets, liabilities and net assets by portfolio segment for the year to 31 March 2022: | | Economic infrastructure businesses £m | Projects portfolio £m | India Fund £m | Unallocated^{1} £m | Total £m | | --- | --- | --- | --- | --- | --- | | **For the year to 31 March 2022** | | | | | | | **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, ROF drawn and other payables and receivables (including vendor loan notes) which are not directly attributable to the investment portfolio. 156 ## 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: | | UK and | | Continental | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 1 | | | | 2 | | | | | Ireland | | | Europe | | | Asia | Total | | For the year to 31 March 2022 | | £m | | | £m | | £m | £m | Investment return 63 446 5 514 Accounts and other information (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. 3i Infrastructure plc Annual report and accounts 2022 157 ## Notes to the accounts continued 2 Management and performance fees payable | Year to | | Year to | | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2022 | | 2021 | | | £m | | £m | Management fee 43 24 Accounts and other information 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 | | Year to | | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2022 | | 2021 | | | £m | | £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. 158 ## 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. | Year to | Year to | | --- | --- | | 31 March | 31 March | | 2022 | 2021 | Accounts and other information Audit services £m £m 1 Statutory audit Company 0.40 0.30 2 UK unconsolidated subsidiaries 0.05 0.04 2 Overseas unconsolidated subsidiaries – 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 inrespect 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. 3i Infrastructure plc Annual report and accounts 2022 159 ## Notes to the accounts continued 4 Finance costs | Year to | | Year to | | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2022 | | 2021 | | | £m | | £m | Finance costs associated with the debt facilities 3 2 Accounts and other information 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 | | Year to | | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2022 | | 2021 | | | £m | | £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 | | Year to | | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2022 | | 2021 | | | £m | | £m | Current taxes Current year – – Total income tax charge in the Statement of comprehensive income – – 160 ## 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 | | Year to | | | --- | --- | --- | --- | --- | | Accounts and other information | 31 March | | 31 March | | | | | 2022 | | 2021 | | | | £m | | £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, ieonce at the level of the investment fund vehicle and then again in the hands of the investors. Under the UK Finance Act 2021, the UK corporation tax rate will increase for large companies from the current rate of 19% to 25% with effect from 1 April 2023.Should the Company recognise any deferred tax assets and liabilities, a rate of 19% or 25% would be used depending on when the assets and liabilities are expected to be crystallised. 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 Accounts and other information Level 2 Inputs other than quoted prices included in Level 1 that are observable in Derivative financial instruments held at fair value themarketeither directly (ie as prices) or indirectly (ie derived from prices) Level 3 Inputs that are not based on observable market data Unquoted investments and unlisted funds For assets and liabilities that are recognised in the Financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy byreassessing the categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) for each reporting period. The table below shows the classification of financial instruments held at fair value into the fair value hierarchy at 31 March 2022. For all other assets and liabilities, their carrying value approximates to fair value. During the year ended 31 March 2022, there were no transfers of financial instruments between levels of the fair value hierarchy (2021: none). Trade and other receivables in the Balance sheet includes £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. 162 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 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 | | | As at | | As at | | --- | --- | --- | --- | --- | | | 31 March | | 31 March | | | | | 2022 | | 2021 | | Level 3 fair value reconciliation | | £m | | £m | Accounts and other information 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 withinone 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. 164 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 well positioned to assess how the Company is likely to perform if affected by variables and events that are inherently outside of the control of the Board and the Investment Manager. The majority of the assets held within Level 3 are valued on a discounted cash flow basis, hence, the valuations are sensitive to the discount rate assumed in the valuation of each asset. Other significant unobservable inputs include the inflation rate assumption, the interest rates assumption used to project the future cash flows and the forecast cash flows themselves. The sensitivity to the inflation rate and interest rates is described below and the sensitivity to the forecast cash flows is captured in the Market risk section in Note 9. A discussion of discount rates applied can be found in the Summary of portfolio valuation methodology