3i Infrastructure Regulatory News (3IN)

22 Nov 2007 07:03

3i Infrastructure Ltd22 November 2007 22 November 2007 3i Infrastructure Limited Interim results for the period from 16 January 2007 to 30 September 2007 On track to deliver objectives set out at IPO --------------------------------------------------------------------------------For the period from 16 January 2007 to 30 September 2007 Investment £412.7m Total return £33.3mTotal return as a percentage of opening shareholders' equity (1) 4.8% Diluted Net Asset Value per share (pre-dividend) 103.1p Interim dividend per share 2.0p-------------------------------------------------------------------------------- Note: the financial information above has been prepared according to theinvestment basis of reporting. Please refer to "Basis of preparation" for moreinformation. (1) Opening shareholders' equity is defined specifically for this period as total funds raised at IPO less formation costs. Commentary • 3i Infrastructure is on track to achieve full investment within two years of IPO, with 60% of net IPO proceeds already invested in a portfolio of assets which is diversified by sector, maturity and geography; • The portfolio is performing well and delivering returns in line with expectations; • The Company has made progress on strategic initiatives during the period, notably through the US$250 million commitment to the 3i India Infrastructure Fund, £56 million (US$114 million) of which has already been drawn down; • The prospects for the infrastructure asset class remain positive and the Investment Adviser has developed a pipeline of high-quality potential investment opportunities. The Company is well positioned to take advantage of the market opportunity; • Based on the Company's performance, the Board of Directors has approved an interim dividend of 2.0p per share. Peter Sedgwick, Chairman of 3i Infrastructure Limited, said: "With the outlookfor the infrastructure sector remaining positive, current portfolio assetsperforming well and a good pipeline of investment opportunities, I believe 3iInfrastructure is well placed to deliver, in the medium term, the returnobjectives set out at IPO". Michael Queen, Managing Partner, Infrastructure, 3i Investments plc, added: "Theopportunity for infrastructure investment in both mature and emerging markets issignificant. The defensive characteristics of the asset class make it even moreattractive in the current turbulent market. Competition for high-quality assetsis likely to remain high and we therefore remain focused on a selective approachto investment." - ends - For further information, please contact: Michael Queen, Managing Partner, Infrastructure, 3iInvestments plc Tel: 020 7975 3572Stephen Halliwell, CFO, Infrastructure, 3i Investments plc Tel: 020 7975 3263Silvia Santoro, investor enquiries Tel: 020 7975 3258Jennifer Letki, press enquiries Tel: 020 7975 3190Lydia Pretzlik, The Maitland Consultancy Tel: 020 7379 5151 For further information regarding the announcement of interim results for 3iInfrastructure Limited please see www.3i-infrastructure.com. The analystpresentation and scripts will be made available on this website during the day. Notes to editors 3i Infrastructure is a Jersey-incorporated, closed-ended investment company thatinvests in infrastructure businesses and assets and is regulated by the JerseyFinancial Services Commission. The Company listed on the London Stock Exchangeon 13 March 2007, raising £703 million in an initial public offering and is acomponent of the FTSE 250 index. 3i Investments plc, a wholly-owned subsidiary of 3i Group plc, which isregulated in the UK by the Financial Services Authority, acts as InvestmentAdviser to 3i Infrastructure. This press release is not for distribution (directly or indirectly) in or to theUnited States, Canada, Australia or Japan and is not an offer of securities forsale in or into the United States, Canada, Australia or Japan. Securities maynot 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 fromregistration under the Securities Act. Any public offering to be made in theUnited States will be made by means of a prospectus that may be obtained fromthe issuer or selling security holder and will contain detailed informationabout 3i Group plc, 3i Infrastructure Limited, 3i India Infrastructure Fund andmanagement, as applicable, as well as financial statements. No public offeringin the United States is currently contemplated. The interim report of 3i Infrastructure Limited for the period to 30 September2007 has been drawn up and presented in accordance with and in reliance uponapplicable English law and the liabilities of the Company in connection withthat report shall be subject to limitations and restrictions provided by suchlaw. The interim results for the period to 30 September 2007 are unaudited. This report may contain certain statements about the future outlook for 3iInfrastructure Limited. Although we believe our expectations are based onreasonable assumptions, any statement about the future outlook may be influencedby factors that could cause actual outcomes and results to be materiallydifferent. Chairman's statement 3i Infrastructure Limited has made good progress in terms of financialperformance and strategic development during the period from incorporation on 16January 2007 to 30 September 2007. The Company, which is now a component of the FTSE 250 index, has delivered a return of £33 million over the period or 4.8% on opening shareholders' equity. This performance has been achieved against a backdrop of more volatile equitymarkets and deteriorating credit conditions. The Company has invested £413million over the period, or 60% of the net proceeds raised at IPO, including the£234 million acquisition of the initial portfolio from 3i Group plc. This hasbeen invested in a portfolio of geographically diversified assets which, asoutlined in more detail in the Investment Adviser's review, are performing inline with our expectations. The Board monitors the performance of the portfoliothrough regular updates and detailed reviews received from the InvestmentAdviser. The Board has approved the valuations of each investment and isencouraged by the performance of the assets. The Company's performance owes much to the breadth and depth of 3i Investmentsplc's relationships with both financial and industrial partners internationally.Investments such as the acquisition - financed with both equity and debt - of a45% interest in three subsidiaries of Oiltanking GmbH, based in Amsterdam, Maltaand Singapore, as well as the US$250 million commitment to the 3i IndiaInfrastructure Fund ("the Fund"), demonstrate the benefit of the Company'sassociation with 3i's international network. This, I believe, is a significantcompetitive advantage for 3i Infrastructure. The commitment to the Fund, whose first closing was announced by 3i Group plc on27 September 2007, is a significant development for the Company. The Fund hasalready completed its first investment, drawing down commitments from 3iInfrastructure of £56 million. India offers great growth opportunities forinfrastructure investment, and the Investment Advisory team on the ground hasdeveloped a strong pipeline of potential opportunities. The Company held an Extraordinary General Meeting to obtain shareholders'approval for its commitment to the Fund, which was a related party transaction.The resolution to participate in the Fund was approved by shareholders at theEGM, with 3i Group plc not taking part in the vote. The Company's corporate governance model is working well. The Board has beenresponsible for the development and implementation of the Company's operatingprocedures and controls. In August, the Company held its first Annual GeneralMeeting. In September the Board was delighted to welcome Steven Wilderspin as anon-executive Director. Steven has joined the Audit Committee and is a formerdirector of GED Long Short Equity Fund Limited and of Wake AlternativeInvestment SPC. His extensive experience in the financial services sector willbe a valuable addition to the Board. September also saw the inclusion of 3i Infrastructure in the FTSE 250 and FTSEAll-Share indices. This was a positive development for the Company, which wasfollowed by an increase in the volume traded in its shares. Despite testing conditions in the capital markets and a deterioration in theavailability and conditions of credit, the infrastructure market is continuingto experience healthy levels of activity, as evidenced by the volume ofpotential investments currently being reviewed by our Investment Adviser. TheBoard is confident that the market opportunity for infrastructure investment ona global scale remains strong, with private sector financing becomingincreasingly important in the funding mix of infrastructure projects around theworld. I am pleased to report that the Directors have approved an interim dividend of2.0 pence per share, which will be paid on 19 December 2007 to shareholders onthe register at 30 November 2007. With the outlook for the infrastructure sector remaining positive, currentportfolio assets performing well and a good pipeline of investmentopportunities, I believe the Company is well placed to deliver, in the mediumterm, the return objectives set out at our IPO. Peter SedgwickChairman21 November 2007 About 3i Infrastructure Limited 3i Infrastructure Limited ("3i Infrastructure" or "the Company") is aJersey-incorporated, closed-ended investment company that invests ininfrastructure businesses and assets and is regulated by the Jersey FinancialServices Commission. 3i Infrastructure listed on the London Stock Exchange on 13 March 2007, raisingin total £703 million in its initial public offering ("IPO") from a diverserange of international institutions and retail investors. The Company is acomponent of the FTSE 250 index. 3i Investments plc ("3i Investments"), a wholly-owned subsidiary of 3i Group plc("3i Group") acts as investment adviser to the Company. The Company has anon-executive board and no employees. Objectives Returns3i Infrastructure's overall objective is to provide its shareholders with a total return of 12% per annum on net IPO proceeds, to be achieved over thelong term. Within this overall objective, the Company will also target an annual distribution yield, on full investment of the net IPO proceeds, of approximately 5% of the net IPO proceeds, to be achieved through a combination of regular dividends and capital returns. Portfolio3i Infrastructure aims to invest the net IPO proceeds within two years from listing. The Company intends to make equity, or equivalent, investments in infrastructure businesses and most will be of a size sufficient to obtain board representation. Infrastructure businesses and assets are defined by 3i Infrastructure asasset-intensive businesses, providing essential services over the long term,often on a regulated basis, or with a significant component of revenuesand costs that are subject to long-term contracts. Risks and uncertainties The principal risks and uncertainties faced by the Company are set out in theRisk Factors section of the Company's IPO prospectus. The principal external andstrategic investment risks faced by the Company relate to the performance ofunderlying investment assets and market and transaction risks relating to thetime taken to deploy the Company's capital. The Company is highly dependent on3i Investments and its Infrastructure investment team. Investment Adviser's review About the Investment Adviser3i Investments, a wholly-owned subsidiary of 3i Group, acts as InvestmentAdviser to the Company through its infrastructure investment team. The teamadvises the Company on the origination and completion of new investments, on therealisation of investments, on funding requirements, as well as on themanagement of the investment portfolio. The infrastructure investment team operates as a separate business line within3i Group and at 30 September 2007 was staffed by 19 dedicated infrastructureinvestment professionals, of whom 12 are based in London, two in Frankfurt andfive in Mumbai. All have significant experience in investing in, or advising on,infrastructure or private equity assets. Plans are being formalised to establisha team based in 3i's New York office. The team can also draw on 3i's network ofmore than 250 investment professionals, based in 14 countries, to sourceinfrastructure investments. 3i Group was among the subscribers to 3i Infrastructure's initial publicoffering and owns 46% of the equity in the Company. Investment activityAs shown in Table 1, investments during the period to 30 September 2007 totalled£412.7 million, representing 60% of the net proceeds raised by 3i Infrastructureat its IPO. The balance of IPO proceeds, plus income received and net of costspaid, of £296.7 million, is currently held in cash or cash equivalents. An initial portfolio of infrastructure assets was acquired by the Company from3i Group at the IPO, for a total consideration of £234.4 million. This initialportfolio includes minority investments in Anglian Water Group Limited,Infrastructure Investors ("I2"), Octagon and Alpha Schools. Three additional newinvestments totalling £147.4 million were made after the initial portfolioacquisition. Follow-on investments and draw downs of existing commitmentsamounted to £30.9 million. An asset-by-asset review of our portfolio, including a strategic update,valuation methodology and developments in the period, can be found in "Portfolio" below. The Company's largest investment during the period, after the purchase of theinitial portfolio at IPO, was the acquisition, through Oystercatcher Luxco 2, ofa 45% interest in three subsidiaries of Oiltanking GmbH which provide petroleumand chemical storage facilities in Amsterdam, Malta and Singapore. In August, the Company purchased a 16.7% holding from 3i Group in ThermalConversion Compound Industriepark Hoechst GmbH ("T2C"), a company established todevelop, own and operate a waste to energy plant in Germany, for a considerationof £6.5 million. Following approval from its shareholders at an Extraordinary General Meetingheld on 10 September 2007, 3i Infrastructure also committed US$250 million tothe 3i India Infrastructure Fund ("the Fund"), established by 3i Group to investin infrastructure opportunities in India. At 30 September 2007, the Fund hadcompleted one investment, a power station development in the port of Mundra inGujarat, drawing down commitments from 3i Infrastructure of £56.4 million. --------------------------------------------------------------------------------Table 1 - Summary of investment activity in the period to 30 September 2007 (£m)Portfolio asset Initial Further New Total Undrawn(investment basis) Sector portfolio investment investment investment commitments--------------------------------------------------------------------------------Anglian Water UtilitiesGroup Limited(1) - Water 140.0 140.0 - Infrastructure Investors SocialLimited InfrastructurePartnership - PFI fund 82.0 29.9 111.9 25.5("I2") Octagon SocialHealthcare InfrastructureLimited - PFI Hospital 12.2 1.0 13.2 - Alpha Schools (Highland) SocialHoldings InfrastructureLimited - PFI Schools 0.2 0.2 7.6 T2C Utilities 6.5 6.5 - - Power OystercatcherLuxco 2 TransportationS.a.r.l - Oil Storage 84.5 84.5 - 3i India Power andInfrastructure TransportHoldings Ltd(2) fund 56.4 56.4 67.0--------------------------------------------------------------------------------Total 234.4 30.9 147.4 412.7 100.1--------------------------------------------------------------------------------(1) Formerly known as Osprey Jersey Holdco Limited.(2) The Fund currently holds only one investment, which is in the power sector. Portfolio performance Portfolio value and returnsThe value of 3i Infrastructure's portfolio at 30 September 2007 was £426.4million. All assets are performing in line with expectations. The Investment Adviser,through board representation, is working with the management and shareholders ofeach of the investee companies to deliver improvements in their operationalperformance. The performance of the Company's investment assets is measured on the basis ofthe investment return. The investment return attributable to the assets for theperiod to 30 September 2007 is £40.3 million, 5.8% of opening shareholders'equity. The Company generates returns on the assets either through the yield - fromdividends or interest - earned from the assets, from asset revaluation, or fromany realised capital profits from the sale or partial sale of the asset.Interest income is earned on treasury assets, cash and cash equivalents. Portfolio composition3i Infrastructure's aim is to build a portfolio of assets which is diversifiedby sector, maturity and geography. Tables 2, 3 and 4 below illustrate thebreakdown of the portfolio by sector, maturity and geography as at 30 September2007. The portfolio is invested across a range of asset maturities from mature,typically high-yielding assets to early-stage development projects, which wouldgenerally provide a lower yield, but higher capital growth potential.Diversification of the portfolio across this maturity spectrum aims to deliver abalance of income returns and capital growth, as well as to balance theportfolio's risk profile.