3i Infrastructure PLC · LSE:3IN
3i Infrastructure — FY2011 Earnings Presentation
50 slides from 3i Infrastructure's earnings presentation, May 5, 2011
Slide 1: Results for the year to 31 March 2011
Results for the year to 31 March 2011 5 May 2011
Slide 2: Agenda
Agenda Chairman’s highlights Peter Sedgwick Chairman, 3i Infrastructure plc Financial review Stephen Halliwell CFO, Infrastructure, 3i Investments plc Portfolio and strategy update Cressida Hogg Managing Partner, Infrastructure, 3i Investments plc 2
Slide 3: Chairman's highlights
Chairman’s highlights Peter Sedgwick Chairman, 3i Infrastructure plc 3
Slide 4: Chairman's highlights
Chairman’s highlights ho lders • Steady NAV progression – 9.2% n to share 139.0 total return on shareholders’ equity etur ual is ed r 128.8 ann 9.9% 119.0 • Strong portfolio income generation - 110.6 £69.3m 100.0 • Total dividend per share of 5.72p, 5% of opening NAV • Renewed momentum in investment
Slide 5: Financial review
Financial review Stephen Halliwell CFO, Infrastructure, 3i Investments plc 5
Slide 6: Reconciliation of movements in NAV
Reconciliation of movements in NAV Total return of £85.5m, or 9.2% of shareholders’ equity Fully diluted, post dividend NAV: 117.4p per share £m 1,100 35.7 5.8 1,019.3 (4.3) 70.8 3.6 (23.2) 1,000 (20.3) (23.4) 972.7 928.0 900 800 Opening NAV Income Realised Unrealised Net foreign Costs, Warrant Pre-
Slide 7: Dividend cover
Dividend cover £m (20.3) £3.9m excess income 70.8 23.2 £46.6m total dividend 23.4 Portfolio and Costs, including Dividend for interest income advisory and 2010/11 performance fee Dividend and costs amply covered by strong income generation in the year 7
Slide 8: Our assets
Our assets Value at Value at 17 assets 31 March 2011 (£m) 31 March 2010 (£m) invested AWG 196 194 Eversholt 161 - £822m Oystercatcher 119 119 Junior debt portfolio portfolio value TDF 37 33 NGW Arqiva 32 30 £175m Thames Water Viridian (1) 21 - 17 43 cash balances 3i India Infrastructure Fund Adani P
Slide 9: Macroeconomic drivers and sensitivities
Macroeconomic drivers and sensitivities Discount rate Inflation Foreign exchange 9
Slide 10: Weighted average discount rate
Weighted average discount rate 25% • Weighted average has increased 21.2% due to acquisition of Eversholt and new assets in 3i IIF 20% • Underlying discount rates unchanged, with two exceptions: – Krishnapatnam Port now fully operational 15% – Some projects in Soma Enterprise have progressed through
Slide 11: Inflation and forex exposure at March 2011
Inflation and forex exposure at 31 March 2011 Inflation(1) Foreign exchange N/A Rupee 15% 16% Revenues linked to inflation 37% € euro Not linked to £ sterling 20% inflation 64% 28% Partly linked to inflation 20% • 57% of portfolio benefits from inflation linkage • 36% of portfolio value in non-sterl
Slide 12: Portfolio cash generation
Portfolio cash generation £m 1200 997 900 804 111 600 822 693 143 300 273 Profit (146) (36) 175 0 (863) -300 Net IPO and Investment Proceeds from Cash income Dividends paid Other net Cash and placing and disposals cashflow portfolio at 31 open offer March 2011 proceeds Strong cash generation from th
Slide 13: Historic returns and KPIs
Historic returns and KPIs KPIs Total return 12% net, when fully invested Dividend 5% of opening NAV 26.7% 19% 17.4% annualised asset IRR since inception 15.4% 13.1% 13.5% 10% 9.3% 9.2% 8.8% average total return 5.0% 5.2% 5.0% 5.0% 5% dividend yield 2008 2009 2010 2011 Asset return Total return Divid
Slide 14: Portfolio and strategy update
Portfolio and strategy update Cressida Hogg Managing Partner, Infrastructure, 3i Investments plc 14
Slide 15: Themes for infrastructure investment
Themes for infrastructure investment Non-core • Corporates and financial institutions still reducing leverage 1 disposals • Resources redeployed on core activities Public sector • Private sector investment in infrastructure increasing through 2 budget – privatisations – PFI / PPP-style transactions
Slide 16: Conditions for investment
Conditions for investment • Deal volumes up due to • Low transaction volumes in some increased confidence geographies • Debt remains available at • Macro uncertainty relatively attractive terms • Outlook for inflation and interest • Demand for capital market debt rates issued by infrastructure compa
Slide 17: Investment approach
Investment approach 1 2 3 Rigorous approach Best-in-class portfolio Investing for long-term to investment management value creation • Proprietary knowledge • Active involvement with • Active involvement with and networks in target portfolio companies to portfolio companies to sectors / geographies d
Slide 18: Consistent investment strategy
Consistent investment strategy 1 Rigorous approach to investment Social infrastructure / “Core” infrastructure “Hybrid” infrastructure PPP / PFI Returns 8-12% 10-16% >15% • High inflation • Low volume / market / • Higher risk correlation GDP risk characteristics • Mainly government- • Quasi monopoli
Slide 19: Consistent investment strategy (cont.)
Consistent investment strategy (cont.) 1 Rigorous approach to investment Social infrastructure / “Core” infrastructure “Hybrid” infrastructure PPP / PFI Returns 8-12% 10-16% >15% £566m Value at 31 March 2011 £121m £135m PFI Core Hybrid Yield Capital growth Portfolio weighted towards mature “core” as
Slide 20: Consistent investment strategy - India
Consistent investment strategy - India 1 Rigorous approach to investment • Two new investments in the power sector (GVK Energy, Ind-Barath Utkal) – attractive due to enduring power deficit • One new investment in the roads sector (KMC Roads) – attractive due to government focus on relieving congesti
Slide 21: Consistent investment strategy - Eversholt
Consistent investment strategy - Eversholt 1 2 Rigorous approach Best-in-class portfolio to investment management • Consistent with strategy of building a portfolio weighted towards “core” infrastructure • Market access and execution skills key to success of the deal: – Early exclusivity / strong pa
Slide 22: Drive income from portfolio assets
Drive income from portfolio assets 2 Best-in-class portfolio management Portfolio asset returns through holding period (£m) 19% annualised asset IRR since inception Driving income from the portfolio, realising profits selectively 22
Slide 23: Drive capital growth - Oystercatcher
Drive capital growth - Oystercatcher 3 Investing for long-term value creation • Since 3iN first invested, the three terminals increased total capacity by 12% and throughput by 25% • Projects include: – Singapore – 160,000 m3 expansion project to accommodate demand from adjacent refineries and petroc
Slide 24: Investment and divestment activity in the year
Investment and divestment activity in the year £m 35 31 (1) 822 151 (43) (21) (32) 648 Activity since the year end Opening Eversholt India Fund Viridian Value Closing Thames NGW Arqiva portfolio value investments movement, net portfolio value Water at 31 March of foreign at 31 March 2010 exchange lo
Slide 25: Summary for the year
Summary for the year Strong portfolio performance, delivering – Steady NAV progression – Strong income – Solid track record of asset returns and of returns to shareholders Transformational activity in the year – New investment in Eversholt Rail Group - a “core” infrastructure asset, immediately accr
Slide 26: Case studies
3i Infrastructure plc Case studies
Slide 27: Anglian Water Group
Anglian Water Group Investment rationale • Regulated near-monopoly position in its geographical area for provision of water supply and wastewater treatment • Stable and predictable earnings through RPI-linked tariffs • Largely predictable operating costs Valuation drivers • Strong income generation
Slide 28: Eversholt Rail Group
Eversholt Rail Group Investment rationale • Mature, profitable transport asset with stable contracted revenues and a strong market position • Positive fundamentals, with new rolling stock procurement restricted by budgetary constraints and fleets fully leased out Valuation drivers • Reduction of int
Slide 29: Oystercatcher
Oystercatcher Investment rationale • Long-term demand for oil storage capacity, coupled with shortage of competing supply and low customer turnover • Strong market position in key trading hubs • Defensive position, reliable cash flows Valuation drivers • Performance in line or ahead of expectations
Slide 30: 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 • Mark-to-market valuation of underlying tranches up 12.1% in the year • Yield on portfolio runnin
Slide 31: 3i India Infrastructure Fund
3i India Infrastructure Fund Investment rationale • Favourable macro outlook in India • Infrastructure deficit provides opportunity for private investment • Fund investment at no additional cost to the Company Valuation drivers • Assets performing well, according to plan (£m) Cost 93.8 • Mark-to-mar
Slide 32: Elgin
Elgin Investment rationale • Lower risk, index-linked cash flows • Fully operational portfolio • Strong partner in Robertson Valuation drivers • Stable operational performance (£m) Cost 38.5 • Impact of higher inflation • Income received in the period Opening value 38.7 Closing value 40.2 Other deve
Slide 33: Octagon
Octagon Investment rationale • Investment in a mature asset • Provides the Company with a stable, long-term income stream with RPI linkage Valuation drivers • Stable operational performance (£m) • Impact of higher inflation Cost 20.2 • Income received in the period Opening value 28.8 Closing value 3
Slide 34: Alpha Schools
Alpha Schools Investment rationale • 11 fully operational school projects • Provides the Company with a stable, long-term revenue stream with RPIX linkage Valuation drivers • Stable operational performance (£m) Cost 9.1 • Impact of higher inflation • Income received in the period Opening value 16.2
Slide 35: T2C
T2C Valuation drivers • Full provision taken against the asset in March 2010, which remains valued at nil reflecting delays in construction • Significant progress achieved in construction and commissioning of the plant • All three lines have achieved first fire in the year – plant progressing toward
Slide 36: UK rail industry structure
UK rail industry structure Network Grant Department for Direct Agreements Transport Railways Act Undertakings: • Section 30 - Guarantee of Operation • Section 54 - Guarantee of Franchise Funding Rolling Stock Re-lease Terms Agreements Track Access Rolling Stock Agreements Train Operating Leases Netw
Slide 37: Additional financial information
Additional financial information 37
Slide 38: Valuation summary
Valuation summary Asset Foreign Income Valuation Invt in Divt in Value Valuation Profit on total (£m) exchange in the 31/3/10 the year the year movt 31/3/11 disposal return in movt year(1) the year AWG 193.6 2.3 195.9 27.0 29.3 Eversholt - 151.1 9.6 160.7 6.5 16.1 3i India Infrastructure Fund 97.9 3
Slide 39: Foreign exchange movement
Foreign exchange movement Impact of foreign exchange movements on portfolio value (£m) Year to 31 March 2011 Translation of asset £ / € (1.3) Translation of asset £ / US$ (5.9) Foreign exchange losses on investments (7.2) Asset valuation US$ / rupee 0.8 Movement in the fair value of derivative finan
Slide 40: Costs
Costs (£m) 25 21.6 20 18.2 2.5 1.3 1.4 2.4 15 3.0 2.1 10 15.4 11.7 5 0 2010 2011 Advisory and performance fees Opex Deal costs Other 40
Slide 41: Total return for the year to March 2011
Total return for the year to 31 March 2011 (£m) Investment basis Investment basis Consolidated basis 31 March 2011 31 March 2010 31 March 2011 Realised profits 3.6 7.1 3.6 Unrealised profits 36.5 66.8 31.8 Foreign exchange losses (7.2) (10.4) (0.3) Capital return 32.9 63.5 35.1 Portfolio income 69.3
Slide 42: Balance sheet
Balance sheet (£m) Investment basis Investment basis Consolidated basis As at As at As at 31 March 2011 31 March 2010 31 March 2011 Investment portfolio 821.7 648.1 1,093.3 Other net assets/(liabilities) (0.2) (7.0) (9.7) Cash and cash equivalents 174.6 313.7 176.3 Borrowings - - (167.9) Net assets
Slide 43: Refinancing requirement at March 2011
Refinancing requirement at 31 March 2011 Annual refinancing and new debt as a % of existing committed debt New debt raised Refinancing requirement 87% • Very limited refinancing / new debt required in the short term • 87% of existing committed debt due post 2020 8% 5% 6% 4% 3% 1% 2% 1% 2% Mar 20 + M
Slide 44: Asset diversification
Asset diversification By geography By sector By maturity Social Early stage Asia 9% Infrastructure 16% Operational 15% growth 7% Utilities Continental 43% Europe 20% UK 64% Transportation 42% Mature 84% 44
Slide 45: Total shareholder return
Total shareholder return Total shareholder return (31 March 2007 – 31 March 2011) 40.0% 16.8% 10.7% 12.5% -13.7% -49.7% 3iN* FTSE 100 FTSE 250 FTSE 350 General FTSE 350 Banks FTSE 350 Gas, Financials Water and Multiutilities *3i Infrastructure TSR calculated using IPO price of 100 pence per share No
Slide 46: About 3i Infrastructure plc
About 3i Infrastructure plc 46
Slide 47: Governance and fees
Governance and fees • Independent Chairman, five independent non-executive directors and one 3i Group appointed non-executive director • Committed to observe requirements of the UK Corporate Governance Code Board of • Responsibilities: Directors – Acts as investment committee / approves investment o
Slide 48: 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 49: Internationally connected
Internationally connected Europe London New Delhi Mumbai • Infrastructure Team operates from 3 offices in key markets • Access to a global network based in 13 countries • Access to wider network of investment professionals Executives based in London, Mumbai and New Delhi worldwide 49
Slide 50: 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 Anil Ahuja Deepak Bagla 50