section. Increasing the discount rate used in the valuation of each asset by 1% would reduce the value of the portfolio by £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 of each asset 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). ![img-3.jpeg](img-3.jpeg) 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. Accounts and other information Valuation process for Level 3 valuations The valuations on the Balance sheet are the responsibility of the Board of Directors of the Company. The Investment Manager provides a valuation of unquoted investments, debtandunlisted funds held by the Company on a half-yearly basis. This is performed by the valuation team of the Investment Manager and reviewed by the valuation committee oftheInvestment Manager. The valuations are also subject to quality assurance procedures performed within the valuation team. The valuation team verifies the major inputs applied in thelatest valuation by agreeing the information in the valuation computation to relevant documents and market information. The valuation committee of the Investment Manager considers the appropriateness of the valuation methods and inputs, and may request that alternative valuation methods are applied to support the valuation arising from the method chosen. On ahalf-yearly basis, the Investment Manager presents the valuations to the Board. This includes a discussion of the major assumptions used in the valuations, with an emphasis on the more significant investments and investments with significant fair value changes. Any changes in valuation methods are discussed and agreed with the Audit and Risk Committee before the valuations on the Balance sheet are approved by the Board. 8 Trade and other receivables | Year to | | Year to | | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2022 | | 2021 | | | £m | | £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. 166 ## 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, Auditand Risk Committee and the Investment Manager’s investment process are part of the overall risk management framework of the Company. Accounts and other information 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. 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 Accounts and other information 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. 168 ## 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. | | | Payable | | Due within | | | Due between | | Due between | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | on demand | | | | 1 year | | 1 and 2 years | | 2 and 5 years | | Total | | 2022 | | | £m | | | £m | | £m | | £m | £m | Accounts and other information Liabilities 1 Loans and borrowings – (7) (5) (234) (246) Trade and other payables (4) (26) (20) (18) (68) Derivative contracts – (12) (3) (3) (18) 2 Financial commitments (302) – – – (302) Total undiscounted financial liabilities (306) (45) (28) (255) (634) 1 Loans and borrowings relate to undrawn commitment fees and interest payable on the RCF referred to in Note 11. 2 Financial commitments are described in Note 16 and are not recognised in the Balance sheet. | | | Payable | | Due within | | | Due between | | Due between | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | on demand | | | | 1 year | | 1 and 2 years | | 2 and 5 years | | Total | | 2021 | | | £m | | | £m | | £m | | £m | £m | Liabilities 1 Loans and borrowings – (2) (2) – (4) Trade and other payables (9) – (8) (2) (19) Derivative contracts – (4) (2) – (6) 2 Financial commitments (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. # Notes to the accounts continued 3i Infrastructure plc Annual report and accounts 2022 ## 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. 170 Notes to the accounts continued ## 9 Financial risk management continued | | As at 31 March 2022 | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | Sterling £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 £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 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 Accounts and other information As at | | 31 March | | | 31 March | | | --- | --- | --- | --- | --- | --- | | | | 2022 | | | 2021 | | Investments | | | Investments | | | | at fair value | | | at fair value | | | | | | £m | | | £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). 172 ## Notes to the accounts continued 10 Derivative financial instruments | | As at | | As at | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2022 | | 2021 | | | £m | | £m | Non-current assets Accounts and other information 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, theCompany had drawn cash of £231 million from the RCF (2021: nil). The new RCF has certain loan covenants, including a loan to value ratio. 3i Infrastructure plc Annual report and accounts 2022 173 ## Notes to the accounts continued 12 Trade and other payables | Year to | | Year to | | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2022 | | 2021 | | | £m | | £m | Non-current liabilities Accounts and other information 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. 174 ## 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 | Year to | | --- | --- | | 31 March | 31 March | | 2022 | 2021 | Earnings per share (pence) Accounts and other information 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 | | As at | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2022 | | 2021 | Net assets per share (pence) Basic and diluted 303.3 268.1 Net assets (£m) Net assets 2,704 2,390 3i Infrastructure plc Annual report and accounts 2022 175 ## Notes to the accounts continued 15 Dividends Year to 31 March 2022 Year to 31 March 2021 Declared and paid during the year 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 Accounts and other information 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 | | As at | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2022 | | 2021 | | | £m | | £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 inESVAGT 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). 