3i Infrastructure Regulatory News (3IN)

3 November 2011

Results for the six months to 30 September 2011

Stable performance

(1) The investment basis accounts for majority investments and subsidiaries formed specifically for investment purposes in the same way as minority investments and does not consolidate these entities as required by International Financial Reporting Standards ("IFRS").

(2) For the consolidated IFRS basis, the total return in this measure is the total comprehensive income attributable to equity holders of the parent and does not include minority interests. The gross consolidated total return for the six months to 30 September 2011 was £20.3 million (September 2010: £38.3 million).

(3) Average shareholders' equity is defined as the time-weighted average of (i) opening shareholders' funds, less the final prior-year dividend paid and (ii) the equity proceeds raised through the conversion of warrants.

Commentary

·; Stable net asset value, with a total return of £15.9 million, or 1.6% on shareholders' equity

·; Strong portfolio income generation of £36.8 million, which covers the interim dividend

·; Resilient underlying asset performance, with a 3.5% growth in EBITDA of underlying operational equity investments over the prior corresponding six-month period

·; Realised proceeds in the period of £91.2 million, including £55.5 million from well timed realisations in the junior debt portfolio

Peter Sedgwick, Chairman of 3i Infrastructure plc, said: "In an increasingly uncertain market, the Investment Adviser's market access and solid investment track record represent an important competitive advantage. We are confident that we can invest the remaining cash balances prudently, not compromising the quality of the Company's portfolio."

Cressida Hogg, Managing Partner, Infrastructure, 3i Investments plc, added: "We have remained disciplined investors in the period, realising assets in difficult markets. We are focused on executing ongoing transactions, and are well positioned to take advantage of opportunities, with our strong track record and the Company's available cash balances."

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Notes to editors

3i Infrastructure plc is a Jersey-incorporated, closed-ended investment company that invests in infrastructure businesses and assets and is regulated by the Jersey Financial Services Commission. The Company is building a diversified portfolio of infrastructure investments across the globe, with a focus on Europe and India. As of 30 September 2011, 3i Infrastructure had a portfolio of 15 assets valued at £716 million, and net assets of £1,030 million. The Company listed on the London Stock Exchange in March 2007, raising £703 million in an initial public offering and a further £115 million in a subsequent placing and open offer in July 2008, and is a constituent of the FTSE 250 index.

3i Investments plc, a wholly-owned subsidiary of 3i Group plc, is authorised and regulated in the UK by the Financial Services Authority and acts as Investment Adviser to 3i Infrastructure plc.

This press release is not for distribution (directly or indirectly) in or to the United States, Canada, Australia or Japan and is not an offer of securities for sale in or into the United States, Canada, Australia or Japan. Securities may not be offered or sold in the United States absent registration under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or an exemption from registration under the Securities Act. Any public offering to be made in the United States will be made by means of a prospectus that may be obtained from the issuer or selling security holder and will contain detailed information about 3i Group plc, 3i Infrastructure plc, 3i India Infrastructure Fund and management, as applicable, as well as financial statements. No public offering in the United States is currently contemplated.

This report of 3i Infrastructure plc for the six months to 30 September 2011 has been drawn up in reliance upon applicable English and Jersey law and the liabilities of the Company in connection with this report shall be subject to the limitations and restrictions provided by such law. This report may contain certain statements about the future outlook for 3i Infrastructure plc. Although the Company believes its expectations are based on reasonable assumptions, any statements about the future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.

Chairman's statement

3i Infrastructure plc ("3i Infrastructure" or "the Company") delivered steady growth in net asset value during the six months to 30 September 2011, supported by the resilient operational and financial performance of the portfolio assets. Importantly, the portfolio also generated strong income for the Company during the period, which more than covers the interim dividend, as well as the operating and financing costs incurred in the six months.

Performance

Total comprehensive income attributable to the equity holders of the parent, on a consolidated basis, as well as on the investment basis, which the Board also uses to monitor investment performance, was £15.9 million, or 1.6% on opening shareholders' equity. This return was underpinned by the strong income generated from portfolio assets, totalling £36.8 million in the period, which was indicative of their resilient operational performance. However, stable valuations for most of the portfolio assets were offset by mark-to-market declines in the valuation of Adani Power, held through the 3i India Infrastructure Fund, and Télédiffusion de France (in line with broader market declines in their respective sectors and asset classes), as well as by foreign exchange losses on the investments in the 3i India Infrastructure Fund.

Dividend

Based on the good levels of income generated from the portfolio, the Board proposes an interim dividend of 2.97 pence per share (September 2010: 2.86 pence per share), which represents a 2.5% return on shareholders' equity, in line with the Company's objective of paying an annual dividend of 5% on shareholders' equity.

Activity in the period

3i Infrastructure generated realised proceeds of £91.2 million in the period, including £55.5 million from the sale of the NGW Arqiva junior debt holding and from the full repayment at par of the Thames Water junior debt holding. The junior debt portfolio divestments were well timed and protected the net asset value, as credit markets have, since then, suffered declines in light of increased macroeconomic uncertainty and broader market volatility. The strategy of divesting junior debt investments was continued since the period end, and in October the Company reached an agreement to sell the Télédiffusion de France debt holding, the only remaining asset in the junior debt portfolio.

The balance of the realisation proceeds of £35.7 million was generated from the repayment of a substantial part of the I2 vendor loan notes from Barclays Integrated Infrastructure Fund LP (which purchased I2 from the Company in 2009), and from the repayment of a small portion of the shareholder loan by Eversholt Rail Group. The latter repayment was made due to the stronger than expected performance of Eversholt, which generated sufficient cash from its operations to repay a portion of the shareholder loan, in addition to making its regular interest payments.

These realisations, combined with the strong income generated from the portfolio, resulted in a significant increase in the Company's cash balances. The Company, in addition, benefited from continued support from its shareholders through the conversion of 42.1 million warrants in the period. As a consequence, the Company's cash balances increased to £310.1 million on an investment basis at 30 September 2011, from £174.6 million at 31 March 2011.