--------------------------------------------------------------------------------Table 2 - Asset portfolio by sector as at 30 September 2007--------------------------------------------------------------------------------Social infrastructure 30%Transportation 20%Utilities 50%----------------------------------------------------------------------------------------------------------------------------------------------------------------Table 3 - Asset portfolio by maturity as at 30 September 2007--------------------------------------------------------------------------------Early stage 15%Operational growth 26%Mature 59%----------------------------------------------------------------------------------------------------------------------------------------------------------------Table 4 - Asset portfolio by geography as at 30 September 2007--------------------------------------------------------------------------------UK 65%Continental Europe* 22%Asia 13%--------------------------------------------------------------------------------*Includes investment in Oystercatcher 2, with operations in Amsterdam, Malta and Singapore. Valuation Valuation methodologyInvestment valuations are calculated at the half year and at the financial yearend by the Investment Adviser and then reviewed and approved by the Board ofDirectors. Investments are reported at the Directors' estimate of fair value atthe reporting date. The valuation principles used are based on InternationalPrivate Equity and Venture Capital (IPEVC) valuation guidelines, generally usinga discounted cash flow (DCF) methodology, which the Board considers to be themost appropriate valuation methodology for infrastructure investments. All valuations are based, in part, on information provided by the projectcompanies or other investment vehicles in which the Company has invested. TheInvestment Adviser evaluates all such information and data. Where the financialreports provided by the project companies or other investment vehicles areprovided only on a quarterly basis, the most up to date financial model will beused and adjusted for material events at the reporting date. Generally, the process of estimating the fair value of an investment involvesusing the DCF methodology to derive the present value of an investment'sexpected future cash flows. Cash flow projections are based on reasonablemacro-economic, industry-specific and company-specific financing and operatingestimates or assumptions. An appropriate discount rate is then applied. The discount rate for each investment will vary according to the underlyingrisks of that investment. The Investment Adviser exercises its skill andjudgment to assess the most appropriate discount rate which will be derived froma risk premium, applied for each individual asset, in excess of the risk-freerate. Other market information available to the Investment Adviser, bothspecific to the Company's investment or the market sector, may also beincorporated into the discount rate. The DCF basis will be used as the primary valuation methodology for theCompany's portfolio, except for the following cases: • investments in other infrastructure funds where the Company will value its limited partnership share of the net asset value of the fund. It can generally be assumed, however, that most infrastructure funds will value their underlying assets on a DCF basis. The underlying fund valuation may be adjusted to incorporate discount rates consistent with the Company's assessment of the most appropriate discount rate for the nature of the assets held in the fund; • quoted assets which will be valued at closing bid price; and • assets close to sale, which will be valued on the basis of expected sale proceeds from offers received as part of a sale process, less an appropriate marketability discount. A provision will be made against any investment in a company that has failed oris expected to fail within the next twelve months. Portfolio valueTable 5 illustrates the effects of new investment, asset returns and incomereceived during the period on portfolio value. In valuing the portfolio, theweighted average discount rate applied at 30 September 2007 was 13%. --------------------------------------------------------------------------------Table 5 - Reconciliation in movement in portfolio valuefor the period to 30 September 2007 (£m)--------------------------------------------------------------------------------Initial portfolio value 234.4New/further investments 178.3Asset returns* 28.0Income received (14.3)Closing portfolio value 426.4--------------------------------------------------------------------------------*Includes £2.4 million on unrealised exchange gains. Basis of preparationIn the following section, the Investment Adviser has presented the Company's netasset value and key financial statements to show the return on a pro-formainvestment basis, in addition to the consolidated financial statements asrequired under International Financial Reporting Standards ("IFRS"). TheInvestment Adviser considers this pro-forma investment basis presentationprovides a more meaningful representation of the Company's net asset value,shows the Company's cash utilisation for investment and differentiates betweennon-recourse borrowings held within asset specific acquisition companies andborrowings which may be made at the Company level. The investment basis accountsfor subsidiaries formed specifically for investment purposes in the same way asminority investments and therefore does not consolidate these entities as isrequired under IFRS. Two adjustments have been made. 3i Infrastructure holds 55.7% of 3i Osprey LP, the vehicle through which 3iGroup also holds its investment in Anglian Water Group Limited. 3iInfrastructure is required under IFRS to consolidate the results and balancesheet of this LP into its accounts on a line-by-line basis. The remaining 44.3%of this entity is held by 3i Group and a third party. In the investment basispresentation, 3i Infrastructure has recognised only its share of the income andbalance sheet of 3i Osprey LP. During the period to September the Company invested in Oystercatcher Luxco 1 andLuxco 2 S.a.r.ls, two wholly-owned subsidiaries, to fund the minority investmentinto three Oiltanking GmbH subsidiaries. External borrowings were also made byOystercatcher Luxco 2 to fund the investments. These borrowings are non-recourseto 3i Infrastructure. Under IFRS, the results and balance sheets of theOystercatcher Luxco 1 and Luxco 2 subsidiaries are required to be consolidatedinto 3i Infrastructure's financial statements on a line-by-line basis. In theinvestment basis presentation these subsidiaries are not consolidated but areaccounted for as a portfolio asset held for investment purposes. ReturnsA commentary covering the key features of the return on an investment basis isprovided in Table 6. 3i Infrastructure achieved a total return of £33.3 million for the period. Thediluted net asset value at 30 September 2007 (before deducting the interimdividend) was 103.1p per share, a 4.6% increase over proceeds raised at IPO(less initial expenses) of 98.6p per share. --------------------------------------------------------------------------------Table 6 - Total return for the period between 16 January 2007 and 30 September2007 (£m)--------------------------------------------------------------------------------Unrealised profits on therevaluation of investments 11.3Exchange gains on portfolio assets 2.4-------------------------------------------------------------------------------- 13.7Portfolio income Dividends 10.6 Income from loans and receivables 3.7 Fees (payable)/receivable (0.7)Interest receivable 13.0--------------------------------------------------------------------------------Investment return 40.3Advisory and performance fee payable (3.8)Operating expenses (3.2)--------------------------------------------------------------------------------Profit for the period "Total return" 33.3-------------------------------------------------------------------------------- The investment return was £40.3 million, of which £28.0 million was generateddirectly from portfolio assets and £13.0 million was interest on financialassets. The return comprises dividends and interest yield from the portfolio of£14.3 million, as well as an unrealised value uplift and exchange gains of £13.7million recognised on the revaluation of certain assets in the portfolio. Thisis net of fees arising from investment activity and costs payable to advisers of£(0.7) million. During the period, 3i Infrastructure incurred costs of £16.8 million, themajority of which were professional fees relating to the IPO of the Company. Ofthese costs £9.8 million have been charged directly against the share premiumaccount and are not reflected in the total return shown in Table 6. Other expenses include the running costs of the Company, exchange losses onnon-investment assets and the advisory fee payable to 3i Investments, which iscalculated as 1.5% of the Gross Investment Value (further explanation isprovided in note 7). Balance sheet and net asset valueAs at 30 September 2007, the cash balance stood at £296.7 million and there wereno external borrowings on a recourse basis to the Company. --------------------------------------------------------------------------------Table 7 - Balance sheet as at 30 September 2007 (£m)--------------------------------------------------------------------------------AssetsNon-current assetsInvestment portfolio 426.4Current assetsOther current assets 11.7Cash and cash equivalents 296.7Total current assets 308.4--------------------------------------------------------------------------------Total assets 734.8----------------------------------------------------------------------------------------------------------------------------------------------------------------Current liabilitiesTrade and other payables (8.1)Total current liabilities (8.1)--------------------------------------------------------------------------------Total liabilities (8.1)--------------------------------------------------------------------------------Net assets 726.7-------------------------------------------------------------------------------- EquityIssued capital 693.1Translation reserve 0.3Retained reserve 33.3--------------------------------------------------------------------------------Total shareholders' equity 726.7-------------------------------------------------------------------------------- The net asset value at 30 September 2007 was £726.7 million, which reduces to£712.6 million after the deduction of the proposed interim dividend, which willbe paid in December 2007. --------------------------------------------------------------------------------Table 8 - Reconciliation of movements in net asset valuefor the period to 30 September 2007 (£m)--------------------------------------------------------------------------------IPO proceeds 702.9IPO costs (9.8)Total return and equity movements* 33.6Proposed dividend (14.1)Closing NAV (post-dividend) 712.6--------------------------------------------------------------------------------*Equity movements of £0.3 million relate to exchange differences on translation of foreign operations. Portfolio The initial portfolioThe initial portfolio comprises the four assets that were purchased from 3iGroup at IPO for a total consideration of £234.4 million. These include a UKregulated asset and three Private Finance Initiative (PFI) projects.--------------------------------------------------------------------------------Table 9 - Portfolio detail-------------------------------------------------------------------------------- Anglian Water Infrastructure Alpha Group Limited Investors LP ("I2") Octagon Schools--------------------------------------------------------------------------------Equity interest 9.0% 31.2% 26.3% 50.0%Date invested March 2007 March 2007 March 2007 March 2007Cost £140.0m £111.9m £13.2m £0.2mDirectors' valuation £151.6m £112.8m £13.5m £0.2mIncome in the period £3.2m £7.9m £0.6m -Asset total return £14.8m £8.8m £0.9m -Valuation basis DCF LP share of fund DCF DCF-------------------------------------------------------------------------------- Anglian Water Group Limited DescriptionInvestment in Anglian Water Group Limited (previously known as Osprey JerseyHoldco Limited), the principal business of which is the water and waste watercompany Anglian Water. Anglian Water is the fourth largest water supply andwaste water company in England and Wales, measured by regulatory capital value,and is regulated by Ofwat. The group also includes Morrison plc, a supportservices business, and a separate property development business. Portfolio detail Please see Table 9. StrategyAWG aims to deliver a high-quality, reliable service to its customers, throughstrong operational management and the efficient financing of its capitalprogramme. Developments in the periodThe refinancing of the acquisition debt has been completed on favourable terms.The 180-day post-acquisition plan has been completed with management ahead ofschedule. Infrastructure Investors LP ("I2") DescriptionI2 makes and manages investments in secondary PFI projects, mainly in the UK andcontinental Europe. Among the largest equity funds in this market, its 74 assetsinclude the Lewisham DLR extension, HM Treasury and HMRC offices, and HPC KingsCollege Hospital. Portfolio detail Please see Table 9. StrategyI2 aims to develop a diversified portfolio of PFI assets, generating stablereturns for investors, through identifying portfolio synergies, optimisingoperational efficiencies and developing appropriate financial structures. Developments in the periodTwo new portfolios were acquired, the most significant being the "take private"of The PFI Infrastructure Company Limited. Income returns have been generatedmainly through portfolio restructuring. Octagon DescriptionA £229 million project to build and maintain the Norfolk and Norwich Universityhospital. The hospital was completed in September 2001. Under the terms of a 35-year PFI contract, Octagon maintains the hospital. TheNHS Trust is committed to making RPI-linked payments to cover the use andmaintenance of the buildings and is responsible for the provision of allclinical services. Portfolio detail Please see Table 9. StrategyThe management team, working with close shareholder involvement from theconsortium, continue to focus on maintaining the excellent relationship with theNHS Trust and Regional Health Authority. This is achieved through delivery offirst-class service levels to the hospital, thereby maintaining income returnswhich, in turn, continue to deliver a strong shareholder yield. Developments in the period3i Infrastructure has increased its holding in Octagon by 1.3% to 26.3%, byacquiring its pro-rata share of a 5% stake sold by an original consortiummember. Alpha Schools DescriptionA £134 million project to build and refurbish 11 new schools in Scotland under a30-year PFI contract with the Highland Council. Construction has started and thetarget date for completion of all schools is 2008. The Company has committed to invest a further £7.6 million in loan notes. Portfolio detail Please see Table 9. StrategyTo build and/or refurbish 11 schools for the Highland Council ahead of thescheduled delivery date. Once the construction phase is complete, there may beopportunities to refinance the project as well as providing a running yield toshareholders. Developments in the periodFive schools (out of 11 projects) have been completed and handed over in theperiod. Resulting from the high standards of delivery, an excellent relationshipcontinues to develop between the project company and the Highland Council. New investments In the period, the Company actively pursued its strategy to build a portfoliothat is diversified by geography, maturity and sector. The three new investments are all outside the UK, as 3i Infrastructure hasbenefited from the international reach of the Investment Adviser. --------------------------------------------------------------------------------Table 10 - Portfolio detail-------------------------------------------------------------------------------- Thermal 3i India Conversion Infrastructure Oystercatcher Compound ("T2C") Fund--------------------------------------------------------------------------------Equity interest 45.0%(1) 16.7% 50.0%(2)Date invested August 2007 August 2007 September 2007Cost £84.5m £6.5m £56.4mDirectors' valuation £85.4m £6.7m £56.2mIncome in the period £2.5m £0.1m -Asset total return £3.4m £0.3m £(0.2)mValuation basis DCF DCF LP share of fund--------------------------------------------------------------------------------(1) Through Oystercatcher Luxco 2 S.a.r.l, 3i Infrastructure has a 45% interest in three of Oiltanking GmbH's subsidiaries.(2) 50% of first closing commitments Note: The asset total return for the 3i India Infrastructure Fund is £(0.2) million due to an exchange difference. Oystercatcher Description3i Infrastructure, through Oystercatcher Luxco 2 S.a.r.l, has a 45% interest inthree of Oiltanking GmbH's subsidiaries based in Amsterdam, Malta and Singapore. Oiltanking is one of the world's largest independent providers of third-partystorage facilities for petroleum and chemical products, owning and operating 74terminals in 21 countries. Oiltanking's clients include private and state oilcompanies, refiners, petrochemical companies and traders in petroleum productsand chemicals. Portfolio detail Please see Table 10. StrategyTo work in partnership with the experienced local management teams, supported byOiltanking's central management expertise, to help deliver high-valuecustomer service in the strategic locations of Singapore, Amsterdam and Malta,driving strong operational performance to maintain steady capital growth. Developments in the period Transaction completed in August 2007. Thermal Conversion Compound ("T2C") DescriptionConstruction of a new-build waste to energy plant to generate heat and powerfrom refuse-derived fuels. The plant is located near Frankfurt, Germany. Portfolio detail Please see Table 10. StrategyTo monitor and influence the project during the construction period to ensurethat the project plan remains on track and delivers the full benefit of thetechnology being employed. Successful completion of the construction phaseshould enable refinancing of the project. Developments in the periodThe preliminary planning licence was received in the period and construction ofthe plant commenced. 3i India Infrastructure Fund Portfolio diversityGaining portfolio diversity for 3i Infrastructure can also be achieved throughinvesting in infrastructure funds. Such funds generally have a geographical or sector mandate. Such funds typically invest across a spectrum of risk profiles and, dependent onthat profile, will generate either income or capital growth. 3i Infrastructure will target investment in funds where the risk/return profilewill complement the balance of risk/return sought in the 3i Infrastructureportfolio. DescriptionThe 3i India Infrastructure Fund was established by 3i Group to makeinfrastructure investments in India focusing on ports, airports, roads andpower. The first closing of the Fund, at US$500 million, was announced inSeptember 2007. 3i Infrastructure has committed US$250 million alongside 3i Group, which hascommitted the same amount. As 3i Group, a 46% shareholder in the Company, is arelated party, the commitment had to be approved by 3i Infrastructure'sshareholders at an EGM on 10 September 2007. Unlike 3i Group and third-party investors, the Company will pay no advisory,management or performance fees in connection with its participation in the Fund,other than those which it is contracted to pay pursuant to the terms of theCompany's existing investment advisory agreement with 3i Investments. Portfolio detail Please see Table 10. StrategyThe Fund will provide 3i Infrastructure with access to the Indian infrastructure market where economic growth is driving a strong demand for new infrastructure assets. The Board recommended investment through the Fund to the shareholders as it believed this would give exposure to a larger and more diversified portfolio of investments due to the scale of the Fund. It further anticipated that the 3i Investment Advisory team in India would be strengthened given the scale of the Fund and this enhanced team would directly benefit 3i Infrastructure through its co-investment in the Fund. Developments in the periodSince first closing, the Fund has announced the completion of its firstinvestment, a minority stake in Adani Power Limited, which will construct andoperate a power station in the port of Mundra, in the state of Gujarat. In September, 3i Infrastructure commitments of £56.4 million were drawn down to fund this investment. Independent review reportto the members of 3i Infrastructure Limited We have been engaged by the Company to review the consolidated condensed set offinancial statements in the interim financial report for the period 16 January2007 to 30 September 2007 which comprises the consolidated income statement,consolidated statement of recognised income and expense, consolidatedreconciliation of movements in equity, consolidated balance sheet, consolidatedcash flow statement and the related explanatory notes. We have read the otherinformation contained in the interim financial report and considered whether itcontains any apparent misstatements or material inconsistencies with theinformation in the condensed set of financial statements. This report is made solely to the Company in accordance with guidance containedin International Standard on Review Engagements (UK and Ireland) 2410"Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed. Directors' responsibilitiesThe interim financial report is the responsibility of, and has been approved by,the Directors. The Directors are responsible for preparing the interim financialreport in accordance with the Disclosure and Transparency Rules of the UnitedKingdom's Financial Services Authority. As disclosed within the Basis of preparation, the annual financial statements ofthe Company are prepared in accordance with IFRSs as adopted by the EuropeanUnion. The condensed set of financial statements included in this interimfinancial report has been prepared in accordance with International AccountingStandard 34, "Interim Financial Reporting", as adopted by the European Union. Our responsibilityOur responsibility is to express to the Company a conclusion on the condensedset of financial statements in the interim financial report based on our review. Scope of reviewWe conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. ConclusionBased on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the interim financial reportfor the period 16 January 2007 to 30 September 2007 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asadopted by the European Union and the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority. Ernst & Young LLPJersey21 November 2007 Unaudited consolidated income statementfor the period from 16 January 2007 to 30 September 2007 -------------------------------------------------------------------------------- Notes £m--------------------------------------------------------------------------------Unrealised profits on the revaluation of investments 18.8Exchange gains on portfolio assets 2.4-------------------------------------------------------------------------------- 21.2Portfolio income Dividends 15.3 Income from loans and receivables 5.4 Fees payable (4.5)Interest receivable 13.0--------------------------------------------------------------------------------Investment return 1 50.4Advisory and performance fee payable (3.8)Operating expenses (3.2)Finance costs 2 (3.2)--------------------------------------------------------------------------------Profit for the period 40.2Attributable to:Equity holders of the parent 29.3Minority interests 10.9-------------------------------------------------------------------------------- Earnings per share Basic (pence) 5 4.2 Diluted (pence) 5 4.2--------------------------------------------------------------------------------The amount of dividends proposed are shown in note 6. Unaudited consolidated statement of recognised income and expensefor the period from 16 January 2007 to 30 September 2007 -------------------------------------------------------------------------------- £m--------------------------------------------------------------------------------Profit for the period attributable to equity holders of the parent 29.3Exchange differences on translation of foreign operations attributable to the parent 0.3--------------------------------------------------------------------------------Total recognsed income and expense attributable to the parent 29.6Profit attributable to minority interests for the period 10.9--------------------------------------------------------------------------------Total recognised income and expense for the period 40.5-------------------------------------------------------------------------------- Unaudited consolidated reconciliation of movements in equityfor the period from 16 January 2007 to 30 September 2007 -------------------------------------------------------------------------------- Notes £m--------------------------------------------------------------------------------Opening total equity -Total recognised income and expense for the periodattributable to the parent 29.6Issue of shares 4 693.1-------------------------------------------------------------------------------Total equity attributable to equity holders of the parent 4 722.7Profit attributable to minority interests for the period 10.9Minority interests 4 111.3-------------------------------------------------------------------------------Total equity attributable to minority interests 4 112.2--------------------------------------------------------------------------------Closing total equity 844.9-------------------------------------------------------------------------------- Unaudited consolidated balance sheetas at 30 September 2007-------------------------------------------------------------------------------- Notes £m--------------------------------------------------------------------------------AssetsNon-current assetsInvestments at fair value through profit or loss 1 671.1--------------------------------------------------------------------------------Total non-current assets 671.1--------------------------------------------------------------------------------Current assetsOther current assets 16.4Cash and cash equivalents 300.3--------------------------------------------------------------------------------Total current assets 316.7--------------------------------------------------------------------------------Total assets 987.8-------------------------------------------------------------------------------- LiabilitiesNon-current liabilitiesLoans and borrowings (132.7)Derivative financial instruments (2.1)--------------------------------------------------------------------------------Total non-current liabilities (134.8)--------------------------------------------------------------------------------Current liabilitiesTrade and other payables (8.1)--------------------------------------------------------------------------------Total current liabilities (8.1)--------------------------------------------------------------------------------Total liabilities (142.9)--------------------------------------------------------------------------------Net assets 844.9-------------------------------------------------------------------------------- EquityShare premium 4 693.1Retained reserves 4 29.3Translation reserve 4 0.3--------------------------------------------------------------------------------Total equity attributable to equity holders of the parent 722.7Minority interests 4 122.2--------------------------------------------------------------------------------Total equity 844.9-------------------------------------------------------------------------------- Unaudited cash flow statementfor the period from 16 January 2007 to 30 September 2007 -------------------------------------------------------------------------------- £m--------------------------------------------------------------------------------Cash flow from operating activitiesPurchase of investments (534.7)Income received from loans and receivables 1.2Dividends received 15.3Fees paid on investment activities (3.7)Operating expenses (3.0)Interest received 12.8Advisory and performance fee paid (2.4)--------------------------------------------------------------------------------Net cash flow from operations (514.5)-------------------------------------------------------------------------------- Cash flow from financing activitiesProceeds from issue of share capital 702.9Fees payable on issue of share capital (9.8)Interest paid (1.1)Proceeds from long-term borrowings 128.7--------------------------------------------------------------------------------Net cash flow from financing activities 820.7-------------------------------------------------------------------------------- --------------------------------------------------------------------------------Change in cash and cash equivalents 306.2--------------------------------------------------------------------------------Cash and cash equivalents at 16 January 2007 -Cash in transit (6.5)Effect of exchange rate fluctuations 0.6--------------------------------------------------------------------------------Cash and cash equivalents at the end of period 300.3-------------------------------------------------------------------------------- Notes to the accounts (unaudited)for the period from 16 January 2007 to 30 September 2007 1 Segmental analysis-------------------------------------------------------------------------------- UK Europe Asia Total £m £m £m £m--------------------------------------------------------------------------------Investment returnUnrealised profits/(loss) on therevaluation of investments 21.9 (3.1) - 18.8Exchange movements - 2.6 (0.2) 2.4Portfolio income 12.4 3.8 - 16.2Interest receivable 13.0 - - 13.0-------------------------------------------------------------------------------- 47.3 3.3 (0.2) 50.4--------------------------------------------------------------------------------Balance sheet--------------------------------------------------------------------------------Value of investment portfolio 398.7 216.2 56.2 671.1-------------------------------------------------------------------------------- 2 Finance costs-------------------------------------------------------------------------------- £m--------------------------------------------------------------------------------Interest payable (1.1)Movement in the fair value of currency swaps (0.5)Movement in the fair value of interest rate swaps (1.6)-------------------------------------------------------------------------------- (3.2)-------------------------------------------------------------------------------- 3 Share premium-------------------------------------------------------------------------------- £m--------------------------------------------------------------------------------Issued during the period for cash 702.9Costs of share issue (9.8)-------------------------------------------------------------------------------- 693.1-------------------------------------------------------------------------------- The ordinary shares have a par value of £nil and all authorised shares are fullypaid. On IPO, the shares had a subscription price of £1 per share. 4 Equity-------------------------------------------------------------------------------- Share Retained Translation Sub-total Minority Total premium reserve reserve equity* interest equity £m £m £m £m £m £m--------------------------------------------------------------------------------Opening balance - - - - - -Total recognisedincome and expense - 29.3 0.3 29.6 10.9 40.5Issue of shares 702.9 - - 702.9 - 702.9Issue costs (9.8) - - (9.8) - (9.8)Minority interest - - - - 111.3 111.3--------------------------------------------------------------------------------Closing balance 693.1 29.3 0.3 722.7 122.2 844.9--------------------------------------------------------------------------------* Total equity attributable to equity holders of the parent. 5 Share informationThe earnings and net assets per share attributable to the equity shareholders ofthe parent are based on the following data:-------------------------------------------------------------------------------- from 16 January to 30 September 2007--------------------------------------------------------------------------------Earnings per share (pence)Basic 4.2Diluted 4.2--------------------------------------------------------------------------------Earnings (£m)Profit for the year attributable to equity holdersof the parent 29.3---------------------------------------------------------------------------------------------------------------------------------------------------------------- from 16 January to 30 September 2007 Number--------------------------------------------------------------------------------Number of shares (m)Weighted average number of shares in issue 702.9Effect of dilutive potential ordinary shares-warrants 1.1--------------------------------------------------------------------------------Diluted shares 704.0-------------------------------------------------------------------------------- Under the initial public offering, for every ten shares purchased, one warrant was issued. Each warrant entitles 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 2007, there were 70,640,980 warrants in issue.-------------------------------------------------------------------------------- as at 30 September 2007--------------------------------------------------------------------------------Net assets per share (pence)Basic 102.8Diluted 102.6--------------------------------------------------------------------------------Net assets (£m)Net assets attributable to equity holders of the parent 722.7-------------------------------------------------------------------------------- 6 Dividends-------------------------------------------------------------------------------- pence per share £m--------------------------------------------------------------------------------Proposed dividend 2.0 14.1-------------------------------------------------------------------------------- 7 Related party transactions3i Group plc ("3i Group") holds 46.2% of the ordinary shares of the Company andalso holds Warrants which give it rights to acquire a further 32.5 millionordinary shares. This classifies 3i Group as a "substantial shareholder" of theCompany as defined by the Listing Rules. Transactions between 3i Infrastructure and 3i GroupAs stated in the prospectus issued by the Company on 20 February 2007, the Company, through its subsidiaries, acquired a portfolio of four infrastructure investments from 3i Group on 13 March 2007 for £234.4 million. Thermal Conversion Compound Industriepark Hoechst GmbH ("T2C"), a companyestablished to develop, own and operate a waste to energy plant in Germany, waspurchased by 3i Infrastructure from 3i Group for £6.5 million, in the period. Asset out in the prospectus detailing the IPO of the Company, this investment wasmade by 3i Group shortly before the flotation of 3i Infrastructure. It was notpracticable to include it in the initial portfolio of assets acquired from 3iGroup at flotation but was made available for acquisition by 3i Infrastructureafter the IPO. 3i Infrastructure has committed US$250 million into the 3i India InfrastructureFund to invest in the Indian infrastructure market. 3i Group has also committedUS$250 million to this Fund. Transactions between 3i Infrastructure and 3i Investments 3i Investments, a subsidiary of 3i Group, acts as the exclusive investment adviser to the Company through the Investment Team. It will also act as the manager for the 3i India Infrastructure Fund. Under the Investment Advisory Agreement, an annual advisory fee is payable to 3iInvestments plc based on the Gross Investment Value of 3i Infrastructure at theend of each financial period. Gross Investment Value can be defined as the totalaggregate value of the investments of the Company as at the start of a financialperiod plus any investment (excluding cash) made during the period valued atcost (including any outstanding subscription obligations). The applicable annualrate is 1.5% dropping to an annual rate of 1.25% for investments once they havebeen held for longer than five years. The advisory fee accrues throughout the year and quarterly instalments are payable in advance on account of the advisory fee for that period. The advisory fee is not payable in respect of cash or cash equivalent liquid temporary investments held by the Company or its subsidiariesthroughout a financial period. In the period from 16 January 2007 to 30September 2007, £2.4 million was paid and £1.4 million remains due to 3i Group. The Investment Advisory Agreement entitles a performance fee to be payable to 3i plc. This becomes payable when the Adjusted Total Return (being mainly the add-back of any accrued performance fees relating to the financial period) for the period exceeds the Net Asset Value per Ordinary Share (the "performance hurdle")equal to the opening Net Asset Value per Ordinary Share increased at a rate of 8% per annum. If the performance hurdle is exceeded, the performance fee will be equal to 20% of the Adjusted Total Return in excess of the performance hurdle for the relevant financial period, multiplied by the weighted average of the total number of shares in issue over the relevant financial period. Theperformance hurdle has not been exceeded for the period to 30 September 2007,hence no performance fee is payable. For the provision of support services pursuant to the UK Support ServicesAgreement, the Company shall pay 3i plc a fee of £0.45 million per annum. Suchremuneration is payable quarterly in arrears. The costs incurred in the periodto 30 September 2007 and the outstanding balance as at that date was £0.25million. Accounting policies Basis of preparationThese financial statements are the unaudited interim consolidated financialstatements (the "Interim Financial Statements") of 3i Infrastructure Limited, acompany incorporated and registered in Jersey, Channel Islands and itssubsidiaries (together referred to as the "Group") for the period from 16January 2007 to 30 September 2007 (the "interim period"). As this is the firstperiod in which the Group has operated, no comparatives are presented. TheInterim Financial Statements have been prepared in accordance with InternationalAccounting Standard 34 Interim Financial Reporting ("IAS 34"). The Interim Financial Statements were authorised for issue by the Directors on21 November 2007. The Interim Financial Statements do not constitute statutory accounts. The preparation of the Interim Financial Statements requires the Directors tomake judgments, estimates and assumptions that affect the application ofpolicies and reported amounts of assets and liabilities, income and expenses.The estimates and associated assumptions are based on historical experience andother factors that are believed to be reasonable under the circumstances, theresults of which form the basis of making the judgments about carrying values ofassets and liabilities that are not readily apparent from other sources. Actualresults may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period, or in the periodof the revision and future periods if the revision affects both current andfuture periods. New standards and interpretations not applied The International Accounting Standards Board ("IASB") has issued the followingstandards and interpretations to be applied to financial statements with periodscommencing on or after the following dates: Effective for the period beginning on or after-------------------------------------------------------------------------------IAS 1 Revised - Presentation of Financial Statements 1 January 2009IAS 23 Revised - Borrowing Costs 1 January 2009IFRS 8 Operating Segments 1 January 2009IFRIC 12 Service Concession Arrangements 1 January 2008IFRIC 13 Customer Loyalty Programs 1 July 2008IFRIC 14 IAS 19: The limit on a defined benefit asset, limited funding requirements and their interaction 1 January 2008------------------------------------------------------------------------------- The Directors do not anticipate that the adoption of these standards andinterpretations will have a material impact on the financial statements in theperiod of initial application and have decided not to adopt these early. A. Basis of consolidation(i) Subsidiaries - Subsidiaries are entities controlled by the Group. Controlexists when the Company has the power, directly or indirectly, to govern thefinancial and operating policies of an entity so as to obtain benefit from itsactivities. The financial statements of subsidiaries are included in theconsolidated financial statements from the date that control commences until thedate that control ceases. (ii) Transactions eliminated on consolidation - Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with jointly-controlled entities are eliminated to the extent of the Group's interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. B. Exchange differences(i) Foreign currency transactions - Transactions in currencies different fromthe functional currency of the Group entity entering into the transaction aretranslated at the exchange rate ruling at the date of transaction. Monetaryassets and liabilities denominated in foreign currencies at the balance sheetdate are translated to sterling at the exchange rate ruling at that date.Foreign exchange differences arising on translation are recognised in the incomestatement. Non-monetary assets and liabilities that are measured in terms ofhistorical cost in a foreign currency are translated using the exchange rate atthe date of the transactions. Non-monetary assets and liabilities denominated inforeign currencies that are stated at fair value are translated to sterlingusing exchange rates ruling at the date the fair value was determined. (ii) Financial statements of non-sterling operations - The assets and liabilities of operations whose functional currency is not sterling, including fair value adjustments arising on consolidation, are translated to sterling at exchange rates ruling at the balance sheet date. The revenues and expenses of these operations are translated to sterling at rates approximating to the exchange rates ruling at the date of the transactions. Exchange differences arising on retranslation are recognised directly in a separate component of equity, the translation reserve, and are released upon disposal of the non-sterling operation. C. Investment portfolio(i) Recognition and measurement - Investments are recognised and de-recognisedon a date where the purchase or sale of an investment is under a contract whoseterms require the delivery or settlement of the investments. The Group managesits investments with a view to profiting from the receipt of interest anddividends and changes in fair value of equity investments. Therefore, all quotedinvestments and unquoted equity investments are designated as at fair valuethrough profit or loss and subsequently carried in the balance sheet at fairvalue. All investments are initially recognised at the fair value of theconsideration given and held at this value until it is appropriate to measurefair value on a different basis, applying the Group's valuation policies.Acquisition costs are attributed to equity investments and recognisedimmediately in the income statement. (ii) Income(a) Realised profits over value on the disposal of investments is the differencebetween the fair value of the consideration received less any directlyattributable costs, on the sale of equity and the repayment of loans andreceivables, and its carrying value at the start of the accounting period,converted into sterling using the exchange rates in force at the date ofdisposal; (b) Unrealised profits on the revaluation of investments is the movement in thecarrying value of investments between the start and end of the accounting periodconverted into sterling using the exchange rates in force at the end of theperiod; (c) Portfolio income is that portion of income that is directly related to thereturn from individual investments. It is recognised to the extent that it isprobable that there will be an economic benefit and the income can be reliablymeasured. The following specific recognition criteria must be met before theincome is recognised: • Income from loans and receivables 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; • Dividends from equity investments are recognised in the income statement when the shareholders' rights to receive payment have been established to the extent that dividends, paid out of pre-acquisition reserves, adjust the fair value of the equity investment; • Fee income is earned directly from investee companies when an investment is first made and through the life of the investment. Fees that are earned on a financing arrangement are considered to relate to a financial asset measured at fair value through profit or loss and are recognised when that investment is made. Fees that are earned on the basis of providing an ongoing service to the investee company are recognised as that service is provided. Fees payable represent fees incurred in the process to make an investment. D. Fees(i) Advisory fee - An annual advisory fee is payable to the Investment Adviserbased on the Gross Investment Value of the Company. The fee is payable quarterlyin advance and is accrued in the period it is incurred; (ii) Performance fee - The Investment Adviser is entitled to a performance feebased on the Adjusted Total Return generated in the period in excess of aperformance hurdle. The fee is payable annually in arrears and is accrued in theperiod it is incurred. E. Financial assets and liabilitiesShort-term financial assets and short and long-term financial liabilities areused to manage cash flows and overall costs of borrowing. Financial assets andliabilities are recognised in the balance sheet when the relevant Group entitybecomes a party to the contractual provisions of the instrument. (i) Cash and cash equivalents - Cash and cash equivalents in the balance sheetcomprise cash at bank and in-hand and short-term deposits with an originalmaturity of three months or less. For the purposes of the cash flow statement,cash and cash equivalents comprise cash and short-term deposits as defined aboveand other short-term, highly-liquid investments that are readily convertibleinto cash and are subject to insignificant risk of changes in value, net of bankoverdrafts. (ii) Deposits - Deposits in the balance sheet comprise longer-term deposits withan original maturity of greater than three months. (iii) Bank loans, loan notes and borrowings - All loans and borrowings areinitially recognised at the fair value of the consideration received net ofissue costs associated with the borrowings. After initial recognition, these aresubsequently measured at amortised cost using the effective interest method,which is the rate that exactly discounts the estimated future cash flows throughthe expected life of the liabilities. Amortised cost is calculated by takinginto account any issue costs and any discount or premium on settlement. (iv) Derivative financial instruments - Derivative financial instruments areused to manage the risk associated with foreign currency fluctuations of theinvestment portfolio and changes in interest rates on its borrowings. This isachieved by the use of foreign currency contracts, currency swaps and interestrate swaps. Such instruments shall be used for the sole purpose of efficientportfolio management. All derivative financial instruments are held at fairvalue. Derivative financial instruments are recognised initially at fair value on thecontract date and subsequently re-measured to the fair value at each reportingdate. The fair value of forward exchange contracts is calculated by reference tocurrent forward exchange contracts for contracts with similar maturity profiles.The fair value of currency swaps and interest rate swaps is determined withreference to future cash flows and current interest and exchange rates. Allchanges in the fair value of derivative financial instruments are taken to theincome statement. F. Other assetsAssets, other than those specifically accounted for under a separate policy, arestated at their cost less impairment losses. They are reviewed at each balancesheet date to determine whether there is any indication of impairment. If anysuch indication exists, the asset's recoverable amount is estimated based onexpected discounted future cash flows. Any change in levels of impairment isrecognised directly in the income statement. An impairment loss is reversed atsubsequent balance sheet dates to the extent that the asset's carrying amountdoes not exceed its carrying value, had no impairment been recognised. G. Other liabilitiesLiabilities, other than those specifically accounted for under a separatepolicy, are stated based on the amounts which are considered to be payable inrespect of goods or services received up to the balance sheet date. H. Equity instrumentsEquity instruments issued by the Group are recognised at the proceeds or fairvalue received with the excess of the amount received over nominal value beingcredited to the share premium account. Direct issue costs net of tax arededucted from equity. I. ProvisionsProvisions are recognised when the Group has a present obligation of uncertaintiming or amount as a result of past events, and it is possible that the Groupwill be required to settle that obligation and a reliable estimate of thatobligation can be made. The provisions are measured at the Directors' bestestimate of the amount to settle the obligation at the balance sheet date, andare discounted to present value if the effect is material. Changes in provisionsare recognised in the income statement for the period. J. Income taxesIncome taxes represent the sum of the tax currently payable, withholding taxessuffered and deferred tax. Tax is charged or credited in the income statement,except where it relates to items charged or credited directly to equity, inwhich case the tax is also dealt with in equity. The tax currently payable is based on the taxable profit for the period. Thismay differ from the profit included in the Consolidated income statement becauseit excludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates and laws thathave been enacted or substantively enacted by the balance sheet date. Directors' responsibility statementThe Directors confirm to the best of their knowledge that: a) the condensed set of financial statements have been prepared in accordance with IAS 34 as adopted by the European Union; and b) the interim management report includes a fair review of the information as required by the FSA's Disclosure and Transparency Rules (4.2.7 R and 4.2.8 R). The Directors of 3i Infrastructure Limited and their functions are listed below. By order of the BoardPeter Sedgwick - Non-executive ChairmanPhil Austin - Non-executive DirectorMartin Dryden - Non-executive Director and Chairman of Audit CommitteePeter Wagner - Non-executive DirectorPaul Waller - Non-executive DirectorSteven Wilderspin - Non-executive Director21 November 2007 Portfolio valuation methodology A description of the methodology used to value the portfolio of 3iInfrastructure and its subsidiaries ("the Group") is set out below in order toprovide more detailed information than is included within the accountingpolicies and the Investment Adviser report for the valuation of the portfolio.The methodology complies in all material aspects with the "International PrivateEquity and Venture Capital valuation guidelines" which are endorsed by theBritish Venture Capital Association and the European Venture CapitalAssociation. Basis of valuationInvestments are reported at the Directors' estimate of Fair Value at thereporting date. Fair Value represents the amount for which an asset could beexchanged between knowledgeable, willing parties in an arm's length transaction. GeneralIn estimating Fair Value, the Directors seek to use a methodology that isappropriate in light of the nature, facts and circumstances of the investmentand its materiality in the context of the overall portfolio. The methodologythat is the most appropriate may consequently include adjustments based oninformed and experience-based judgments, and will also consider the nature ofthe industry and market practice. Methodologies are applied consistently fromperiod to period except where a change would result in a better estimation ofFair Value. Given the uncertainties inherent in estimating Fair Value, a degreeof caution is applied in exercising judgments and making necessary estimates. Quoted investmentsQuoted investments are valued at closing bid price at the reporting date. Inaccordance with International Financial Reporting Standards, no discount isapplied for liquidity of the stock or any dealing restrictions. There arecurrently no quoted investments held in the portfolio of the Group. Unquoted investmentsUnquoted investments are valued using one of the following methodologies: - Discounted Cash Flow ("DCF") - Limited Partnership share of fund net assets - Expected sales proceeds - Cost less any provision required DCFDCF is the primary basis for valuation. In using the DCF basis, Fair Value isestimated by deriving the present value of the investment using reasonableassumptions and estimation of expected future cash flows and the terminal valueand date, and the appropriate risk-adjusted discount rate that quantifies therisk inherent to the investment. The discount rate will be estimated for eachinvestment derived from the market risk-free rate, a risk-adjusted premium andinformation specific to the investment or market sector. LP share of fund net assetsWhere the Group has made investments into other infrastructure funds the valueof the investment will be derived from the Company's share of net assets of thefund based on the most recent reliable financial information available from thefund. Where the underlying investments within a fund are valued on a DCF basisthe discount rate applied may be adjusted by the Company to reflect itsassessment of the most appropriate discount rate for the nature of assets heldin the fund. Expected sales proceedsThe expected sales proceeds methodology will be used in cases where offers havebeen received as part of an investment sales process. This may either supportthe value derived from another methodology or may be used as the valuation. AMarketability Discount would be applied to the expected sale proceeds to derivethe valuation where appropriate. Cost less provisionAny investment in a company that has failed or, in the view of the Board, isexpected to fail within the next 12 months, has the equity shares valued at niland the fixed income shares and loan instruments valued at the lower of cost andnet recoverable amount. Note AThe interim report 2007 will be posted to shareholders on 30 November 2007. Note BThe interim dividend will be payable on 19 December 2007 to holders of ordinaryshares on the register on 30 November 2007. The ex-dividend date will be 28November 2007. This information is provided by RNS The company news service from the London Stock Exchange