176 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 and moved 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. ![img-4.jpeg](img-4.jpeg) 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. Outstanding balance at Year Performance fee (£m) 31 March (£m) Payable in FY23 (£m) Accounts and other information FY22 54 54 18 FY21 7 4 2 FY20 17 6 6 Under the IMA, the Investment Manager’s appointment may be terminated by either the Company or the Investment Manager giving the other not less than 12 months’ notice in writing, but subject to a minimum term of four years from 15 October 2018, unless 3i Investments plc has previously ceased to be a member of 3i Group, or with immediate effect by either party giving the other written notice in the event of insolvency or material or persistent breach by the other party. The Investment Manager may also terminate the agreement on two months’ notice given within two months of a change of control of the Company. Regulatory information relating to fees 3i Investments plc acts as the Alternative Investment Fund Manager (‘AIFM’) to the Company. In performing the activities and functions of the AIFM, the AIFM or another 3i company maypay or receive fees, commissions or non-monetary benefits to or from third parties of the following nature: • Payments for third-party services: The Company may retain the services of third-party consultants; typically this is for an independent director or other investment management specialist expertise. The amount paid varies in accordance with the nature of the service and the length of the service period and is usually, but not always, paid or reimbursed by theportfolio companies. The payment may involve a flat fee, retainer or success fee. Such payments, where borne by the Company, are included within Operating expenses. In somecircumstances, the AIFM may retain the services of third-party consultants which are paid for by the AIFM and not recharged to the Company. • Payments for services from 3i companies: Other 3i companies may provide investment advisory and other services to the AIFM or other 3i companies and receive payment for such service. 178 ## 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% Accounts and other information 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% 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% Accounts and other information 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% 180 ## 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% Accounts and other information 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% 3i Infrastructure plc Annual report and accounts 2022 181 ## Notes to the accounts continued 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% Accounts and other information 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% 182 ## 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 3i Infrastructure plc Annual report and accounts 2022 183 ## Investment policy (unaudited) | The Company aims to build a diversified | The Company may also consider investing | No investment made by the Company will | The Company’s Articles require its | | --- | --- | --- | --- | | portfolio of equity investments in entities | in other fund structures (in the event that | represent more than 25% of the Company’s | outstanding borrowings, including any | | owning infrastructure businesses and | it considers, on receipt of advice from | gross assets, including cash holdings, | financial guarantees to support subsequent | | assets. The Company seeks investment | the Investment Manager, that that is the | atthe time of making the investment. It is | obligations, to be limited to 50% of the | | opportunities globally, but with a focus | most appropriate and effective means | expected that most individual investments | gross assets of the Company (valuing | | onEurope, North America and Asia. | of investing), which may be advised or | will exceed £50 million. In some cases, | investments on the basis included in the | Accounts and other information managed either by the Investment Manager thetotal amount required for an individual Company’s accounts). The Company’s equity investments will | | or a third party. If the Company invests | transaction may exceed the maximum | | | --- | --- | --- | --- | | often comprise share capital and related | | | In accordance with Listing Rules | | | in another fund advised or managed by | amount that the Company is permitted | | | shareholder loans (or other financial | | | requirements, the Company will only make | | | 3i Group, the relevant proportion of any | to commit to a single investment. In such | | | instruments that are not shares but that, | | | a material change to its investment policy | | | advisory or management fees payable | circumstances, the Company may consider | | | in combination with shares, are similar in | | | with the approval of shareholders. | | | by the investee fund to 3i plc will be | entering into co-investment arrangements | | substance). The Company may also invest deducted from the annual management with 3i Group (or other investors who may in junior or mezzanine debt in infrastructure fee payable under the Investment also be significant shareholders), pursuant businesses or assets. | | Management Agreement and the relevant | to which 3i Group and its subsidiaries | | --- | --- | --- | | Most of the Company’s investments are | proportion of any performance fee will be | (orsuch other investors) may co-invest on | | in unquoted companies. However, the | deducted from the annual performance | the same financial and economic terms | | Company may also invest in entities owning | fee, if payable, under the Investment | as the Company. The suitability of any | | infrastructure businesses and assets whose | Management Agreement. | such co-investment arrangements will be | | shares or other instruments are listed on | | assessed on a transaction-by-transaction | For the avoidance of doubt, there will be no any stock exchange, irrespective of whether basis. Depending on the size of the similar set-off arrangement where any such they cease to be listed after completion relevant investment and the identity of the fund is advised or managed by a third party. | of the investment, if the Directors judge | | relevant co-investor, such a co-investment | | --- | --- | --- | | that such an investment is consistent with | For most investments, the Company seeks | arrangement may be subject to the related | | the Company’s investment objectives. | to obtain representation on the board | party transaction provisions contained in | | The Company will, in any case, invest no | of directors of the investee company | the Listing Rules and may therefore require | | more than 15% of its total gross assets in | (orequivalent governing body) and in cases | shareholder consent. | | other investment companies or investment | where it acquires a majority equity interest | | | trusts which are listed on the Official List. | in a business, that interest may also be a | | controlling interest. 184 ## Portfolio valuation methodology (unaudited) A description of the methodology used General Quoted investments DCF to value the investment portfolio of the In estimating fair value, the Directors Quoted equity investments are valued at DCF is the primary basis for valuation. Company is set out below in order to seek to use a methodology that is the closing bid price at the reporting date. In using the DCF basis, fair value is provide more detailed information than is appropriate in light of the nature, facts In accordance with International Financial estimated by deriving the present value included within the accounting policies and and circumstances of the investment Reporting Standards, no discount is applied of the investment using reasonable the Investment Manager’s review for the and its materiality in the context of the for liquidity of the stock or any dealing assumptions and estimation of expected Accounts and other information valuation of the portfolio. The methodology overall portfolio. The methodology that is restrictions. Quoted debt investments will future cash flows, including contracted complies in all material aspects with the the most appropriate may consequently be valued using quoted prices provided and uncontracted revenues, expenses, International Private Equity and Venture include adjustments based on informed by third-party broker information where capital expenditure, financing and taxation, Capital valuation guidelines which are and experience-based judgements, and reliable or will be held at cost less fair and the terminal value and date, and the endorsed by the British Private Equity will also consider the nature of the industry value adjustments. appropriate risk-adjusted discount rate and Venture Capital Association and and market practice. Methodologies are that quantifies the risk inherent to the Invest Europe. Unquoted investments applied consistently from period to period investment. The terminal value attributes except where a change would result in a Unquoted investments are valued using a residual value to the investee company Basis of valuation better estimation of fair value. Given the oneof the following methodologies: at the end of the projected discrete cash Investments are reported at the Directors’ uncertainties inherent in estimating fair flow period. The discount rate will be • Discounted Cash Flow (‘DCF’); estimate of fair value at the reporting | | value, a degree of caution is applied | | estimated for each investment derived from | | --- | --- | --- | --- | | date in compliance with IFRS 13 Fair Value | | • Proportionate share of net assets; | | | | in exercising judgements and making | | the market risk-free rate, a risk-adjusted | | Measurement. Fair value is defined as | | • Sales basis; and | | | | necessary estimates. | | premium and information specific to the | ‘theprice that would be received to sell • Cost less any fair value investment or market sector. an asset or paid to transfer a liability in Investments may include portfolio assets adjustments required. an orderly transaction between market and other net assets/liabilities balances. participants at the measurement date’. The methodology for valuing portfolio assets is set out below. Any net assets/ liabilities within intermediate holding companies are valued in line with the Company accounting policy and held atfairvalue or approximate to fair value. 3i Infrastructure plc Annual report and accounts 2022 185 ## Portfolio valuation methodology (unaudited) continued Proportionate share of net assets Sales basis Where the Company has made investments The expected sale proceeds will be used into other infrastructure funds, the value to assign a fair value to an asset in cases of the investment will be derived from where offers have been received as part the Company’s share of net assets of the of an investment sales process. This may fund based on the most recent reliable either support the value derived from Accounts and other information financial information available from the another methodology or may be used as fund. Where the underlying investments the primary valuation basis. A marketability within a fund are valued on a DCF basis, discount is applied to the expected the discount rate applied may be adjusted sale proceeds to derive the valuation by the Company to reflect its assessment where appropriate. of the most appropriate discount rate Cost less fair value adjustment for the nature of assets held in the fund. | In measuring the fair value, the net asset | Any investment in a company that has failed | | --- | --- | | value of the fund is adjusted, as necessary, | or, in the view of the Board, is expected | | to reflect restrictions on redemptions, | to fail within the next 12 months, has the | | future commitments, illiquid nature of the | equity shares valued at nil and the fixed | | investments and other specific factors of | income shares and loan instruments | | the fund. | valued at the lower of cost and net | recoverable amount. 186 ## Information for shareholders Financial calendar * Calls from outside the United Kingdom If you would prefer to receive shareholder willbe charged at the applicable communications electronically, Ex-dividend date for final dividend 16 June 2022 international rate. Lines are open between including your Annual reports and Record date for final dividend 17 June 2022 9.00am-5.30pm, Monday to Friday notices of meetings, please go to Annual General Meeting 7 July 2022 excluding public holidays in England www.3i-infrastructure.com/investors/ Final dividend expected to be paid 11 July 2022 and Wales. shareholder-centre for details of how Accounts and other information Half-yearly results November 2022 to register. Investor relations and Frequently used Registrars’ forms general enquiries | Designation of dividends as | Registrars | | can be found on our website at | | --- | --- | --- | --- | | | | For all investor relations and general | www.3i-infrastructure.com/investors/ | | interest distributions | The Company’s registrar is Link Market | | | | | | enquiries about 3i Infrastructure plc, | shareholder-centre. | Services (Jersey) Limited (the ‘Registrar’). As an approved Investment Trust, please contact: The Registrar’s main responsibilities | theCompany is permitted to designate | | | 3i Infrastructure plc | | --- | --- | --- | --- | | | include maintaining the shareholder | | Registered Office | | dividends wholly or partly as interest | | Thomas Fodor | | 12 Castle Street register and making dividend payments. distributions for UK tax purposes. Investor Relations St. Helier Their registered address is as follows: Dividends designated as interest in this 3i Infrastructure plc Jersey JE2 3RT way are taxed as interest income in the 16 Palace Street Channel Islands Link Market Services (Jersey) Limited hands of shareholders and are treated as London, SW1E 5JD www.3i-infrastructure.com PO Box 532 tax deductible interest payments made St. Helier email: thomas.fodor@3i.com bythe Company. The Company expects to Jersey JE4 5UW Telephone +44 (0)20 7975 3469 make such dividend designations in periods Channel Islands in which it is able to use the resultant tax or for full up-to-date investor relations If you have any queries relating to your deduction to reduce the UK corporation tax information including the latest share 3iInfrastructure plc shareholding you it would otherwise pay on the interest income price, recent reports, results presentations should contact the Registrar as follows: it earns from its investments. The Board and financial news, please visit the is not designating any of the 5.225 pence investor relations page on our website Online: www.signalshares.com. From here finaldividend payable in respect of the year www.3i-infrastructure.com. you will be able to securely email Link with as an interest distribution. your query. Telephone: 0371 664 0300 Overseas enquiries: +44 371 664 0300 By post: Link, Central Square, 29 Wellington Street, Leeds, LS1 4DL 3i Infrastructure plc Annual report and accounts 2022 187 ## Glossary | Alternative Investment Fund (’AIF’) | Association of Investment Companies | Fair value through profit or loss (‘FVTPL’) | Investment income is that portion | | --- | --- | --- | --- | | 3i Infrastructure plc is an AIF managed | (‘AIC’) The Association of Investment | is an IFRS measurement basis permitted | ofincome that is directly related to the | | by3iInvestments plc. | Companies is a UK trade body for | for assets and liabilities which meet | return from individual investments and is | | | closed-ended investment companies. | certain criteria. Gains and losses on | recognised as it accrues. It is comprised | Alternative Investment Fund Manager | | | assetsand liabilities measured as | ofdividend income, income from loans and | | --- | --- | --- | --- | | (‘AIFM’) is the regulated manager of | Board The Board of Directors of | | | | | | FVTPLarerecognised directly in the | receivables and fee income. It is recognised | | anAIF. For 3i Infrastructure plc, this is | the Company. | | | Accounts and other information Statement ofcomprehensive income. to the extent that it is probable that there 3iInvestments plc. Capital reserve recognises all profits that will be an economic benefit and the income FY15, FY20, FY21, FY22, FY23 refers Approved Investment Trust Company are capital in nature or have been allocated can be reliably measured. to the financial years to 31 March 2015, | This is a particular UK tax status maintained | to capital. These profits are distributable | | | | --- | --- | --- | --- | | | | 31 March 2020, 31 March 2021, 31 March 2022 | Key Performance Indicator (‘KPI’) | | by 3i Infrastructure plc. An approved | byway of a dividend. | | | | | | and 31 March 2023 respectively. | isa measure by reference to which the | Investment Trust company is a UK tax Company 3i Infrastructure plc. development, performance or position of resident company which meets certain Initial Public Offering (‘IPO’) is the the Company can be measured effectively. | conditions set out in the UK tax rules which | Discounting The reduction in present value | mechanism by which a company admits its | | | --- | --- | --- | --- | | include a requirement for the company | at a given date of a future cash transaction | stock to trading on a public stock exchange. | Money multiple is calculated as the | | toundertake portfolio investment activity | at an assumed rate, using a discount factor | 3i Infrastructure plc completed its IPO | cumulative distributions or realisation | | that aims to spread investment risk and for | reflecting the time value of money. | inMarch 2007. | proceeds plus any residual value divided | | the company’s shares to be listed on an | | | byinvested or paid-in capital. | | | External auditor The independent auditor, | International Financial Reporting | | approved exchange. The ‘approved’ status Deloitte LLP. Standards (‘IFRS’) are accounting Net asset value (‘NAV’) is a measure for an investment trust must be agreed by standards issued by the International ofthe fair value of all the Company’s the UK tax authorities and its benefit is that Accounting Standards Board (‘IASB’). assetsless liabilities. certain profits of the company, principally The Company’s financial statements are itscapital profits, are not taxable in the UK. required to be prepared in accordance withIFRS, as adopted by the UK. 188 ## Glossary continued | Net assets per share (‘NAV per share’) | Retained reserves recognise the | Sustainability KPIs Sustainability metrics | | --- | --- | --- | | is the NAV divided by the total number | cumulative profits to 15 October 2018, | in relation to the Sustainability-linked | | ofshares in issue. | together with amounts transferred from | revolving credit facility. The facility includes | | | theStated capital account. | targets across ESG themes aligned with | Net gains on investments is the movement our purpose. in the fair value of investments between the Revenue reserve recognises all profits start and end of the accounting period, or that are revenue in nature or have been TCFD is the Task Force on Climate-related Accounts and other information investment disposal date, or the investment allocated to revenue. Financial Disclosures. acquisition date and the end of the Revolving credit facility (‘RCF’) A Total return measured as a percentage, accounting period, including divestment £400 million facility provided by the iscalculated against the opening NAV, related costs where applicable, converted Company’s lenders with a maturity date netof the final dividend for the previous into sterling using the exchange rates in inNovember 2024, together with a further year, and adjusted (on a time weighted force at the end of the period. | | £200 million of commitments maturing | average basis) to take into account any | | --- | --- | --- | | Ongoing charges A measure of the annual | in December 2022 and £400 million of | equity issued and capital returned in | | recurring operating costs of the Company, | commitments maturing in January 2023. | the year. | expressed as a percentage of average NAV SORP means the Statement of Total shareholder return (‘TSR’) over the reporting period. Recommended Practice: Financial isthe measure of the overall return to Public Private Partnership (’PPP’) is a Statements of Investment Trust Companies shareholders and includes the movement government service or private business and Venture Capital Trusts. in the share price and any dividends paid, venture which is funded and operated assuming that all dividends are reinvested Stated capital account The Stated capital through a partnership of government on their ex-dividend date. account of the Company represents the andone or more private sector companies. 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. For further information see our website www.3i-infrastructure.com This report is printed on Revive 100 made from ® 100% FSC Recycled certified fibre sourced from de-inked post-consumer waste. Revive 100 isa Carbon balanced paper which means that the carbon emissions associated with its manufacture have been measured and offset using the WorldLand Trust’s Carbon Balanced scheme. This report has been printed sustainably in the UK by ® Pureprint, a CarbonNeutral company and certified to ISO 14001 environmental management system. It has been digitally printed without the use of filmseparations, plates and associated processing chemicals, and 99% of all the dry waste associated with this production has been recycled. Designed and produced by Radley Yeldar www.ry.com 3i Infrastructure plc Annual report and accounts 2022 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 To receive shareholder communications electronically in future, including Annual reports and notices of meetings, please go to: www.3i-infrastructure.com