Pipeline and outlook

Increased cash balances will allow the Company to take advantage of new opportunities in volatile markets. As outlined in more detail in the Investment Adviser's review, conditions for investment are challenging at present, but can offer interesting opportunities to experienced investors. With the market access and expertise provided by the Investment Adviser, we are well placed to take advantage of any positive evolution in market conditions.

The Investment Adviser is focusing on bringing the Thameslink transaction to a financial close, and is pursuing a number of attractive opportunities in a relatively broad range of sectors and geographies. We have also taken part in a number of competitive processes over the last few months, but have retained our prudent investment approach and pricing discipline.

Investment Adviser's review

About the Investment Adviser

3i Investments plc ("3i Investments"), a wholly-owned subsidiary of 3i Group plc ("3i Group"), acts as the investment adviser (the "Investment Adviser") to the Company through its infrastructure investment team (the "investment advisory team"). The investment advisory team provides advice to the Company on the origination and completion of new investments, on the realisation of investments and on funding requirements, as well as on the management of the investment portfolio. The investment advisory team is managed as a separate business line within 3i Group and operates from hubs in London and India.

3i Group was among the subscribers to 3i Infrastructure's Initial Public Offering and subsequent Placing and Open Offer and owns 35% of the equity in the Company. During the period, 3i Group reiterated that the Infrastructure business line, and its holding in 3i Infrastructure, are core to its business model and strategy and, in line with this, exercised all its 32.5 million warrants in 3i Infrastructure, increasing its holding by an equivalent number of shares.

Market and opportunities

Conditions for investment

There has been a significant increase in market volatility since August 2011, fuelled by concerns on European sovereign debt, the solvency of European banks and the availability of credit to the broader economy. Liquidity in the debt markets is declining, as banks reduce their lending and capital market debt becomes more expensive. This has resulted in a slow-down in M&A activity across the market, including in the infrastructure market.

However, a few relatively sizeable infrastructure transactions were completed over the last few months, including the sale of electricity networks in the UK and in Germany and the public-to-private acquisition of Northumbrian Water in the UK. Other significant processes are ongoing, such as the Thameslink procurement programme, for which 3i Infrastructure, in consortium with Siemens and Innisfree, was selected as preferred bidder. This activity is underpinned by the continued availability, for strong infrastructure assets, of bank and capital markets debt at relatively attractive terms.

We expect transaction volumes in the infrastructure market to remain subdued for the second half of the year, with activity focused in sectors where debt is more readily available. Nevertheless, we expect that processes that are already relatively well advanced, including for instance the Thameslink transaction, are likely to reach completion. We are working on bringing this transaction to a financial close, and as part of this process are putting together, with our consortium partners, a financing package. We have found that the bank market has been receptive and that debt should be available to finance the project in the right quantum and at sufficiently attractive terms.

Markets in India have also been volatile, and transaction activity has been slower, also due to the caution exercised by the government in approving new projects. The local banking market remains supportive of infrastructure development.

In addition to broader M&A and debt market considerations, the outlook for inflation and interest rates will also continue to be an important determinant of the conditions for investment in the future. While inflation is relatively high in most developed countries, we believe that in the short term this will have a limited impact on interest rates, as governments and monetary authorities try to stimulate growth.

The opportunity

The themes driving the investment pipeline are similar to those we highlighted at the publication of the Company's annual results. These include non-core disposals from corporates and financial institutions which are either deleveraging or refocusing on their core activities, privatisations or PFI/PPP-style opportunities emerging across many countries as a result of public sector budget constraints, or transactions in the secondary market, as infrastructure funds nearing the end of their investment period look to sell or refinance assets to prove valuation points.

As market conditions evolve, new opportunities for investment may emerge, as a consequence of market dislocation in certain asset classes, or of policy responses to the current challenges, such as the use of infrastructure spending or of incentives for "green" investment as a tool for economic stimulus. We remain alert to these opportunities and have the resources to execute them promptly, with the Company's available cash balances and financial flexibility. The investments in the junior debt portfolio in 2008 are a good example of our ability to purchase assets opportunistically. At that time, the Company was able to exploit the dislocation in credit markets to invest in infrastructure junior debt at prices below par. This has proven to be a successful investment for 3i Infrastructure. The junior debt portfolio, now fully realised, has generated an overall IRR of 11.6%, confirming our investment case.

The competitive environment

Competition for infrastructure assets is increasing. Significant funds have been raised over the last few years and some investors, including sovereign wealth funds and large pension funds, have begun to invest directly in infrastructure assets. Corporate buyers have also been very active in the market over the last few years, as many restructure and refocus their businesses. This has resulted in greater pricing pressure for infrastructure assets, in particular at the lower end of the risk-return spectrum.

Outlook

Infrastructure investments are long term in nature and returns from infrastructure, although lower than for some other asset classes, are stable and delivered over long periods of time. The Investment Adviser's solid track record of completing complex transactions and working alongside strong operating partners and other investors, as well as its broad network of relationships with the banks and the broader capital markets, means that 3i Infrastructure is well placed to access the best deal flow, and to manage the portfolio to deliver on its return objectives when fully invested, even against a backdrop of increasingly volatile markets.

Portfolio

Table 1 below summarises the valuation and movements in the portfolio for the six months to 30 September 2011, as well as the return per asset. Tables 2, 3 and 4 below illustrate the breakdown of the portfolio by geography, sector and maturity at 30 September 2011. Table 5 illustrates the distribution of the portfolio in the risk/return framework presented at the Annual results.

Table 2

Asset portfolio by geography

Table 3

Asset portfolio by sector

Table 4

Asset portfolio by maturity

Table 5

Risk/return spectrum and asset distribution value at 30 September 2011

Movements in portfolio value

As set out in Table 6, the value of 3i Infrastructure's portfolio decreased from £821.7 million at 31 March 2011 to £715.8 million at 30 September 2011. The change in portfolio value was driven mainly by divestment of £89.1 million and an unrealised value loss of £18.1 million.

(1) Includes a £12.4 million negative impact from US$/rupee exchange movements.

