BBGI Global Infrastructure Regulatory News (BBGI)

30 March 2023

BBGI Global Infrastructure S.A.

(the "Company")

Annual Results for financial year ended 31 December 2022

The information contained within this Announcement is deemed by the Company to constitute inside information. Upon the publication of this Announcement via a Regulatory Information Service this inside information is now considered to be in the public domain.

BBGI ANNUAL REPORT 2022

bb-gi.com

"Our purpose is to deliver social infrastructure for healthier, safer and more connected societies, while creating sustainable value for all stakeholders"

Our vision: We invest to serve and connect people.

Our values:

Trusted to deliver.

Dependable partner.

Investor with impact.

Present-focused, future-ready.

About BBGI

BBGI Global Infrastructure S.A. (BBGI, the 'Company', and together with its consolidated subsidiaries, the 'Group') is a global infrastructure investment company helping to provide the responsible capital required to build and maintain critical social infrastructure[i].

From hospitals to schools, to affordable housing and safer roads, we partner with the public sector to deliver social infrastructure that forms the building blocks of local economies, while creating sustainable value for all stakeholders.

Financial Highlights[ii]

Portfolio Highlights

§ Strong operational performance of our globally diversified portfolio of 56 high-quality, 100 per cent availability-style infrastructure assets.

§ Contracted high-quality inflation linkage of 0.5 per cent[iv] resulting in a £76 million increase in NAV.

§ Robust portfolio performance has enabled an upward revision of previously announced dividend targets for 2023 and 2024.

§ Cash receipts ahead of expectations, with no material lockups or defaults.

§ Consistently high level of asset availability rate of 99.9 per cent maintained.

§ Net debt position on an Investment Basis of £26.3 million, with £57.5 million drawn under the revolving credit facility ('RCF').

§ Discount rate increased from 6.6 per cent to 6.9 per cent, reflecting an equity risk premium of c. 3.1 per cent.

§ Published Net Zero Plan for BBGI and for our Portfolio Companies.

§ Two new availability-style investments totalling £64 million.

§ Attractive pipeline of availability-style investments in Europe, North America, and Australia, maximising the benefits of strategic investment partnerships with leading contractors.

§ Socially beneficial investment under SFDR's Article 8.

Portfolio at a Glance

The fundamentals

Based on portfolio value as at 31 December 2022.

Investment type

100 per cent availability-style[v] revenue stream.

Investment status

Low-risk operational portfolio.

Geographical split

Geographically diversified in stable developed countries.

Sector split

Well-diversified sector exposure with large allocation to lower-risk availability-style road and bridge investments.

Investment life

Long investment life with 49 per cent of portfolio by value with a duration of greater than or equal to 20 years; weighted average life of 20.2 years. Average portfolio debt maturity of 16.3 years.

Top-five investments

Well-diversified portfolio with no major single asset exposure.

Investment ownership

79 per cent of assets by value in the portfolio are 50 per cent owned or greater.

Country rating

All assets located in countries with ratings between AA and AAA[vi].

Projected portfolio cash flow

The Company's underlying assets generate a consistent and long-term stream of cash flows for the portfolio, extending up to 2051. These cash flows are predictable, owing to the involvement of government or government-backed counterparties and the contractual nature of the agreements. Additionally, the index-linked provisions offer an attractive inflation linkage of approximately 0.5 per cent, contributing £76 million to the Net Asset Value (NAV) during the year.

The investments made over the year to 31 December 2022 contributed positively to stable long-term cash flows. Based on current estimates, and if there were to be no further acquisitions, the existing portfolio is forecasted to enter into the capital repayment phase in September 2040, after which cash inflows from the portfolio would be paid to the Company's shareholders as capital and the portfolio valuation will reduce as assets reach the end of their concession term.

As at 31 December 2022, BBGI had a weighted average portfolio life of 20.2 years, a decrease of 0.1 years compared with 31 December 2021. By prioritising the acquisition of assets with a long residual life, BBGI has been able to maintain a portfolio with a long weighted average life, which has only slightly decreased since our IPO in 2011.

This illustrative chart is a target only, as at 31 December 2022, and is not a profit forecast. There can be no assurance this target will be met. The hypothetical target cash flows do not consider any unforeseen costs, expenses or other factors that may affect the portfolio assets and therefore the impact on the cash flows to the Company. As such, the graph above should not in any way be construed as forecasting the actual cash flows from the portfolio. There are minor cash flows extending beyond 2051 but for illustrative purposes, these are excluded from the chart above.

Chair's Statement

On behalf of the Supervisory Board, I am pleased to report a strong financial and operational performance for 2022. Despite a volatile geopolitical backdrop and challenging macroeconomic environment, characterised by global increases in inflation and interest rates and general market uncertainty, our Company has remained resilient throughout the year; we continued to generate predictable, high-quality inflation-linked income, increased dividends, and secure returns for our shareholders.

Overview of strong financial and operational performance for 2022

We have continued to execute successfully on our low-risk investment strategy, which has resulted in an NAV per share increase of 6.6 per cent this year to 149.9 pence, cash flows ahead of expectations, a dividend per share of 7.48 pence and strong dividend cover of 1.47x.

This strong performance, coupled with the long-term predictable nature of the Company's cash flows and high-quality inflation linkage, gives us continued confidence in our progressive dividend policy. As a result, we have revised our dividend targets for the years 2023 and 2024, increasing the growth rate from 2 per cent to 6 per cent, ensuring our shareholders benefit from the increased value created by our high-quality, inflation-linked portfolio.

ESG is embedded in our DNA and I am proud of BBGI's role as a steward of critical social infrastructure. We help meet the essential needs of communities and make a positive, long-term impact on society and the economy. Our purpose is to focus on delivering social infrastructure for healthier, safer, and more connected societies, while creating sustainable value for all stakeholders. During 2022, we continued to further embed our ESG commitments as part of our sustainability journey.

Further strengthening our robust approach to governance

As an internally-managed investment company, having robust controls is of key importance to securing the sound financial and operational performance of our investments over the short and long term.

We continue to refine our rigorous approach to governance and, over the past year, have reviewed the annual plans for our Committees, to ensure they continue to provide sufficient depth to our governance process and effectiveness.

With all of our Supervisory Board members being independent Non-Executive Directors, we continue to be compliant with all the AIC Corporate Governance requirements on Board and Director independence and we operate a clear division of responsibilities between the Supervisory Board and the Management Board.

Effective engagement with our stakeholders is a major part of our long-term success and sustainability. As part of this both I, and the Chairs of each Committee of the Supervisory Board, make ourselves available to speak to shareholders and to all stakeholders more generally throughout the year.

Further enhancing our Board and increasing diversity

In 2022, we welcomed Andrew Sykes and June Aitken as new Supervisory Board members. We have already benefitted from the fresh perspectives they bring to the Board. Andrew Sykes has succeeded Howard Myles as Senior Independent Director and Chair of our Remuneration Committee. Both appointments have helped to ensure that we have a diverse, well-balanced, and experienced Supervisory Board and Committees, which will continue to effectively serve our shareholders in carrying out our duties of oversight of the Company and Management Board.

We are strongly supportive of the various initiatives and regulatory changes to encourage greater gender and ethnic equality in publicly listed corporate entities, including the FTSE Women Leaders and Parker Reviews. We are proud that 60 per cent of our Supervisory Board members are female, and that we are one of the few FTSE 350 companies to have both a female Supervisory Board Chair and a female Audit Committee Chair. As part of our ongoing commitment to foster, cultivate and preserve a culture of diversity, equity and inclusion, we keep our policies on diversity, equity and inclusion under review.

Positive outlook

Despite the wider market volatility, we remain confident that our high-quality, resilient, and globally diversified portfolio will continue to deliver solid returns notwithstanding increased economic headwinds and market uncertainty. Global mega-trends, such as urbanisation, combined with the increased need for private sector funding of global infrastructure investment, are positive drivers for BBGI. The Management Board continues to use its specialist knowledge, industry relationships and networks to source attractive investment opportunities for our pipeline. Our internal management structure helps to create the proper incentives for the Management Board to focus on enhancing the value of our portfolio and growing BBGI in an accretive and disciplined manner - our priority is to create sustainable value for all our stakeholders.

I would like to thank the entire BBGI team for their work in delivering another strong year for our shareholders - despite the challenging wider market backdrop - as well as our clients, partners and service providers, who continue to support us in providing a critical role in our communities.

Sarah Whitney

Chair

29 March 2023

Co-CEOs' Statement

The Company performed strongly in 2022 and continued to deliver on our vision: to serve and connect people. We're proud of our consistently robust performance since our IPO in 2011: our NAV per share has increased each year for the past 11 years and we remain confident that BBGI is well positioned to continue to deliver sustainable attractive value for all stakeholders over the short and long term. 

Global markets in 2022 have been challenging for investors and companies alike, yet this environment has highlighted the clear benefits of our low-risk and defensive, availability-style investment strategy. The volatile and uncertain economic and geopolitical backdrop has resulted in significant global increases in inflation, rising interest rates and potentially recessionary environments.

Yet through our consistent, disciplined approach to active asset management and prudent financial management, we have continued to deliver strong financial results and robust portfolio performance throughout the year, with cash flows ahead of expectations and further dividend growth for our shareholders.

Our high-quality inflation linkage is forecast to deliver higher distributions over the short term. This has enabled us to increase our dividend targets for 2023 and 2024 to 7.93pps and 8.40pps respectively, representing a 6 per cent increase year on year. Furthermore, we are introducing a new dividend target for 2025 of 8.57pps.

Our priorities remain to preserve and enhance the value of our portfolio, acting as a steward of essential infrastructure for our public sector clients, with a strong focus on delivering positive social impact and supporting communities and economic growth. ESG is integrated into our business model and executive compensation is also linked to ESG performance.

Our globally diversified infrastructure portfolio includes education, healthcare, blue light (fire and police), affordable housing, modern correctional facilities, clean energy and transport assets, which all generate secure government-backed cash flows with high-quality inflation linkage.

Highlights

Our globally diversified infrastructure portfolio of 56 assets performed strongly:

We would like to thank our team once again for their hard work over the past year. Their dedication and approach are outstanding and remain a fundamental part of our success.

Strong business model and resilient portfolio

Our robust and defensive business model exemplifies our prudent and low-risk approach to investing, generating long-term value for all our stakeholders. We offer investors a long-term, contracted, stable and predictable revenue stream with high-quality inflation linkage, underpinned by highly rated, creditworthy public sector counterparties.

We remain the only internally managed LSE-listed equity infrastructure investment company, which ensures that our interests are fully aligned with those of our shareholders. We are led by creating shareholder value first and portfolio growth second. In 2022, we again maintained the lowest comparative ongoing charge of 0.87 per cent through our efficient and cost-effective structure[vii].

Our core criteria for our portfolio are availability-style assets; with government-backed counterparties; located in highly-rated investment-grade countries with stable, well-developed operating environments; climate resilient; and high-quality inflation linkage.

'Availability-style' unlike 'demand-based' means that revenues are paid provided the asset is available for use. BBGI has no exposure to demand-based or regulated investments. At the year-end, BBGI's investment portfolio was 99.5 per cent operational, with only one asset under construction.

We invest in countries with credit ratings between AA and AAA, in Australia, Canada, Germany, the Netherlands, Norway, the UK and the US. All have stable operating environments, with independent and proven legal systems.

Value-driven active asset management

We focus on operational performance to drive efficiencies and generate portfolio optimisations and take a hands-on approach to preserving and enhancing the value of our investments, delivering well-maintained infrastructure for communities and end-users, and stable attractive returns for shareholders. Throughout 2022, we worked closely with our public sector clients to ensure the continued smooth functioning of essential social infrastructure. Building and maintaining strong client relationships is an important part of our business, and our asset management team meets regularly with our public sector clients.

Our active asset management activities during 2022 included applying high-quality corporate governance frameworks, which helped enable us to maintain our track record of no reported lock-ups or material defaults at any of our Portfolio Companies, and generating a consistently high asset availability rate of 99.9 per cent.

Selective acquisition strategy

We pursue growth that is accretive to shareholder value, not just for growth's sake, and we have maintained a long-weighted, average portfolio life of over 20.2 years. We source transactions through our extensive industry relationships and networks and we finance investments using our existing cash resources and RCF.

During 2022, we successfully grew and further diversified our portfolio, while maintaining strategic discipline in our acquisition strategy and portfolio construction. As with previous years, we assessed considerably more investments in 2022 than we pursued. We invested approximately £64.4 million in two availability-style assets.

In February 2022, we completed our investment in the entity responsible for delivering the 132 MW John Hart Generating Station in Canada, which is a PPP hydroelectric power station. We are not exposed to any power price risk. This renewable energy infrastructure has strong environmental credentials, helping to provide clean energy to over 80,000 homes on Vancouver Island, British Columbia.

In September 2022, we acquired a 49 per cent equity interest in the A7 motorway between Bordesholm and Hamburg in Germany, which will help minimise any increase in exhaust emissions from the higher traffic load by reducing congestion and traffic jams. We screened both investments for ESG factors, including their alignment with our selected UN Sustainable Development Goals ('SDGs'), and climate-change resiliency.

We continue to evaluate acquisition opportunities according to our criteria, and take a selective and disciplined approach to evaluating potential investment opportunities. Transaction volumes in 2022 were impacted as we entered a 'price discovery phase' between buyers and sellers. However, we are still seeing strong demand from investors for long-term, stable and inflation-linked income, and there is an attractive pipeline of acquisition opportunities in our availability-style sector. There is also potential to augment our portfolio with select opportunities in adjacent sectors with the same low-risk profile, such as investments in European primary care. This sector is very similar to our Local Improvement Finance Trust ('LIFT') investments, where we already own over 30 primary care facilities in England.

Valuation - high-quality inflation linkage, discount rates and deposit rates

During 2022, inflation and interest rates have increased in all jurisdictions where BBGI invests. The rise in long-term interest rates had an impact on discount rates, but it has become clear that not all asset classes perform identically in a rising interest rate environment. 

Our equity cash flows are positively linked to inflation at approximately 0.5 per cent: if long‑term inflation is one per cent higher than our assumptions for all future periods, returns will increase from 6.9 per cent to 7.4 per cent. In the reporting period, the effect of actual inflation and our updated short-term inflation forecast resulted in a £76 million increase in the NAV.

We achieve this high-quality inflation linkage through contractual indexation mechanics in our project agreements with our public sector clients at each Portfolio Company, and update the inflation adjustment at least annually. We pass on the indexation mechanism to our subcontractors - on whom we rely to support our assets' operations - and this provides an inflation cost hedge to effectively manage our cost base.

The weighted average discount rate applied to our portfolio increased from 6.6 per cent to 6.9 per cent, reflecting an equity risk premium of c. 3.1 per cent over the longer-term weighted average government bond yields. Actual and projected inflation rates also increased and, coupled with higher actual and forecasted deposit rates for money held on deposit at Project Company level, have more than offset any negative effects on the NAV from rising discount rates. The sensitivity analysis in the Valuation section of this Annual Report illustrates the effect of this combined movement on our NAV, in a scenario where we experience discount, inflation, and deposit rate rises across our portfolio. Additionally, we have included a scenario of a two-percentage point higher inflation rate over the next three years, compared to our forecast assumptions.

Prudent financial management

We ended the year with a net debt position of £26.3 million, with £57.5 million cash borrowings outstanding under our £230 million RCF. The RCF, which has the possibility, under its accordion tranche, to be increased by a further £70 million, matures in May 2026. As a principle, we only draw on our RCF to finance new acquisitions, giving our shareholders maximum certainty of securing our pipeline. We manage market liquidity risk by maintaining adequate cash and cash equivalents for day-to-day and medium-to-long-term capital needs. Borrowings in underlying entities are non-recourse, and - with minor exceptions only - borrowing costs are fixed and amortising over the period of our ownership of each respective asset, which leaves BBGI with minimal refinancing risk.

Risk management

Our approach to risk management remains unchanged and there has been no material movement in our risk profile over the past year. Our portfolio is not directly impacted by the events in Ukraine or energy price rises.

In the current macroeconomic environment, a key risk for BBGI would be further interest rate increases and the associated impact on discount rate and NAV, although this is expected, at least, to be partly offset by higher than forecasted deposit rates and inflation-linked income. For further information, please see the sensitivity in the Valuation section and the Risk section.

While there is an elevated inflationary environment in all our jurisdictions, we mitigate this risk in our portfolio by seeking to match the indexation of revenues and costs.

With approximately two-thirds of our portfolio outside the UK, BBGI is exposed to foreign-exchange volatility. We have a prudent hedging policy aimed at mitigating foreign exchange risk and it has worked well to limit the NAV impact from movements against Sterling, the Group's reporting currency. We operate a four-year portfolio distribution hedging policy, and a one-year rolling balance sheet hedging approach. We aim to limit the impact of foreign exchange volatility of the NAV to 3 per cent, if all currencies move against Sterling by 10 per cent.

Environmental, Social and Governance ('ESG') progress

The landscape for responsible investment has shifted markedly since 2011 and, as stewards of important social infrastructure investments, we continue to evolve the reporting and monitoring of our ESG performance, with ESG considerations fully integrated into our business model.

We align with the Sustainable Finance Disclosure Regulation ('SFDR') Article 8 product classification, promoting social characteristics. SFDR provides a framework for transparency for companies that make a genuine contribution to sustainable outcomes.

We disclose information in line with the Task Force on Climate-Related Financial Disclosures ('TCFD') recommendations and the UN Global Compact ('UNGC'). We also align with the UN SDGs as an integral part of our approach to ESG. We are committed to the UNGC's Ten Principles and are a signatory to the Net Zero Asset Manager's Initiative. Our Portfolio Companies are also expected to contribute to the objectives of the Paris Agreement and we are in the process of compiling a Greenhouse Gas ('GHG') inventory for all our Portfolio Companies, by mid-2023. This will be consistent with the GHG Protocol, and will include Scope 1, 2 and material Scope 3 emissions.

Our published Net Zero Plan for BBGI and key goals at the corporate level and for our Portfolio Companies includes the following:

· Reduce our corporate GHG emissions by 50 per cent by 2030, embedded in our executive remuneration targets.

· Net zero corporate GHG emissions by 2040.

· Report Scope 1, 2 and material Scope 3 emissions at all of our Portfolio Companies from June 2023 onwards.

· 70 per cent of our Portfolio Companies by value to be 'net zero', 'aligned', or 'aligning'[viii], by 2030, embedded in our executive remuneration targets. This means that by 2030, 70 per cent of our assets under management (portfolio companies by value) will have a long-term goal to be net zero by 2050 or sooner.

Looking ahead

We are well placed to benefit from ongoing strong demand for public infrastructure. Government debt has escalated due to COVID-19 mitigation measures and soaring energy prices in Europe, and the debt-to-GDP ratio and risk-free rates have risen in almost all our jurisdictions.

Against this backdrop, the scope for government-financed infrastructure investments is limited, and governments worldwide are expected to seek private financial support to meet community demand to deliver essential infrastructure.

Our strong financial and operational performance over 2022 has reinforced the attractions of our asset class, particularly for investors looking for stable and predictable cash flows, dividend growth, and assets with high-quality inflation linkage and low correlation to other asset classes.

We remain confident that our reputation as a specialist investor in low-risk global infrastructure, and our well-established relationships with key vendors, will allow us to continue to source attractive and accretive investment opportunities.

In an uncertain world, we firmly believe in BBGI's ability to continue to deliver positive and sustainable value for all stakeholders over the short and longer term. We sincerely thank our shareholders for their support over the past year and look forward to the future with confidence.

Duncan Ball Frank Schramm

Co-CEO Co-CEO

29 March 2023

On behalf of the Management Board

Our Investment Strategy

BBGI provides access to a globally diversified portfolio of infrastructure investments, which generate long-term and sustainable returns and serve a critical social purpose in their local communities.

BBGI's portfolio is well-diversified across sectors in education, healthcare, blue light (fire and police), affordable housing, modern correctional facilities, clean energy and transport infrastructure assets. Our business model is built on four strategic pillars: (i) low risk, (ii) globally diversified, (iii) strong ESG approach and (iv) internally managed.

Low-risk

· Availability-style investment strategy.

· Secure, public sector-backed contracted revenues.

· Stable, predictable cash flows, with high-quality inflation linkage and progressive long-term dividend growth.

Globally diversified

· Focus on highly rated investment grade countries.

· Stable, well-developed operating environments.

· A global portfolio, serving society through supporting local communities.

Strong ESG approach

· ESG fully integrated into the business model.

· Focus on delivering positive social impact - SFDR Article 8[ix] - and high degree of climate resilience.

· Executive compensation linked to ESG performance.

Internally managed

· In-house management team focused on delivering shareholder value first, portfolio growth second.

· Management interests aligned with those of shareholders.

· Strong pricing discipline and portfolio management.

· Lowest comparative ongoing charges[x].

Consistent delivery of objectives

1 - Robust shareholder returns

2 - Low correlation to other asset classes

3 - Sustainable growth

Operating Model

We follow a proven operating model based on three principles: value-driven active asset management, prudent financial management and a selective acquisition strategy to preserve and create value, achieve portfolio growth and ensure ESG considerations are embedded in our processes. These operational pillars are fundamental to our success.

We ensure stable operational performance through an active asset management approach, where we actively seek to preserve value and, where possible, identify and incorporate value enhancements over the lifetime of the assets under our ownership. Our approach aims to reduce costs to our public sector clients and asset end-users, and to enhance the operational efficiency of each asset. It also allows us to generate a high level of asset availability, underpinning the social purpose of our portfolio.

Our prudent financial management focuses on efficient cash and corporate cost management and implementing our foreign exchange hedging strategy. Our portfolio's wide geographical diversification results in exposure to multiple currencies. We actively seek to manage geographical concentration and mitigate foreign exchange risk.

We pursue a selective acquisition strategy, so our Management Board's focus remains within its area of expertise, and we uphold the strategic pillars defined by our investment proposition. We actively seek acquisitions with long-term, predictable and inflation-protection characteristics that support the portfolio's contracted, high-quality, inflation linkage of 0.5 per cent.

Value-driven active asset management

We pursue a standardised approach across our portfolio to preserve value, to derive operational and value enhancements, and to improve customer experience including:

· Strong client relationships, by prioritising regular meetings to achieve high rates of client satisfaction.

· Focused asset management, to ensure distributions are on time, and on or above budget.

· Focused cost management and portfolio-wide cost-saving initiatives, to leverage economies of scale or outperform the base case, such as portfolio insurance and standardised management contracts for Portfolio Companies, and lifecycle cost reviews.

· Comprehensive monitoring, to ensure we fulfil our contractual obligations.

· Detailed climate risk assessments and ESG KPI tracking tool, which includes over 100 KPIs and questions, and evaluates the governance and non-financial performance of each of our investments.

· Maintaining high availability levels by proactively managing any issues, including site visits to all significant investments.

· Reviewing Portfolio Company debt facilities and investigating potential refinancing benefits.

· Measured exposure to construction risk to support NAV uplift by de-risking assets over the construction period.

Prudent financial management

We focus on cash performance at both the asset and portfolio level to drive efficiencies, including:

· Progressive future dividend growth, underpinned by high-quality inflation linkage and strong portfolio distributions.

· Low ongoing charges through our efficient and cost-effective internal management structure.

· Managing and mitigating foreign exchange risk through our hedging strategy: hedging forecast portfolio distributions, balance sheet hedging through foreign exchange forward contracts, and borrowing in non-Sterling currencies.

· Euro-denominated running costs, which provide a natural hedge against Euro-denominated portfolio distributions.

· Efficient treasury management system for cash in the underlying Portfolio Companies to maximise interest income on deposits.

· Maintaining modest cash balances at the corporate level to limit cash drag, facilitated through access to the RCF.

Selective acquisition strategy and strategic investment partnership

We maintain strategic discipline in our acquisition strategy and portfolio composition to ensure we pursue growth that builds shareholder value, not just for growth's sake, including:

· Broad industry relationships throughout multiple geographies.

· Pre-emption rights to acquire co-shareholders' interests.

· Visible pipeline through a North American strategic partnership.

· Global exposure to benefit from geographical diversification.

· Robust framework embedding ESG principles into investment due diligence.

· Revolving corporate debt facility to support transaction execution.

· Focus on the Management Board's core areas of expertise.

We continue to leverage strong relationships with leading construction companies to source potential pipeline investments, which support our low-risk and globally diversified investment strategy.

Typically, these contractors have secured the mandate to design and build new assets but continue to look to divest financially after the construction period has finished - thereafter often maintaining facility management contracts through a long-term partnership. BBGI is an attractive partner for several reasons:

· Our cost of capital is typically lower than construction companies, so involving BBGI can make the bid more competitive.

· We are a long-term investor with a publicly-listed status, which is attractive to government and government-backed counterparties.

· We are considered a reliable source of liquidity should a construction partner decide to sell.

· Having a financial partner is a prerequisite for some construction companies so they can avoid consolidating the Portfolio Company debt onto the balance sheet of their parent company.

· We have extensive asset credentials and a strong track record, which can assist with the shortlisting process for new projects.

Portfolio Review

Portfolio summary

The Company's investments as at 31 December 2022 consisted of interests in 56 high-quality, availability-style social infrastructure assets, 99.5 per cent of which are fully operational (by portfolio value). The portfolio has no exposure to demand-based or regulated investments, and is diversified across sectors in education, healthcare, blue light (fire and police), affordable housing, modern correctional facilities, clean energy and transport infrastructure assets.

Located in the UK, North America, Australia and Continental Europe, all Portfolio Companies are in stable, well-developed and highly-rated investment grade countries.

Portfolio breakdown*

For portfolio statistics, refer to the Portfolio at a Glance section of this Annual Report.

*In alphabetical order

Operating model in action

Preserving and enhancing value through active asset management

During 2022, the portfolio value increased by approximately £148 million[xi] from the rebased value, driven largely by the net effect of actual inflation and a change in the short-term forecast for inflation and deposit rates forecast, the positive net effect of foreign exchange and the portfolio performance resulting from our hands-on active asset management approach.

Our active value-driven approach to asset management and the robustness of our portfolio meant that the availability level of the Company's assets was recorded at approximately 99.9 per cent and any deductions were either borne by third-party facility management companies and road operators, or were part of planned expenditures.

There were no material lock-ups or default events reported during the year and we are very proud of this achievement.

High-quality inflation linkage

During the year, BBGI's strong financial and operational performance was partly due to inflation exceeding forecast assumptions in all regions where the Company is active. The total inflation effect was £76 million, with shareholders benefitting from BBGI's high-quality cash flow correlation with inflation linkage at 0.5 per cent, especially in a rising interest rate environment.

BBGI has a portfolio of 56 availability-style assets with government or government-backed counterparties, which have contractual income streams. The obligations of these contracts are underpinned by Project Agreements, with each agreement being unique but generally following a standard approach. Project Agreements typically include either partial or full indexation to an appropriate inflation factor to compensate for increasing costs over the life of the concession.

The Portfolio Companies enter into facilities management and operating subcontracts that mirror the inflation arrangements contained in the Project Agreement. In the UK, Project Agreements tend to have a Retail Price Index ('RPI') adjustment factor, while other regions commonly use Consumer Price Index ('CPI') indexation. However, some Project Agreements have bespoke inflation indexes that reflect expected operations and maintenance costs.

The extent of a Portfolio Company's linkage to inflation is determined by the portion of income and costs linked to inflation. In most cases, cash flows are positively inflation-linked as the indexation of revenues is greater than the indexation of expenses.

The high-quality and defensive nature of the Company's inflation linkage are underpinned by:

Contractual increases: The adjustment for inflation is a contractual component of the 100 per cent availability-style cash flows for each Portfolio Company, and is supported by creditworthy government or government-backed counterparties in AA to AAA-rated countries. The Company does not invest in demand-based assets. Although such assets may seem to offer a strong theoretical inflation linkage (e.g. the ability to raise prices in response to an increase in CPI), they are likely still subject to changes in elasticity of demand. Toll roads and student accommodation projects are examples of such assets, which may have the potential to increase prices in response to an increase in CPI, but may be hindered by market demand from increasing revenue, while costs may simultaneously rise.

Protection against rising costs: The Company transfers the indexation mechanism to its subcontractors, who are crucial in supporting the operations of our assets. This arrangement serves as an inflation cost hedge, which helps the Company to efficiently control its cost base. Similarly, in most cases, the risk of energy costs increases rests with the public sector client or has been passed down to the subcontractor.

Not dependent on regulatory review: The inflation adjustment is automatic and contractual and is not subject to regulatory review. Once the relevant reference factor is published, the adjustment is mechanical.

Portfolio approach: The Company's inflation linkage comes from diverse Portfolio Companies in different countries.

Prudent financial management

Our assets performed well during the reporting period with cash receipts during the year ahead of business plan. This robust performance and the confidence in the business model allowed the Company to achieve its dividend target of 7.48pps for 2022, increase our dividend targets of 7.93pps and 8.40pps for 2023 and 2024 respectively, as well as introduce a new dividend target of 8.57pps for 2025.

Cash receipts during the year allowed the Company to achieve a strong dividend cover of 1.47x. The predictable nature of our cash flows allows for high visibility for future dividends, and therefore gives us the confidence to revise our dividend targets and extend our dividend guidance to 2025, with dividends expected to be fully cash covered.

During the year, we continued to implement our hedging strategy, which seeks to hedge 100 per cent of projected non-Sterling and non-Euro portfolio distributions over the next four years. Additionally, in November 2022, we executed balance sheet hedges to limit our NAV exposure to fluctuations in foreign exchange rates.

The Company has efficient cash management in place which aims to avoid cash drag. This includes using the proven financing methodology of drawing on its RCF before raising new equity to repay the temporary debt. The committed amount of the RCF is £230 million, which matures in May 2026. Furthermore, there is the possibility to increase the quantum to £300 million by means of an accordion provision. This enables the Company to execute larger acquisitions in an efficient manner and to be a trusted and repeat partner in its key markets.

With £57.5 million drawn under the RCF, the net debt position on an Investment Basis as at 31 December 2022 was £26.3 million.

Selective acquisition strategy

Successful acquisitions

During the year, we continued to pursue a selective acquisition strategy, investing approximately £64.4 million, including interests in two new projects both of which earn availability-based revenue in return for providing essential public services. This disciplined approach demonstrates the Management Board's commitment to avoiding style drift and evidences how BBGI's strong industry relationships and nimble operating model continue to realise a pipeline of acquisition opportunities, with the Management Board having assessed many more potential opportunities than those acquired. Although the Company received invitations to bid on several transactions over the year, the Management Board declined opportunities that were not accretive in terms of inflation linkage, yield or residual life.

The two new investments were:

· John Hart Generating Station Replacement Project (Canada): In February 2022, BBGI completed the acquisition of an investment in InPower BC General Partnership, the entity responsible for delivering the John Hart Generating Station Replacement Project (John Hart Generating Station), an investment delivered through the existing strategic partnership between the Company and SNC-Lavalin Group Inc. The PPP consists of the design, construction, financing, maintenance and rehabilitation of a new three-turbine, 132 MW hydroelectric power generation station on the Campbell River, British Columbia, including a three generating unit underground powerhouse, 2.1 kilometres of water passage tunnels and a water bypass system to protect downstream fish habitat. The acquisition price was approximately £24 million.

Service commencement was achieved in 2019 and the concession runs until 2033. The asset is classified as availability-style under the investment policy of the Company. The investment is not subject to demand or power price risk. Availability payments are received from the British Columbia Hydro & Power Authority (rated AA/Aaa by DBRS Morningstar and Moody's respectively), a Crown corporation wholly-owned by the Government of British Columbia. The station generates clean and reliable energy for over 80,000 homes.

· A7 Motorway (Germany): In September 2022, BBGI completed the acquisition of a 49 per cent interest in Via Solutions Nord GmbH & Co. KG, the project company for the A7 motorway PPP near Hamburg in Germany. The asset is classified as availability-based under the investment policy of the Company and aligns with BBGI's ESG principles.

The project consists of the design, construction, financing, operation, maintenance and rehabilitation of 65 kilometre widening of a section of the A7 motorway between Neumünster and Hamburg. The project includes 11 interchanges, six parking facilities and four rest areas, various civil engineering structures and a 550-metre noise enclosure tunnel. Availability payments are received from Federal Republic of Germany, represented by the Free City of Hamburg and the Federal State of Schleswig-Holstein, rated AAA/Aaa by S&P and Moody's respectively. Construction completion was achieved in December 2019 and the concession runs until 2044.

The increased efficiency of the A7 motorway will help to minimise any increase in exhaust emissions from the higher traffic load by reducing congestion and traffic jams and is expected to achieve a consistent traffic flow and uniform driving speeds. Environmental impact assessments (EIA) have been performed. During the EIA procedure, all potentially affected Natura 2000 sites, habitats and species have been analysed, including habitats and species placed beyond Natura 2000 sites.

Both projects acquired during the year add to the portfolio's diversification across multiple social infrastructure sectors where the demand for private sector investment remains high.

Strategic investment partnerships

We continue to leverage strong relationships with leading construction companies to source a potential pipeline, which supports our low-risk and globally diversified investment strategy.

Typically, contractors active in the sector have secured the mandate to design and build new assets but often look to divest financially after the construction period has finished - thereafter often maintaining facility management contracts through a long-term partnership. There are several reasons why BBGI is an appealing partner:

· We possess a substantial asset portfolio and a robust performance history.

· As a long-term investor with a publicly-listed status, we are an attractive option for government and government-backed counterparties.

· We are recognised as a trustworthy source of liquidity if a construction partner decides to sell in the future.

One notable relationship is the North American strategic partnership with SNC-Lavalin, which covers four availability-based assets. More details of the projects covered by the pipeline agreement are provided in the Market Trends and Pipeline section of this Annual Report.

Avoiding style drift

As competition to acquire availability-style assets at attractive valuations remains robust, the Company's Management Board consciously works to avoid 'style drift'. This refers to the practice of moving up the risk spectrum, particularly where pricing does not accurately reflect inherent risks, both to find investible assets and to deliver the targeted returns to investors.

The Management Board has made the conscious decision to avoid investing in infrastructure transactions with a demand-based revenue stream, which are typically highly correlated to Gross Domestic Product ('GDP') or subject to uncertainty due to regulatory review periods and political interventions.

We continue to pursue essential social infrastructure assets, which match our low-risk, globally diversified investment strategy and unwavering ESG principles. BBGI has investments in LIFT assets, where BBGI typically owns the land and buildings, and availability payments are fully linked to RPI. We will continue to seek out opportunities to expand and diversify our portfolio of essential social infrastructure by exploring investments with similar features of long-term and inflation-linked revenues tied to public sector counterparties or related to the public sector, whether through long-term concessions or direct asset ownership.

Although this disciplined strategy may occasionally result in periods of slower portfolio growth, we are confident the benefits, such as dependable and consistent income and returns with low volatility, justify its continued implementation. By adhering to our area of expertise, we offer a less complex business proposition, which should result in fewer surprises, and a more predictable and stable return for our shareholders.

Supply chain monitoring

The Management Board continually reviews the potential concentration risk of operations and maintenance ('O&M') contractors that provide counterparty services to the Company's assets. The table illustrates the level of O&M contractor exposure as a percentage of portfolio value[xii] at 31 December 2022.

The Management Board has not identified any significant risk exposure and remains comfortable with the current contractor allocation. The Company benefits from a diverse contractor base and supply chain, with no concentrated exposure, and is supported by a strict supply chain monitoring policy. We regularly monitor the performance of subcontractors and have risk mitigation measures in place to deal with any supply chain issues.

We are pleased to confirm that we have not recorded any material adverse supply chain issues during the year.

Construction defects

The Company routinely monitors the quality of its assets to identify any construction defects early on and, where necessary, to implement the appropriate remediation measures.

The responsibility for, and the cost of remediation and related deductions falls to the relevant construction subcontractor on each asset, subject to statutory limitation periods. This is a key component of the Company's effective counterparty risk management.

Latent defects risk was mitigated during the year with 60 per cent of portfolio value covered by either limitation or warranty periods and there were no material defects reported on any of the Company's portfolio assets.

Portfolio Snapshot - Top Five Assets

Our five largest assets

1) Ohio River Bridges:

· Type: Availability-style

· Status: Operational

· Equity holding (per cent) BBGI: 66.7 per cent

· Total investment volume: US$1.175 billion

· Financial close/operational: March 2013/December 2016

· Concession period: 35 years (post-construction) ending in 2051

The project includes a 760-metre cable-stay bridge; a 500-metre long twin vehicular tunnel and 2.25 kilometres of associated six-lane interstate highway, with more than 21 bridges and multiple roundabout style interchanges. The asset greatly improves connectivity, public safety and economic growth, which benefits residents, businesses and visitors in the Southern Indiana region, particularly for road-users travelling to and from the state of Kentucky.

In October 2021, a US$528 million green bond offering was completed to refinance its existing indebtedness. This transaction allowed the Portfolio Company to optimise its financing costs over the remaining term of the contract thereby further strengthening its financing structure, while also benefiting the public sector client through a reduction in future service payments. Recent environmental initiatives include installing solar panels on the O&M buildings, a commitment to transitioning its fleet of vehicles to reduced-emission and electric-powered, pollinator habitats and other wildlife conservation initiatives, and an organisation-wide recycling programme, to name a few. 

2) Golden Ears Bridge:

· Type: Availability-style

· Status: Operational

· Equity holding (per cent) BBGI: 100 per cent

· Total investment volume (debt and equity): C$1.1 billion

· Financial close/operational: March 2006/June 2009

· Concession period: 32 years (post construction) ending in 2041

Golden Ears Bridge represented the largest private financing for a greenfield PPP in Canada at the time of its launch. The project involves the design, build, financing, operation and maintenance of the Golden Ears Bridge in Vancouver, which is a 1-kilometre, six-lane road that spans the Fraser River and connects Maple Ridge and Pitt Meadows to Langley and Surrey. The road opened in March 2009 and includes more than 3.5 kilometres of ramps, viaducts, minor bridges and underpasses, and more than 13 kilometres of mainline roadway; a large part of which has been landscaped.

The project has brought close to C$1 billion in construction-related activity to the area, while commuters using the bridge now save up to 40 minutes per peak-hour round-trip from Maple Ridge to Langley. In coordination with the asset operator, we have implemented an LED conversion for all project lighting, which has delivered annual energy savings in excess of 380,000 kWh and has reduced carbon dioxide emissions at a rate of 273 metric tons per year.

3) Northern Territory Secure Facilities:

· Type: Availability-style

· Status: Operational

· Equity holding (per cent) BBGI: 100 per cent

· Total investment volume (debt and equity): A$620 million

· Financial close/operational: October 2011/November 2014

· Concession period: 30 years (post-construction) ending in 2044

Located near Darwin, Northern Territory (the 'Territory'), the project involves the design, build, financing, operation and maintenance of three separate centres including: a 1,000-bed multi-classification male and female correctional centre, a 30-bed secure mental health and behavioural management centre (the first of its kind in the Territory), and a 48-bed supported accommodation and programme centre for community-based offenders.

The latter is designed to support the Australian Government's goals of enhanced rehabilitation, education and reduced reoffending rates in the Territory.

The asset is one of the largest social infrastructure projects in the Territory and is the largest PPP ever procured to date. BBGI acquired its initial 50 per cent interest in the asset while it was still in construction and subsequently acquired the remaining 50 per cent stake in July 2015.

4) Victoria Correctional Facilities

· Type: Availability-style

· Status: Operational

· Equity holding (per cent) BBGI: 100 per cent

· Total investment volume: A$244.5 million 

· Financial close/operational: January 2004/March 2006

· Concession period: 25 years (post-construction) ending in 2031

Victoria Correctional Facilities is an availability-based PPP asset entailing the design, finance, construction and operation of two correctional facilities for the State of Victoria, Australia (the 'State'). The first facility, Metropolitan Remand Centre, accommodates up to 1,000 male offenders and is located approximately 20 kilometres from Melbourne city centre. The second, smaller facility is the Marngoneet Correctional Centre that houses up to 550 male offenders and is located approximately 65 kilometres from Melbourne city centre. The operational period is 25 years and runs until 2031.

A substantial augmentation was requested by the State to reinforce the facility and this completed in June 2018.

The Project is currently undertaking a material expansion of its accommodation (276 beds) and associated infrastructure across both facilities. The Portfolio Company is managing the delivery of the works, which are expected to be complete by Q2 2024.

5) A1/A6 motorway

· Type: Availability-style

· Status: Operational

· Equity holding (per cent) BBGI: 37.14 per cent

· Total investment volume (debt and equity): €727.4 million

· Financial close/operational: February 2013/June 2017

· Concession period: 25 years (post-construction) ending in 2042

At the time of its launch, the A1/A6 Motorway project represented one of the largest greenfield PPP projects in the Netherlands and forms part of the wider Schiphol - Amsterdam - Almere (SAA) corridor. The project is for the design, construction, financing, and maintenance of 18 kilometres of the A1 and A6 motorways to the south of Amsterdam and involves re-routing and widening of the A1 (to 2 x 5 lanes and 2 reversible lanes), reconstruction of two major interchanges, expansion of the A6 (to 4 x 2 lanes and 2 reversible lanes) and the construction of various new bridges, an aqueduct and the longest free span railway bridge in Europe, as well as demolition of the old part of the A1.

The project forms part of a wider programme of five connected and adjacent projects, which together provide for significant extra road traffic capacity, reduced journey times and improved accessibility of the north flank of the economical heart of the Netherlands around Amsterdam. As a result, the liveability of the area has been improved significantly. In 2020, SAAone replaced all traditional street lighting, more than 2,000 fixtures in total with LED lighting, making the infrastructure more maintenance-friendly, more sustainable and more reliable than traditional lighting. Moreover, it decreases the CO2-footprint of the project by at least 350 tons per year.

Market Trends and Pipeline

2023 and beyond

By many measures, 2022 was a difficult year, characterised by rising inflation worldwide, the end of lenient monetary policies, supply chain interruptions, and the conflict in Ukraine. These occurrences led global markets towards a downward trend, and the associated challenges persist into 2023.

While this environment may discourage investor confidence, we remain optimistic about our resilient and defensive business model, low-risk investment strategy and the markets in which we operate. As interest rates rise from historic lows, combined with inflation concerns and general uncertainty, the stability, inflation linkage and resilience associated with availability-style social infrastructure investments have ensured that it remains an attractive asset class.

Competition for these availability-style assets varies between markets. Availability-style social infrastructure remains an appealing sector to many investors, however it can be difficult for new entrants with big ambitions to deploy meaningful amounts of equity quickly since the typical transaction size is often smaller than other infrastructure investment opportunities, and individual asset sales are more common than large portfolio transactions. With a well-established platform, specialist skills, strong industry relationships and a reputation among sellers of transacting successfully, BBGI has been able to grow its portfolio from 19 assets at IPO to 56, whilst maintaining pricing discipline, and expects to be able to continue to do so in 2023 and beyond, subject to market conditions.

Across BBGI's target markets, infrastructure under-investment remains a prevalent issue. Public finance budget constraints require the private sector's involvement in providing the necessary funding and expertise to construct, maintain, and operate critical infrastructure assets. Many governments have ambitious plans to make significant infrastructure commitments that will generate employment, rejuvenate communities, transition to a low-carbon economy, and act as a stimulus for economic recovery. In the regions where we operate, there is a consistent baseline of new investment opportunities, and we anticipate this trend will continue.

At the same time, construction companies continue to consider the divestments of availability-based infrastructure investments they hold. This could be to recycle capital into new opportunities after a project reached construction completion or in response to capital needs in other parts of their business due to economic challenges. BBGI has well-established relationships with most major construction companies in the sector and this continues to be a good source of new investments.

As a result of this trend, BBGI completed two transactions with construction companies and PPP developers in 2022 and we anticipate that there will be further investment opportunities in 2023.

Our key markets offer a generally robust set of opportunities for availability-style transactions, which are likely to arise from various sources, including:

We will continue to source opportunities to further diversify and expand our essential social infrastructure portfolio by considering investment opportunities with similar characteristics of low-risk, availability-style, long-term and inflation-linked revenues with public sector counterparties or a link to the public sector, whether through long-dated concessions or direct ownership of assets, with a strong approach to ESG.

Canada

Canada remains one of the most productive PPP markets globally, and it is also one of the Company's most established and stable markets. Nearly 300 assets in Canada have been procured under the PPP model, with a total value of over C$140 billion for assets currently in operation or under construction, including hospitals, education, courthouses, and transport assets.

In 2022, ten PPP transactions worth US$4.62 billion reached financial close in Canada, down from twelve transactions worth US$5.11 billion in 2021. Ontario has the largest pipeline of opportunities, as confirmed by its November 2022 market update, which emphasises its commitment to modernising public assets in the province, such as hospitals, highways, public transit, children's treatment centres, and correctional facilities. Infrastructure Ontario's plans include 26 projects in pre-procurement and 13 in active procurement, with a total estimated contract value of C$60 billion. The list also contains 16 government-announced projects in the early stages of planning and defining the project's scope, timing, and delivery model.

Although other provinces have smaller programmes, they are still promising. With 16 assets in Canada, BBGI is well-positioned to take part in an appealing primary pipeline or be a highly credible purchaser and manager of secondary assets when they become operational. We anticipate there will continue to be a diverse range of availability-style social infrastructure investment opportunities for BBGI to consider in 2023 and 2024, as assets developed over the past few years become operational and may come to market.

Additionally, the Company benefits from its North American strategic partnership with SNC-Lavalin, which covers four assets. We anticipate that the pipeline agreement could result in additional investment opportunities of over C$200 million over the next few years, all of which will be evaluated on a case-by-case basis.

Formal pipeline assets

[1] Includes both debt and equity.

UK and Ireland

Private capital has been essential to the maintenance and development of the UK's existing infrastructure, as well as the financing of new greenfield projects. The UK has one of the world's most established and attractive infrastructure markets for private investors, and the PFI market has grown significantly over the past few decades.

PFI was a method used by the UK Government to finance public infrastructure projects such as schools, hospitals, and roads. Over 700 PFI projects were signed in the UK between the early 1990s and the introduction of its successor, PF2, in 2012. However, PF2 was only used for a few projects before being discontinued in 2018, and the UK government is exploring alternative ways to finance public infrastructure projects.

This has meant that the greenfield infrastructure investment pipeline has been relatively subdued, although stronger in some areas (such as Wales) and sectors (such as water projects). Although there will not be a UK-wide replacement for the PFI or PF2 model, Wales has recently closed several private finance projects under its new Mutual Investment Model - including the widening of the A465 motorway and its 21st Century Schools programme. With Mutual Investment Model projects, the Welsh Government takes up to a 20 per cent stake in the special purpose company, providing the Government with a greater stake in the project's success and greater accountability. The UK Government is also developing new revenue support models and considering how existing models such as the Regulated Asset Base model and Contracts for Difference can be applied in new areas. It remains open to new ideas from the market.

Despite the decline in greenfield PPP procurement, the UK Government remains committed to major infrastructure investment, particularly in health, education, science, and defence, with plans to invest over £600 billion over the next five years. Private investment will also play a critical role in supporting the UK's net zero 2050 ambitions and in the green industrial revolution, with key sectors including energy transition, electric vehicle charging infrastructure, and fibre optic broadband.

We remain optimistic that PFI and PF2 deal flow will be replaced by next generation transaction procurement models with similar attributes and risk and return profiles to the traditional PFI procurement model.

The Company is committed to finding essential social infrastructure assets that fit our low-risk, availability-style, globally diversified investment strategy, and strong approach to ESG. As existing investors in Local Improvement Finance Trust assets, BBGI has title to the land and building for the significant majority of these LIFT assets and the availability payments are fully indexed with RPI.

We believe there may be interesting acquisition opportunities and pipeline for these types of primary care infrastructure assets in the UK and Ireland.

We continue to seek opportunities to expand our essential social infrastructure portfolio in the UK and Ireland, looking for investments with similar long-term and inflation-linked revenue streams with public sector counterparties or a link to the public sector. This may include long-term concessions or direct ownership of assets. We aim to diversify our portfolio while focusing on our low-risk and availability-based investment strategy, and ensuring our investments align with our strong ESG approach.

US

Since 2015, the US PPP market has experienced steady growth with more than 125 greenfield PPP deals reaching financial close and a total deal value exceeding US$60 billion. In 2022, the US PPP market hit a record with US$22 billion in projects reaching financial close. In 2021, the US ranked as the second-largest greenfield PPP market globally by deal value, with 26 greenfield PPP transactions reaching financial close for a total value of US$6 billion.

Historically, US municipalities and states have been less receptive to PPPs as the US procurement system is less structured and lacks a centralised and unified body. However, an increasing number of state legislatures are making PPPs more acceptable, and higher education institutions are turning to PPP agreements for a broader range of projects.

With the passing of the US$1.2 trillion Infrastructure Investment and Jobs Act (IIJA) in November 2021, this could act as a catalyst for more PPP investment in the US. The IIJA includes US$550 billion in new funding to rebuild roads and bridges, clean water infrastructure resilience, EV charging infrastructure, broadband, and more. The IIJA also expands how states and localities may use Private Activity Bonds (PAB) to help finance projects involving private investment, such as carbon capture and broadband access.

A recent study by White & Case and Acuris Studios[xiii] found that 86 per cent of public authorities interviewed agreed that PPPs were the preferred way to deliver infrastructure projects. There is optimism that an attractive pipeline of infrastructure projects will emerge over time.

Continental Europe

While many European countries have slowed down their PPP programmes, others are pushing ahead. Overall, Continental European infrastructure markets remain active with certain countries offering a pipeline of new assets as well as secondary opportunities. We believe these markets are likely to provide attractive investment opportunities over the medium term.

Belgium

Though Belgium has had an active PPP pipeline, the number and value of closed projects has declined in recent years. Over the past two years, a large schools package, Antwerp Prison and Ghent R4 all reached financial close. The relative infancy of the Belgian PPP market continues to hinder secondary activity, but we anticipate increase activity following construction completion of some of the recent projects.

Germany

In Germany, the federal government has shown a positive attitude towards the use of PPPs and some projects are expected to come to the market in the short to medium term.

With seven existing assets in Germany including our first road investment made in September 2022 in the A7 Motorway, strong credentials, and German language skills among our senior executive and asset management teams, BBGI is well positioned to consider any upcoming opportunities.

Netherlands

Over the past decade, the Netherlands has established itself as a dependable market for social infrastructure investment, consistently delivering a sizeable stream of deals that have attracted significant international developers and financiers.

Despite the absence of a centralised PPP authority or a comprehensive legislative framework for PPPs, the Central Government Real Estate Agency (Rijksvastgoedbedrijf) has taken charge of all large PPP housing projects for the central government and its agencies. These projects include court buildings, hospitals, correctional facilities, government offices, and museums. Decentralised authorities, such as provinces and municipalities, also manage PPP projects related to social, healthcare, or public institution accommodation.

Rijkswaterstaat is responsible for major infrastructural PPP projects, such as motor highways, floodgates, and tunnels.

Since 2017, the Dutch PPP market has experienced a slowdown, with the Government completing its road PPP pipeline in June 2018, which was previously a crucial source of greenfield investment. Nevertheless, in August 2021, Rijkswaterstaat revealed it had engaged a team of advisers, including Deloitte, EY, PwC, Rebel, and Turner & Townsend, to provide financial and economic guidance for future PPP projects.

With Dutch language skills among our asset management team, and significant investments in the A1/A6 and N18 motorways in the Netherlands as well as a civic facility in Westland, BBGI is well positioned in the Dutch secondary market for social infrastructure.

Australia

Over the last decade, Australia has been very active in the development of social infrastructure projects. Each state and territory have appointed a lead government agency to implement PPP policies. Infrastructure Australia provides advice on Australia's infrastructure priorities.

Although the market dipped in 2020 due to COVID-19, it recovered quickly and 2021 and 2022 were both record years in terms of total transaction value - reflected by the Australian Government's historic A$110 billion infrastructure commitment.

PPPs in Australia have been very active with the establishment of the National PPP Policy Framework in 2008. In 2021, closed PPP projects reached A$27 billion and in 2022 a new record was set with more than A$37 billion in PPP projects closed. Since January 2015, over 30 greenfield PPP projects have closed.

The transport sector has traditionally dominated the nation's PPP market. Since 2015, more than 85 per cent of deal value from greenfield transactions has come from the transport sector. Twelve greenfield social infrastructure deals have closed since 2015, with a value of A$7.5 billion.

Healthcare is the most active sub-sector at A$5.0 billion, including notable deals such as the A$1.8 billion Footscray Hospital Redevelopment in Victoria.

New South Wales and Victoria, the two biggest states, are each spending A$90 billion over four years on major projects. There may be some later investment opportunities in Queensland connected to Brisbane winning the 2032 Summer Olympics. In addition to the aforementioned primary opportunities, we expect some construction companies and investors may look to sell equity in projects once the construction is completed and the assets have been de-risked.

BBGI has three large operational assets in Australia and will continue to monitor the market for both primary and secondary opportunities.

Growth outlook

Over the last decade, BBGI has been able to grow its portfolio consistently, while maintaining price discipline and a selective and disciplined approach to evaluating potential investment opportunities. We expect this trend to continue into 2023 and beyond. We expect our growth to come predominantly from secondary market opportunities and in certain cases from primary bidding opportunities.

Operating and Financial Review

The Management Board is pleased to present the Operating and Financial Review for the year ended 31 December 2022. 

Highlights and Key Performance Indicators

Refer to the Financial Highlights section for a summary of the Year in Numbers for 2022. Certain key performance indicators ('KPIs') for the past five years are outlined below:

Asset Management

Cash performance

The Company's portfolio of 56 availability-style infrastructure investments continued to perform well during the year with cash flows ahead of forecast and the underlying financial models.

Construction exposure

The Company's investment policy is to invest principally in assets that are operational and have completed construction. Accordingly, investment in construction assets will be limited to 25 per cent of the portfolio value. The rationale for this approach is to be able to produce a stable dividend for our shareholders, while gaining exposure to the potential NAV uplift that occurs when assets move from a successful construction stage to the operational stage. The Company has demonstrated that it can manage such assets during the construction period and its successful transition into a stable operational asset.

The Management Board believes that the Company's ability to meet its dividend targets is not compromised by having some construction exposure.

As at 31 December 2022, approximately 99.5 per cent of the assets were operational with only one project, Highway 104 in Nova Scotia, Canada, under construction, with completion expected in 2023.

Investment performance

Returns track record

The share price closed the year at 156.6pps, representing a 4.5 per cent premium to the NAV per share at the year-end.

The total NAV return per share since IPO to 31 December 2022 was 160.9 per cent or 9.1 per cent on an annualised basis. TSR since IPO to 31 December 2022 was 152.6 per cent or 8.8 per cent on an annualised basis and exceeds the 7 per cent to 8 per cent IRR target on IPO issue price of £1 per share.

We believe a key benefit of the portfolio is the high-quality cash flows derived from long-term availability-style government or government-backed contracts with high-quality inflation linkages. As a result, portfolio performance has been largely uncorrelated to the many wider macroeconomic factors that may cause market volatility in other sectors. Against the FTSE All-Share, the Company has shown a low ten-year correlation of 25.8 per cent and a beta of 0.24[xiv].

Distribution policy

Distributions on ordinary shares are planned to be paid twice a year, normally in respect of the six months ended 30 June and the six months ended 31 December.

Dividends

In April 2022, the Company paid a second interim dividend of 3.665pps for the period 1 July 2021 to 31 December 2021. The 2022 interim dividend of 3.74pps for the period 1 January to 30 June 2022 was paid on 20 October 2022. In February 2023, subsequent to the year-end, the Company declared a second interim dividend of 3.74pps in respect of the six-month period ended 31 December 2022. This resulted in a total dividend of 7.48pps for the year ended 31 December 2022.

We are reaffirming our progressive dividend policy with revised target dividends of 7.93pps and 8.40pps for 2023 and 2024, respectively. We are also introducing a new dividend target for 2025 of 8.57pps.

Proven progressive dividend policy

· Average annual dividend increases of 3.1 per cent from 2012 to 2022

· FY 2023 revised upwards to 7.93pps[xv], a 6.0 per cent increase

· FY 2024 revised upwards to 8.40pps15 a 6.0 per cent increase

· FY 2025 new target dividend of 8.57pps15 a 2.0 per cent increase

Investor communications

The Company places great importance on communication with its shareholders and welcomes their views. We intend to remain at the forefront of disclosure and transparency in our sector, and therefore the Management Board and, where required, the Supervisory Board regularly review the level and quality of the information that the Company makes public.

The Company formally reports twice a year through its Annual and Interim Reports. Other Company information is provided through the Company's website and through market announcements. At Shareholder General Meetings, each share is entitled to one vote, all votes validly cast at such meetings (including by proxy) are counted, and the Company announces the results on the day of the relevant meeting.

The Management and Supervisory Boards are keen to develop and maintain positive relationships with the Company's shareholders. As part of this process, immediately following release of the Annual and Interim Reports at the end of March and August each year, the Co-CEOs present the Company's results to market analysts and subsequently conduct investor roadshows and offer shareholder meetings to discuss the results, explain the ongoing strategy of the Company, and receive feedback.

Outside of these formal meetings, feedback from investors is received by the Management Board and the Corporate Brokers and, together with the feedback from results meetings, is reported to the Supervisory Board. Throughout the year, the Co-CEOs have made themselves available to shareholders and key sector analysts, for discussion of key issues and expectations around Company performance. The Co-CEOs intend to continue to be available to meet with shareholders periodically to facilitate an open two-way communication on the development of the Company. Shareholders may contact members of both the Management and Supervisory Boards at the registered office of the Company, the address for which can be found on the final page of the Annual Report or on the Company's website at www.bb-gi.com.

While shareholder engagement is typically conducted by the Co-CEOs, the Chair of the Supervisory Board and Chairs of each committee, make themselves available throughout the year to understand shareholder views on governance and performance.

In 2021 we undertook a comprehensive materiality assessment among our employees, shareholders, clients, partners and subcontractors to identify ten material topics influencing our ESG strategy. These ten topics have informed key ESG commitments and KPIs that we are now tracking to ensure incremental progress in our delivery of positive stakeholder outcomes. A progress update of each KPI is provided annually in our ESG report.

Given this level of engagement with shareholders and other stakeholders, the Management and Supervisory Boards consider that they meet the requirements of AIC Code of Corporate Governance Principle 5D.

Share capital

The issued share capital of the Company is 713,331,077 ordinary shares of no-par value. All of the issued ordinary shares rank pari passu. During the year ended 31 December 2022, the Company issued 1,205,272 ordinary shares.

Voting rights

There are no special voting rights, restrictions or other rights attached to any of the ordinary shares. There are no restrictions on the voting rights attaching to ordinary shares.

Discount management

The Management Board will actively monitor any discount to the NAV per share at which the ordinary shares may trade and will report to the Supervisory Board on any such discount and to the extent appropriate propose actions to mitigate this.

Purchase of ordinary shares by the Company in the market

In order to assist in the narrowing of any discount to the NAV at which the ordinary shares may trade from time to time and/or to reduce discount volatility, the Company may, subject to shareholder approval:

§ Make market purchases of up to 14.99 per cent annually of its issued ordinary shares.

§ Make tender offers for ordinary shares.

No shares have been bought back during the year ended 31 December 2022. The most recent authority to purchase ordinary shares, which may be held in treasury or subsequently cancelled, was granted to the Company on 29 April 2022. This authority expires on the date of the next Annual General Meeting ('AGM') to be held on 28 April 2023, at which point the Company will propose to renew its authority to buy back ordinary shares.

Continuation vote

The Company's Articles of Association ('Articles') require the Boards to offer a continuation vote to the Company's shareholders at every second AGM to allow the Company to continue in its current form. On 30 April 2021, at the Company's AGM, the shareholders voted unanimously for the continuation of the Company. In accordance with the Articles, a further continuation vote will be offered to shareholders at the AGM due to be held on 28 April 2023.

Valuation

The Management Board is responsible for carrying out the fair market valuation of the Company's investments, which it then presents to the Supervisory Board for consideration as part of its approval of the Annual and Interim Reports. The valuation is undertaken on a six-monthly basis as at 30 June and 31 December each year, and is reviewed by an independent third-party valuation expert.

The Company's investments are principally non-market traded investments with predictable long-term availability-style revenue; therefore, the valuation is determined using the discounted cash flow methodology. The Company makes forecast assumptions for key macroeconomic factors that impact the cash flow forecasts of investments such as inflation rates and deposit rates, and we adjust for any enacted changes in taxation rates during the reporting period. Our assumptions are based on market data, publicly available economic forecasts, and long-term historical averages. In addition, we exercise judgement in assessing the expected future cash flows from each investment based on the detailed financial models produced by each Portfolio Company, adjusting these financial models where necessary to reflect the Company's assumptions as well as any specific cash flow assumptions. The Company's consolidated valuation is a sum-of-the-parts valuation with no further adjustments made to reflect scale, scarcity or diversification of the overall portfolio. 

The fair value of each investment is then derived from the application of an appropriate discount rate, alongside contracted foreign exchange rates or reporting period-end foreign exchange rates, and withholding taxes (as applicable). The discount rate applied takes into consideration risks associated with the investment, including the phase of the investment (construction, ramp-up or stable operation), investment-specific risks and opportunities, as well as country-specific factors. The Company uses judgement in determining the appropriate discount rates. This judgement is based on the Company's knowledge of the market, considering information obtained from its investment and bidding activities, benchmark analysis with comparable companies and sectors, discussions with advisers in the relevant markets, and publicly available information. As government bond yields have increased significantly in 2022, there was limited transactional market data available in the second half of 2022. BBGI has therefore complemented its market-based approach for this reporting period by using the capital asset pricing model where government risk free rates plus an equity risk premium are used to calculate discount rates. This method is used as a reasonability check to our market-based approach.

The valuation methodology remains unchanged from previous reporting periods.

A breakdown of the movements in the NAV is shown in the chart below.

NAV movement 31 December 2021 to 31 December 2022

The NAV at 31 December 2022 was £1,069.2 million (31 December 2021: £1,001.6 million), representing an increase of 6.7 per cent.

i These figures represent the net assets of the Group after excluding the investments at fair value through profit or loss ('Investments at FVPL') and the net position on currency hedging instruments. Refer to the Pro Forma Balance Sheet in the Financial Results section of this Annual Report for further breakdown.

ii Refer to the Portfolio Review section of this Annual Report for further details on acquisitions during the year.

iii While distributions from Investments at FVPL reduce the portfolio value, there is no impact on the Company's NAV as the effect of the reduction in the portfolio value is offset by the receipt of cash at the consolidated Group level. Distributions in the above graph are shown net of withholding tax.

iv  Portfolio Return comprises the unwinding of the discount rate, portfolio performance, the net effect of actual inflation, and updated operating assumptions to reflect current expectations.

 v Includes the net asset from balance sheet hedging of £2.9 million. Under IFRS, this net asset is recorded separately as a derivative financial asset in the Consolidated Statement of Financial Position. 

Key drivers for NAV change

The rebased opening portfolio value, after considering acquisitions in the reporting period of £64.4 million and cash distributions from investments of (£93.5) million was £946.1 million.

Portfolio return comprises the unwinding of the discount rate, portfolio performance, the net effect of actual inflation, and updated operating assumptions:

During the year, the Company recognised an £81.5 million portfolio return, representing an 8.1 per cent increase in the NAV from the unwinding of discount rates, the net effect of actual inflation and portfolio performance to reflect current expectations based on the Company's hands-on active asset management. As the Company moves closer to forecasted investment distribution dates, the time value of those cash flows increases on a net present value basis and this effect is called unwinding.

Change in macroeconomic assumptions:

During the year, the Company recognised an increase in the portfolio value of £60.7 million, or a 6.1 per cent increase in the NAV, resulting from changes in macroeconomic assumptions. The main drivers were an increase in the short-term inflation and deposit rates of £75.1 million, which were partially offset by a provision for additional taxes of c. £12.5 million, likely to be realised based on expected change in interest limitation rules.[xvi]

Short-term inflation is forecast to remain at an elevated level compared to long-term assumptions and as a result, we believe it appropriate to incorporate a two-year short-term inflation forecast assumption in our operational jurisdictions.

In total, the combined effect of revised short-term inflation forecasts and the update of actual inflation (included in Portfolio Return, above) resulted in a £76.2 million, or a 7.6 per cent increase in NAV, and this demonstrates the contracted high-quality inflation linkage of our investment proposition. See also the Alternative Performance Measures section for further details on our inflation linkage.

Short-term deposit rates have risen in conjunction with the increase in underlying benchmark rates and are expected to remain at elevated levels in most jurisdictions. We also believe it appropriate to update some of our long-term deposit rate assumptions to reflect the current rate environment. The effect of revised deposit rate assumptions resulted in a £15.8 million, or a 1.6 per cent increase in NAV.

Foreign exchange:

The forecasted distributions from investments are converted to Sterling at either the contracted foreign exchange rate, for 100 per cent of non-Sterling and non-Euro denominated cash flows forecast to be received over the next four years on an annual rolling basis, or at the closing foreign exchange rate for the unhedged future cash flows.

A significant proportion of the Company's underlying investments are denominated in currencies other than Sterling. The Company maintains its accounts, prepares the valuation, and pays dividends in Sterling. Accordingly, fluctuations in exchange rates between Sterling and the relevant local currencies will affect the value of the Company's underlying investments.

During the year ended 31 December 2022, the depreciation of Sterling (GBP) against the Canadian Dollar (CAD), Australian Dollar (AUD), the Euro (EUR), and the US Dollar (USD), and the slight appreciation of Sterling against the Norwegian Krone (NOK) accounted for a net increase in the portfolio value of £37.1 million, which includes the unrealised result from the Company's balance sheet hedging. Since IPO in December 2011, the net cumulative effect of foreign exchange movements on the portfolio value, after considering the effect of balance sheet hedging, has been an increase of £11.9 million, or 1.1 per cent of the 31 December 2022 NAV.

The table below shows the closing exchange rates, which were used to convert unhedged future cash flows into the reporting currency at 31 December 2022.

Although the closing rate is the required conversion rate to use for the unhedged future cash flows, it is not necessarily representative of future exchange rates as it reflects a specific point in time.

The Group uses forward currency swaps to (i) hedge 100 per cent of forecasted cash flows over the next four years on an annual rolling basis and (ii) to implement balance sheet hedging in order to limit the decrease in the NAV to approximately three per cent, for a ten per cent adverse movement in foreign exchange rates.[xvii] This is achieved by hedging a portion of the non-Sterling and non-Euro portfolio value.[xviii] The effect of the Company's hedging strategy can also be expressed as a theoretical or implicit portfolio allocation to Sterling exposure. In other words, on an unhedged basis, the portfolio allocation to Sterling exposure at 31 December 2022 would need to be approximately 74 per cent to obtain the same NAV sensitivity to a ten per cent adverse change in foreign exchange rates, as shown in the Foreign Exchange Sensitivity table below.

Macroeconomic events

The quality and predictability of portfolio cash flows has come into sharper focus given uncertainty in the markets generally and continued elevated inflation levels in particular. Against this backdrop, the Company is well-positioned through its contracted high-quality inflation linkage, which is achieved through annually updated contractual indexation in the Company's project agreements.

Additionally, there has been no material adverse effect on the portfolio valuation resulting from the war in Ukraine. This is primarily as a result of the Company holding a low-risk, 100 per cent availability-style portfolio, coupled with strong stakeholder collaboration.

Discount rates

The market for availability-style transactions continued to be competitive with discount rates, based on our market observations, remaining largely stable during the first half of 2022. During the second half of 2022, the number of availability-style transactions slowed materially in part due to the changing macroeconomic environment. As transactional data is limited, the Company complemented its market-based approach for this reporting period by using the capital asset pricing model where government risk free rates plus an equity risk premium are used to calculate discount rates. This analysis is used as a plausibility check for our market-based approach. While there is no direct correlation between government bond yields and the risk premium on the one hand and market discount rates on the other, the equity risk premium is a useful additional data point. As at 31 December 2022, the risk premium is 310 basis points over the weighted average government bond yield of 380 basis points. The Company believes that a risk premium in the range of 250 to 350 basis points is appropriate for the low-risk availability style assets in our portfolio. This is supported by an announcement of the German Network Agency, which calculated equity risk premium for regulated gas and assets of around 3 per cent. As it is generally accepted that PPP/PFI assets have a lower risk profile than regulated assets, on this basis the risk premium for PPP/PFI assets should be generally around the 3 per cent mark.

Going forward, the Company believes that investment demand in the availability-style social infrastructure providing long-term predictable inflation-linked characteristics will remain strong.

Based on data from transactional activity, benchmark analysis with comparable companies and sectors, discussions with advisers in the relevant markets, publicly available information gathered over the year and equity risk premium over government bond yields, we have increased the weighted average discount rate to 6.9 per cent (31 December 2021: 6.6 per cent). This methodology calculates the weighted average based on the value of each investment in proportion to the total portfolio value, i.e. based on the net present value of their respective future cash flows.

Specific discount rates consider risks associated with the investment including the phase the investment is in, such as construction, ramp-up or stable operation, investment-specific risks and opportunities, as well as country-specific factors. We apply a risk premium for investments in construction to reflect the higher-risk inherent in the construction phase of any investment's lifecycle. Currently, the portfolio has one investment in construction, Highway 104, which represents approximately 0.5 per cent of the overall portfolio value. Construction is expected to be completed in 2023. We have also applied a risk premium or discount to a limited number of other investments to reflect the individual situations. For example, adjustments have been applied to acute hospitals in the UK, where a risk premium of 50bps continues to be applied. The only UK acute hospital in the portfolio is Gloucester Royal Hospital, which represents less than one per cent of the overall NAV. This risk premium reflects the continued situation in the UK where some public health clients are under cost pressure and are actively looking for cost savings including deductions. To date, BBGI has not been affected.

Macroeconomic assumptions

Apart from the discount rates, we use the following assumptions ('Assumptions') for the cash flows:

(i) On 25 November 2020, the UK Government announced the phasing out of RPI after 2030 to be replaced with CPIH; the Company's UK portfolio indexation factor changes from RPI to CPIH beginning on 1 January 2031.

(ii) CPI indexation only. Where investments are subject to a basket of indices, a projection for non-CPI indices is used.

 (iii) Individual tax rates vary among Canadian Provinces: Alberta; Ontario, Quebec, Northwest Territory; Saskatchewan, British Columbia; New Brunswick.

(iv) Individual local trade tax rates are considered in addition to the tax rate above.

Sensitivities

Discount rate sensitivity

The weighted average discount rate applied to the Company's portfolio of investments is the single most important judgement and variable.

The following table shows the sensitivity of the NAV to a change in the discount rate.

(i) Based on the weighted average rate of 6.9 per cent.

Inflation has increased in all jurisdictions across BBGI's geographies and interest rates have risen from historical lows. In the event long-term interest rates rise substantially further, this is likely to affect discount rates, and as a result, negatively impact portfolio valuation.

Combined sensitivity: inflation, deposit rates and discount rates

It is reasonable to assume that if discount rates increase, then deposit rates and inflation would also be affected. To illustrate the effect of this combined movement on the Company's NAV, a scenario was created assuming a one percentage point increase in the weighted average discount rate to 7.9 per cent, and a one percentage point increase in both deposit and inflation above the macroeconomic assumptions.

Inflation sensitivity

The Company's investments are contractually entitled to receive availability-style revenue streams from public sector clients, which are typically adjusted every year for inflation. Facilities management subcontractors for accommodation investments and operating and maintenance subcontractors for transport investments have similar indexation arrangements. The portfolio cash flows are positively linked with inflation (e.g. RPI, CPI, or a basket of indices).

This inflation linkage is achieved through contractual indexation mechanics in the various project agreements with the public sector clients at the Portfolio Companies and the inflation adjustment updated at least annually.

Inflation sensitivity

The table below shows the sensitivity of the NAV to a change in inflation rates compared to the long-term assumptions in the table above:

Short-term inflation sensitivity

It is reasonable to assume that inflation could be elevated for the short-term before diminishing. To illustrate the effect of persistent higher short-term inflation on the Company's NAV, three scenarios were created assuming inflation is two percentage points above our assumptions for the next one, three and five years.

Foreign exchange sensitivity

As described above, a significant proportion of the Company's underlying investments are denominated in currencies other than Sterling.

The following table shows the sensitivity of the NAV to a change in foreign exchange rates:

(i) Sensitivity in comparison to the spot foreign exchange rates at 31 December 2022 and considering the contractual and natural hedges in place, derived by applying a 10 per cent increase or decrease to the Sterling/foreign currency rate.

Deposit rate sensitivity

Portfolio Companies typically have cash deposits that are required to be maintained as part of the senior debt funding requirements (e.g. six-month debt service reserve accounts and maintenance reserve accounts). BBGI's proportionate interest in the total deposits held by the Portfolio Companies exceed £400 million. The asset cash flows are positively correlated with the deposit rates.

The table below shows the sensitivity of the NAV to a percentage point change in long-term deposit rates compared to the long-term assumptions in the table above:

Lifecycle costs sensitivity

Lifecycle costs are the cost of planned interventions or replacing material parts of an asset to maintain it over the concession term. They involve larger items that are not covered by routine maintenance and, for roads, it will include items such as replacement of asphalt, rehabilitation of surfaces, or replacement of electromechanical equipment. Lifecycle obligations are generally passed down to the facility maintenance provider, with the exception of transportation investments, where these obligations are typically retained by the Portfolio Company.

Of the 56 investments in the portfolio at year-end, 20 investments retain the lifecycle obligations. The remaining 36 investments have this obligation passed down to the subcontractor.

The table below shows the sensitivity of the NAV to a change in lifecycle costs:

(i) Sensitivity applied to the 20 investments in the portfolio that retain the lifecycle obligation i.e. the obligation is not passed down to the subcontractor.

Corporate tax rate sensitivity

The profits of each Portfolio Company are subject to corporation tax in the country where the Portfolio Company is located.

The table below shows the sensitivity of the NAV to a change in corporate tax rates compared to the assumptions in the table above:

Refinancing: senior debt rate sensitivity

Assumptions are used where a refinancing of senior debt is required for an investment during the remaining investment concession term. There is a risk that such assumptions may not be achieved.

The table below shows the sensitivity of the NAV to a one percentage point increase to the forecasted debt rate.

Gross Domestic Product sensitivity

Our portfolio is not sensitive to GDP.

The principal risks faced by the Group and the mitigants in place are outlined in the Risk section.

Key Portfolio Company and portfolio cash flow Assumptions underlying the NAV calculation include:

· Discount rates and the Assumptions, as set out above, continue to be applicable.

· The updated financial models used for the valuation accurately reflect the terms of all agreements relating to the Portfolio Companies and represent a fair and reasonable estimation of future cash flows accruing to the Portfolio Companies.

· Cash flows from and to the Portfolio Companies are received and made at the times anticipated.

· Non-UK investments are valued in local currency and converted to Sterling at either the period-end spot foreign exchange rates or the contracted foreign exchange rate.

· Where the operating costs of the Portfolio Companies are contractually fixed, such contracts are performed, and where such costs are not fixed, they remain within the current forecasts in the valuation models.

· Where lifecycle costs/risks are borne by the Portfolio Companies, they remain in line with current forecasts in the valuation models.

· Contractual payments to the Portfolio Companies remain on track and contracts with public sector or public sector backed counterparties are not terminated before their contractual expiry date.

· Any deductions or abatements during the operations period of Portfolio Companies are passed down to subcontractors under contractual arrangements or are part of the planned (lifecycle) forecasts.

· Changes to the concession period for certain investments are realised.

· In cases where the Portfolio Companies have contracts which are in the construction phase, they are either completed on time or any delay costs are borne by the construction contractors.

· Enacted tax or regulatory changes, or forecast changes with a high probability, on or prior to this reporting period-end with a future effect materially impacting cash flow forecasts, are reflected in the financial models.

In forming the above assessments, BBGI uses its judgement and works with our Portfolio Company management teams, as well as using due diligence information from, or working with, suitably qualified third parties such as technical, legal, tax and insurance advisers.

Financial Results

The Consolidated Financial Statements of the Group for the year ended 31 December 2022 are in the Financial Statements section of this Annual Report.

Basis of accounting

We have prepared the Group's Consolidated Financial Statements in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union ('EU'). In accordance with IFRS, the Company qualifies as an Investment Entity and, as such, does not consolidate its investments in subsidiaries that qualify as investments at fair value through profit or loss. Certain subsidiaries that are not Investments at FVPL, but instead provide investment-related services or activities that relate to the investment activities of the Group, are consolidated. As an Investment Entity, the Company recognises distributions from Investments at FVPL as a reduction in their carrying value. These distributions reduce the estimated future cash flows which are used to determine the fair value of the Investments at FVPL. The accounting principles applied are in line with those principles applied in the prior year reporting.

Income and costs

During the year, the Group recognised income from Investments at FVPL of £137.6 million (31 December 2021: £73.6 million). This income from Investments at FVPL is made up of a combination of the positive effect of inflation and deposit interest rate increases, the net effect of foreign exchange on the portfolio value, the unwinding of discount and value enhancements. Further detail on the income generated by the Group's Investments at FVPL is provided in the Valuation section of this Annual Report.

During the year, the Company recognised a net loss of £10.6 million on balance sheet hedging and £11.3 million on cash flow hedging (31 December 2021: £0.8 million net loss on balance sheet hedging and £1.0 million net loss on cash flow hedging). The net result of balance sheet and cash flow hedging is included in the income from Investments at FVPL.

Administrative expenses include personnel expenses, legal and professional fees, and office and administration expenses. See further detail in the Group Level Corporate Cost analysis below.

Profit for the year ended 31 December 2022 increased by 105.2 per cent to £119.0 million (31 December 2021: £58.0 million).

Group Level Corporate Cost Analysis

The table below is prepared on an accrual basis.

The net finance result for the year was £2.0 million (31 December 2021: £2.0 million) and reflects borrowing costs, commitment fees and other fees relating to the Group's RCF. At 31 December 2022, the Group had £57.5 million of borrowings outstanding under the RCF.

Personnel expenses for the year were £7.9 million (31 December 2021: £6.9 million) with the increase driven largely by inflation adjustments to staff salaries and movements in foreign exchange rates. 

Acquisition-related costs incurred during the year amounted to £0.6 million (31 December 2021: £1.5 million), which include unsuccessful bid costs amounting to less than £0.1 million (31 December 2021: £0.7 million).

Ongoing Charges

The Ongoing Charges ('OGC') percentage presented in the table below is prepared in accordance with the AIC recommended methodology, latest update published in April 2022.

In accordance with the AIC recommended methodology, fees that are linked to investment performance could be viewed as analogous to performance fees paid by externally managed investment companies and should therefore be excluded from the principal OGC calculation.

Fees directly linked to investment performance recorded in 2022 as a percentage of average NAV were 0.09 per cent (2021: 0.10 per cent). Combined, the aggregate of Ongoing Charges plus investment performance fees was 0.96 per cent in the year (2021: 0.96 per cent).

For the year ended 31 December 2022, and in line with AIC recommendations, certain non-recurring costs were excluded from the Ongoing charges, most notably acquisition-related advisory costs of £0.6 million, taxes of £3.5 million and the net finance result of £2.0 million.

The table below provides a reconciliation of Ongoing Charges and the Ongoing Charges Percentage to the administration expenses under IFRS.

(i) Figures reported are based on actual results rather than the rounded figures presented in this table.

Cash flows

The table below summarises the sources and uses of cash and cash equivalents for the Group.

(i) Distributions in the above table are shown gross of withholding tax. The associated withholding tax outflow is included in 'Net cash flows used in operating activities'.

The performance of the Group's portfolio of investments continued to be strong during the year, with gross distributions coming in ahead of business plan, up 28.2 per cent on a comparative basis.

Cash dividends paid during the year ended 31 December 2022 amounted to £51.7 million, an increase of £3.7 million on the previous year.

Refer to the Consolidated Statement of Cash Flows for further details on cash flows during the year ended 31 December 2022.

Cash dividend cover

For the year ended 31 December 2022, the Group achieved a cash dividend cover ratio of 1.47x (year ended 31 December 2021: 1.31x) calculated as follows:

The strong cash dividend coverage for the year was underpinned by BBGI's contracted, high-quality inflation-linked portfolio cash flows. Furthermore, the Company received additional distributions during the year that were outside of the contracted cash flows, including the proceeds from the completion of an opportunistic refinancing and a tax refund, which was not forecasted in the reporting period.

Pro Forma Balance Sheet

(i) Represents the value of the Group's total assets less the value of its total liabilities under the Investment Basis NAV. The Investment Basis NAV represents the residual interest of the shareholders in the Group, after all the liabilities of the Group, if any, have been settled.

As at 31 December 2022, the Group has 56 availability-style Investments at FVPL (31 December 2021: 54), with cash and cash equivalents amounting to £31.2 million (£26.9 million as at 31 December 2021).

A reconciliation of net cash (debt) as compared to net borrowings is as follows:

The Investment Basis NAV increased by 6.7 per cent to £1,069.2 million at 31 December 2022 (31 December 2021: £1,001.6 million), and by 6.6 per cent on an Investment Basis NAV per share basis. The Investment Basis NAV per share is calculated by dividing the Investment Basis NAV by the number of Company shares issued and outstanding at the end of the reporting period. This information presents the residual claim of each shareholder to the net assets of the Group.

Alternative Performance Measures ('APM')

APM is understood as a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified under IFRS. The Group reports a selection of APM as summarised in the table below and as used throughout this Annual Report. The Management Board believes that these APM provide additional information that may be useful to the users of this Annual Report.

The APM presented here should supplement the information presented in the Financial Statement section of this Annual Report. The APM used are not measures of performance or liquidity under IFRS and should not be considered in isolation or as a substitute for measures of profit, or as an indicator of the Group's operating performance or cash flows from operating activities, as determined in accordance with IFRS.

Reconciliation of Investment Basis to IFRS

Reconciliation of Consolidated Income Statement

(i)For further clarity, commencing the year ended 31 December 2022, the Income from Investments at FVPL now includes the net effect of the foreign exchange hedging contracts. In prior years, the effect of the foreign exchange hedging contracts was presented separately under 'Other operating income/expenses' and under 'Net gain/(loss) on balance sheet hedging.

Reconciliation of Consolidated Statement of Financial Position

(i)Under IFRS, unrealised positions on foreign exchange hedging contracts are reported separately under derivative financial asset (liability).

Risk

We follow a risk-based approach to internal controls. Our risk management function facilitates the Management Board's duty to effectively govern and manage the risks we face. Given the nature of our assets and our interaction with the capital markets, we do not operate in a risk-free environment. In an uncertain environment, we take proactive action to address risks, and to achieve our business and investment objectives.

We identify, analyse, assess, report, and manage all material risks, and aim to identify risks we face as early as possible, so we can minimise their impact.

We classify risks into the following risk categories:

· Market risks

· Credit risks

· Counterparty risks

· Liquidity risks

· Operational risks

· Sustainability risks

We analyse all identified risks during the risk reporting process to understand the range of possible impacts on BBGI. By undertaking this risk review, we can determine material risks to analyse and respond to, and risks that require no further attention. This gives the Management Board a universal interpretation of risk.

Our risk management function performs a risk assessment to determine the likelihood that a predefined event will occur and any subsequent impact; it also estimates risk levels for a particular situation, compares these against benchmarks or standards, and determines an acceptable level of risk.

In the risk profile all identified risks are classified according to risk type, in line with the risk categories above. For material risks identified, BBGI's risk manager advises on key risk indicators to include in the risk profile and suggests appropriate quantitative and qualitative limits to mitigate the potential impact of those risks, which are discussed and approved by the Management Board before being formally included in the Risk Profile.

We have assessed inherent risk and have applied relevant mitigating factors to arrive at a remaining residual risk that the Management Board deems manageable or acceptable.

This following table summarises our material risks, but is not an exhaustive list of all the potential risks BBGI faces. Previously reported risks in relation to COVID-19 and SONIA transition have been removed and others have been updated. There may be other unknown risks, or those regarded as less material, that could, in the future, materially impact our performance, our assets, and our capital resources.

Environment, Social and Governance

As the ESG Committee, we are pleased to report on the progress made by the Company and by our 56 Portfolio Companies. We approached 2022 mindful of the ever-evolving nature of ESG frameworks and regulations, and the challenges of data collection. We take pride in the close engagement we have maintained with each of our assets. We continue to focus our efforts to make improvements in key areas such as GHG emissions monitoring and reduction, climate-risk assessments, health and safety standards, biodiversity and human rights. Our ESG strategy is underpinned by a culture of robust governance and stringent compliance, promoting accountability and transparency, with a focus on delivering positive outcomes for all stakeholders.

Sustainability Highlights

Our purpose is to deliver social infrastructure for healthier, safer and more connected societies, while creating sustainable value for all stakeholders.

Our portfolio is focused on creating long-term positive impacts for society, by investing in infrastructure assets that provide citizens with access to essential services, such as: health, education, security, clean energy, social housing, public services and safe transportation. The sustainable and resilient portfolio of 56 social infrastructure investments that we manage is aligned with our SFDR Article 8 classification, where we promote social characteristics in combination with good governance practices.

To support our SFDR-related social investment objective, each of our investments is aligned with at least one of six focused SDGs where we can make the greatest contribution. By maintaining social infrastructure assets for our public sector clients, our portfolio aims to:

· Facilitate education, healthcare and well-being of local communities (SDG 3 and 4).

· Provide access to affordable housing (SDG 11).

· Support safe and accessible travel on roads and public transport (SDG 9 and 11).

· Facilitate access to public services, provide safety to local populations and promote the rule of law (SDG 16).

· Connecting communities through reliable transportation networks and support the transition to renewable energy sources (SDG 9).

· Remaining resilient and capable of sustaining potential damages caused by climate change (SDG 13).

While we are proud to provide well-maintained infrastructure that serves society, we recognise that building and operating physical assets such as schools, hospital, roads and hydroelectric plants can harm the environment, impact surrounding biodiversity and are subject to climate hazards. As stewards of these assets, our public sector clients entrust us with safeguarding them during our concession period. Our ESG approach systematically integrates: greenhouse gas emissions monitoring, climate-risk assessment, and initiatives to restore natural ecosystems, so that our portfolio does not significantly harm other environmental objectives.

Duncan Ball Frank Schramm

Co-CEO Co-CEO

29 March 2023

On behalf of the ESG Committee

Contribution to Sustainable Development Goals

The SDGs inform our entire ESG and social impact management process. Specifically, our investment strategy seeks to create measurable impacts facilitated by our investments and future acquisitions.

The SDGs are used to assess, measure and monitor that we keep investing beyond mere alignment and make a verifiable contribution to positive social and environmental outcomes. We acknowledge that through our direct operations and investment portfolio we can also create negative impacts and we address some of these impacts in the relevant sections of this report.

Our social infrastructure investment strategy is focused on six SDGs and creates real-world outcomes from the portfolio we invest in: