3i Infrastructure PLC · LSE:3IN
3i Infrastructure — FY2010 Earnings Presentation
46 slides from 3i Infrastructure's earnings presentation, May 6, 2010
Slide 1: Results for the year to 31 March 2010
Results for the year to 31 March 2010 6 May 2010
Slide 2: Chairman's highlights
Chairman’s highlights Peter Sedgwick Chairman, 3i Infrastructure plc 2
Slide 3: Agenda
Agenda Chairman’s highlights Peter Sedgwick Chairman, 3i Infrastructure plc Financial review Stuart Howard Interim CFO, Infrastructure, 3i Investments plc Portfolio review and strategy update Cressida Hogg Managing Partner, Infrastructure, 3i Investments plc 3
Slide 4: Chairman's highlights
Chairman’s highlights • Attractive capital growth – total Continued growth in returns to shareholders return of 9.3% and asset return of 17.5% on opening portfolio 130 128.8 value 125 wth o is ed gr 121.1 al 119.0 • Robust underlying asset 120 a nnu 116.3 performance – year-on-year 115 9.8% EBITDA g
Slide 5: Financial review
Financial review Stuart Howard Interim CFO, Infrastructure, 3i Investments plc 5
Slide 6: Reconciliation of movements in NAV
Reconciliation of movements in NAV (£m) 1,000 55.6 5.3 Final 972.6 (26.8) (18.2) 7.1 928.0 32.7 Interim (17.8) 900 890.1 800 Opening Income Realised Unrealised Net foreign Costs Pre- Distribution Closing NAV NAV at 31 gains gains exchange distribution at 31 March (1) March 2009 movement NAV 2010 (1)
Slide 7: Dividend coverage
Dividend coverage (£m) • 2010 dividend covered by: – Income from the portfolio and interest from cash balances generated in the year 51.7 – Remaining gains over cost from realisations of I2 and Alma Mater 44.6 32.7 Distributable resources 2010 Dividend Gains over cost from realisations Income from p
Slide 8: Balance sheet - on an investment basis
Balance sheet - on an investment basis (£m) As at As at 31 March 31 March 2010 2009 Investment portfolio 648.1 536.7 Other net assets 4.4 10.7 Cash and cash equivalents 313.7 386.8 Borrowings - - Other current liabilities (11.4) (18.1) Net assets 954.8 916.1 Diluted NAV per share 116.3p 111.9p Final
Slide 9: Portfolio review and strategy update
Portfolio review and strategy update Cressida Hogg Managing Partner, Infrastructure, 3i Investments plc 9
Slide 10: Asset return versus total return
Asset return versus total return 17.5% on opening portfolio value 10.8% (6.7)% 9.3% (1.5)% Asset return Cash dilution Blended return Fees and costs Total return Our fully invested 12% return objective is achievable based on asset returns from current portfolio 10
Slide 11: Our strategy
Our strategy Focused origination effort Clear geographical Targeted sector Diversification along the focus + approach + risk-return spectrum • UK & Europe (directly) • Transport • Exposure to early-stage assets and to mature • India (through 3iIF) • Utilities operational assets • North America (dire
Slide 12: Our assets
Our assets Asset Value at Cash AWG 31 March 2010 Anglian Water Group £193.6m Junior debt portfolio £123.7m Oystercatcher £118.8m Cash 3i India Infrastructure Fund £97.9m Portfolio Junior debt assets portfolio Elgin £38.7m I2 vendor loan notes £30.4m Alpha Octagon Octagon £28.8m 2 loan notes II2 Loan
Slide 13: Asset diversification
Asset diversification By geography By sector By maturity 15% 9% 18% 6% 57% 24% 61% 25% 85% UK Social Infrastructure Early-stage Continental Europe Operational growth Transportation Asia Mature Utilities (as at 31 March 2010, breakdown by value) 13
Slide 14: Asset performance
Asset performance • EBITDA growth for underlying equity assets for the year on 11.2% average, on a like-for-like basis on previous reporting year (1) 17.5% • Asset return on opening portfolio value £30.3m • Portfolio income for the year (dividend and loan interest income) (1) Excludes junior debt po
Slide 15: Key drivers of the unrealised value movement
Key drivers of the unrealised value movement Junior debt portfolio • MTM value up 30% year-on-year • Final Determination more positive than expected AWG • Adoption of business plan for next five-year regulatory period • Positive impact from reversal of deflationary trends 3i India Infrastructure • G
Slide 16: Weighted average discount rate
Weighted average discount rate 20% • Majority of the portfolio valued 18.0% on a DCF basis • Weighted average discount rate Weighted Average Discount Rate (%) 15% declined compared to March 13.1% 2009: 12.4% 12.5% 12.0% 13.8% – Adani Power now valued on range 12.8% a MTM basis – Acquisition of Elgin
Slide 17: Elgin
Elgin Investment rationale • Delivers on expressed intention of increasing exposure to social infrastructure • Lower risk, index-linked cash flows from a largely operational portfolio • Strong partner in Robertson (£m) (1) Cost 38.5 Valuation 38.7 Equity interest 49.9% Capital return £0.6m Income in
Slide 18: Anglian Water Group
Anglian Water Group Investment rationale • Regulated near-monopoly position in its geographical area for provision of water supply and sewerage treatment • Stable and predictable earnings through RPI-linked tariffs • Largely predictable operating costs Valuation drivers (£m) Cost 161.9 • Value up £1
Slide 19: Junior debt portfolio
Junior debt portfolio Investment rationale • Core infrastructure businesses • Investment at prices below par, delivering attractive equity-like returns and strong levels of cash yield Valuation drivers • Increase in mark-to-market valuation of underlying investments (£m) 117.5 Cost • Yield on portfo
Slide 20: Oystercatcher
Oystercatcher Investment rationale • Long-term demand for oil storage capacity, coupled with shortage of completing supply and low customer turnover • Strong market position in key trading hubs • Defensive position, reliable cash flows Valuation drivers (£m) Cost 84.5 • Income received in the period
Slide 21: 3i India Infrastructure Fund
3i India Infrastructure Fund Investment rationale • Favourable macro outlook in India • Infrastructure deficit in India provides opportunity for private investment • Fund investment at no additional cost to the Company Valuation drivers (£m) Cost 58.3 • Fund’s valuation impacted negatively by the di
Slide 22: Market conditions
Market conditions • Public sector budget constraints driving government disposals and Macroeconomic outlook opportunities for private investments in government-led projects • Pick-up in inflation • Infrastructure assets more resilient in the downturn Visibility on earnings / • Volume risk subsiding
Slide 23: Pipeline opportunities
Pipeline opportunities Western North UK India Europe America • Geared exposure to cyclical Transportation recovery • Pricing adjusting to reduced volumes • Attractive fundamentals Power / (demand, pricing, yield) energy • Favourable regulatory framework • Attractive fundamentals (yield, inflation li
Slide 24: The year in summary
The year in summary • Delivering the yield objective… – Dividend of 5.0% of opening NAV • …and attractive capital growth – Asset return of 17.5% on opening value – Total return of 9.3% after cash dilution and costs • Underlying asset performance remains robust – Year-on-year EBITDA growth of 11.2% –
Slide 25: Our investment proposition
Our investment proposition • Strong track record of NAV growth – 9.8% annualised return to shareholders • Strong track record of outperformance against the market – TSR of +23.2% since IPO, against +1.0% for the FTSE 100, and -5.2% for the FTSE 250 • Robust asset portfolio, generating yield and capi
Slide 26: Q&A
Q&A “The pipeline of investment opportunities is stronger than last year. With substantial liquidity to invest and premium market access through the Investment Adviser, the Company is optimally positioned to capitalise on improved market conditions.” 26
Slide 27: Additional financial information
Additional financial information 27
Slide 28: Valuation summary
Valuation summary Capital Profit on Income Valuation Invt in Divt in Value Forex Valuation return disposal in the Valuation driver (£m) (Mar 09) year year movt. transl. (Mar 10) in year in year year • Final determination AWG 162.9 23.4 - (11.8) 19.1 - 193.6 0.9 8.8 • New business plan • Positive inf
Slide 29: Foreign exchange movement
Foreign exchange movement Impact of foreign exchange movements on portfolio value Year to 31 March 2010 (£m) Translation of asset £ / € (5.6) Translation of asset £ / $ (4.8) Foreign exchange losses on investments (10.4) Asset valuation $ / rupee 11.2 Hedging impact £ / € 4.5 Other foreign exchange
Slide 30: Fees and operating expenses
Fees and operating expenses (£m) 20 18.3 18.2 18 1.4 3.5 16 3.0 14 2.0 2.1 12 2.3 10 8 6 11.7 10.5 4 2 0 2009 2010 Advisory and performance fees Opex Deal costs Other 30
Slide 31: Total return
Total return (£m) Investment basis Investment basis Consolidated basis 31 March 2010 31 March 2009 31 March 2010 Realised profits 7.1 25.9 7.8 Unrealised profits 66.8 (13.7) 76.8 Foreign exchange gains / (losses) (10.4) 38.4 (1.1) Capital return 63.5 50.6 83.5 Portfolio income and interest 29.7 52.3
Slide 32: Balance sheet
Balance sheet (£m) As at As at Consolidated – 31 March 31 March As at 2010 2009 31 March 2010 Investment portfolio 648.1 536.7 926.5 Other net assets / (liabilities) (7.0) (7.4) (22.6) Cash and cash equivalents 313.7 386.8 314.0 Borrowings - - (169.6) Net assets 954.8 916.1 1,048.3 Shareholders’ equ
Slide 33: Macroeconomic drivers of performance
Macroeconomic drivers of performance Inflation Foreign exchange Asset exposure to inflation by value • Euro position 85% hedged 24% • Rupee position currently unhedged 42% • Hedging policy monitored by the Board 9% and Investment Adviser on an ongoing basis 25% Revenues directly linked to inflation
Slide 34: Refinancing requirement
Refinancing requirement Annual refinancing and new debt as a % of existing committed debt 83% • Very limited refinancing / new debt required in the short term • 83% of refinancing due post 2019 8% 6% 4% 4% 4% 1% 3% 2% 1% Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 Mar 17 Mar 18 Mar 19 Mar 19 + New deb
Slide 35: Total shareholder return
Total shareholder return Total shareholder return (31 March 2007 – 31 March 2010) 30% 23.2% 20% 10% 1.0% 0% -2.0% -10% -5.2% -20% -30% -30.0% -40% -44.7% -50% 3iN* FTSE 100 FTSE 250 FTSE 350 Gen Fin FTSE 350 Banks FTSE 350 Gas Water & Multi *3i Infrastructure TSR calculated using IPO price of 100 pe
Slide 36: Case studies
3i Infrastructure plc Case studies 36
Slide 37: Octagon
Octagon Investment rationale • Investment in a mature asset • Provides the Company with a stable, long- term income stream with RPI linkage Valuation drivers (£m) • RPI above forecast Cost 20.2 • Reprofiling of dividends Opening value 26.0 Closing value 28.8 Equity interest 36.8% Further investment
Slide 38: Alpha Schools
Alpha Schools Investment rationale • Investment in a portfolio of operational assets • Provides the Company with a stable, long-term revenue stream with RPIX linkage Valuation drivers (£m) • Operating cost savings Cost 9.1 • RPIX above forecast Opening value 12.0 Closing value 16.2 Equity interest 5
Slide 39: T2C
T2C Valuation drivers • Full provision taken against the asset, which is now valued at £nil reflecting delays in construction (£m) Cost 6.5 Opening value 7.3 Closing value 0£nil Equity interest 16.7% Further investment in the period - Income in the period - Asset total return (1) £(7.3)m (1) Include
Slide 40: About 3i Infrastructure plc
About 3i Infrastructure plc 40
Slide 41: Governance and fees
Governance and fees • Independent Chairman, four independent non-executive directors and 3i Group appointed non-executive director • Committed to observe requirements of the Combined Code Board of • Responsibilities: Directors – Acts as investment committee / approves investment opportunities – Resp
Slide 42: The market
The market Significant investment opportunities across all our regions UK & Europe North America Asia Well-established role for Potentially the world’s We have identified India private investors in largest infrastructure as the most attractive infrastructure market geography in Asia • Mature assets
Slide 43: Sector focus
Sector focus Asset intensive businesses that provide essential services Transport Utilities Social Infrastructure Airports Power generation Primary and secondary PFI Ports Power transmission Public Private Partnerships Ferries Electricity & gas distribution Government accommodation Toll roads Waste
Slide 44: Diversification of risk/return across asset life
Diversification of risk/return across asset life Early stage/construction Operational growth Mature/steady state Greenfield projects Buy & build portfolios Corporate acquisitions New build PFI/PPP Privatisations Steady state operations • Accessing the most • Optimising the • Focus on cash yield attr
Slide 45: Internationally connected
Internationally connected Europe London New York New Delhi Mumbai • Infrastructure Team operates from 4 offices in key markets • Access to a global network of 15 offices in 13 countries • Access to wider network of investment professionals 19 executives in London, New York, Mumbai and New Delhi worl
Slide 46: Senior members of the investment advisory team
Senior members of the investment advisory team Cressida Hogg Neil King Phil White Girish Baliga Samir Palod Stephen Halliwell Stuart Howard Anil Ahuja 46