Divestment

The Company generated realisation proceeds of £91.2 million in the period from 1 April 2011 to 30 September 2011 (September 2010: nil), including profits over the carrying value of £2.1 million.

A significant proportion of these proceeds (£55.5 million) was generated from the exits from two of the three holdings in the junior debt portfolio, NGW Arqiva and Thames Water. These exits were profitable and provided some protection for the Company's NAV in light of the decline in junior debt market prices in the subsequent months.

In April 2011 the Thames Water junior debt tranche was repaid before its full term by the borrower, generating proceeds of £21.3 million. This represented an uplift over the value at 31 March 2011 of £0.2 million. The NGW Arqiva junior debt tranche was also sold in April 2011 for £34.2 million, generating a profit over the value at 31 March 2011 of £1.9 million.

In addition to the junior debt exits, in August 2011 Barclays Integrated Infrastructure Fund LP made a partial repayment of the Company's holding of I2 vendor loan notes, generating proceeds of £26.4 million. The balance of the loan notes of £5.8 million remains due to 3i Infrastructure, and will continue to earn a fixed 8% annual interest rate.

The balance of realisation proceeds of £9.3 million was attributable to a partial repayment, in August, of the shareholder loan by Eversholt Rail Group ("Eversholt"). The structure of the investment in Eversholt includes both equity and shareholder loans. Eversholt is performing well and generating strong operating cash flows, and as a result was able to repay a small portion of the shareholder loan in addition to making its regular interest income payments.

Unrealised value movement

As shown in Table 1, the valuation of most of the portfolio assets remained relatively stable, supported by resilient underlying operational and financial performance. Eversholt, in particular, has continued to perform well since our investment and has generated strong operating cash flows, driving value growth.

The assets with revenues and value most linked to inflation, including AWG and the PFI portfolio, also benefited from an increase in inflation during the period. However, the positive valuation effect of good operational performance and inflation was, for assets valued on a discounted cash flow basis, impacted by the downward adjustment to value from the high levels of income distributed to the Company in the period.

The portfolio as a whole generated an unrealised value loss of £18.1 million (September 2010: £10.5 million gain) driven by declines in the valuation of the assets in the portfolio valued on a mark-to-market basis, namely the holding in Adani Power Limited, held through the 3i India Infrastructure Fund (the "Fund"), and the holding in Télédiffusion de France junior debt.

The mark-to-market valuation of the holding in Adani Power declined in the period, from £53.0 million at 31 March 2011 to £37.8 million at 30 September 2011, reflecting falls in the Indian equity markets and the quoted power sector, as well as a significant depreciation of the rupee against sterling.

The value of the holding in Télédiffusion de France junior debt also declined in the period, from £36.8 million at 31 March 2011, to £30.0 million at 30 September 2011, reflecting declines in junior debt market pricing over the last few months.

Foreign exchange impact

Foreign exchange rates were volatile throughout the period. As set out in Table 7, movements in foreign exchange generated net losses of £8.8 million on non-sterling assets (September 2010: £4.3 million loss).

Sterling appreciated by 6% against the Indian rupee in the six months, resulting in foreign exchange losses of £8.1 million for the Company, as its exposure to the Indian rupee through the 3i India Infrastructure Fund remains unhedged. The Board monitors the rupee exposure on a regular basis. The foreign exchange losses suffered within the US$ denominated 3i India Infrastructure fund of £12.4 million had a significant impact on the valuation of the Fund and on overall returns in the period.

During the period, sterling also appreciated by 2% against the euro, but the resulting losses were offset in large part by foreign exchange hedging entered into to provide some mitigation from movements in the sterling/euro exchange rate.

(1) Contained within Unrealised (losses)/profits on revaluation of investments in Table 9.

Underlying asset performance

The fully operational assets in which the Company holds an equity stake delivered a stable performance in the period. Earnings before interest, tax, depreciation and amortisation ("EBITDA") for these assets increased by 3.5% on a like-for-like basis relative to the prior comparable six-month period.

This figure is calculated on a weighted average basis and the assets included in this analysis are those that have been operational for one year or more: AWG, Eversholt, Oystercatcher, Elgin (underlying project companies), Octagon and Alpha Schools and, within the 3i India Infrastructure Fund, Adani Power, Soma Enterprise and Krishnapatnam Port.

Specifically, Eversholt saw an EBITDA increase of 9.5% over the prior comparable six-month period, while AWG and Oystercatcher saw a 1.0% and 4.3% decrease in EBITDA respectively. However, the EBITDA of AWG's core regulated water business, Anglian Water, was up 3.4% period on period. The decline in AWG's overall EBITDA was driven mainly by the weaker performance of Morrison Facilities Services, one of its non-core subsidiaries, due to challenging trading conditions in the social housing sector. The performance of the Oystercatcher companies, while ahead of expectations and robust in a difficult market context for oil traders, was lower compared to an exceptionally strong period last year.

The stable returns from the portfolio assets, achieved after three years of substantial improvements in operational performance, are evidence of the robustness of infrastructure as an asset class in volatile markets.

In India, the growth rates in earnings are considerably higher compared to the European portfolio, as the 3i India Infrastructure Fund's early stage investments build up their capabilities. In aggregate, the EBITDA of the operational assets held in the 3i India Infrastructure Fund (Adani Power, Soma Enterprise and Krishnapatnam Port) increased by 23.8% over the prior comparable six-month period.

Importantly, 81% of the operational portfolio assets by value is performing ahead of expectations.

Summary of valuation methodology

Investment valuations are calculated at the half year and at the financial year end by the Investment Adviser and then reviewed and approved by the Board. Investments are reported at the Directors' estimate of fair value at the reporting date. The valuation principles used are based on International Private Equity and Venture Capital valuation guidelines, generally using a discounted cash flow ("DCF") methodology (except where a market quote is available), which the Board considers to be the most appropriate valuation methodology for unquoted infrastructure equity investments.

Where the DCF methodology is used, the resulting valuation is checked against other valuation benchmarks relevant to the particular investment, including for example:

- earnings multiples

- recent transactions

- quoted market comparables

- regulated asset base multiples

Discounted cash flow and discount rates

Around 88% of the portfolio was valued on a DCF basis at 30 September 2011. The weighted average discount rate applied at that date was 13.1% (September 2010: 12.5%), deriving from a range of 8.2% (an operational PFI asset) and 19.0% (a project within the 3i India Infrastructure Fund).

Table 8 shows the movement in the weighted average discount rate applied to the portfolio in each six-month period since inception.

The discount rate applied to each investment is reviewed at each valuation date. The rate selected reflects the risk inherent in the business, taking into account sustained movements in the "risk-free" rates of return in the relevant country and appropriate risk premia.

Risk-free rates (equating to 10/30-year government bond yields) have declined over the past six months, most notably in the period since June 2011. In light of current market conditions, and particularly in light of increasing uncertainty across debt markets, reflected in our assessment of risk premia and of current market pricing, most of the discount rates used to value the assets since the last valuation at 31 March 2011 are unchanged. The exceptions to this include:(i) a small reduction in the discount rate applied in the valuation of Alpha Schools, which now has a proven track record of stable operational performance; and (ii) the discount rate applied in the valuation of Ind Barath Utkal, an asset held by the 3i India Infrastructure Fund, following a review of the progress made since investment in March 2011.

3i India Infrastructure Fund

The Company's investment in the 3i India Infrastructure Fund was valued as the Company's share of net assets held by the Fund. Within the Fund valuation, Adani Power, which has been a listed company since August 2009, was valued on a mark-to-market basis using closing bid prices. All other assets were valued on a DCF basis, with the exception of Soma Enterprise's valuation, which was calculated using earnings multiples and a recent benchmark from the sale of a holding in Soma's BOT portfolio to a new shareholder, described in more detail in the Review of investments section.

Télédiffusion de France

The Company's investment in Télédiffusion de France junior debt was valued using closing bid prices at 30 September 2011 provided by third party brokers, which reflected increased volatility in the credit markets during the period.

Activity since the period end

In October, the Company contracted to sell the entirety of its holding in Télédiffusion de France junior debt, for an amount equivalent to the carrying value at the end of September. The investment in Télédiffusion de France has generated an IRR of 14.9% throughout the holding period.

Overall, the investments in the junior debt portfolio, which are now fully realised, have generated an aggregate IRR of 11.6% and have proven that the Company can take advantage of its financial flexibility and of the experience and track record of the Investment Adviser to execute quickly on new opportunities that can emerge in challenging markets.

Returns

Key performance indicators

Returns

The commentary in this section analyses the key drivers of the Company's returns according to the investment basis of preparation, as shown in Table 9. The basis of preparation for the investment basis is shown in the Basis of preparation section, along with an analysis of the key differences in accounting treatment to information prepared in accordance with IFRS.

3i Infrastructure generated a total return for the six months to 30 September 2011 of £15.9 million, representing a 1.6% return on average shareholders' equity (September 2010: £31.1 million, 3.4%). The return was driven principally by strong income generation (including interest receivable) of £37.6 million and by the resilient operational performance of the assets in the portfolio, but was impacted negatively by mark-to-market losses on the quoted elements of the portfolio and by foreign exchange losses.

(1) Foreign exchange losses described fully in Table 7.

Capital return

Realised capital return

There was a realised capital return of £2.1 million (September 2010: nil) generated from the divestment of the Company's holding in NGW Arqiva junior debt and from the redemption of the holding in Thames Water junior debt. The repayment of substantially all the residual I2 vendor loan notes and the repayment of a small portion of the shareholder loan to Eversholt was made at carrying value and generated no realised profits. Each of these transactions are described in more detail in the Movements in portfolio value section.

Unrealised capital loss

The valuation of most of the assets in the portfolio was stable during the period, supported by their resilient operational performance and, in some cases, by relatively high inflation, but was impacted by good levels of income distributions. However, as shown in Table 10, the portfolio overall generated an unrealised capital loss (excluding foreign exchange losses) of £5.7 million (September 2010: £10.6 million gain), driven by the mark-to-market losses on Adani Power and Télédiffusion de France. This is explained in more detail in the Movements in portfolio value section.

Foreign exchange impact

As shown in Table 7, net foreign exchange losses totalled £8.8 million in the period (September 2010: £4.3 million loss). This was principally due to the sterling / rupee foreign exchange rate volatility, as gains of £4.3 million on the sterling / US dollar translation were more than offset by losses of £12.4 million on the US dollar / rupee translation. Losses of £3.6 million from the euro exposure were significantly offset by the impact of the euro hedging programme.

Investment return

Portfolio income

The portfolio generated strong income of £36.8 million in the six-month period (September 2010: £31.7 million). Substantially all of this income was received in cash, benefiting in particular from considerable payments from Eversholt.

Dividends from portfolio assets totalled £19.4 million (September 2010: £22.3 million), driven in large part by substantial dividends received from AWG and Oystercatcher.

AWG paid a dividend of £10.3 million in the six months to 30 September 2011, compared to £11.3 million in the six months to 30 September 2010. The September 2010 dividend benefited from an increase following two years of restraint due to low RPI and uncertainty preceding the outcome of the review for the 2010-2015 period. AWG is focusing on implementing its regulatory settlement and will, as before, maintain its discipline of distributing free cash to shareholders.

Oystercatcher paid a dividend to the Company of £7.9 million for the six months to 30 September 2011, compared to £9.3 million for the same period last year. While the operating performance of the three Oiltanking terminals is good and the dividends received by Oystercatcher from the underlying operating companies during the period increased, a proportion of those dividends has been retained by Oystercatcher in view of the anticipated costs of the refinancing of its debt, expected to take place before maturity in 2014.

Interest income receivable from the portfolio totalled £17.4 million (September 2010: £9.4 million). The increase compared to the first six months of last year was due almost entirely to the acquisition of Eversholt Rail Group, which contributed interest income of £10.4 million in the period. Due to the structure of the investment in Eversholt Rail Group, the income from this asset is received as interest on shareholder loans, rather than dividend income on equity investments.

Fees payable for transaction costs in relation to deals which did not reach, or have yet to reach final completion totalled £0.7 million (September 2010: £1.2 million).

Interest receivable

Interest income from cash and cash equivalents totalled £0.8 million (September 2010:£0.8 million). The Company's cash balances generated interest at an average rate of 0.6% in the period to 30 September 2011 (September 2010: 0.5%).

Advisory fees, performance fees and other operating and finance costs

During the six months to 30 September 2011, the Company incurred advisory fees of £6.2 million (September 2010: £5.0 million). No performance fees were accrued relating to this period. The advisory fee, payable to 3i plc, is calculated as 1.5% of the Gross Investment Value, which is based on the opening portfolio value and the cost of any new investments made during the period. For a more detailed explanation of how fees are calculated, please refer to Note 9.

Operating expenses, comprising Directors' fees, service provider costs and other professional fees, totalled £1.1 million in the period (September 2010: £1.0 million).

Finance costs of £1.4 million (September 2010: £0.7 million) comprise the arrangement and commitment fees for the Company's £200 million revolving credit facility, with the increase attributable to the agreement of the new facility in November 2010.

Movements in the fair value of derivatives of £2.9 million (September 2010: £3.9 million) represent the fair value movements of the euro hedging programme, and included a £1.2 million gain on the settlement of derivatives at their maturity.

Balance sheet

At 30 September 2011, the Company's net assets totalled £1,029.7 million, or £1,004.2 million after the deduction of the interim dividend (September 2010: £959.7 million), comprising the asset portfolio, valued at £715.8 million (September 2010: 651.1 million), cash and cash equivalents of £310.1 million (September 2010: £307.8 million), other current assets of £8.8 million (September 2010: £7.7 million), primarily relating to accrued income from portfolio investments and prepayments, and liabilities of £5.0 million relating to accrued operating and financing costs, as well as the fair value of derivative hedging contracts. A summary balance sheet is included in Table 11.

There were no external borrowings on a recourse basis to the Company.

Cash on deposit was managed actively by the Investment Adviser, including regular reviews of counterparties and their limits, and is principally held in AAA rated money market funds, as well as in short-term bank deposits.

At 30 September 2011, and at the time of reporting, the £200 million revolving credit facility held by the Company had not been drawn.

Net asset value per share

The total NAV per share at 30 September 2011 was 119.9p (September 2010: 118.2p). This reduces to 116.9p after the payment of the proposed interim dividend of 2.97p. The diluted net asset value per share, adjusted for the 22.6 million warrants outstanding, was 119.4p (September 2010: 116.8p), which reduces to 116.4p after the payment of the interim dividend.

During the period, 42.1 million warrants were converted, increasing the number of shares in issue from 816.9 million to 859.0 million. The warrants are due to expire on 13 March 2012. The diluted NAV per share reported above incorporates the effect of all warrants outstanding being exercised.

Risks and uncertainties

The main elements of 3i Infrastructure's risk management framework, together with a detailed description of the principal risks and uncertainties faced by the Company, as well as its approach to risk mitigation, are set out in the Returns and Risk section of the3i Infrastructure annual report.

The following provides a description of the main inherent risks and uncertainties that are likely to impact the Company in the second half of the financial year:

External risks - arising from external factors including political, legal, regulatory, economic and competitor changes which affect the Company's operations.

Investment risks - in respect of specific asset investment decisions, the subsequent performance of an investment or exposure concentrations across the portfolio.

Financial risks - in relation to changes in market prices and rates, access to capital markets for the refinancing of individual investments, and the appropriate capital structure for investments.

Strategic risks - arising from the analysis, design and implementation of the Company's business model and key decisions on investment growth rates and financing.

Operational risks - arising from inadequate or failed processes, people and systems, or from external factors affecting these.

The Company reviews the effectiveness of its risk management framework and activities on an ongoing basis, and monitors the management of risks within its portfolio companies. This half-yearly report makes reference to the evolution and management of key risks, and related results and outcomes, which should be viewed in the context of the risk management framework and principal inherent risk factors.

Basis of preparation

Throughout the Investment Adviser's review, the Returns and Review of investments sections, the Investment Adviser has presented the Company's net asset value and financial results to show the return on a pro forma investment basis. This information is in addition to the consolidated financial statements, as required under International Financial Reporting Standards ("IFRS"). The pro forma investment basis presentation provides an alternative representation of the Company's net asset value, shows the Company's cash utilisation for investment and differentiates between non-recourse borrowings held within asset specific acquisition companies and borrowings which may be made at the Company level. The investment basis accounts for majority investments and subsidiaries formed specifically for investment purposes in the same way as minority investments, by determining a fair value for the investment, and therefore does not consolidate these entities line-by-line as is required under IFRS.

Several adjustments were made in order to show returns on an investment basis, the main adjustments being:

3i Infrastructure holds 68.5% of 3i Osprey LP, the vehicle through which it holds its investment in AWG. The remaining 31.5% of this entity is held by 3i Group and other third parties. 3i Infrastructure is required under IFRS to consolidate the results and balance sheet of this limited partnership into its financial statements on a line-by-line basis. In the investment basis presentation, 3i Infrastructure has recognised only its share of the income and balance sheet of 3i Osprey LP. This adjustment has the effect of eliminating the minority interest entitlement shown on the statement of comprehensive income and the balance sheet on an IFRS basis.

One subsidiary of the Company, 3i Primary Infrastructure 2005-06 LP, which holds the investment in Alpha Schools, has investing partners which are entitled to a 3.75% share of profits, once certain cash hurdle criteria are met. Amounts due to this limited partnership are treated as a minority interest on a consolidated basis but are accrued as an expense in the investment basis.

3i Infrastructure holds two wholly-owned subsidiaries, Oystercatcher Luxco 1 S.àr.l. and Oystercatcher Luxco 2 S.àr.l., ("Oystercatcher Luxco 1" and "Oystercatcher") to fund the minority investment into three subsidiaries of Oiltanking GmbH. External borrowings were made by Oystercatcher to partly fund the investments. These borrowings are non-recourse to 3i Infrastructure. Under IFRS, the results and balance sheet of the Oystercatcher Luxco 1 and Oystercatcher subsidiaries are required to be consolidated into 3i Infrastructure's financial statements on a line-by-line basis. In the investment basis presentation Oystercatcher is not consolidated but is accounted for as a portfolio asset held for investment purposes and is fair valued accordingly.

The Company invests in 3i India Infrastructure Holdings Limited through 3i India Infrastructure Fund A LP, a limited partnership in which the Company is the sole investor. This limited partnership has not been consolidated under the investment basis and is treated as an investment, and is fair valued accordingly.

Review of investments

Anglian Water Group

The value on an IFRS basis is £282.6 million.

Description

Anglian Water Group Limited ("AWG") is the parent company of Anglian Water, the fourth largest water supply and wastewater company in England and Wales as measured by regulatory capital value. The majority of the group's revenue is earned through tariffs regulated by Ofwat and linked to RPI. The group also includes Morrison Facilities Services, a support services business focused on the local authority and social housing sectors, and a small property business.

The investment is held through 3i Osprey LP, an intermediary limited partnership whose partners comprise other third parties (including 3i Group, which has a small interest) and which is separately managed by 3i Investments.

Investment rationale

AWG has strong infrastructure characteristics, with a regulated near-monopoly position in its geographical area for the provision of water supply and wastewater treatment, stable and predictable earnings through RPI-linked tariffs and largely predictable operating costs.

Developments in the period

AWG continues to perform robustly and to generate a strong level of yield to 3i Infrastructure. During the period, Anglian Water recovered well from the effects of the severe winter weather and the exceptionally dry spring. Although much of Anglian Water's region was declared officially "in drought" by Defra (Department for Environment, Food and Rural Affairs) and the Environment Agency in June, Anglian Water did not impose any restrictions on water usage. Anglian Water has also been undertaking extensive preparations for the transfer of private sewers from 1 October 2011, which adds c. 60% to its existing sewer network.

AWG complies with the Walker Code and its report and accounts are available on www.awg.com.

Eversholt Rail Group

Description

Eversholt Rail Group ("Eversholt") is one of the three leading rail rolling stock companies in the UK, and owns approximately 29% of the current British rail fleet. Its 19 fleets, predominantly weighted towards electric trains, are leased to seven Train Operating Companies ("TOCs"). Although its primary revenue stream consists of lease payments from TOCs, it also owns a freight fleet, which accounts for under 10% of its total value.

The rolling stock companies are not directly regulated, and have instead entered into a code of practice agreement with the Office of Rail Regulation under which they agree to work independently of each other.

Investment rationale

Eversholt is a well established infrastructure business and fits well with 3i Infrastructure's investment mandate as a mature, profitable transport asset with stable contracted revenues and a strong market position.

Developments in the period

Eversholt continues to perform well operationally, ahead of expectations. During the period, the company completed acceptance of the new Siemens 380 fleet for deployment to First Scotrail, a £185 million investment by Eversholt in new trains for routes in Ayrshire, Inverclyde and Renfrewshire.

The McNulty Rail Value for Money Study was published in May 2011. In relation to rolling stock, the study recommended increased standardisation and more effective procurement, and establishing "strategic partnerships" between the rolling stock companies and the Department for Transport. Eversholt has welcomed the report, and continues to work co-operatively with the Department for Transport to develop those recommendations into actionable plans.

Oystercatcher

(1) Includes an unrealised foreign exchange loss of £2.9 million.

The value on an IFRS basis is £292.3 million.

Description

Oystercatcher Luxco 2 S.àr.l. ("Oystercatcher") is the holding company through which 3i Infrastructure invested in 45% stakes in three subsidiaries of Oiltanking GmbH ("Oiltanking"), located in the Netherlands, Malta and Singapore. These businesses provide over 3.6 million cubic metres of oil, petroleum and other oil-related and chemicals storage facilities and associated services to a broad range of clients, including private and state oil companies, refiners, petrochemical companies and traders.

Oiltanking is one of the world's leading independent storage partners for oils, chemicals and gases, operating 72 terminals in 22 countries with a total storage capacity of 19.3 million cubic metres.

Investment rationale

This business meets the Company's infrastructure investment criteria through long-term demand for oil storage capacity, coupled with the shortage of competing supply and low customer turnover. Each of the three operating companies enjoys a strong market position in key oil and oil product trading hubs, and has a defensive position and reliable cash flows. Contracts are let on a use-or-pay basis with fixed terms of up to 10 years, often with tariffs linked to local inflation rates.

Developments in the period

All three terminals have performed ahead of expectations in the period. Although market conditions for traders have not been as favourable as in recent years, all storage capacity has been continued to be fully let throughout the period, and throughput levels have been high.

In Amsterdam, the 42,000 cubic metre bio-diesel storage expansion project was completed on time and within budget and, in Malta, construction of the new 13,000 cubic metre storage tank and a new LPG handling facility are progressing on schedule.

Junior debt portfolio

(1) Includes a £0.7 million foreign exchange loss.

Description

3i Infrastructure invested in a portfolio of junior debt holdings in core infrastructure businesses, with leading positions in the markets in which they operate. The assets held in the period are listed below.

Télédiffusion de France is the leading provider of broadcast transmission infrastructure and services and telecommunications infrastructure in France, Germany, Finland and Hungary.

NGW Arqiva is the leading owner and operator of national broadcast infrastructure supporting television, radio and wireless communication in the UK.

Thames Water is the UK's largest water and wastewater services company, operating across London and the Thames Valley.

Investment rationale

3i Infrastructure's strategy has been to acquire a portfolio of junior debt investments in core infrastructure businesses at prices below par, delivering attractive equity-like returns to maturity and strong levels of cash yield.

Developments in the period

In April 2011 the Thames Water junior debt tranche was repaid before its full term by the borrower, generating proceeds of £21.3 million. This represents an uplift over the value at 31 March 2011 of £0.2 million. The NGW Arqiva junior debt tranche was also sold in April 2011 for £34.2 million, generating a profit over the value at 31 March 2011 of £1.9 million. The exits proved to be well timed in light of movements in credit markets since the sale.

The mark-to-market valuation of Télédiffusion de France, the only remaining holding, has suffered in recent months following a period of stable performance, reflecting sharp declines in high yield credit markets globally.

Developments since the period end

In October, the Company contracted to sell the Télédiffusion de France junior debt holding for £30 million. This investment has generated an IRR of 14.9%.

Overall, the investments in the junior debt portfolio, now fully realised, were very successful for the Company. In aggregate, they generated an IRR of 11.6%, confirming the original investment case. These investments also proved that the Company can take advantage of its financial flexibility and of the experience and track record of the Investment Adviser to execute quickly on new opportunities that can emerge in challenging markets, delivering good returns to its shareholders.

Elgin

Description

Elgin Infrastructure Limited ("Elgin") holds a portfolio of PFI project investments, in which Robertson Capital Projects Limited ("Robertson") retains a 50.1% holding. Robertson is a private company with activities covering construction, PFI projects, facilities management services and timber products. The Elgin portfolio comprises five schools projects and 11 community healthcare schemes, all of which are fully operational.

Investment rationale

Exposure to social infrastructure through PFI projects is helpful in providing the Company's portfolio with lower risk, index-linked cash flows. The Elgin portfolio is fully operational, and is delivering a robust yield. In Robertson, the Company is partnering with a well established player in the PFI market.

Developments in the period

All 16 projects in the portfolio are performing in line with the investment case and the asset generated robust income in the period. The asset's valuation benefited from the increase in inflation during the period.

Octagon

Description

Octagon Healthcare Limited ("Octagon") is a concession company under a 35-year PFI contract to build, operate and maintain the Norfolk and Norwich University Hospital. Construction of the hospital was completed in August 2001. Octagon receives RPI-linked payments from the NHS Trust to cover services and buildings maintenance, which are subject to performance deductions for service failures and unavailability. Octagon subcontracts the provision of facilities services to Serco.

Investment rationale

Octagon is a social infrastructure investment in a mature asset providing the Company with a stable, long-term income stream with RPI linkage.

Developments in the period

Octagon continues to perform well financially and operationally and has maintained its strong working relationship with the NHS Trust and with Serco.

In August 2011, the hospital opened a new birthing unit focused on natural births.

In June 2011 the hospital won the Age Diversity in the Workplace Award in the Business in the Community East of England 2011 Awards for Excellence. This award was open to organisations who have clearly embraced the concept of age diversity in their workforce, with a focus on the under 25 and over 50 age groups.

In April 2011, the Care Quality Commission's 2010 in-patient survey rated the hospital in the top 20% in the country for overall quality of care.

During the period, Octagon has successfully procured a new facility to house a fourth CT and a fourth MRI scanner on behalf of the Trust which will be fully operational by December 2011.

Alpha Schools

Description

Alpha Schools (Highland) Limited ("Alpha Schools") is a concession company under a 30-year PFI contract to build, operate and maintain 11 new schools on 10 sites in the Highland region of Scotland. All schools are operational. Alpha receives RPIX-linked payments from the Highland Council to cover services and buildings maintenance, which are subject to performance deductions for service failures and unavailability. Alpha Schools subcontracts the provision of facilities services to Morrison Facilities Services.

Investment rationale

Alpha Schools is a social infrastructure investment in a portfolio of operational assets providing the Company with a stable, long-term income stream with RPIX linkage.

Developments in the period

All schools are operating well, with the facilities services provider delivering a consistently high standard of services. Financial performance has been in line with expectations throughout the period. The handover of the remaining sports pitches has been completed. A number of construction snagging works remain outstanding and Alpha Schools is working closely with the Council and the constructor to ensure that these are resolved.

I2 loan notes

Description

In January 2009 3i Infrastructure sold its stake in Infrastructure Investors LP ("I2") to Barclays Integrated Infrastructure Fund LP ("BIIF LP"), receiving part of the consideration in the form of loan notes with a principal amount of £28.2 million (the "loan notes"). At the time of the sale, I2 owned a portfolio of equity and subordinated debt investments in over 80 PFI projects. BIIF LP now owns these projects through a corporate holding company structure, rather than through I2.

The loan notes are unsecured, bear a fixed 8% annual interest rate (part cash pay) and are redeemable over the period to 2018. The issuer of the loan notes is BIIF IssuerCo Limited ("BIIF IssuerCo"), part of BIIF LP's corporate holding company structure for the underlying projects.

The loan notes are serviced by cash flows upstreamed from the underlying projects after servicing existing senior debt. Under the terms of the loan notes, no equity dividends can be paid by BIIF IssuerCo whilst payments of interest or principal are due and outstanding on the loan notes. 3i Infrastructure is accorded information rights similar to those of a BIIF LP senior lender, which allows the Company to monitor the performance of the underlying projects and the ongoing recoverability of the loan notes.

Developments in the period

In August 2011, BIIF LP made a partial repayment of the Company's holding of the loan notes, generating proceeds for 3i Infrastructure of £26.4 million. The balance of the loan notes of £5.8 million remains due to 3i Infrastructure, and will continue to earn a fixed 8% annual interest rate. The underlying projects continue to perform broadly in line with projections at the time of the sale in January 2009.

T2CThermal Conversion Compound ("T2C") is a special purpose company established to build, operate and maintain a waste-to-energy plant on an industrial park near Frankfurt, Germany. A provision was taken against the value of T2C in March 2010, due principally to significant delays in the completion of construction. The asset remains valued at nil, as no return on the Company's equity investment is foreseen in the near to medium term.

3i India Infrastructure Fund

(1) Includes a net foreign exchange loss of £8.1 million (sterling / US$gain of £4.3 million, and US$ / rupee loss of £12.4 million).

Description

The 3i India Infrastructure Fund (the "Fund") is a US$1.2 billion fund closed in 2008 to invest in a diversified portfolio of equity (or equivalent) infrastructure investments in India, focusing on the port, airport, road and power sectors. 3i Infrastructure has committed US$250 million to the Fund. As at 30 September 2011, the Fund was 65% invested and 70% committed, having completed six investments and 3i Infrastructure had an outstanding commitment of US$86.3 million, or £55.4 million.

Investment rationale

The macroeconomic outlook in India is favourable, with strong projected growth, and the fundamentals for infrastructure investment remain attractive, with the current infrastructure deficit in the country providing much opportunity for private investment. The investment in the Fund offers 3i Infrastructure exposure to a diversified pool of assets and larger investments than the Company could access on its own account, at no additional cost to the Company. The Fund remains well positioned, with an established presence in its market and the investment team's broad network of contacts.

Developments in the period

All investments in the Fund continue to perform well operationally. In aggregate, the operational investments have shown increases in EBITDA of 23.8% in the six months relative to the prior comparable six-month period, with good developments in construction and operations.

Adani Power Limited continues to make progress in building its portfolio of power generation assets. Its main project in Mundra has grown significantly in both size and scope and its sixth unit (the second built using supercritical technology) became operational during the period, making Adani Power one of the largest independent power producers in India, with a total operating capacity of 2,640MW (representing the entire capacity envisaged at the time of investment). A further 2,640MW is scheduled to become operational at other sites in the next six months. Since initial investment, the company has increased its capacity under construction to 9,900MW.The mark-to-market valuation of Adani Power declined by 24% during the period, reflecting falls in the Indian equity markets and the quoted power sector.

Krishnapatnam Port Company Limited ("KPCL") has a concession to develop, operate and maintain the port of Krishnapatnam in the state of Andhra Pradesh. Construction of the facilities is progressing well. Currently eight berths are operational, with a further two at an advanced stage of construction. Further infrastructure developments include the completion of a bridge to connect the port with new power plants and an increase in covered storage facilities. Performance in the period was affected by a temporary ban on the export of iron ore in Karnataka, imposed by the Indian Supreme Court, which should be resolved over the next few months. In response to this temporary ban, KPCL has focused on growing its coal and general cargo volumes, seeing significant increases in both categories. Further cargo growth is expected to be driven by new power plants and edible oil refineries being built in the vicinity of the port, and a further increase in container handling following the build-out of infrastructure to handle this traffic.

Soma Enterprise Limited is one of the fastest growing infrastructure developers in India, focused on construction and development of core infrastructure projects. Its order book, valued at over US$3 billion, focuses mainly on build-operate-transfer ("BOT") road projects but comprises projects diversified across sectors such as hydro power, irrigation, railways, power transmission and urban infrastructure. It is currently working on 24 projects at various stages of completion across several different sectors. Soma Enterprise is performing strongly operationally, and continues to add projects to the order book. During the period, Soma reached an agreement for an infusion of capital from a new shareholder in its BOT portfolio. This transaction was executed at a significant premium to the Fund's March carrying value for the asset, and provides additional funding for further development.

KMC Infratech ("KMC Roads") owns a portfolio of 10 "build-operate-transfer" road projects. This portfolio, aggregating c. 1,000 kilometres across India, is one of the largest such portfolios in the country. Of the ten projects in the portfolio, four are now receiving income through tolls or annuities. Two further roads are expected to begin tolling in November, with construction of the remaining projects scheduled to complete on time.

GVK Energy is one of the leading power generation companies in India. Its planned portfolio comprises 4,047MW of power assets, diversified by fuel type, stage of development and geography. All of the generation capacity is underpinned by long-term power purchase agreements ("PPAs") with state utilities. In addition, GVK Energy is developing two mining projects to supply coal to its own thermal power plants under construction or development. The projects already in operation have continued to perform in line with expectations. Projects under construction have also progressed well, meeting major milestones largely in line with the anticipated timeline.

Ind-Barath Utkal is building out a 700MW coal-fired power plant based in the state of Orissa. The construction of the plant is proceeding well, with both units now expected to be commissioned by the second half of 2012, in line with expectations. In the period, a long-term PPA has been signed with the West Bengal state electricity company for 300MW, taking the total offtake successfully negotiated through PPAs to 55% of total capacity.

Financials and other information

Consolidated statement of comprehensive income

for the six months to 30 September 2011

Consolidated statement of changes in equity

for the six months to 30 September 2011

Consolidated balance sheet

as at 30 September 2011

Signed on behalf of the Board of Directors of the Company by

2 November 2011

Consolidated statement of cash flows

for the six months to 30 September 2011

Notes to the accounts

as at 30 September 2011

as at 30 September 2010

as at 31 March 2011

Note 9 provides further details on the calculation of the advisory and performance fees.

3 Income taxes

In accordance with Jersey Income Tax regulations, profits arising in the Company for the 2012 year of assessment are subject to tax at the standard rate of corporate income tax of 0%. Subsidiaries of the Company have provided for taxation at the appropriate rates in the countries in which they operate.

4 Investment portfolio

4 Investment portfolio (continued)

The holding period of investments in the portfolio is expected to be greater than one year. For this reason the Directors have classified the portfolio as non-current. It is not possible to identify with certainty whether any investments may be sold within one year.

The fair value of loans and receivables approximates to the carrying value. All unquoted investments and debt investments are held at fair value.

There has been no change made to the classification of assets held within the investment portfolio for the purposes of the investment valuation hierarchy required under IFRS since the date of the last annual financial statement of the Group.

5 Issued capital

The Company is authorised, under its Articles of Association, to issue an unlimited number of ordinary shares with no par value, of one class, designated as ordinary shares.

The warrants entitle the holder to subscribe for one ordinary share at £1.00 at any time from 13 September 2007 to 13 March 2012. At 30 September 2011, there were 22,588,203 warrants in issue (September 2010: 69,968,930, March 2011: 64,721,900).

Aggregate issue costs of £13.1 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 £693.1 million transferred to a new, distributable reserve which has been combined with retained reserves in these accounts. Therefore as at 30 September 2011 the residual value on the stated capital account was £159.3 million.

6 Per share information

The earnings and net assets per share attributable to the equity holders of the parent are based on the following data: